Federal Hearing First Stage in Future of Milk Revenues

March 2, 2005

COLUMBUS, Ohio — Steps in the Mideast Federal Milk Market Order have been set in motion that are addressing the way Class I and Class II milk revenues are allocated back to milk producers.

 

A U.S. Department of Agriculture Agricultural Marketing Services public hearing has been scheduled in Ohio to address proposed changes to the language of the federal milk order that covers Ohio and parts of Indiana, Kentucky, West Virginia, Pennsylvania and Michigan.

"It's important for our milk producers to attend the hearing if they can find the time," said Cameron Thraen, an Ohio State University Extension dairy marketing and policy specialist with the Department of Agricultural, Environmental, and Development Economics. "If you are buying milk or producing milk for the fluid bottle market, then you would be in favor of some version of the changes being proposed. If you are in engaged in milk buying and are a cheese manufacturer — and there's lots of them in Ohio — and have little or no milk that goes to into fluid bottling, then you'd be opposed to any changes."

The hearing is scheduled for March 7 at 8:30 a.m. at the Shisler Conference Center on the campus of Ohio State's Ohio Agricultural Research and Development Center in Wooster, Ohio. The hearing is expected to run for three days.

The hearing is designed to consider several proposals that would amend specific language in the Mideast Federal Milk Marketing Order, also known as Federal Order 33. Such proposed changes include: eliminating the ability of the same milk to be simultaneously pooled on the Mideast order and on a state-operated order; changing the supply plant performance standards and diversion limits; increasing the number of days a dairy farmer's milk production must be delivered to a plant for the milk to be eligible for diversion; limiting the pooling of producer milk that was not pooled in a prior month; establishing a "dairy farmer for other markets" provision; establishing a transportation credit for milk; and changing the producer-handler definition.

In 1937 Congress authorized the Federal Milk Market Orders system to help maintain the viability of dairy production and to establish the orderly marketing of milk to the fluid and manufactured dairy products industry.

"The Federal Milk Market Order system was created to establish a verifiable milk marketing and pricing system and provide an auditing function to insure that the nation's milk producers were getting their share of the revenue derived from the market for fluid milk and dairy products," said Thraen.

Dairy producers, who produce milk for the fluid market, are locked into the system. However, dairy product manufacturers have the option of either "pooling" their producers' milk — or "depooling" their milk, at any given time.

"That works very well until one thing happens: when the price of milk going into cheese climbs higher than the price of milk going into the bottle," said Thraen. "And that's exactly what's happened the past few years. We've had historically high cheese prices. And in response, cheese manufacturers are choosing to opt-out of the federal order system, known as "depooling," and because of the significant volume of milk so "depooled," this creates serious inequities between producers and users of milk."

In 2003, with cheese prices significantly higher than average, it was estimated that 1.87 billion pounds of milk was "opted out" of the market pool under Federal Order 33. Thraen estimates that the depooling resulted in a $7.4 million loss in revenue to the dairy producer. Thraen goes further to explain that in April and May of 2004, alone, with cheese prices over $2 per pound and cheese milk at around $20 per hundredweight, an estimated 1.3 billion pounds of milk was removed from the market pool. The resulting loss of revenue to the dairy producer still pooled was $21.3 million.

"The public hearing is designed to introduce proposals to amend federal order language in a way that will make it more costly for a dairy product manufacturer to "opt out" of the market pool," said Thraen. "Suggested changes to the current language would penalize a manufacturer for depooling by not allowing him back into the pool for a period of time. So a manufacturer would have to decide if the revenues gained by depooling are worth the potential revenue loss, which may occur by being held out of the pool for an extended period of time."

Similar hearings have already been held in other Federal Milk Market Orders such as the upper Midwest and the central Midwest. As the process goes, after the upcoming hearing, new order language will be drafted by the USDA Agricultural Marketing Service and all producers affected by the language change will have an opportunity to vote on the new language. However, changing federal order language is not without peril.

"If the proposed language change is passed in a producer referendum, with a 66 percent majority, then a new Mideast Federal Order is created with the new language," said Thraen. "But if the measure fails the 66 percent majority, the federal order would be terminated and Ohio producers would have to try to pool their milk in another federal order. Federal orders are set up such that there have to be some serious issues going on to attempt to implement any changes."

An example was the failure to pass provisions to a federal order that covered parts of Idaho, Nevada, Utah and Wyoming. The result was the dissolution of the federal order, and now producers in Idaho — ranked 5th in the U.S. in dairy production — pool their milk in a federal order in the upper Midwest. The region is now fighting to limit the shared pools, stating the increased number of producers in the market pool is driving down revenues.

Said Thraen, "If at all possible dairy producers should make it a priority to attend at least the first day of the federal order hearing. Changing federal order language is serious business and the outcome will affect everyone in some manner. It is important that producers understand the issues and ramifications so that they can vote from an informed position when the referendum is called."

Author(s): 
Candace Pollock
Source(s): 
Cameron Thraen