MADISON, WI – The Wisconsin Cheese Makers Association (WCMA) Board of Directors approved concepts to improve and reform federal milk marketing order pricing provisions at a special October 26 meeting.
This set of recommendations emerged from the ongoing work of WCMA’s federal order reform committee, initiated in early 2021 to consider the future of the nation’s government-legislated milk pricing and pooling system.
Six proposals endorsed by WCMA’s 21-member Board of Directors include:
1. Adoption of dynamic make allowances for milk price formulas which incorporate regular cost of processing audits and current-cost price adjustors. WCMA recommends mandatory U.S. Department of Agriculture (USDA) staff audits at dairy plants at regular intervals to determine costs to produce dairy products surveyed in the National Dairy Products Sales Report. Audit data gathered from a diverse array of dairy manufacturers can assure formulas do not disadvantage one group of processors versus another group. Informal rulemaking could update make allowances on a regular basis, based on data USDA derived from dairy plant audits.
USDA audits should be supplemented by make allowance price adjustors – publicly-available data series vetted in pre-hearing information sessions, ratified informal rulemaking, and tracked at regular intervals by USDA. Price adjustors would automatically adjust make allowance values.
2. USDA collaboration with industry to address the volatility between block cheddar and barrel cheese prices used to value protein in Class 3 milk. The inconsistent difference in these prices creates a cheese milk price that consistently punishes manufacturers who face the lower of these two price series. These two formats of cheese production—block and barrel—represent distinct businesses, including differences in production assets, different end uses and distinct groups of buyers. WCMA recommends that Industry and USDA examine alternatives to the current marketplace value for protein in the Class 3 milk price in pre-hearing meetings and discussions.
3. USDA collaboration with the dairy industry to develop a new value for other solids in the Class 3 milk price formula. The current value uses the price of dry whey, a product produced only at a small percentage of dairy manufacturing sites in the U.S. Medium and small cheese manufacturers cannot invest in capital-intensive whey processing facilities to produce dry whey, and large processors who meet consumer demand for concentrated whey protein products also do not generate the value of dry whey found in the Class 3 milk price formula. High dry whey prices impose crippling milk price costs on these manufacturers, large and small, leading to business instability and the potential for reduced competition for dairy farmers’ milk. WCMA recommends that industry and USDA examine alternatives to the current value for other solids in the Class 3 milk price in pre-hearing meetings and discussions.
4. Maintain depooling and repooling provisions found in individual orders. In a government-legislated milk pricing system with mandated minimum prices, the decision to participate or not participate in the milk pool is the only free-market tool dairy processors have to avoid financial losses. It is the “safety valve” on an inflexible system. Without this link to the free market, the federal milk marketing order system would face the potential for annual disassociation of milk purchased by certain dairy processors. Provisions allowing processors to reduce pool participation, then regain pool access, are necessary to maintain a robust community of milk buyers.
Legislative action is also recommended to assure the proper function of federal milk marketing orders. The WCMA Board of Directors calls for:
5. Permanent adoption of the Dairy Forward Pricing Program in the upcoming Farm Bill. Forward pricing is a crucial business management tool favored by dairy producers and dairy processors alike. Contracting establishes a known value for milk for the buyer and seller, assuring stability that all parties can use as part of risk management strategies. The upcoming Farm Bill could make forward pricing a permanent tool for the dairy industry, or, short of that, could reauthorize this program for the term of the five-year legislation.
6. Expand funding for staffing and services provided by USDA’s Agricultural Marketing Service. WCMA recommends enhanced funding for USDA in the upcoming Farm Bill to support additional staff to improve the scope of and industry participation in the National Dairy Product Sales Report as well as to execute mandatory dairy plant cost of production audits on a routine (ongoing) basis and analyze results to update make allowances. Additional staff can also study forward-looking concepts for milk classification, pooling and pricing.
\WCMA President Steve Bechel, President of Eau Galle Cheese in Durand, Wisconsin, stated that federal milk marketing orders must continually evolve to reflect the types of dairy products made in the U.S., and how and where products are sold domestically and around the globe. “Our Board has endorsed our reform committee’s principle that federal milk orders should augment, not impede, the free market to assure strong market competition for farmers’ fresh milk and processors’ dairy products,” Bechel said.
Augmenting the free market means that order pooling and pricing rules should encourage voluntary participation in the order by the maximum number of milk buyers, and these rules should avoid creating advantages for one group of processors versus another group, Bechel said.
“Our goal is a healthy system of diverse dairy farms and dairy processors making delicious and nutritious dairy foods, venturing into new markets, and providing profitable and meaningful work for millions of Americans,” said John Umhoefer, Executive Director, WCMA.
The WCMA federal order reform committee encourages the dairy industry and USDA to embrace pre-hearing meetings and information sessions to build consensus and streamline a national federal order hearing process.