Federal Milk Marketing Orders (FMMO) are the focus of multiple meetings this month, but two of the most heated topics – depooling and producer price differentials (PPDs) – aren’t likely to be part of a national discussion.
Updating National Milk Producers Federation (NMPF) member co-ops in his president’s update, Jim Mulhern, president and CEO, said the NMPF’s Economic Policy Committee had examined NMPF’s FMMO Task Force recommendations at an early October meeting in Chicago.
The task force, made up of NMPF member co-op economists and marketing experts, has been meeting regularly since January to identify potential updates and changes that could be submitted to the USDA for a possible national federal order hearing. Recommendations from the task force are focused in four areas: (1) Class I mover and price surface, (2) dairy product manufacturing cost allowances, (3) changes in farm milk composition, and (4) dairy products and product specifications in the FMMO product pricing formulas.
The Economic Policy Committee, chaired by Peter Kappelman, a fourth-generation Wisconsin dairy farmer who now serves as senior vice president of member and government relations for Land O’Lakes, offered preliminary approval to several of the task force recommendations while meeting in Chicago but did not come to agreement in all areas.
The group will reconvene to review more detailed economic analysis being conducted by University of Missouri/Food and Agricultural Policy Research Institute (FAPRI) economist Scott Brown. Following a review of that analysis, the Economic Policy Committee will then seek to vote on final recommendations that, if approved, would be presented to the NMPF board of directors at its annual meeting, held in conjunction with the 2022 joint National Dairy Board/NMPF/United Dairy Industries Association annual meeting, Oct. 23-26, in Aurora, Colorado.
Once approved, NMPF could petition the USDA for a national FMMO hearing on the package in late 2022 or early 2023.
World Dairy Expo panel
At World Dairy Expo, held in early October in Madison, Wisconsin, a panel of dairy marketers and economists provided background on FMMOs and potential reforms. Sponsored by NMPF and moderated by Mark Stephenson, former director of dairy policy analysis at the University of Wisconsin – Madison, the panelists included: Dana Coale, deputy administrator of the USDA Agricultural Marketing Service Dairy Program; Roger Cryan, chief economist with the American Farm Bureau Federation (AFBF); Andrew Novakovic, professor emeritus and dairy economist at Cornell University; and Jim Sleper, managing partner of Sleper Consulting LLC, who is overseeing NMPF’s FMMO Task Force.
PPDs, pooling defined as regional issues
In a discussion on PPDs and pooling standards, Sleper said the NMPF Task Force determined those hot-button topics were regional issues and separate from the national discussion.
“There's no question that PPDs in the negative and pooling have been a real issue in many parts of the country,” Sleper said. “However, PPDs and pooling standards are among those that should be handled by individual FMMOs and are not being specifically addressed by the NMPF Task Force. We believe that individual markets should tackle those one-on-one, and if that means they need to tighten up pooling requirements or whatever they need to do, go do it that way.”
Nonetheless, NMPF is looking at ways to modernize FMMOs to diminish the impact on PPDs and depooling, said Sleper, who previously served in leadership roles with Southeast Milk Inc., Foremost Farms USA, Land O’Lakes, Dean Foods, Milk Marketing Inc. and the USDA’s FMMO program.
In her role, Coale administers the FMMOs as well as managing dairy market news reporting, development of dairy product standards, dairy quality grading and inspection, export certification services and oversight of the Fluid Milk and Dairy Promotion and Research Programs. As a “referee” in FMMO discussions, Coale agreed some topics must be left to individual orders.
“Should pooling provisions be changed? I'm not here to tell you the answer to that,” Coale said. “You in the industry are the ones who need to figure out that answer and bring it to USDA and then justify why it should be changed. I do think it is something that needs to be looked at on a regional basis. You cannot put in a provision across the entire U.S. because if we sit here in the Upper Midwest, there are very different markets than what we see in the Southeast.”
“There's no question you cannot have a national pooling standard throughout the country because each order is totally different,” Sleper said. “But one of the things that does bother me in terms of depooling – when we look at [orders like the] Upper Midwest, with less than 10 percent Class I utilization – is what value does the federal order ultimately become for dairy farmers? It becomes lesser and lesser valued.”
Read: September FMMO uniform prices down, Class IV pooling remains low.
Consensus is difficult
Like discussions over the NMPF Task Force recommendations, finding consensus on FMMO issues hasn’t been easy.
Novakovic called FMMOs a regionally based national system requiring similar rules across those regions. “That frequently makes consensus harder to achieve,” he said.
“Federal orders are difficult to change substantially but not impossible,” Stephenson said. “The mechanism was certainly put in place to be able to make some changes, but [not necessarily] wholesale changes.”
Sleper said dairy producers anticipating large-scale reforms to FMMOs should change their expectations.
“Federal orders have really served us well over the years. Are they perfect? No. And that's one of the reasons why we're looking at a modernization effort, not a reform effort. Reform connotes a tremendous change, like what we went through here in 2000, but in terms of making modernization efforts to change some of these things, that hopefully we'll be able to continue the federal order program.”
“You can’t do everything at once,” said AFBF’s Cryan. “There are a lot of regional issues like pooling standards, and all those things that are just too much to do all at once.”
Before joining AFBF, Cryan served at USDA's Ag Marketing Service and as an FMMO administrator in Atlanta, Georgia. He expressed hope that any changes to the FMMO system address current and future markets, and not necessarily issues rising from the COVID-19 pandemic. “I think it's important not to worry too much about fighting yesterday's battles. It's important to look at what's going on going forward and fix things.”
Cryan cited Class I (fluid) markets in a shrinking fluid consumption market and market volatility as evolving issues.
Federal orders did a good job in addressing a lot of the problems (dairy producers) faced in the 1930s and 1940s, and they have continued to work to keep those problems from arising since their inception, Cryan said. “Federal orders do a lot to help support individual farmers and co-ops of farmers. It's also important the orders don't only operate for co-ops; they should operate for all producers.”
AFBF meeting underway
At Progressive Dairy’s deadline, AFBF was hosting a FMMO forum in Kansas City, Missouri.
The forum consisted of segments covering: (1) Class I pricing issues, (2) origins and purposes of FMMOs, (3) Class III-IV milk pricing issues and (4) simplifying FMMOs. Discussion topics will include the Class I mover, make allowances, price reporting, milk check standardization and more.
Separate from the FMMO hearing process, AFBF recently released dairy-related policy priorities for the 2023 Farm Bill, some affecting FMMOs that might require congressional action.
Among those priorities is transparency to milk checks, including listing the percentage of pooled and depooled milk by each processor, and PPD calculations. AFBF also called for modified block voting flexibility within co-ops on FMMO referendums, allowing farmers to vote independently unless a farmer opts out after being given notice of a referendum, and eliminating provisions on a “no” vote on a referendum causing elimination of the entire FMMO.
Coale anticipates a petition for a national hearing will probably come in the first half of 2023. The layers of potential topics, however, complicate the timeline moving forward.
“I believe the timeline is going to be a little bit longer than what I think some of the industry would like, but I'm trying to be a realist,” she said.
Following receipt of an initial proposal, it will be up to USDA Secretary of Agriculture Tom Vilsack to determine the scope of any hearing, including issuing a call for additional proposals, collecting evidence and establishing timeline provisions to take both oral and written testimony. That will likely be followed by preliminary rulemaking, additional comment periods on proposals, final rulemaking and a producer referendum.
Senators call for evaluation
In late September, several members of the U.S. Senate called for the U.S. Government Accountability Office (GAO) to review the FMMO program. In a letter to Gene Dodaro, comptroller general, they cited the decline in the number of dairy farms licensed to sell milk and asked for an investigation into whether the FMMO program was being administered in a manner that accounts for the interests of smaller-scale operations.
Signing onto the letter were U.S. Sens. Susan Collins (R-Maine), Angus King (I-Maine), Kirsten Gillibrand (D-New York), Jeanne Shaheen (D-New Hampshire), Patrick Leahy (D-Vermont), and Roger Marshall (R-Kansas).
The letter was a follow-up to a bill previously introduced by Collins, Gillibrand and Leahy. Under the Dairy Pricing Opportunity Act, the USDA would be required to initiate the process of holding FMMO hearings within six months of passage of the bill.
To have complete information to reform the FMMO system, the senators requested that the GAO answer the following questions:
- Can the FMMO Program be administered under its current statutory authorization to maintain operation of smaller-scale farms or must the enabling legislation be amended in order to achieve this objective?
- If needed, how should the FMMO Program’s enabling language be revised to best assure the sustainability of small and midsize dairy farm operations while still accounting for the importance of larger scale farms?
- Should the enabling language replace the uniform national Class II-IV pricing series with differing pricing formulas and pooling provisions that reflect the distinct marketing conditions among the nation’s regional dairy markets?
- Is a tiered producer payment structure reflecting the different costs of production for different-sized operations a viable method of achieving the policy objective?
- Is incorporation of cooperative base excess plans into the FMMO Program or some other form of governmental regulation of milk production, together with pooling and price regulation, necessary to achieve the policy objective?
- Would such revision to the FMMO program also reduce the costs for states that have implemented programs to maintain operation of small and midsize dairy farms?
