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A regulatory review of Federal Milk Marketing Orders

Ryan Miltner Published on 06 May 2015

rear view mirror

The federal milk marketing orders have existed in one form or another for more than 80 years. Twenty years ago, Congress mandated a full review and reform of the order system, which was completed in 1999. California was then offered the opportunity to join the federal system.

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When this “order reform” was finished, some of those in the industry who worked closely with the orders speculated whether the federal system would even last another 10 years. Not only have the orders lasted, there is a real possibility California might now join the FMMO system, bringing the volume of milk under federal regulation to somewhere approaching 90 percent.

In the time I have been working in milk regulation, I do not know a time when anyone has been enthusiastic about the FMMO system. That is not to say that I see a consensus of hostility toward the federal orders. (Although there are certainly those that would prefer that the orders not exist.)

Nor am I suggesting any majority is demanding a second reform or retooling of the FMMO system. (Although given a workable alternative, such a majority might exist.)

What I mean to convey is that the federal orders are a regulatory framework within which the dairy industry must operate, the industry probably works better with them, the industry might be worse off without the orders, and whatever downside there is to the system, the unknown downside of a different system is sufficient to maintain the status quo. Still, the largest milk-producing state in the nation wants to join the party.

With the most recent farm bill now in the rear-view mirror, the discussion over what should be done with the federal orders is getting louder. Early drafts of the farm bill included an entire section addressing the pricing of milk under the federal regime. Without a general consensus regarding that piece of the bill, however, it was removed before the legislation was approved.

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Following the removal of the federal order language, the National Milk Producers Federation stated that revisiting the federal orders would become a priority following completion of the farm bill. At the same time, other individual groups across the country are trying to figure out how to retool price formulas, address issues specific to individual orders and likely a half-dozen other amendments no one has heard yet.

And in the midst of these efforts, including a proposal to add California to the FMMOs, the USDA issued a request for comments under the Regulatory Flexibility Act (“RFA”). The purpose of the RFA is to minimize the regulatory burden on small businesses. An agency, in this instance Dairy Programs, needs to consider the effect of the federal order on small business and consider alternatives to minimize those impacts.

In my view, this type of regulatory review is not designed to be a referendum on the FMMO program. Unlike most regulations, marketing orders have a built-in procedure for actual referenda on the continued operation of the regulations and a defined method for defining the specific regulatory terms.

Rather, this review is one centered around the consideration as to whether the current marketing orders impose a burden on small businesses that can be alleviated through another, less burdensome, means while still maintaining the overall regulatory scheme.

But it seems there will be a certain contingent in the industry that will use this RFA review to argue differently than I might. Topics such as price formulas tied to the cost of milk production, broader plant exemptions, production controls and different milk classifications are all certainly going to be advocated for in this RFA review. Little of those arguments matter in the overarching and critical point of importance at this point; how would these burdens eliminate the regulatory burdens on small businesses?

The truth is: Whatever the merits of any of these proposed changes as a matter of economic policy, they make only a smallest ripple of an impact on the regulatory burden that small businesses carry. Further, under the federal orders, only processors are regulated, and dairy producers are not.

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Accordingly, when considering the impact of FMMO regulations on small businesses, it could certainly be argued there is no “regulatory burden” on the farmer – although there is most certainly an economic impact on any producer whose milk is pooled.

So if the RFA review by Dairy Programs doesn’t yield any substantive changes to the FMMO system, where will that leave matters? For better or worse, it leaves things right where they are, although it would be prudent for the USDA to take note.

When the comment window on this RFA review closes, and there are a few dozen suggestions submitted, what might the overall message from those comments be synthesized into? And even if those changes are not properly considered within the context of a regulatory flexibility review, might it be time for a structured FMMO review?

Certainly the existing mechanism for amending any or all orders exists, but meeting the requirements to submit a meaningful and workable proposal is a daunting task. With an unenthusiastic regulated industry, yet one that retains an acknowledgement of the role that workable regulation plays, having a collaborative and engaged review might sustain this long-standing industry tool.

But if dairy producers, for whom the program exists to benefit, increasingly believe that the FMMO program is not responsive and not improving their economic position, a tipping point will come.

When that occurs, the perceived downside of the status quo will no longer be outweighed by the unknown downside of something new – and the program will be jeopardized. Just ask the producers in California, and be ready to welcome them to the party. PD

Photo Illustration
With the most recent farm bill now in the rear-view mirror, the discussion over what should be done with the federal orders is getting louder. Photo illustration byPDstaff.

ryan miltner

Ryan Miltner
Attorney
The Miltner Law Firm LLC

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