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Grassroots call for FMMO reform grows louder

Progressive Dairy Editor Dave Natzke Published on 25 February 2021

With producer milk checks inequitably influenced by current milk marketing and pricing practices, a grassroots dairy farmer effort is growing louder in its call to seek and implement reforms to the Federal Milk Marketing Order (FMMO) system.

In its latest step, the effort includes asking dairy producers and dairy advocacy trade association representatives to sign on to a letter to the heads of the National Milk Producers Federation (NMPF) and International Dairy Foods Association (IDFA), seeking their leadership in addressing FMMO reforms.

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Primary dairy producer concerns involve FMMO depooling, milk check disparity due to negative producer price differentials (PPDs) and the inability to utilize risk management tools to shield themselves from significant financial losses due to PPDs and other milk check deductions.

With coordination assistance from the American Dairy Coalition (ADC), the letter campaign is an outgrowth of grassroots conference calls and emails involving dairy producers from more than 20 states, said Laurie Fischer, ADC chief executive officer. The goal of the letter – to Jim Mulhern, NMPF president and CEO, and Michael Dykes, IDFA president and CEO – is to ensure that dairy producers are at the table when the major producer and processor organizations address policy issues, and the process is conducted through expedited FMMO hearings, rather than through congressional action.

Historically, FMMO hearings have been lengthy processes, in some cases taking years to create and implement reforms. Most recently, however, the FMMO’s Class I fluid milk pricing formula was changed through the 2018 Farm Bill instead of through a FMMO hearing. Although there was some publicity to the change, some charge the action was taken behind closed doors without adequate producer input.

Read: Could FMMO Class I price formula changes reduce risk, fluid milk slide?

That change, adjusting the Class I mover from a “higher of” to an average of the Class III-Class IV skim price, plus 74 cents per hundredweight, is seen as a hot button issue that has led to financially disastrous effects for many dairy farmers.

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With dairy product sales through food service channels sharply restricted due to the COVID-19 pandemic, an emphasis on cheese in government purchases of dairy products increased Class III milk prices significantly, causing Class I-Class III milk price inversions and wide gaps between Class III-Class IV milk prices.

With price averaging, the new Class I pricing formula was unable to fully capture the higher value of Class III milk. And, the milk class price disparity provided incentives for Class III milk processors to depool their milk from FMMOs, reducing the ability for pool-wide sharing.

While FMMO depooling and negative PPDs have occurred in the past, the impact of market disruptions due to COVID-19 raised both the frequency and severity to new levels in 2020, and depooling and negative PPDs continued on January 2021 milk marketings. Negative PPDs were applied differently depending on their milk handler, in some cases leading to vastly different milk prices paid to neighboring farmers.

Read: Uniform prices lower, small negative PPDs returned in January.

Finally, with most risk management tools based on the USDA all-milk price, calculated prior to any milk check deductions, those tools could not protect against negative PPDs and other deductions.

Following a unanimous vote of the NMPF executive committee on Jan. 8, Mulhern said the organization would seek potential changes to the so-called “Class I fluid milk price mover” in an effort to “remedy economic damage to dairy farmers who have disproportionately suffered as a result of this pandemic.” 

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Read also: Negative PPDs take a break; call for FMMO reform grows.

The letter goes on to say producers are not opposed to processors making a profit and protecting their risks, but rather seeking to increase milk price transparency while closing loopholes leading to the large milk check deductions.

“The FMMO hearing process allows inclusive participation where all farmers can bring their ideas forward and be heard on the record,” according to the letter. “We look forward to working with NMPF and IDFA and other industry stakeholders to immediately address these inequalities that are simply unacceptable for dairy farmers across the U.S. It is time for transparency, honesty and collaboration across our entire industry to fix this.”

Producers can add their name to the letter digitally here. For additional information, email ADC.  end mark

Dave Natzke
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