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Letter to the Editor: Multiple component pricing would erode milk production in Southeast

John Harrison for Progressive Dairyman Published on 11 June 2018

Editor’s note: In early April, Progressive Dairyman reported on a request by National All-Jersey, 14 dairy cooperatives and others asking the USDA to hold a hearing to consider a proposal to implement multiple component pricing (MCP) in two additional Federal Milk Marketing Orders.

In early May, the USDA’s Ag Marketing Service (AMS) released an action plan, seeking additional proposals for hearing consideration by the end of June, and suggesting, if warranted, a hearing on the matter could be scheduled for late July. (As of June 8, no formal announcement has been made regarding the hearing.)

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Subsequently, Dana Coale, deputy administrator for AMS dairy programs, and FMMO market administrators from FMMOs 5 (Appalachian) and 7 (Southeast) participated in an informational meeting in mid-May, organized by Tennessee and Kentucky Farm Bureau organizations.

Recently, John Harrison of Sweetwater Valley Farm of Philadelphia, Tennessee, submitted the following letter to Progressive Dairyman, opposing the implementation of MCP in the two FMMOs:

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First, I want to thank Deputy Administrator Coale and all of the representatives of USDA AMS and the Federal Orders 5’s and 7’s offices who made the Knoxville information and discussion session on multiple component pricing (MCP) possible. To my knowledge, such a session is rare, and other farmers and I really appreciate your availability and efforts to answer questions directly about MCPs and market functions.

My name is John Harrison, and I’m a dairy farm owner with a multifaceted dairy farm in Philadelphia, Tennessee. My operations include a traditional dairy farm, with the added business of a farmstead cheese operation, along with an agritourism venture offering dairy farm tours. Periodically, my cheese plant provides the service of processing cheese for bulk and barrel sales for various other entities.

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Secondly, my compliments to Erick Metzger, who has submitted a well-written article about multiple component pricing in the Appalachian and Southeast orders of 5 and 7.

However, from the perspective of operating my dairy business in the Southeast region, and living the consequences of FMMO actions through the years via my milk checks, I respectfully disagree with some of his conclusions outlined in the proposal.

Please consider the following thoughts before I relay my perspective:

  1. More milk is qualified into FMMOs 5 and 7 than is needed.
  2. There is a severe shortage of markets, especially manufacturing, within 5 and 7.
  3. The South has 50-plus years of genetics that have not given protein any priority, and protein is harder to produce due to forage and daily temperatures as one moves farther south.
  4. And for the first time in my life, there is no demand or home for a new producer or expansion. As we all know, several producers within both orders 5 and 7 have even lost their markets, and yet outside milk keeps flowing in.
  5. Finally, I question the legality of redistributing dollars based on protein when the vast majority of milk (Class I sales) will not contribute dollars to the pool.

I will agree that the few Jersey and high-protein herds left do have a disadvantage under the current system, but more manufacturing could help this as much or more than MCP. And to enhance my perspective, I do have a separate crossbred high-protein herd, which I compare with my Holsteins.

Now for my alternate opinions per the points that Erick Metzger makes:

1) Enhance hauling efficiencies versus my observation: Hauling costs are terrible and exorbitant in these orders, and in some cases, financially unsustainable, primarily for two reasons:

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  • Lack of cooperation among co-ops to put the closest milk to the closest plant
  • The very successful job of maximizing pooling and diversions

MCP would only aid in this process and would deliver no monies back to producers except the highest of component herds.

2) Eliminate transaction losses versus my observation: If the milk has greater value in the area in which it is located, then it should stay there. The fact is that our market has to pay these values, but at least it encourages the higher solids milk from not coming. It would be terrible to bring in higher solids milk only to have the butterfat or protein, and then have to reload and go back to where it came from. (This is where there are dollars that handlers would like to make up, and with this change, more and more higher solids milk would be attached to orders 5 and 7, thus increasing the drain of dollars from the producers within the order.)

3) Raise regulatory uniformity of manufacturing milk versus my observation: This is an example of some handlers having their cake and eating it too. There are a lot of factors affecting cost and values, so let’s not even talk about a level playing field. Producers and manufacturing plants in FMMOs 5 and 7 have a completely different set of challenges, and if the advantages that the proposal mentions existed, there would be more production and manufacturing here. Four states have almost no dairy industry left at all, and three more will soon follow.

4) SCC adjustments will incentivize improved milk quality versus my observation: I acknowledge that parts of 5 and 7 have the highest SCC in the nation. However, on a weighted average, we have very acceptable SCCs, and it is no secret many of our top herds, including larger herds, have consistently low SCCs that can compete with anyone in the country. There have been financial incentives for some time, and producers have responded with lowered cell counts. This again will only pump monies out of certain states to the surrounding areas around 5 and 7. Shouldn’t there be some concern about producing local milk in local herds, rather than serving our markets from farms hundreds of miles away? With periods of increasing transportation costs, such as we have now and have seen in the past, how is it responsible to consumers in the Southeast to encourage pockets of production hundreds and thousands of miles from the region?

5) Increase the value of pooled milk. I do agree with Eric on this one. The total value of pooled milk will increase as higher solids milk get associated with 5 and 7, and the giant sucking sound of dollars will get louder and louder as the local industry within the boundaries gets smaller and smaller, until there will be almost no industry left in Kentucky, Tennessee, Virginia and the Carolinas.

These orders in question have had no incentive to increase protein and are at a tremendous disadvantage if changed. Most of the plants in orders 5 and 7 run over 80 percent Class I, thus contributing very little to the protein price. The dollars paid out will have to come from somewhere, most likely the high-producing, strong summer and fall producing herds; the same herds that are serving the fluid market the most efficiently.

If FMMOs 5 and 7 were included, the dollars would flow north and away from the local herds.

Finally, let’s not move to MCP pricing in these orders. MCP pricing would continue to erode production within the boundaries by moving dollars out. We have just experienced months of producers losing their market while at the same time all this other milk is associated with these orders and continues to flow here. Let’s bring some common sense back to milk orders.  end mark

Respectfully,

John Harrison

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