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Senate bill would mandate FMMO hearing

Progressive Dairy Editor Dave Natzke Published on 02 December 2021
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The path to Federal Milk Marketing Order (FMMO) reform may be routed through Congress – where much of the most recent dairy pricing policy controversy started.

The Dairy Pricing Opportunity Act of 2021, introduced by U.S. Sens. Kirsten Gillibrand (D-New York), Susan Collins (R-Maine) and Patrick Leahy (D-Vermont), on Dec. 1, would establish a timeline to initiate national hearings on possible FMMO reforms. The bill would require the U.S. Secretary of Agriculture to initiate national hearings within six months of enactment.

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As outlined in the bill, the primary hearing focus would be the “Class I mover” pricing formula, changed in the 2018 Farm Bill instead of through a formal FMMO hearing process.

The formula change, from the “higher-of” advanced Class III-Class IV skim milk prices to the “average-of plus 74 cents” advanced Class III-Class IV skim milk prices, was implemented in May 2019. Unintended market consequences of USDA food box purchases relying heavily on cheese in 2020 created a wide disparity between Class III and Class IV milk prices, differences in value the new Class I formula could not capture and return to dairy farmers.

Bill co-sponsor Gillibrand hosted a Senate Ag Committee subcommittee hearing in September on a number of dairy policy issues, including the Class I pricing formula. (Read: Senate hearing focuses on FMMOs, reforms.)

“When the dairy pricing system isn’t working for farmers, the economic ramifications are felt across the country,” Gillibrand said in introducing the Dairy Pricing Opportunity Act. “I heard from producers across the industry firsthand during my subcommittee hearing on dairy pricing, and the message was clear – our dairy pricing system is inadequate, out of date and working against producers.”

“The Dairy Pricing Opportunity Act would help restore some stability to this sector by ensuring that USDA holds public hearings to receive farmers’ input on ways to correct the unintended consequences of a pre-pandemic pricing policy,” said Collins.

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“As Congress and USDA help farmers recover from the pandemic’s immediate impacts, it’s a critical time to reexamine the federal milk pricing system and ensure it works equitably for all farmers,” added Leahy.

Dairy organizations approve

National and regional dairy organizations agreed.

Jim Mulhern, National Milk Producers Federation (NMPF) president and CEO, said his organization’s economic policy committee has been facilitating discussions with dairy producers and looked forward to policy improvements. Earlier this year, NMPF’s executive committee and board directed the organization’s staff to move forward with a request to have USDA’s Agricultural Marketing Service (AMS) hold an emergency national FMMO hearing, although a formal request was never submitted.

“NMPF is continuing to work with USDA and Congress on how best to remedy deficiencies in the Class I mover formula and fully recoup $750 million in unintended losses felt by farmers of all sizes,” Mulhern said. “NMPF also is leading discussions on a broad range of Federal Milk Marketing Order reform issues important to producers in all regions of the country.”

Laurie Fischer, CEO of the American Dairy Coalition (ADC), said losses related to the change in pricing formula go far beyond the more than $700 million in Class I value, citing analysis suggesting the net impact on farm milk checks at $3 billion due FMMO depooling and negative producer price differentials (PPDs). ADC is on record supporting a return to the higher-of formula until FMMO hearings can evaluate a path forward that is fair to producers and the industry.

“Economists acknowledge that the current Class I method caps the benefit at 74 cents on Class I, which equates to about 20 cents per hundredweight nationally on the all-milk price,” Fischer said. “However, this ‘average plus’ method has no limits on the downside risk in the equation. Our dairy farmers have suffered through extreme examples of this during the first two years of implementation.”

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In a recent ADC poll, responses from producers in 10 of the 11 FMMOs showed a large majority across all dairy size categories experienced negative impacts affecting their confidence in risk management, and an even larger majority favored a return to the previous higher-of method for Class I pricing until a formal hearing process can adequately review proposals. (Read: Producer survey finds strong support for return to ‘higher-of’ formula.)

“Our producers have suffered. They have lost confidence in the functioning of the FMMOs and the performance of their available risk management tools – especially in their responsiveness to unexpected marketing conditions,” Fischer said. “This bill responds to producer concerns to get national hearings started.”

Jeff Lyon, general manager of FarmFirst Dairy Cooperative, represents 2,700 dairy farm members in Wisconsin, Minnesota, South Dakota, Michigan, Iowa, Illinois and Indiana. He welcomed the news of a potential FMMO hearing. Earlier this spring, FarmFirst called for a return to the higher-of formula.

“When reviewing other proposals and options, we came back to using the ‘higher of’ since it was fully vetted in a national hearing process nearly 20 years ago and has served the industry well. The formula has a good track record, is simple and straightforward,” Lyon said.

In addition to addressing the Class I pricing, FarmFirst is engaged in industry discussions regarding additional FMMO reforms.

Six Midwestern dairy groups, which have formed a task force to study potential improvements to the FMMO, look for reforms that go beyond the Class I pricing formula. Task force members include the Dairy Business Association, Edge Dairy Farmer Cooperative, Iowa State Dairy Association, Minnesota Milk Producers Association, Nebraska State Dairy Association and South Dakota Dairy Producers.

“We are pleased to see that federal order reform is top of mind in the Senate,” the organizations said in a joint statement. “Our task force continues to work on a comprehensive solution to the broad set of issues at hand. The Dairy Pricing Opportunity Act leaves the door open to considering various proposals, such as the Class III Plus proposal put forth early this year, and the ability to address other areas of the system that are just as urgent, such as increasing price transparency.”

The task force has also supported the creation of an academic dairy pricing study that would aid in the discussion during a formal hearing process.

As for when the bill moves through committee, neither the Senate of House of Representatives are in session after Dec. 10, 2021, through about Jan. 10, 2022.  end mark

Dave Natzke
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