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What Happened? What's next? - Farm Bureau unveils FMMO reform proposals

Progressive Dairy Editor Dave Natzke Published on 06 November 2019

You’re busy milking cows, doing post-harvest machinery maintenance and wondering where your winter boots and gloves are hiding. With that in mind, Progressive Dairy looks at issues in the news impacting you and your dairy business.

In recognition of your time, we’ll attempt to summarize recent events or actions making dairy headlines and reported in our weekly digital newsletter, Progressive Dairy Extra. Then we’ll try to put that news into perspective and briefly describe how it might affect you.

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FMMO REFORMS PROPOSED

What happened?

An American Farm Bureau Federation (AFBF) working group released a report detailing recommended reforms to the Federal Milk Marketing Order (FMMO) system. Four key recommendations of the report, “Priorities, Principles and Policy Considerations for FMMO Reform,” include:

1) Eliminating bloc voting by dairy cooperatives on proposed FMMO changes. Bloc voting on FMMO reforms has generated substantial controversy in the past. Under that system, cooperatives are allowed to cast unanimous votes on behalf of all members. Co-op members who disagree with the co-op vote must request individual ballots, and co-ops must then forfeit the opportunity to bloc vote.

The working group also supports modifying the referendum approval threshold to require a two-thirds majority of the voting producers and a two-thirds majority of the voting milk volume to amend an FMMO. Currently, a referendum needs only two-thirds of the voting producers or two-thirds of the voting milk to be approved.

2) Changing product pricing formulas by implementing variable manufacturing or “make” allowance deductions for processors. Current end-product pricing formulas used to determine farmer milk prices include a fixed deduction (make allowance) and yield factors processors can deduct from the pay price to convert raw milk into dairy products.

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Since make allowances are fixed but milk prices fluctuate, the make allowance as a share of the value of milk is higher when milk prices are lower and lower when milk prices are higher.

The working group supports make allowances equal to a percentage of the commodity value on a commodity-by-commodity basis. It does not support an across-the-board increase or elimination of make allowances or indexing them to inflation, labor or energy costs.

3) Expanding the USDA’s mandatory price reporting survey to include more information. The USDA is mandated to collect and release dairy product sales information used in FMMO milk pricing formulas. The products include cheddar cheese, butter, dry whey and nonfat dry milk meeting certain product specifications. However, based on AFBF analysis, current market information is captured from just 20% of butter plants, 54% of nonfat dry milk plants, 50% of dry whey plants and 12% of cheddar cheese plants. In total, less than 7% of all manufacturers that produce one or more dairy products are captured in USDA’s mandatory price reporting.

4) Reforming pooling criteria and eliminating transportation credits in southeastern U.S. FMMOs. The report cites declining milk production and a wide seasonal range in Class I milk utilization in 12 Southeast states, as well as an increased economic burden due to increasing milk supply balancing costs.

AFBF recommendations include increasing touchbase days required by milk handlers, producers and sellers from outside an order, and reforming transportation credit regulations to eliminate producers in a deficit area from bearing costs of transporting milk into the area. The recommendations cover Southeast and Appalachian FMMOs, with tighter qualification criteria in other FMMOs considered on a case-by-case basis.

What’s ahead?

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AFBF leaders will convene in January 2020 to consider and vote on these priorities and policy recommendations. Based on the outcome, AFBF staff will work with stakeholders and policymakers to advance the recommendations.

Bottom line

Any FMMO reforms require multiple steps administered by the USDA’s Ag Marketing Service, including invitations for proposals, public hearings and comment periods.

ORGANIC TRANSITION RULE

What happened?

The USDA’s Agricultural Marketing Service reopened the comment period on a proposed rule amending the “origin of livestock” requirements for dairy animals under federal organic regulations. The comment period closes Dec. 2, 2019.

The rule was originally proposed in 2015 but withdrawn in 2018.

What’s next?

Access the rule and submit comments via the Federal eRulemaking Portal: https://www.regulations.gov/document?D=AMS-NOP-11-0009-1572

As originally proposed, the rule clarifies requirements for organic dairy farms transitioning conventionally raised animals to organic production. After completion of a one-time transition, any new dairy animals a producer adds to a dairy farm would need to be managed organically from the last third of gestation or sourced from dairy animals that already completed their transition into organic production.

One other factor might impact rule implementation. Both the House and Senate’s fiscal year 2020 appropriations bills – not yet approved at Progressive Dairy’s deadline – would require USDA to finalize the rule within 180 days of budget approval.

Bottom line

Critics charge inconsistent enforcement has plagued the transition of livestock from conventional to organic production. While some organic certifiers strictly adhere to the policy, others have allowed farmers to remove calves from organic herds, raise them using practices prohibited under organic regulations and then transition them back to organic management when they are ready to be milked.

DFA LAWSUIT IN NORTHEAST

What happened?

In a late September ruling, U.S. District Judge Christina Reiss, in the U.S. District Court for the District of Vermont, partially denied Dairy Farmers of America (DFA) motions for summary judgment in a longstanding antitrust dispute, allowing the case to proceed to trial.

In the lawsuit (Sitts v Dairy Farmers of America), plaintiffs allege DFA and others conspired to monopsonize milk marketing in the Northeast. (A monopoly is defined as a situation where there is a single supplier of a good or service; a monopsony is defined as a situation where there is a single buyer.)

Plaintiffs involved in the lawsuit include about 115 dairy farmers operating within Federal Milk Marketing Order #1. Those farmers opted out of a previous class-action lawsuit settlement agreement with DFA.

What’s next?

No trial date has been set; a pre-trial conference is set for Nov. 14.

Bottom line

Antitrust lawsuits involving Northeast U.S. dairy farmers and DFA will stretch into a second decade.

2020 DMC ENROLLMENT

What happened?

The USDA’s Farm Service Agency (FSA) opened the enrollment period for the calendar year 2020 Dairy Margin Coverage (DMC) program. Enrollment deadline is Dec. 13, 2019 at local FSA offices.

What’s next?

All producers who want 2020 coverage – even those who took advantage of the 25% premium discount by locking in the coverage level for five years of margin protection coverage in 2019 – are required to visit an FSA office during this signup period to pay the annual administrative fee.

Additionally, dairy operations participating in the 2019 DMC program who had an intergenerational transfer between 2014 and 2019 have until Dec. 6, 2019, to take advantage of a one-time opportunity to increase their established production history during the 2019 and 2020 annual coverage election periods. Retroactive payments based on the increased production history will apply for 2019 and not prior years.

Bottom line

The USDA FSA continues to update 2019 DMC enrollment numbers. As of Oct. 7, 22,682 dairy operations had signed up for 2019. That number represents about 81% of dairy operations with established milk production history and 82% of annual milk production (about 175.8 million pounds). Total DMC 2019 indemnity payments for those enrolled as of Oct. 7 were estimated at about $303.9 million, averaging $13,400. end mark

Dave Natzke
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