December 1, 2021
All the dairy reforms over the last 10 years have had good intentions, but haven’t worked, shares Sen. Kirsten Gillibrand, D-N.Y. Now Gillibrand has a new bill that would require a hearing on the Federal Milk Marketing Order to hear firsthand from farmers the issues that need addressed.
Changes dairy farms need have not been taken seriously enough within the farm bill writing process, says Gillibrand as she hopes to gain some much-needed momentum in addressing systemic shortfalls in the current federal milk marketing system ahead of the 2023 expiration of the farm bill. A new FMMO formula established in the 2018 Farm Bill has already cost $750 million in lost income to dairy producers nationwide.
Gillibrand joined Sens. Patrick Leahy, D-Vt., and Susan Collins, R-Maine, in introducing their bipartisan Dairy Pricing Opportunity Act, which would require the USDA to initiate the process of holding FMMO hearings within six months. This will allow producers and industry members to consider and review proposals that could change Class I skim milk pricing. Gillibrand says if USDA acts on its own to call for the hearings, farmers will wait too long for relief.
“This ensures farmers who understand dynamics have a voice in the process,” Gillibrand says during a media call on Wednesday afternoon. She adds that the forum for discussion allows for farmers to share how the current pricing formula affects them.
Prior to the 2018 Farm Bill, Class I milk was calculated using the “higher of” Class III or Class IV price plus the applicable Class I differential. This was changed in the most recent farm bill to an averaging method of Class III and Class IV plus $0.74. This change, compounded by government intervention in cheese markets as a result of the pandemic, has resulted in hundreds of millions of dollars in lost income for dairy farmers from May 2019 through April 2021.
This combination of factors demonstrates that when there is a wide discrepancy between the Class III and Class IV price, the current mover will cause significant loss of Class I skim milk revenue relative to the previous Class I mover and what was intended by Congress in the 2018 Farm Bill change. This has led to increased calls from producers and industry for USDA to hold Federal Milk Marketing Order national hearings to resolve this issue with the Class I mover.
During her September agriculture subcommittee hearing on dairy pricing, Gillibrand heard from dairy farmers and industry experts. She recalls her first instinct was to go back to the pricing prior to the changes in the 2018 Farm Bill. However, that hearing revealed that the best option may be to hear from producers on what would happen if the current federal marketing system was completely scratched.
“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. That’s why I introduced the Dairy Pricing Opportunity Act, a bill that would put the power back in farmers’ hands and bring the industry together to build a system that works for the 21st century dairy farmer. This bill is a great first step and I look forward to continuing efforts on broader FMMO modernization,” she adds.
Collins notes, “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.”
Widespread support found
The Dairy Pricing Opportunity Act has been endorsed by the American Farm Bureau Federation, New York Farm Bureau, American Dairy Coalition and Maine Dairy Industry Association.
National Milk Producers Federation President and CEO Jim Mulhern says the legislation adds bipartisan momentum to a range of critical milk pricing discussions that dairy farmers are having. NMPF has an Economic Policy Committee evaluating the issue and continues to work with USDA and Congress on how best to remedy deficiencies in the Class 1 mover formula and how to recoup the $750 million in unintended losses felt by farmers of all sizes, Mulhern says.
Six Midwestern dairy groups on a taskforce studying improvements to FMMO, which includes 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, say they continue 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 this important discussion. We ask lawmakers to support this research effort to help inform whatever emerges from the hearing process,” the Midwest groups state.
FarmFirst Dairy Cooperative, with more than 2,700 dairy farmer members across the Upper Midwest, shared its proposal in the spring of 2021 of returning to the “higher of” the Class III or Class IV pricing 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 twenty years ago and has served the industry well. The formula has a good track record, is simple and straightforward,” says FarmFirst General Manager Jeff Lyon.
“In addition to addressing the class I pricing, FarmFirst is engaged in industry discussions regarding additional reforms that are long overdue to the federal order. FarmFirst has been involved in these conversations on both a regional and national perspective, having identified several aspects of the order to be improved upon,” Lyon adds.
“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. 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,” says American Dairy Coalition CEO Laurie Fisher, adding that the ADC board is on record supporting a return to the ‘higher of’ until FMMO hearings can evaluate a path forward that is fair to producers and the industry.
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.
“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 says. “This bill responds to producer concerns to get national hearings started. ADC looks forward to seeing this bill become law so our farmers can be at the table on milk pricing that affects their livelihoods.”
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