Expert panel discusses improving Federal Milk Marketing Orders
With the National Milk Producers Federation requesting an emergency hearing from the US Department of Agriculture on changing the nation's milk pricing system, many in the dairy industry are wondering what can actually be done.
A Hoard's Dairyman webinar featured a panel of FMMO experts offering their thoughts on what can and may happen with the emergency hearings and how to best go about it.
Panel guests included Ed Gallagher, president of risk management for Dairy Farmers of America; Al Zolin, manager of dairy consulting firm Zolin International; Erin Taylor, acting director of order formulation and enforcement for USDA Agricultural Marketing Service; and Chris Wolf, an agricultural economist with Cornell University.
Gallagher said the act of changing FMMOs is a delicate balancing act of interests and region-specific concerns across the country. He emphasized the importance of keeping FMMOs at the regional level because some places may not be experiencing the same hardships as others. He said it's also important to keep the process simple rather than complicated for all parties involved, especially dairy farmers who don't have the time to dedicate to market analysis. And overall, farmers should still be able to hedge their risk.
"The United States is the envy of the world because of the rich development and growth opportunities dairy farmers and milk processors have to manage their milk price risk. Every other major dairy area of the world wants to have what we have," Gallagher said. "We don't want to give that up, that is so important. ... We are going to be subject to so much price volatility, forever, that we need these tools to be able to help dairy farmers manage those (risk) programs."
FMMOs can be more complex than the tax code, Zolin said. He added that he hopes any changes made will be through USDA and not through Congress to make the process quicker and easier. Zolin said that the "laundry list" of concerns within the industry is often interlinked and it's hard to make one change without inevitably having unintended consequences elsewhere. That's why it's important to look at the big picture, because it's all linked together.
"In my opinion, a better solution would be to ... go back to a competitive price formula. Today, in the upper Midwest, the Northwest, Southwest, there are significant volumes of reserve milk out there that can be used to put a competitive price formula together again for manufactured products," Zolin said. "There really is no easy answer to solve all these problems. But if you look at them in totality and try to address them as a total solution, I do believe improvements can come about."
Taylor explained the emergency hearing process is significantly faster than the normal hearing process because of cutting out several months' worth of red tape. However, the caveat is that the process does not allow for much public comment, she said, because the period for public comment and the voting period are held concurrently. A tentative final decision resulting from an emergency hearing won't be lightly issued, she said, because of the lack of general input.
"The formal rulemaking process is designed to maximize transparency and participation, so any steps taken to alter that public participation process is not considered lightly," Taylor said. "All of this must also weigh the different sides of what is now termed the "three-legged stool" – producers, processors and consumers. You have to take all of those interests into consideration when making a determination."
Producer price differentials, which are a result of spread between Class I and Class III milk prices, have also become big concerns with FMMOs regarding the pandemic, Wolf said. Negative PPDs come from a large spread between the prices, especially in situations where powder products are in very low demand and cheese products are in very high demand. He said the pandemic exacerbated tension that was already felt beforehand.
"The change in the Class I mover that was made in the 2018 Farm Bill is getting a lot of attention, which moved from the higher up to the average plus 74 cents. That's been a big focus, and I think justifiably so," Wolf said. "Prior to the pandemic and the volatility that we saw there, there had been six months where the price of Class III minus the price of Class IV was greater than $5/cwt. Then we had ... two months it was greater than $10/cwt."