Why are there “make allowances” for processors, but nothing for dairy farmers?

Wisconsin State Farmer
Arden Tewksbury

At a recent listening session conducted by the Farm Women United group I was asked to address past pricing schemes that were used to price milk to the majority of dairy farmers across the USA.

Some people wanted to hear about “make allowances” and how it affected prices paid to dairy farmers. I began by explaining the parity pricing system that was used to protect dairy farmers’ prices for their milk.  

For many years, the US Secretary of Agriculture could establish the parity level between 75 and 90%. However, during the late 70’s and early 80’s, we were successful in having the Secretary of Agriculture raise the parity level up to 80%, and then, we were able to have the US Congress raise the level up to 85%. Under the same Congress, they directed that the Secretary of Agriculture would adjust the parity price on April 1 and again in the fall of the year.

However, effective April 1, 1981, Congress froze the support price at $12.60 per cwt. (hundredweight or hundred pounds of milk) and prevented any upward adjustment. However, in different times, Congress lowered the support price down to $9.90 per cwt. (Parity pricing means the value that dairy farmers should be receiving for their milk. 100% parity would mean the full or right price.)

When the Secretary established the support price at any level, what he really did would be to announce the value of cheese, butter, and powdered milk, which was geared to be the price at which he would purchase the products, and then hopefully, the marketplace would follow his price. Sometimes it did, and sometimes it didn’t. Because the processors, both co-op and proprietary handlers, could not negotiate the price, the Commodity Credit Corporation would pay for their product. (Actually it was frozen at the level of parity the Secretary established.)

So, contained in the support price was the famous “make allowance” that was placed in the final price by the processors so they could cover their cost. To me, this was a reasonable program. When the Secretary would announce the price he would pay for the dairy products, the make allowance was included in that price. Therefore both the co-ops and the proprietary handlers would have their full costs covered for the value of their milk products.  

A book could be written how one State took advantage of this program and allegedly dairy farmers in that State were taken advantage of as they had to pay an additional make allowance that went to their handlers. (Double payment?)

Present pricing formula: it was established when the current consolidation of Federal Orders took place.

Please remember the value of milk that is used to manufacture dairy products is the same price in all Federal Orders. However, also contained in the pricing system is the make allowance similar to what was used in the support price. But in the support program, the cost was ultimately used in the formula by the Secretary of Agriculture when he would pay for the products.  

Who was actually paying for the make allowance under the price support program? That should be easy to figure out. The big question is, why don’t all general farm organizations question this program?

Of course, now the make allowance is really covered by the dairy farmers. Is this fair?  If the processors needed the make allowance, than why can’t dairy farmers receive the cost of production in the same formula for their milk? 

Some people would say you can’t pay dairy farmers on their costs, because different dairy farmers have a different cost of production. True, but remember all dairy farmers now under the present pricing formula are receiving the same price for their milk used for manufacturing dairy products.

The manufacturer of dairy products is willing to place their products on the market and I would assume that different manufacturers have different costs of operation, the same as dairy farmers do. This certainly is a very questionable way to be paid for their milk.

It’s time for everyone to re-think their position on make allowances. If processors can have a make allowance which covers their cost, then why can’t dairy farmers have a price formulated to cover their cost?

Now it’s time for the dairy farmers to wake up or the dairy farmers will be saddled with this pricing formula forever. To allow this to happen will guarantee thousands more dairy farmers will be forced out of business. 

The choice is up to the dairy farmers. They must stand up and shout! Otherwise there will be nothing to shout about.

Pro-Ag can be reached at 570-833-5776.