Sierra Dawn McClain/Capital Press (copy)

Many in the dairy industry believe the Federal Milk Marketing Order system needs to be reformed, but there’s differing opinions on what changes should be made.

Dairy economists and others addressed the modernizing and improving the Federal Milk Marketing Order system in a panel discussion during the latest DairyLivestream webinar.

Most in the industry agree changes are needed. But the issues are complex, with a change in one area of the system bringing consequences in another area.

Panelists noted that there’s a lot of thoughtful discussion taking place, and the industry is working toward consensus.

“We’ve got our work cut out for us,” said Mike Brown, dairy supply chain director for Kroger Co.

In addition to updating make allowances for processors and addressing Class I milk pricing and depooling of milk, the panelists gave some insight on what a modern market might look like without federal orders.

“If you’re going to run a truly competitive market, you have to have reliable information. That’s kind of econ theory 101 … and we all know market information is far from perfect,” Brown said during the latest DairyLivestream webinar.

But federal orders provide production levels, breakdowns on milk components and prices for base products through large volume surveys, he said.

“That’s all very, very important … that kind of information needs to continue to happen to have a market that works, in my opinion. How we regulate it is the big discussion,” he said.

Roger Cryan, chief economist for American Farm Bureau Federation, said without federal markets, the dairy industry would look a lot like the broiler industry.

“I think it would be tough for farmers to make their own decisions,” he said.

Federal orders provide support for independent farmers and cooperatives because a pooled plant has to pay the federal order minimum. That takes away the incentive for processors to get involved in managing farm production to minimize costs, he told Capital Press.

“Without that minimum price, broiler integrators can micromanage the growers’ production to minimize unit cost then capture the benefits.,” he said.

So the federal orders do a lot to help dairy farmers be the masters of their own fates, he said.

Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, took some exception to that viewpoint, saying he doesn’t think the industry would immediately go to something that looks just like a broiler industry.

“But I do think that one of the very first things that would happen is that you would find farmers and you would find processors running toward each other to secure contracts for that milk,” he said.

Andy Novakovic, agricultural economist with Cornell University, said “If you’re talking about no regulation, you’re going to look at a lot more vertical integration, a lot less transparency.”

It isn’t necessarily going to be like the poultry industry. It could be farmers going up as they did in the United Kingdom or it could be Kroger going around to farmers and skipping the guy in the middle, he said.

“But it would be a bit wild, wild West out there,” he said.

Stephenson said he tends to agree but thinks there would be intermediate steps.

“The unfortunate thing is those may not be big enough to solve all the problems. But they may be incremental toward relieving some of those problems,” he said.

Brown said the industry could survive a system without regulation, and it’s kind of already going the way of the poultry industry with vertical integration in cooperatives and farms getting bigger and bigger.

“If you’re going to have a system that really provides orderly marketing, it needs to include more milk,” he said, referring to the depooling of milk that causes disruptions.

It also can’t by regulation force a processor into large negative profitability, and it needs to make pooling less onerous, he said.

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