Dairy farms

A working group organized by the American Farm Bureau Federation is studying the Federal Milk Marketing Order system.

A working group organized by the American Farm Bureau Federation has developed recommendations to modernize and reform the Federal Milk Marketing Order system.

Administered by USDA, FMMOs have regulated milk pricing and pooling in most of the country for 80 years. But the system hasn’t undergone substantial change in nearly two decades despite dramatic changes in milk production and dairy markets, according to AFBF.

In January, AFBF delegates voted to form a working group to consider modifications that better position dairy farmers and the industry for success. The reform recommendations are focused on referendum voting, make allowances, price discovery and simplifying FMMO rules in the Southeast.

The working group’s first priority is to give dairy farmers a voice and a vote in FMMO referendums on proposed changes to milk and pooling provisions by eliminating bloc voting by dairy cooperatives.

“We support a three-step approach that would ensure dairy farmers — and not processors — have the leverage with respect to potential modifications to milk pricing rules,” the group wrote in its report released on Thursday.

In addition to eliminating bloc voting, the group recommends the termination of the provision eliminating an FMMO following a “no” vote on a referendum to amend the order. Finally, the group supports modifying the referendum approval threshold to require a two-thirds majority of voting producers and a two-thirds majority of the voting milk volume to amend or issue an FMMO.

“We believe these changes, taken together, will ensure there is consensus among dairy farmers before modifications are made to milk pricing rules and will put the rulemaking process back into the hands of dairy farmers,” the report stated.

The second priority is to update FMMO make allowances, a credit to processors for turning raw milk into finished dairy products. They are fixed and range between $2.17 and $3.17 per hundredweight of milk depending on the dairy product. Because milk prices fluctuate, make allowances account for a varying share of the milk price paid to farmers — a higher share when milk prices are low and vice versa.

The group supports make allowances equal to a percentage of the product value on a commodity-by-commodity basis as a form of risk sharing between dairy farmers, cooperatives and processors.

“In recent years, and despite a prolonged downturn in milk prices, make allowances have represented more than $15 billion in processing credits from dairy farmers to milk processors,” the report stated.

On the flip side, larger make allowances when commodity prices are high would send a signal to processors that additional processing capacity is needed, according to the group.

The group also wants to expand price discovery. USDA’s mandatory price survey of processors — used to determine the regulated value of milk and milk components — only captures a small percentage of the milk solids and dairy products produced, the group said.

Limited by several restrictions, mandatory reporting is capturing less than 10% of the milk solids produced in the U.S. The group recommends expanding the mandatory reporting to include more products.

It also recommends simplifying FMMOs in the Southeast, including end-product pricing formulas, pool qualification criteria and transportation credits.

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