Some dairy producers and farmer cooperatives used a Senate hearing Wednesday to call for changes to the federal milk pricing system, while an independent processor said the system should be disbanded.

The system has come under increased scrutiny as the result of the COVID-19 pandemic, increased butter production and a surge of cheese purchasing driven by the Trump administration’s Food Box program.

Those market impacts combined with a change to the pricing formula made by the 2018 farm bill to create sharp disparities in pricing for different uses of milk.

The pricing system, created in 1937, was established to prevent dairy processors from making dairy farmers bid against each other when selling their milk. 

Lowell Davenport, the owner of Tollgate Farm in Ancramdale, N.Y., told a Senate Agriculture subcommittee that small-scale dairy farmers needed the system despite its flaws.

“To small farmers like us, and especially those who have no chance to capture more of the consumer with value added retail sales, I feel completely eliminating the federal order system would be suicide,” he said. “There would be chaos in the marketplace.”

Christopher Wolf, a professor of agricultural economics at Cornell University who testified at the hearing, said that during the 2020 pandemic, the industry saw a large divergence in prices for Class III (cheese) and Class IV (butter and dry milk) products during the pandemic.

“This large divergence in butter and cheese prices meant that the class one milk prices were lower than they would have been under the former pricing rule,” he said.

The Agriculture Department announced in August that it would provide $350 million to producers to partially compensate them for the impact of the market impact.

Government cheese buying during the pandemic was intended to help producers during the pandemic but came at a cost to fluid milk prices, said Mike Ferguson, the owner of Ferguson Dairy Farm in Senatobia, Miss. 

“While the farmers were no doubt grateful for the needed relief through the purchased cheese products during the pandemic, the way it was done had significant unintended consequences that no one could have seen coming,” Ferguson told the Senate panel. “It should have been done in a balanced way to minimize price disruptions.”

Ferguson said Congress should revert to the previous pricing formula and that there should be more frequent reviews of the system.

Catherine de Ronde, the vice president of economics and legislative affairs for Agri-Mark Inc., a dairy cooperative based in Massachusetts, told the committee that the pandemic highlighted shortfalls in the federal order system and that it needed to evolve to be “supportive of the needs of today’s dairy participants.”

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But Robert Wills, president of Cedar Grove Cheese and Clock Shadow Creamery in Milwaukee, Wis., said the system itself reduces the competitiveness of dairy production.

“None of the challengers to milk sales, including international competitors and processors of vegetable analogs or biotech replacements, are saddled with the burden of the milk market orders,” he said. “The dairy industry needs to quit squabbling over esoterica of milk marketing and keep its eye on the prize, our customers.”

Several producers testifying at the hearing expressed concern about consolidation in the industry.

Christina Zuiderveen, a managing partner at Black Soil Dairy in Granville, Iowa, said that there are reforms to the pricing system that could promote competition between processors, rather than consolidation. 

“Making milk checks more transparent would benefit producers in two ways,” she said.

“Dairymen would better understand their earnings and might be able to make changes to farm management practices or co-op policies to avoid future deductions. Promoting competition between processors will give dairy families a better milk price and incentivize the development of new products and markets.”

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