The International Dairy Foods Association is petitioning USDA to alter the way processors are compensated under federal milk marketing orders, but the proposal faces opposition from the National Milk Producers Federation, which is also pushing for changes in the formula for pricing milk.  

After several months of discussions, the groups decided they could not come to consensus, and IDFA then filed a petition with USDA on Thursday requesting action only on what are known as make allowances. NMPF plans to file a more comprehensive petition in April that will address the milk pricing formula as well as make allowances. 

USDA has 30 days, or until April 29, to decide whether to move forward with a hearing on the make allowance issue, said Matt Herrick, IDFA's senior vice president of public affairs and communications.

Leaders of the two groups met on Monday for the second time in the last month to discuss the associations’ respective priorities for modifying the milk marketing orders and to explore potential areas of common ground between dairy farmers and dairy processors. 

“After this week’s meeting it was clear that the groups will not find a common set of solutions that the entire industry can unite behind,” Herrick said. 

NMPF President and CEO Jim Mulhern sent a letter Friday to USDA’s Agricultural Marketing Services Administrator Bruce Summers urging USDA to deny IDFA’s petition.

Mulhern told Agri-Pulse Friday he was “disappointed that the parties have gone forward and submitted a petition with knowing that we were going to submit a comprehensive proposal.” Mulhern said NMPF has spent the last year doing a deep dive into the details of the milk marketing order system to examine the pricing formulas of all the issues in establishing milk prices and approved a comprehensive plan to correct shortcomings exacerbated during the pandemic regarding pricing regulations for milk.

IDFA’s request to only evaluate make allowances “would be economically harmful to the nation’s dairy producers to address the single issue in isolation without consideration of a number of other provisions of the current FMMO program in need of review and update,” Mulhern wrote.

A change to the milk-pricing formula that NMPF and IDFA agreed to in the 2018 farm bill backfired on producers in some regions of the country in 2020 because of market disruptions that resulted from the COVID-19 pandemic and a surge in cheese purchasing for the Trump administration’s Farmers to Families Food Box program.

Under the farm bill provision, the price paid for fluid milk (Class I) must be at least 74 cents per hundredweight over an average of the prices for Class III (milk sold for cheese) and Class IV (butter and milk powder). Modifying that formula is now a top priority for NMPF. 

Mulhern said that while make allowances also need to be addressed, the proposal from IDFA and a similar one filed by the Wisconsin Cheese Makers Association is “neither measured nor balanced.”

NMPF’s plan calls for a review of the make allowances by USDA every two years. The make allowance, determines how a milk check is divided between a processor and farmer, is supposed to cover costs of production to make a finished milk product for cheese, butter, whey and nonfat dry milk. 

Many of NMPF’s members represent both the producer and processor perspective as members of cooperatives who own dairy processing plants.

Herrick said make allowances were last adjusted more than 15 years ago at the same time that the cost of manufacturing costs have gone up.

IDFA’s petition said a long-term solution would call for timely studies to update make allowances on a regularly basis. “However, this requires Congressional action both to authorize and fund the audits. It will likely then take at least another year or two, if not longer, after (not yet introduced, must less passed) legislation before such information can be available,” IDFA’s petition says.

Mulhern said NMPF intends to seek a provision in the next farm bill that would require USA to gather and audit manufacturing cost data from dairy processing plants and to report that information on a regular basis.

IDFA said it cannot wait for legislative action.

Herrick said, “Using an updated cost study by Dr. Bill Schiek, CEO of the Dairy Institute of California, previously presented to USDA in November 2022, IDFA will request that USDA do the same thing it has consistently done ever since component pricing was first established in 2000. IDFA’s request will cite Dr. Schiek’s most current cost projections, based on indices, that encompass calendar year 2022.”

IDFA will also propose that USDA consider an updated version of the 2022 USDA-commissioned study, “Cost of Processing Study for Cheese, Whey, Butter and Nonfat Dry Milk Plants,” by Mark Stephenson, director of the Dairy Policy Analysis and Center for Dairy Profitability at the University of Wisconsin.

Mulhern said NMPF supports an interim adjustment to make allowances while implementing the mandatory audit. In surveying their members, no two plants have exactly the same plant processing costs. He said their planned petition would call for increased adjustments for the four products that are used in the pricing formula while it waits for USDA to do the mandatory survey of costs.

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Mulhern's letter to USDA said IDFA’s proposal cites “potential make allowance adjustments that could reduce the U.S. average all-milk price by $1.42 per hundredweight. Milk price reductions of this magnitude, especially if not offset by other FMMO program updates, would be devastating to many dairy farmers across the country,” he said.

As an example, IDFA proposed updating cheese prices from the current make allowance of 20 cents to 30 cents, and a similar 10 cent boost in whey prices from 19 cents to 29 cents. He said these figures were calculating using voluntary data that is unreliable.

Mulhern’s letter also cited Agriculture Secretary Tom Vilsack’s previous statements on the need for the dairy industry to reach a consensus before starting the FMMO reform hearing process.

“Dairy farmers are the ones who vote on any proposed changes to the program, and our year-long consensus development effort in the producer community has demonstrated a strong interest in a comprehensive and balanced approach to modernizing the program, not a focus on a single aspect of the program – let alone one that would solely reduce dairy farmer milk prices,” Mulhern said.

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