WASHINGTON, Jan. 28, 2015 – The organizations representing the farmers who produce America’s milk and the companies that turn the milk into cheese and other foods have started preliminary discussions about overhauling the federal marketing order system that regulates milk pricing.
Leaders of the National Milk Producers Federation and the International Dairy Foods Association met for three and a half hours in Dallas Jan. 7 and have agreed to continue discussions at the staff level next month.“We have a lot of work to do to get to a place where we can ... say this is the vision we agree on, and these are the things that we can agree to do along the way, and some kind of timeline,” says Connie Tipton, president and CEO of the International Dairy Foods Association (IDFA).
The two groups seem to be starting off far apart, with leaders of each group accusing the other of having a lack of consensus. IDFA’s stated goal is to phase out the pricing system established by the regional milk marketing orders, but NMPF’s president and CEO, Jim Mulhern, says he made clear at the outset of the Dallas meeting that the marketing orders had to continue although his group is open to some changes in how they work.
“I had to make clear in that meeting that we were not interested, we were not going to engage, in conversations about eliminating federal orders,” Mulhern said.
He described the Dallas discussions as “productive and robust.” But if IFDA’s member companies insist on phasing out the marketing orders, “then there really is no grounds for dialogue,” he said.
Many dairy processors have long chafed at the marketing orders, which set prices for milk based on the products it is used for, and then pool the receipts to pay producers according an average of the various prices.
One focus of the discussion will be on how prices for fluid milk are determined. Because of the way the prices are calculated, the marketing orders have artificially inflated the price of milk that is used for yogurt or sold as fluid milk, according to the processors. “Fluid milk prices have been through the roof and sales have been declining,” said Tipton.
Under the current system, prices are calculated on four different classes: fluid milk (Class I); yogurt, ice cream and sour cream (Class II); cheese (Class III); and butter and milk powder (Class IV). The price of fluid milk, which is sold only on domestic markets, is tied to the prices for Class III and IV, products that are in growing demand on international markets. The price differential for fluid milk is set according to the higher of the Class III and Class IV price.
Another issue likely to be discussed is the way the orders prices are determined to compensate companies for processing costs, a formula known as a “make allowance.”
As producer cooperatives have expanded their own processing they’ve experienced some of the same challenges as corporate competitors, said Jay Bryant, CEO of the Maryland and Virginia Milk Producers Cooperative Association. Producers are willing to consider changes in the marketing orders, but they worry that they’ll be exposed to excessive risk without the protections of the current system.
“From a pricing perspective I think there are a whole lot of things that need to be changed and looked at,” Bryant said, speaking on a panel at IDFA’s Dairy Forum 2015 conference this week in Boca Raton, Florida.
He expressed concern about volatility in the price of fluid milk and questioned the need to have it tied to other markets. But he said it’s important to keep some protections for producers, including fixed payment dates. “I do think we have some significant work challenges and opportunities that we can tackle on the pricing side. But I don’t know that I’m ready to throw the whole baby out with the bathwater,” Bryant said.
But Jeffrey Kaneb, executive vice president of HP Hood LLC, a Lynnfield, Massachusetts-based dairy foods company, expresses concern that IDFA’s efforts to end the marketing order system could wind up in a stalemate, a result of overreaching.
“You’ve got to figure out how to convince this dairy farmer community that you’re in it with them and you’re willing to accept some risk,” he said.
The last major changes to the program were made in the 1996, when the orders were consolidated and the way prices were determined was changed.
Tipton expressed optimism that the producers and processors could strike some kind of deal. “I think we’ll get there,” she said. “I’m not sure where there is.”
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