WASHINGTON,
Oct. 7, 2015 - The nation’s three largest organic milk processors, through the
Organic Trade Association (OTA), are asking USDA’s Agricultural Marketing
Service (AMS) for a hearing to reduce the payments they make into market-wide
pools under federal milk marketing orders (FMMOs).
The
Sept. 28 letter from OTA attorney Charles “Chip” English Jr. of the Davis
Wright Tremaine law firm in Washington – on behalf of Aurora Organic Dairy, the
Organic Valley co-op and WhiteWave Foods – proposes an amendment to FMMOs to
“ensure all dairy farmers – organic and non-organic alike – are paid fairly for
the milk they produce.”
OTA
does not seek a complete exemption for organic producers from FMMO minimum
pricing regulation but asks, through a complex formula, to allow them to retain
some of the money that organic processors now contribute to a pooled fund
shared by all dairy farms in an order area. “These payments to the producer
settlement fund cost the organic industry (dairy farmers and processors alike)
tens of millions of dollars a year, money that could be spent on further
developing a sustainable organic milk supply desired by consumers,” English
contends.
The
reduction in pool payments for organic milk would result in lower prices for
non-organic producers when funds from the pool are allocated. Citing estimates
by the Upper Midwest milk market administrator, English implies that the loss
to conventional farmers would be no more than 2 cents per 100 pounds of milk.
While organic milk earned more than $30 per 100 pounds last year, the average
price of all-milk was $24, a record high. Although all-milk prices paid to
farmers have dropped sharply in 2015, organic milk prices have moved in the
opposite direction, averaging more than $34 per 100 pounds in the Upper
Midwest, English writes.
Such
an amendment likely will stir opposition, not only because of lower prices for
conventional milk but also out of concern that it might invite exemptions for
other products. The National Milk Producers Federation (NMPF), which represents
dairy cooperatives, expressed that concern. “Federal milk marketing orders
benefit all dairy farmers by providing for the consistent, orderly pricing of
milk,” NMPF’s Chris Galen told Agri-Pulse.
“Efforts to erode participation in a nationwide network of marketing orders are
cause for concern, and need to be carefully scrutinized because of their
potential to undermine an effective, time-honored system.”
English
sought to allay such fears, writing that the proposal would not apply to “other
differentiated milk products” such as rBST-free milk, A2 milk, kosher or halal
milk – adding pointedly that none of those are “subject to the rigorous, costly
and time-consuming certification requirements” for milk under the National
Organic Program (NOP) administered by AMS.
The
International Dairy Foods Association (IDFA) had no specific comment on the OTA
proposal, saying that its economic policy committee needed to review it. IDFA
has long advocated phasing out FMMOs because their pricing formulas “keep milk
from moving to its highest and best use,” says Vice President Peggy Armstrong.
Andrew
Novaković, E.V. Baker professor of agricultural economics at Cornell, who
chaired USDA’s Dairy Industry Advisory Committee in 2010-2011, is “very sympathetic
to this proposal and (has) made many of the same observations/arguments
regarding organic milk,” he says. The logic behind marketing order pools is
that farmers’ milk is interchangeable, regardless of whether it brings a higher
price mandated for fluid milk or a lower price for cheese or butter.
“Although
organic milk can and is used as a substitute for conventional milk, the reverse
is most certainly not possible,” he tells Agri-Pulse.
While surplus organic milk can be diverted to conventional products, at a lower
price, the reverse is not true – conventional milk can’t be used for organic
milk and dairy products. OTA’s letter points out that commingling organic milk
with conventional milk in any fashion causes the organic milk to forego its
organic price premium.
“Clearly
the accounting for all of this gets a little complicated and it has been easiest
for USDA to more or less ignore the special characteristics of organic milk and
subject them to the same regulations as conventional milk,” says Novaković. “What
galls organic farmers and processors is that they have to pony up the Class I
(fluid milk) differential . . . on sales of organic milk to Class I and that
money gets shared with conventional milk farmers, on top of paying a high
organic price to organic farmers in the first place.”
OTA
reasons that the organic dairy sector needs the money to help stimulate
production to catch up with customer demand. Total organic milk product sales
this year are down 1.6 percent from the same period last year, says AMS, “a
matter of real concern to processors.” According to OTA, the AMS Dairy Market
News has concluded “that greater efforts this year and in the near future are
necessary to ensure organic milk supplies will be available in the years ahead
to meet increased demand.” Otherwise, AMS believes, a shortfall “could lead to
a consumer backlash away from organic milk, a development that would be
challenging to reverse.”
The
FMMO system, created in the 1930s to ensure both an adequate supply of milk to
consumers and a fair price for producers, never anticipated the advent of
organic milk in the 2000s, OTA says. As a result, it adds, organic dairy gets
no benefit from marketing orders.
Unlike
conventional milk, USDA-certified organic milk tends to be purchased under
long-term, forward-priced contracts, not under the classified pricing system
employed by FMMOs, OTA says. “The price paid by each purchaser for all organic
milk, regardless of use, is significantly higher than the Class I price
including any over-order premiums paid for conventional milk.”
For
several years, demand for organic milk has outstripped supply, OTA says.
“Organic handlers really do need additional supplies of USDA certified organic
milk, but cannot grow the supply through their producer patrons fast enough,
especially given the time constraints imposed by the NOP. But the situation is
clearly made worse, not better, by the fact that FMMOs simply cannot and do not
bring forth an adequate supply of milk to meet organic consumer demands.”
English calls it “a significant disorderly marketing condition that is made
worse, not better, by FMMOs.”
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