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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