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IDFA Urges USDA to Reconsider Make Allowance Decision

Jan 29, 2007

IDFA Urges USDA to Reconsider Make Allowance Decision

IDFA filed comments last week urging the U.S. Department of Agriculture (USDA) to reconsider its tentative final decision regarding the make allowances included in Class III and IV product price formulas and to act quickly to issue a final decision. In its comments, IDFA calls for three specific changes that would increase make allowances for cheese and dry whey and would update the make allowance data to reflect the true costs of energy, which have risen significantly since the initial data was collected.

IDFA believes that the tentative decision, which amends the make allowances for cheese, butter, nonfat dry milk and dry whey, does not provide adequate relief for dairy processors who continue to face escalating manufacturing and energy costs. In its comments, IDFA notes that the make allowances must be high enough to cover a variety of non-milk costs, including employee wages, utilities, ingredients other than raw milk, plant construction and maintenance, equipment, the marketing of processed dairy products and insurance.

"Under current conditions, these make allowances are too low," the comments state. "This undermines the ability of federal order-regulated plants to operate."

As a solution, IDFA outlines three changes it believes need to be made to the Federal Milk Marketing Orders provisions listed in the tentative decision.

First, IDFA urges USDA to use the weighted average costs of processing cheese provided by the Cornell Program on Dairy Markets and Policy (CPDMP) to correct an intentional bias in the Cornell study's findings. This study included a greater sample of large plants that, through efficiencies of scale, have lower processing costs. Although the Cornell researcher testified that this over-sampling should be corrected with statistically acceptable weighted averages, USDA decided to use lower, non-weighted averages instead to calculate the new make allowance for cheese.

Second, IDFA asks USDA to use data from the California Department of Food and Agriculture (CDFA) as well as CPDMP to determine the dry whey make allowance.

"The CDFA survey data results have been endorsed and utilized by USDA since 2001 to set make allowances," the comments state. "USDA nonetheless only used the CPDMP data in setting the whey make allowance."

IDFA argues that the data from California is more representative of the U.S. average costs of processing dry whey than the Cornell data, and the weighted averages from both studies should be used to avoid setting the allowances too low.

Third, IDFA urges USDA to recognize that processing costs, especially for energy, have increased significantly since the CDFA and CPDMP data was collected more than 18 months ago.

"USDA should add . . . energy cost updates to the CDFA and CPDMP costs of processing to insure that the make allowances adopted by USDA reflect the most current data available on the costs of processing," the comments state.

In the comments, IDFA shows how these costs can be determined and incorporated into the make allowances, and lists the resulting make allowance prices for cheese, dry whey, butter and nonfat dry milk.

To read the full comments, click here.

Separately, as announced in last week's issue of News Update, USDA has decided to delay the implementation of the tentative decision to update the make allowances by one month, moving from the original start date of February 1 to March 1, 2007. USDA agreed to do so because of a lawsuit filed January 12 on behalf of Bridgewater Dairy, Arkansas Dairy Cooperative Association, Continental Dairy Products, Lone Star Milk Producers, Select Milk Producers, Bryan Wolfe and Zia Milk Producers.

IDFA will oppose this attempt to block implementation of the tentative decision by participating in the court hearing on this lawsuit tentatively scheduled for February 15 in Toledo, Ohio. For more information, contact Bob Yonkers, IDFA director of policy analysis and chief economist at byonkers@idfa.org or 202-220-3511.

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Posted January 29, 2007

 
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