The U.S. Department of Agriculture (USDA) oversees the Federal Milk Marketing Order (FMMO) program that establishes the minimum prices dairy farmers receive for their milk. The program, introduced during the 1930s, covers 11 areas of the country and applies to about 75% of total U.S. milk production.
Unfortunately, the program’s complex formulas don’t always keep pace with changing market conditions. Thanks to a collaborative industry effort led by IDFA, the 2018 Farm Bill implemented a much-needed formula change that now benefits both farmers and processors. USDA also has signaled its willingness to consider updates that would make the program more effective and responsive to the market.
IDFA is urging USDA to make the federal orders more flexible and dynamic to encourage greater investment and spur innovation. IDFA believes the next wave of reform efforts should be focused on three priority areas:
In 2017, IDFA initiated a process that set a new standard for accomplishing milk pricing reform and industry collaboration. Working with the National Milk Producers Federation (NMPF), IDFA developed a joint policy proposal to improve dairy price risk management tools for all classes of milk regulated under the Federal Milk Marketing Orders (FMMOs). The policy recommendations, which included a change to the Class I formula, were presented to congressional leaders in the House of Representatives and the Senate. Because the dairy industry was unified in support the changes, they were accepted and written into the 2018 Farm Bill.
The FMMO program establishes the minimum regulated price of milk-based on end-product pricing formulas. The system identifies four classes of milk: Class I (fluid use), Class II (soft products such as ice cream and yogurt), Class III (cheese) and Class IV (butter and milk powder).
USDA sets the prices based on the weekly average wholesale market price trends for cheese, dry whey, NFDM, and butter.
Dairy farmers receive a blend of these prices weighted by the percentage of the milk used in each class. At times, processors pay premiums above this minimum based on supply and demand in the current market.
Work is now underway to identify the next set of incremental FMMO reform ideas that IDFA and others in the industry can support and share with USDA and congressional leaders.
Members of the IDFA Economic Policy Committee will continue to identify possible improvements to the current milk pricing system that would make it operate more efficiently for a broad swath of industry stakeholders, including processors, cooperatives and dairy producers, and would encourage greater innovation.
With the proper policies in place, the U.S. dairy industry will be well-positioned to meet and increase the demand for milk and dairy products, both at home and abroad. Developing and implementing updated formulas and improved risk-management mechanisms for both farmers and processors will go a long way toward keeping the industry healthy and poised for continued growth.
For more information, contact Dave Carlin, IDFA senior vice president of legislative affairs and economic policy, at firstname.lastname@example.org.