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NCI Presses for Swift Action on Make Allowances in Post-Hearing Brief

Oct 02, 2006

NCI Presses for Swift Action on Make Allowances in Post-Hearing Brief

In a post-hearing brief submitted today, the National Cheese Institute (NCI) urged the U.S. Department of Agriculture (USDA) to publish and implement a swift decision on amendments to the Class III and Class IV milk price formula manufacturing allowances. Referring to new evidence presented last month at the reconvened hearing on make allowances, NCI cautioned against setting the new allowances too low and proposed recommended minimums for cheddar cheese, butter, nonfat dry milk and dry whey.

"The time for USDA to act is now," said Dr. Bob Yonkers, IDFA's chief economist and policy analyst. "They received plenty of evidence at the first hearing in January, and now they have exactly what they wanted on the hearing record from the reconvened meeting. Emergency action and cost relief is what the industry needs now."

Three months ago, USDA announced plans to reconvene a national public hearing to receive new manufacturing cost data compiled by Cornell University. That hearing was held September 14 in Strongsville, Ohio, and USDA is now accepting post-hearing briefs before making a final decision.

At the hearing, Dr. Mark Stephenson, a Cornell University faculty member in the department of applied economics and management, presented testimony on USDA-funded research compiled by Cornell. The study surveyed a sample of cheese, dry whey, nonfat dry milk and butter manufacturers to determine the current average cost to make these products. In his testimony, Stephenson also addressed the issue of incorporating allowances for energy costs.

In its brief, NCI calls for adjustments that reflect today's cost of manufacturing, with allowances for both increased energy costs and sales and marketing costs.

"The hearing record unequivocally establishes that manufacturing costs have increased significantly since the cost surveys that were used to establish the current make allowances," the brief states. "The current structure of the federal order system requires that the make allowances be adjusted as needed to reflect true costs."

Created through a federal order reform process mandated by Congress in the 1996 Farm Bill, the make allowances established on January 1, 2000, fix the margins that USDA permits processors to apply to cover the manufacturing costs of turning raw milk into a finished dairy product. Current margins are based on industry manufacturing cost data from 1997-99, so they are below today's true costs. Without an update to reflect current costs, many cheese, butter and powder plants are forced to operate at a loss, because they don't have the margins to cover all the costs necessary to run their operations.

USDA conducted a four-day public hearing in January to consider changes to the make allowances after receiving an urgent request for an emergency hearing by Agri-Mark Dairy Cooperative. NCI and several other dairy cooperatives supported this request for relief from dramatic increases in energy and transportation costs.

But in June, the department announced plans to reconvene a national public hearing that delayed a final decision on make allowances. Many in Congress and the industry, including IDFA, viewed the delay as unwarranted and unnecessary, given the amount of data the agency already had gathered at the January meeting.

IDFA will continue to press USDA to expedite its decision-making process and update the make allowances without further delay. For more information on the hearing or the brief, contact Yonkers at or 202-220-3511.

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Posted October 2, 2006

Dairy Delivers