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USDA Holds Hearing on Class I and II Price Formulas

Dec 18, 2006

USDA Holds Hearing on Class I and II Price Formulas

The U.S. Department of Agriculture (USDA) held a hearing last week in Pittsburgh, Pa., to consider changing the Class I and II price formulas to include a considerable increase in minimum regulated prices for both classes. In addition, the National Milk Producers Federation (NMPF), the organization recommending this change to higher Class I and II prices, along with others, urged USDA to issue its decision as soon as possible and to implement it on an emergency basis.

IDFA and many of its member companies also testified in opposition to the proposed changes. Several witnesses representing a coalition of dairy cooperatives in the Upper Midwest also testified in opposition.

"This is a very serious issue with enormous implications for our members," said IDFA President and CEO Connie Tipton.

The hearing was called with less than three weeks notice to consider only proposals submitted by NMPF in a petition it filed with USDA in early October.

The proposals, if adopted, would forever de-link both the Class I and Class II price formulas from the Class III and Class IV price formulas. In addition, the Class I minimum price would increase by 77 cents per hundredweight (6.6 cents per gallon) and the Class II butterfat price by 1.6 cents per pound of butterfat.

IDFA Chief Economist Bob Yonkers and Texas A&M Professor Emeritus Ron Knutson presented opposing testimony on behalf of IDFA. They focused on the following key facts:

While farm milk production continues to grow, utilization of milk in Class I and II continues to decline. In particular, total U.S. fluid milk product sales have been on a downward trend since 1991.

NMPF and others testifying in support of the changes presented no direct analysis of the costs they claimed justified the increase in the Class I and II prices.

USDA's own preliminary economic impact analysis of the proposed changes indicated that adoption of the NMPF proposals would reduce the minimum prices for Class II, III and IV.

The proposed changes would have a net negative impact on dairy producer income in the Upper Midwest marketing area, and appeared to mostly benefit dairy producer income in the Appalachian, Southeast and Florida marketing areas.

Before considering any changes to such a fundamental facet of federal order regulation, USDA should consider proposals from others in the industry, not just NMPF, and allow the time necessary for the industry to fully study the impacts of any potential changes.

There is no basis for implementing an emergency decision.

IDFA member companies testifying in opposition to the proposals included Nestle, Dreyer's, Dean Foods, Galloway, Smith Dairy, Queensboro Farm Products, Prairie Farms, Kraft, Wells' Dairy/Blue Bunny and HP Hood.

The next step in this process will be the filing of post-hearing briefs by interested parties; briefs are due by January 30. USDA will review the testimony and exhibits presented at the week-long hearing as well as the post-hearing briefs before publishing a decision sometime in 2007.

To read IDFA's testimony, click here.

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Posted December 18, 2006

Dairy Delivers