The U.S. Department of Agriculture last Friday announced a recommended decision to make milk price regulations consistent for all dairy processors, including producer- handlers who own farms and process milk. USDA based its decision on comments, including proposals from IDFA and the National Milk Producers Federation, gathered last May at a hearing to consider changes to the producer-handler and exempt-plant provisions in all federal milk marketing order areas.

The recommended decision would make producer-handlers with more than three million pounds of Class I sales per month in federal milk marketing areas fully regulated and subject to all pricing and pooling provisions. Currently, only producer-handlers in two federal orders, the Pacific-Northwest and Arizona marketing areas, are limited in the volume of Class I sales they may have without being subject to these provisions.

Unlike other farmers and processors within a federal order area, dairy farmers who process milk from their own farms and market the products themselves have been largely exempt from pricing and pooling requirements. Some of these producer-handler operations have grown quite large in recent years, resulting in millions of pounds of unregulated milk and an artificial cost advantage.

Disorderly Market Conditions

IDFA is pleased that USDA agreed with the testimony of Chief Economist Bob Yonkers, as well as NMPF and witnesses representing member companies of both organizations, that exempting all producer-handlers from federal order pricing and pooling provisions has created and will continue to create disorderly marketing conditions.

"This recommended decision finds that producer-handlers with total Class I route disposition in excess of three million pounds per month enjoy significant competitive sales advantages because they do not pay the Class I price for raw milk," USDA noted in the decision. "While opponents to the elimination of the producer-handler definitions argue otherwise, this decision agrees with proponent arguments, presented by witnesses testifying in support of NMPF and IDFA positions, that the difference between the Class I price and the blend price is a reasonable estimate of the price advantage enjoyed by producer-handlers even if it is not possible to determine the precise level of the advantage for any individual producer-handler."

"As long as USDA regulates milk prices, we believe the rules should apply consistently to everyone," said Connie Tipton, IDFA president and CEO. "Ultimately, we want the rules to be simplified. USDA is currently formulating a dairy advisory group, which we hope will recommend significant reform and simplification of the federal milk marketing orders for everyone."

IDFA and NMPF submitted joint petitions to USDA requesting a hearing to consider such changes on January 30, 2009. USDA called for additional proposals and held a pre-hearing information workshop in March. In April, USDA issued a hearing notice containing 28 proposals that had been submitted by the dairy industry, including two originally submitted by IDFA and NMPF.

The hearing began May 4 and continued for 12 days. Interested individuals were invited to submit testimony and to ask questions of others who testified. USDA then accepted post-hearing briefs for a 60-day period. All other proposals considered at the May 2009 hearing in Cincinnati were rejected by USDA.

60-Day Comment Period

The decision is expected to be published Wednesday, October 21, in the Federal Register, and interested parties will have 60 days from the publication date to file comments. According to the rules of practice governing federal milk marketing order proceedings, USDA then will have up to 60 days to consider all comments and publish a final decision.

After publishing a final decision, USDA will conduct a referendum of affected milk producers in each of the 10 marketing areas within 30 days. At least two-thirds of producers voting in each marketing area must approve the changes recommended by USDA; if the referendum is opposed by more than one-third of producers in any one marketing area, USDA is required to terminate all federal order regulations in that marketing area.

All documents related to this proceeding are available here.