Release Date: March 2007
Restoring Orders
Jerry Kozak
President/CEO
Any institution that plays a decisive role in how more than $25 billion in dairy farmer income is distributed each year is bound to have both its critics and its fans. Increasingly, the Federal Milk Marketing Order system has become a lightening rod in our dairy industry, attracting progressively more pointed jolts about its shortcomings.
So, we at NMPF thought it would be wise to ask our members to reflect on what the 70 year-old system is designed to do, assess whether it is meeting those goals, and offer input on ways to improve the Federal Order system.
Federal Orders are very similar to so many other government programs: they were created to improve the lives of a specific constituency, in this case, dairy farmers. Few would dispute that they have played a significantly positive function in helping establish uniform prices among farms both large and small (thus preventing processors from playing one farm off of another), assigning value to milk based on its end use, making processors accountable for their financial transactions with producers, and last but not least, providing consumers with an adequate supply of fresh fluid milk.
Like any other government program, however, the Federal Order system has also generated some unintended consequences. Pooling regulations across orders have loopholes that some feel are too readily exploited. Classified prices that vary by geography can create a sense of haves and have-nots. Another big challenge is that it can take an interminable amount of time to amend Federal Orders when they need adjusting.
The year-long effort to adjust make allowances last year – a process that is still ongoing, with yet another hearing scheduled next month to review pricing regulations – is a perfect example of the challenges created by Federal Orders. Because of the product pricing formulas used by the current system, any increase in manufacturing allowances that helps improve the profitably of cooperative manufacturing operations results in a lower pay price for farmers. That put many of NMPF's members in the uncomfortable spot of supporting changes that helped cooperatives as businesses at the expense of farmers.
For all these reasons, NMPF is now examining ways to create long-term solutions to the flaws in the current system. We have created a task force that will be identifying shared concerns about Federal Orders, with the goal of coming up with mutually-acceptable prescriptions to treat some of the ailments I've outlined. Our Federal Order task force will be meeting and discussing these concerns in the coming year, with the goal of offering solutions to the rest of the industry, the U.S. Department of Agriculture, and to Congress early in 2008.
Since two-thirds of the nation's milk is priced under the Federal Order regulations, any changes will have a potentially major impact on the finances of cooperatives and farmers. At the same time, our task force is also going to look at how the federal system compares to state systems, such as California's, which many view as nimbler and more responsive (this, despite the fact that 21% of the nation's milk is regulated just by the California order).
My sense from our members is that most see Federal Orders in the same light in which Winston Churchill viewed democratic government. Churchill said in 1947 that “Democracy is the worst form of government, except for all those other forms that have been tried from time to time.” Our task force is going to seek ways to improve upon the basic system we have, since even though the status quo can seem at times to be quite unpalatable, my hunch is that throwing the system out would be equally if not more problematic.
The solution lies not in tearing down, but in building upon the framework that so many co-ops and farmers have spent so many years supporting.
