USDA Final Decision on Large Producer Milk Bottlers Levels Playing Field for Dairy Farmers - March 1, 2010
The U.S. Department of Agriculture issued its final decision February 26, 2010 to limit the unfair pricing exemption enjoyed by large, vertically-integrated farmer-owned bottling plants, which according to NMPF will close the loophole for the largest “producer-handler” milk bottlers.
Under rule changes published in the Federal Register, the producer-handler definitions in all Federal Milk Marketing Orders will be amended so that only farms with bottled milk sales of three million pounds or less per month remain exempt from the pooling provisions. Producer-handlers with sales more than that will be treated the same as other bottling operations that don’t own farms, and will have to pay Class I differentials into the shared producer revenue pool effective in their respective Federal Order regions.
“This decision by USDA is the culmination of years of work by National Milk and our members to create a level playing field for milk bottlers, which ultimately benefits dairy farmers of all sizes,” said Jerry Kozak, President and CEO of NMPF. “The USDA has acknowledged that it’s time to close a loophole that was really intended to benefit small producer-handlers, not those as big as any other commercial milk bottling plant.”
NMPF issued a press release in response to USDA's decision.
NMPF Comments on Producer-Handler Recommended Decision - December 21, 2009
In comments submitted to USDA's Agricultural Marketing Service (AMS), NMPF expressed support for a decision to eliminate the exemption that had previously been afforded to producer-handlers from certain pricing and pooling provisions of federal milk marketing orders. An easily-corrected loophole in the language would establish a 3-million pound cap on producer-handlers. NMPF argued that additional restrictions should be placed on producer-handlers, including unique ownership, unique labeling, and a clarification that a producer-handler can only consist of one farm and one plant.
The comments are available here.
NMPF Sees Success on Producer-Handler Issue - October 21, 2009
One of NMPF’s major priorities coming into 2009 was to stop large producer-handlers from getting an unfair pricing advantage for bottling milk and robbing Federal order pools of Class I income at the expense of other producers and processors. NMPF and the International Dairy Foods Association (IDFA) jointly petitioned for new limits on these handlers, USDA held a hearing in May, and NMPF led the case for change.
Under present rules, a milk bottler of any size can avoid paying into the Federal order pools in its market if it produces all of its own milk. This regulatory exemption provides a large pricing advantage, and reduces average pay prices for other producers.
On October 21, 2009, USDA published a recommended decision in the Federal Register that would limit this exemption to plants with less than 3 million pounds of total monthly bottled milk sales. It would also tighten the requirements in the Arizona and Pacific Northwest markets, which previously had limited producer-handlers to 3 million pounds of sales in each market. Once final, this ruling will accomplish what NMPF sought in its initial petition: to stop about a half-dozen large producer-handlers from cherry-picking Class I milk sales at the expense of other producers in Federal order pools, and to discourage other handlers from growing through the use of this unfair exemption. These plants will contribute to the pool just like any other large Class I handler.
NMPF’s original proposal called for the entire elimination of the producer-handler provision, based on its basic unfairness to other plants and producers participating in the Federal order system. As a compromise that addressed the concerns of small producer-handlers, NMPF also supported an expansion of the small plant exemption and a limited grandfathering for existing producer-handlers. The compromise chosen by USDA is much simpler and but supports NMPF’s underlying position and frequently cites NMPF testimony in its conclusions.
“This is a clear success for our members and their customers,” said NMPF CEO Jerry Kozak. “It is only fair to put these large producer-handlers on even terms with the rest of the industry.”
Comments on the decision are due on December 21, 2009, and according to the timelines required under the last Farm Bill, a final decision would be due February 22, 2010. This was the first hearing initiated under new timelines advocated by NMPF in the latest Farm Bill.
Please contact Roger Cryan in the NMPF office with any questions.
The record of the hearing can be found here.
USDA Issues Interim Final Rule Amending All Federal Milk Marketing Orders - July 31, 2008
After several public hearings were held and dairy farmers in all 10 Federal milk marketing orders approved of the decision, USDA announced a new interim final rule that amended the Class III and Class IV product price formulas in all Federal milk marketing orders. The interim rule was published in the July 31, 2008 issue of the Federal Register.
NMPF Reaction to Change in California Whey Pricing Formula - December 12, 2007
NMPF expressed concern with the state of California's decision to adjust its state pricing regulations.
Testimony on Class III & IV Make Allowances - February 26, 2007
View this PDF to read the full testimony given by Roger Cryan.
Overview and Description of the Federal Order System
Overview: Although often described as a complex program, the Federal Milk Marketing Order system is simply a way to ensure that dairy farmers are paid relatively uniform prices for their product. The Federal Order program, in essence, establishes a minimum wage for each and every dairy producer within a given geographic region – although the level of that wage does vary according to the supply and demand market forces that farmers have to contend with on a regular basis.
Because of the uniquely perishable nature of fluid milk, and the fact that milk flows from cows to consumers on a daily basis, the marketing system for the product must be sensitive to the needs of both farmers and consumers. Federal Orders are used to stabilize the process of buying and selling of fluid milk, so that farmers, processors and consumers can have a safe, reliable and affordable supply of milk.
Description: A Federal Milk Marketing Order is a regulation, issued by the U.S. Department of Agriculture, which requires the buyer, or handler, of fluid milk to perform certain functions. Fluid milk handlers must pay dairy farmers a certain minimum price for their milk, depending on how that milk is used. Milk going into bottled form is valued at the highest level; milk used for soft goods such as ice cream and yogurt is assessed an intermediate value; and milk used for hard goods like cheese, butter and skim milk powder is valued at the lowest level. A Federal Order also requires that payments to farmers within that particular area be pooled, so that even though one farmer’s product may be bottled, and another’s made into cheese, they each are paid the same uniform price, called the blend price.
The 31 regions of the U.S. regulated by a Federal Milk Marketing Order were reduced to 11 regions as of Jan. 1, 2000. About 70% of all of the milk produced in the U.S. is regulated under a Federal Milk Marketing Order. Those regions of the country that aren’t subject to a Federal Order may have a state milk marketing order (i.e. California), or they may be unregulated.
More information on the Federal Milk Marketing Order program is available on the USDA website.
Milk Market Administrators
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