Milk-Pricing Modernization: Consensus Can Help Pick Up the Pace

The thing about any long journey is, even after you’ve come a long way, you still more steps to take.

But with proper preparation and a clear plan, the rest of your journey may be smoother. That’s our hope now that we’ve submitted to USDA our comprehensive proposal for Federal Milk Marketing Order reform.

Without torturing the metaphor further by saying we have the wind at our backs, I will say that our disciplined approach has had encouraging results. More than 150 meetings over nearly two years, with many of the industry’s best minds, including producers of all sizes and in all regions of the country, as well as the cooperative-led processing community, has generated a strong consensus among producers that portends well for the proposal we’ve presented USDA. The Federal Milk Marketing Order system is, in the end, focused on farmers – and we’ve gained unanimity among our producer-leaders in backing this proposal.

And it’s not just us at NMPF. We deeply appreciate the collaborative spirit and helpful conversations we’ve had with numerous national, state and regional groups, including the American Farm Bureau Federation. Many of these groups have their own perspectives specific to their circumstances, and we’ve appreciated the good faith efforts to find consensus. Those conversations have made our proposal stronger as it’s deepened our producer support.

A lot of work has gone into this effort. We have examined the program in great detail and come up with a plan to modernize and update federal milk marketing orders so they can work better for today’s dairy industry. And it’s also important to note, to everyone involved, how much the elements of our proposal rely on one another to succeed.

Take the make allowance, for example – a key priority of our hearing request. That specific portion of federal orders, which helps cover processing costs, is of intense interest to some, but still needs to be addressed in a way that benefits all. The make allowance is important; it hasn’t seen a meaningful update in 15 years. But handling that issue in isolation would have the effect of reducing milk prices to farmers, a non-starter in a program that’s ultimately supported by a vote from producers.

And the make allowance is far from the only issue the USDA needs to address. That’s why we have the make allowance issue in our proposal, but as one of five provisions on which we’re seeking a hearing. Other necessary updates to milk pricing help economically offset our proposed make allowance adjustment, by bringing pricing formulas up-to-date and minimizing disruption to markets.

One example of a needed update is changes to formulas that are based on the composition of milk itself. Key pricing factors are tied to the protein, solids-not-fat and the other solids content of milk. The factors currently in use date to the late 1990s, before the last major change in the federal order program in 2000. A quarter-century later, the protein content, the solids-not-fat, and the other solids content of milk coming off the farm is higher. We need to adjust those factors, because they have an impact on the price that is reported and then, ultimately, paid to producers. That’s one issue.

Another example is Class I fluid milk pricing. Given the example of the pandemic, which showed how a change in the Class I pricing system we supported in the 2018 Farm Bill ended up placing too much price risk on farmers, we’re calling for a return to the “higher of” approach that priced milk off Class III and Class IV prices. While the pandemic exposed the problems with the new formula, the problems occurred last year as well, demonstrating the need to return to the “higher of.”

We’ve also updated the Class I differentials, a fixed price per hundredweight of milk, in each of the 11 federal orders around the country. The fluid market – the bottles of milk you see in the stores – is a higher-cost market to service, and farmers need a federal order system that more accurately reflects costs and manages risks than what we have today, rather than the environment of 2000, when the current Class I differentials were set. Updating differentials and returning to the higher of are key components of furthering the key purpose of the Federal Milk Marketing Order system – to ensure orderly milk markets nationwide.

Returning to the make allowance: While it’s clear that updates to make allowances are needed, it’s also become clear that a fair, lasting solution is going to require sound, higher quality data, from which we then can build producer consensus.

To move toward that outcome, we’re first proposing an interim increase in the make allowance of cheese, whey, butter and nonfat dry milk. This increase already has support from producers, who unanimously endorsed it at our NMPF annual meeting last October. But to go much  further on adjusting make allowances, we need to address the need for solid data, so we can make changes that reflect current conditions with greater certainty than what is now possible.

For that, we need to go to Congress to get authority for USDA to conduct a mandatory manufacturing cost survey. We are going to pursue that in the farm bill, through a provision from Congress that gives USDA the authority to do a mandatory, auditable survey of plants that are reporting their price information to USDA and get further information from them on their manufacturing costs.

By reporting that every two years to the industry, we then can have a mechanism to more regularly update make allowances going forward. That’s important for a truly modernized system. It’s also critically important to get it right, which is why we’re taking the path we’ve chosen.

Modernization of the Federal Milk Marketing Order system has been due for some time, and the pandemic experience, which exposed disorderliness in the system, underscored just how overdue this effort has been and created the necessary momentum for change. Yes, we’ve been deliberate – but we wanted solutions that had benefits for everyone, and we wanted to make sure that we addressed the concern that Agriculture Secretary Vilsack had stated, well over a year ago, when he said it was important to have consensus within the producer community.

We have achieved that consensus. I’ve been very heartened by the strong degree of support for the proposal that we submitted to USDA on Monday. To keep this momentum going, we now need to prepare to make the best case possible before USDA. And we’ll need to maintain the strong consensus we’ve achieved. That’s important for the best outcome, and it’s important for keeping the pledge we made at the outset to pursue modernization that leaves this industry better positioned to meet today’s – and tomorrow’s – challenges.

The key to a successful journey is to prepare well, anticipate the challenges in advance, go in with a plan, and execute that plan without wasting energy. We’ve been dedicated to those principles so far, and they will continue to guide this process. That’s not just how you reach a destination. It’s how you succeed – and in less time than others may have thought possible.

Thank you to everyone who has helped bring us this far. It’s time now to move forward.


Jim Mulhern

President & CEO, NMPF


Dairy Farmer Reinforces Value of Safety Net, Calls for FMMO Update During Farm Bill Hearing

Seventh-generation Pennsylvania dairy farmer Lolly Lesher emphasized the importance of the farm bill safety net program and called for milk pricing improvements today during a House Agriculture Committee hearing. Lesher, a member-owner of Dairy Farmers of America, testified on behalf of the cooperative and the National Milk Producers Federation (NMPF) during a congressional review of dairy provisions in the Farm Bill.

The Farm Bill, a twice-a-decade reauthorization of USDA programs, encompasses a variety of provisions important to dairy farmers including risk management, pricing policy and support, conservation, trade promotion, nutrition and rural development programs.

Lesher thanked Ranking Member G.T. Thompson (R-PA) for his years of advocacy on behalf of dairy farmers in Pennsylvania and beyond, and for his key role in overhauling the dairy safety net during the last farm bill. She also expressed her gratitude to Chairman David Scott (D-GA) for his work and for convening today’s hearing.

Revised at the urging of NMPF in the 2018 Farm Bill, USDA’s Dairy Margin Coverage program offers effective margin protection for small and mid-sized farms and affordable catastrophic coverage for large farms. Lesher, whose family milks 240 cows in southeastern Pennsylvania, said in her written testimony that the program “has provided important security to [her] family’s farm.” She urged the committee to make additional updates to reflect current production, so the program remains a viable safety net.

Lesher also highlighted the need for improvements to the Federal Milk Marketing Order (FMMO) system, as evidenced by the heavy revenue losses incurred by dairy farmers nationwide from a milk pricing change made in the previous farm bill.  “The change made to the Class I mover combined with the government’s heavy cheese purchases cost dairy farmers over $750 million in revenue in the last six months of 2020 alone,” she said.

The dairy industry, under NMPF’s leadership, is seeking consensus on a range of FMMO improvements, including the Class I mover, that can be taken to USDA for consideration in a federal order hearing. “We recognize that for our efforts to succeed, we must all work together, giving a bit to get a bit. It’s just too important for our future,” Lesher added.

“We appreciate the opportunity to share what has worked well—and what needs to be modernized—to meet the needs of dairy farmers in the 2023 Farm Bill,” said Jim Mulhern, president and CEO of NMPF.  “As outlined by Lolly Lesher during today’s hearing, dairy producers need continued access to an effective safety net, flexible risk management tools that protect all farmers, and an update to the FMMO system that addresses the unequal risk dairy farmers bear compared to processors during unusual market volatility. We look forward to our continued work with the House Agriculture Committee and USDA on these and other farm bill priorities in the coming months.”

NMPF Advances Marketing Order Discussions at March Board Meeting

Board Endorses Federal Efforts to Ease Energy Disruptions, Expresses Support for Ukraine

National Milk Producers Federation celebrated strong global demand for U.S. milk in a time of turmoil and asserted leadership in its efforts toward Federal Milk Marketing Order modernization in its two-day March Board of Directors meeting that concluded today.

The first in-person board meeting held in Arlington, VA, since March 2020 provided an opportunity both to look back on dairy’s resilience and look forward to building a better future for dairy farmers, said board chairman Randy Mooney, a dairy farmer from Rogersville, MO, in remarks to the board.

“We’re here today with a strong sense of gratitude” for consumer support of dairy and the ability of farmers to weather challenging times, Mooney said in remarks to the board on Tuesday. “The world needs our product.”

U.S. per capita dairy consumption is at its highest since 1960, and exports reached an all-time high in 2021. Record prices are forecast in 2022.

High on NMPF’s list of priorities for 2022 is leading discussions on updated the Federal Milk Marketing Order system, the bedrock of orderly milk markets in the U.S. As the largest U.S. organization representing dairy farmers, NMPF is taking a deliberate approach toward meaningful modernization, crafting consensus among all sizes and regions, said Jim Mulhern, president and CEO of NMPF.

“We may take the rest of this year to get this all done and get it right,” Mulhern said. “If we can keep a spirit of collaboration going throughout the process, we’re going to end up in a very good place. I’m confident that we’ll have a national federal order hearing proposal that reflects the consensus of our membership and reflects the needs of dairy producers across the country.”

NMPF’s Economic Policy Committee since last fall has been conducting analysis and engaging with farmers on the FMMO system, created in the 1930s and last updated in 2000.

NMPF’s board also discussed the response of agriculture and dairy to the humanitarian crisis in Ukraine and potential resulting volatility in agricultural markets. Board members pledged to seeks ways to assist Ukrainian families and farmers as the fast-developing situation evolves. The board unanimously adopted a resolution calling on policymakers “to immediately take the steps necessary to facilitate increased domestic energy production of all forms” to avoid agricultural supply disruptions at a time of already high and rising input costs.

Other topics ranged from sustainability to supply chains during the meeting, which also featured remarks from Rep. Glenn “G.T.” Thompson, R-PA, ranking member of the House Agriculture Committee. Valerie Lavigne, a dairy farmer from Schaghticoke, NY, and a member of Agri-Mark, also spoke in her new role as chairwoman of NMPF’s Young Cooperators.

New directors welcomed to NMPF’s board included:

  • Rob Byrne, Dairy Farmers of America
  • Chris Sukalski, Land O’Lakes
  • Andy Mason, Land O’Lakes
  • Frank Doll, Prairie Farms