The Agriculture Department is moving to reverse a change to milk pricing that was made in the 2018 farm bill that was subsequently blamed for a drop in prices received by producers.
The Agricultural Marketing Service announced a final decision Tuesday in a rulemaking procedure requested by the dairy industry. None of the changes would take effect until the agency conducts referendums in each of the 11 milk marketing order regions.
The final order, issued in the form of a proposed rule, is in line with a proposal released in July. Most significantly, USDA is restoring a rule that makes the Class 1 (drinking) milk price the higher of the price of Class 3 (milk sold for cheese) and Class 4 (butter and milk powder) for the month, plus a differential that varies by location. The location differentials also were updated.
The 2018 farm bill had fixed the Class 1 price at 74 cents above the average of the Class 3 and Class 4 prices.
The National Milk Producers Federation initially supported that change but later reversed its policy and petitioned USDA to reverse the change. NMPF estimates the farm bill change led to $1.3 billion in losses to farmers.
In an analysis of the referendum process, the American Farm Bureau Federation said the producer voting could result in different outcomes in different regions.
“Each FMMO votes individually, meaning the outcome in one order only impacts that specific order. This could lead to some orders accepting the changes while others are terminated. USDA contends that terminating an order following a 'no' vote is the correct interpretation of the Agricultural Marketing Agreement Act of 1937 (AMAA),” the AFBF analysis says.
The final order also includes a separate new pricing formula for milk with an extended shelf life, which includes products such as ultra-filtered Fairlife milk.
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The new formula, like the 2018 farm bill modification to the pricing formula, is supposed to remove volatility in pricing for a product that is purchased and marketed over a longer period than conventional fluid milk. ESL products represent about 8% to 10% of the fluid milk market.
All 11 of the FMMO regions would have seen increased revenue from fluid milk from 2019 through 2023 under the final order, ranging from $54.4 million in Arizona to $852.6 million in the Northeast, according to an economic analysis released by AMS. The increase across all regions would total $3.9 billion.
The final decision also drops 500-pound barrel cheese from a report used to track average cheese prices, a change that will benefit producers.
The final decision updates make allowances to 25.19 cents a pound for cheese, 22.72 cents for butter, 23.93 cents for nonfat dry milk and 26.68 cents for dry whey. Make allowances are deductions for processors' cost of manufacturing Class 3 and 4 products. The existing make allowances, set in 2008, are 20.03 cents for cheese, 17.15 cents for butter, 16.78 cents for nonfat dry milk and 19.91 cents for whey.
“USDA’s proposal largely resembles its preliminary decision, as was expected," said Gregg Doud, president and CEO of NMPF. "We appreciate the department’s comprehensive approach and its incorporation of NMPF proposals throughout. Dairy farmers and the entire industry will benefit from a modernized approach, and it’s gratifying to see needed modernization being put before farmers for their final approval.”
Sen. Kirsten Gillibrand, D-N.Y., welcomed the final order. “The ‘higher of’ Class I mover was in place for nearly two decades prior to it being modified in the last farm bill, and despite the best of intentions, the current formula has not performed as intended and has cost dairy farmers over a billion dollars nationwide," she said in a press release.
