DBA helps lead FMMO taskforce

Among groups’ focus areas are farmer education,
pricing model transparency, proposal for reform

By John Holevoet
Director of government affairs  

DBA, together with Edge Dairy Farmer Cooperative, began a regional effort to examine the Federal Milk Marking Orders (FMMOs) in spring of this year. Farmers and staff from Iowa State Dairy Association, Minnesota Milk, Nebraska State Dairy Association and South Dakota Dairy Producers are also part of this taskforce that is looking at ways to improve the orders and farmers’ understanding of them.

The group has been aided in its work by Dr. Marin Bozic, a dairy economist and professor at the University of Minnesota. Dr. Bozic was already an adviser to the boards of both Edge and Minnesota Milk on dairy economics.

One of the group’s main purposes is helping farmers better understand their milk checks and the pricing structure that is central to their businesses, even though it is notoriously complicated. Taskforce members helped to coordinate and produce a great deal of educational content, including an ongoing webinar series. This trove of FMMO information can be accessed through Edge’s website, voiceofmilk.com. Simply click the resources tab and choose Federal Milk Marketing Orders.

The taskforce is also drafting an educational piece that will touch on FMMO history and will focus on the practical consideration of what benefits farmers derive from the federal orders and what the future utility of the orders will be given the changing market landscape. Frustration with the orders often leads to calls to eliminate them without considering how they are still beneficial and what we could expect to come after.

Another of the group’s priorities is promoting a more transparent pricing model. It is ridiculous to think that many dairy farmers do not truly understand their milk checks. The taskforce is examining both formal (requiring a change in law or order structure) and informal (voluntary moves by farmers and/or processors) ways of combatting this lack of clarity. It simply should not be as complicated as it is and the system itself suffers because of that. When farmers do not understand the oddities of the pricing model, it makes them mistrust the system and their processors. No other ag commodity has as obscure of a pricing model.

The need for a regional group to take a deep dive into the policies surrounding milk pricing has existed for years, but the effects of COVID-19 have made it even more necessary and timely. The impact of the pandemic and government attempts to address it caused unprecedented market disruptions. Farmers in various parts of the country continue to deal with lost revenue from negative Producer Price Differentials (PPDs). In addition to helping to inform farmers about the real causes of negative PPDs, the taskforce looked at ways to help minimize their impact in the future.

Five of the six organizations involved with the taskforce endorsed a proposal called Class III Plus. It calls for the elimination of advanced pricing. Also, the Class I mover would be replaced by a system where the Class I price would be based on the Class III price plus an adjuster. The adjuster would be equal to the average of the monthly differences between the higher of Class III and Class IV skim milk prices, and the Class III skim milk price during the prior three years (August through July). The adjuster would also have a temporary floor for a few years to help farmers reclaim some of the revenue lost to negative PPDs during the pandemic.

This proposal would improve risk management and hedging opportunities for dairy farmers and processors. Also, linking the Class III and Class I prices would reduce the appeal of depooling for processors. Most importantly, it would also reduce the chances of negative PPDs going forward. The Class III Plus proposal is the only significant plan put forward that would tackle the issue of negative PPDs over the long term.

Even though addressing the impact of negative PPDs was top of mind, the taskforce is also looking at other ways to improve FMMOs. While all the members of the taskforce may not agree on every strategy, much is gained by simply working through the different options available to dairy farmers seeking reforms. The idea of an academic study of milk pricing was also raised at a recent congressional hearing on milk pricing. This could also be a worthwhile incubator for ideas.

The taskforce will wrap up its work by the end of the year. However, there is hope that this will be the first of many regional collaborations. In the end, the taskforce will allow DBA and Edge to be well-positioned to represent our members’ interests in the event a federal order hearing is requested or during discussion of milk pricing as part of the next farm bill.