NMPF yesterday submitted a comprehensive proposal for modernizing the Federal Milk Marketing Order (FMMO) program, the product of two years of examination and more than 150 meetings held to build consensus behind change to a program that last saw significant changes in 2000. 

The FMMO program is critically important to dairy farmers and their cooperatives, and our petition offers a balanced approach to updating key federal order pricing formula factors in a measured and equitable way. The proposed updates will improve the program by rebalancing pricing risks that have shifted unfairly onto farmers, by better reflecting the value of the high-quality products farmers create and by creating a mechanism that will better reflect processing costs going forward. 
How did we get here?
NMPF has worked extensively over the past two years with its dairy farmer members and co-op technical experts to examine and modernize the FMMO program. The federation also conducted thorough outreach and consultation with national organizations, including the American Farm Bureau Federation, along with state and regional dairy associations. Earlier this year, NMPF’s Board of Directors gave unanimous approval to the comprehensive proposal. 

Dairy farmers will vote on any proposed changes to the program, and our years-long consensus development effort in the producer community has demonstrated a strong interest in a balanced approach to modernizing the program.
What's in the proposal?
Highlights of our milk pricing proposal submitted to USDA this week include: 

  • Returning to the “higher of” Class I mover: The current Class I mover carries an asymmetric risk versus the previous “higher of” calculation. This means dairy farmers are exposed to unlimited risk on the downside, while benefits to dairy farmers are limited on the upside. This asymmetric risk was exposed during the pandemic-induced market volatility that occurred during 2020. But even after the pandemic, the current mover has significantly underperformed the previous mover, including in 2022 as well.

  • Updating dairy product “make allowances”: Current FMMO make allowances have not kept up with the costs of manufacturing dairy products. NMPF is proposing an interim adjustment to the make allowance for all cheese, whey, butter and nonfat dry milk based on available plant-cost data while acknowledging that such data is itself incomplete and requires a separate solution.

  • Discontinuing the use of barrel cheese in the protein component price formula: Presently, the FMMO formulas weight cheese blocks and barrels about 50/50 in the reports to USDA’s weekly mandatory price survey. But that does not reflect the relative volumes of cheese actually produced and priced by these two forms of natural cheddar cheese. Eliminating barrel cheese from the pricing formula will better reflect the value of producer milk for manufacturing cheese.

  • Updating milk component factors for protein, other solids and nonfat solids in the Class III and Class IV skim milk price formulas: The component composition factors in the FMMO skim milk formulas have not changed since 2000. Since that time, the composition of these milk components has increased, causing a steadily growing understatement of the value of producer milk in all four classes in the four fat-skim pricing orders and Class I milk in all orders.

  • Updating the Class I differential price system: The current FMMO Class I differentials have—for the most part—not changed since they were first implemented in 2000, while the cost of delivering bulk milk to fluid processing plants has increased. As a result, the current Class I differentials have become increasingly inadequate to effectively supply milk for fluid use and are thereby creating disorderly marketing conditions.  

NMPF will pursue two other components of its proposal outside of the federal-order hearing process, as they don’t involve changing federal order regulations. The recommendations, which remain essential parts of NMPF’s modernization plan, are:

  • Extending the current 30-day reporting limit to 45 days through federal rulemaking on forward priced sales on nonfat dry milk and dry whey to capture more exports sales in the USDA product price reporting: Increasing the number of reporting days on these two products will increase the representation of exported volumes of both nonfat dry milk and dry whey while keeping the reporting limit narrow enough to ensure the reports represent current prices.

  • Seeking the authority in the farm bill to ensure the make allowances are regularly reviewed through mandatory plant-cost studies every two years: This would provide information necessary for the industry to consider updating make allowances based on more accurate and up-to-date data. Current FMMO make allowances have not changed since 2008, while costs of manufacturing dairy products used in the FMMO component price formulas have increased. The problem of maintaining proper make allowances in the FMMO pricing formulas is exacerbated by the persistent lack of accurate information relative to costs of manufacturing dairy products. Requiring USDA to conduct regular, mandatory, and auditable plant cost studies and report the results would provide stakeholders with the information necessary to consider requesting hearings to further update make allowances based on accurate and current data. 
What sets our proposal apart?
NMPF’s proposal is the only comprehensive proposal for modernizing the FMMO program, and it’s the only one that is moving forward with a broad consensus among the producer community. Because of this, it’s critical that the proposal be considered as a whole, as each aspect of modernization has implications for parts of the proposal. 
What's next?
Upon official acceptance, the Secretary of Agriculture has 30 days to do one of three things:
  • Accept the request for a hearing and begin the rule-making process by issuing an action plan; 
  • Request additional information to consider whether to initiate the rule-making process or to deny the request; or
  • Deny the request.

If USDA agrees to move forward with hearings based on our proposal, we anticipate they will request that industry stakeholders submit additional proposals. This will be followed by an opportunity for USDA to hear directly from dairy farmers and their cooperatives, as well as proprietary processors and other stakeholders, via a series of public hearings. USDA will then consider all comments before publishing a final decision.

Once the final decision is published, farmers who pool their milk in the FMMO system will have the opportunity to accept or deny the proposed changes in an all-or-nothing vote. Each producer pooling into the FMMO system has a single vote in the process. In past hearings, the farmer-owners of some cooperatives have elected to bloc vote for their membership on FMMO issues.
The FMMO program is complex, and we acknowledge there may be some questions about our proposed package of program updates. NMPF’s National Young Cooperators Program recently hosted a webinar to discuss these proposed changes in detail, and a recording of the webinar is available here. NMPF has also set up an online Q&A to assist our economics experts in delivering timely responses to questions from producers and cooperative staff. 
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