By Sherry Bunting, June 24, 2022
WASHINGTON — It was a lot to wade through, but after two panels and nearly four hours, many cards were on the table, even if the full deck was not counted.
The U.S. House Agriculture Committee hearing Wednesday, June 22 was a 2022 review of the current farm bill’s dairy provisions. Chairman David Scott (D-Ga.) set the stage with his opening remarks, noting a significant part of the hearing would be devoted to the dairy safety net, namely the Dairy Margin Coverage (DMC), but also to talk about the Federal Milk Marketing Orders (FMMO) to learn if this system is “the best fit for today’s world.
“We want to continue to listen to farmers and navigate the issue for the best approaches to any changes,” he said, setting the next stage for listening sessions.
Those testifying talked about building consensus for FMMO changes, a charge handed down from Ag Secretary Tom Vilsack last December, and again more recently, when he said a consensus agreement by stakeholders on one plan was needed before a national hearing on milk pricing could be held.
On the Class I ‘mover’ change in the last farm bill, USDA AMS Deputy Administrator Dana Coale noted that the change was authorized by Congress after an agreement was reached between NMPF and IDFA to change the ‘higher of’ to a simple average plus 74 cents. This was designed to be revenue neutral, she said, but the pandemic showed how an unforeseen market shock can create price inversions that significantly change this neutrality. (testimony)
Coale noted that “market abnormalities” brought on a situation where Class I was below Class III, which doesn’t typically happen, and this created losses.
On the primary dairy safety net, Farm Service Agency Deputy Administrator Scott Marlow went over the Dairy Margin Coverage (DMC) and explained the beneficial changes that have been implemented since the 2018 farm bill. (testimony)
He noted that supplemental DMC would have to be made permanent in the next farm bill in order for that additional production history between the 2011-13 figure and the 5 million pound cap to be covered in future years.
Dr. Marin Bozic, Assistant Professor Applied Economics at the University of Minnesota gave some long range trends and observed the factors that are decreasing participation in Federal Milk Marketing Orders. (testimony)
He mentioned that a consideration not to be ignored is the status of vibrancy and competition as seen in transparency and price discovery. When asked about proposals to improve this, Bozic said the proposals need to come forward from the industry, the stakeholders, and that the role of academia is to provide numbers, trends, and analysis of proposals, not to decide and determine these marketing structures.
“Farm gate milk price discovery is challenged by this lack of competition,” he said. “If a corn producer wishes to know how different local elevators would pay for corn, all he needs to do is go online or tune in to his local radio station. Dairy producers used to be able to ‘shop around’ and ask various processors what they would pay for their milk.”
Bozic was quick to point out that, “We should not rush to generalize from such anecdotal evidence, but in my opinion, it would also be prudent not to ignore it.”
Where FMMO changes are concerned, Bozic noted some of the broader issues to come out of the Class I pricing change that was made legislatively in the last farm bill. For example in future reforms, when there is lack of wide public debate on proposals, he said: “It increases odds of a fragile or flawed policy design, and lack of grassroots support for the mechanism in changing markets. FMMOs have a comprehensive protocol for instituting changes through an industry hearing process. The Class I milk price formula can be modified through a hearing process.”
From Bernville, Pennsylvania, representing National Milk Producers Federation (NMPF) and DFA, Lolly Lesher of Way-Har Farms shared the benefits of the Dairy Margin Coverage (DMC) program through FSA and other risk management tools through RMA. She said they purchase the coverage at the highest level each year as a safety net for their 240-cow dairy farm. (testimony)
DMC is intended for smaller farms producing up to 5 million pounds of milk annually, but other farms can layer it in with other available tools at the tier one level on the first 5 million pounds or choose to pay the tier two premium to cover more of their milk through that program, but other tools like DRP are also available, Marlow explained.
Turning to the Class I pricing change in the last farm bill, Lesher said the change was an effort to “accommodate a request for improved price risk management for processors, while maintaining revenue neutrality for farmers… but the (pandemic) dramatically undercut the revenue neutrality that formed its foundation.”
According to Lesher’s testimony: “The dairy industry through the National Milk Producers Federation is treating this matter with urgency and is seeking consensus on not only the Class I mover, but also a range of improvements to the FMMO system that we can take to USDA for consideration via a national order hearing.”
Lesher serves on DFA’s policy resolutions committee and she noted that DFA, as a member of NMPF “is actively participating in its process (for FMMO improvements), which involves careful examination of key issues to the dairy sector nationwide… We look forward to working with the broader dairy industry and members of this committee as our efforts advance.”
Representing International Dairy Foods Association (IDFA), Mike Durkin, President and CEO of Leprino Foods Company stressed the “extreme urgency” of updating the “make allowances” in the FMMO pricing formulas. These are processor credits deducted from the wholesale value of the four base commodities (cheddar, butter, nonfat dry milk and dry whey) used in FMMO class and component pricing as well as within the advance pricing for fluid milk. (Leprino is the largest maker of mozzarella cheese in the U.S. and the world. Mozzarella cheese is not reported on the USDA AMS price survey used in the FMMO class and component pricing.) (testimony)
Durkin also noted the importance of making the Dairy Forward Pricing Program that expires September 2023 a permanent fixture in the next farm bill for milk. This program allows forward pricing of milk used to make products in Classes II, III and IV so that longer-duration contracts can be used by this milk when also pooled under FMMO regulation without fear of the authority expiring in terms of the FMMO minimum pricing. (Milk that is used to make products in Classes II, III and IV is already not obligated to participate in or be regulated by FMMOs.)
Lesher also thanked House Ag Ranking Member G.T. Thompson for his Whole Milk for Healthy Kids Act, seeking to bring the choice of whole and 2% milk back to schools. The bill currently has 94 additional cosponsors from 32 states, including the House Ag Chair David Scott and other members of the Agriculture Committee. The bill was referred to the House Committee on Education and Labor.
Other key dairy provisions were reported and questions answered, including a witness representing organic dairy farmers. There’s more to report, so stay tuned for additional rumination in Farmshine and here at Agmoos.com
Recorded hearing proceedings available at this link
Written testimony is available at this link