By Sherry Bunting, published in Farmshine, Feb. 18, 2022
LANCASTER, Pa. — Aside from Federal Milk Marketing Order modifications, Dr. Marin Bozic talked about two other key pillars of reform during his keynote presentation at the Pennsylvania Dairy Summit February 2: Milk check transparency and fairness in milk contracts.
“Everyone prices milk differently depending on what they want you to do,” he said, showing a scattergram of milk check data from various coops and buyers.
“It’s impossible to compare it,” Bozic declared, noting that in Australia, all milk pricing data are public so anyone can see how everyone compares in payment by region. In Ireland something similar is also done, where each buyer’s protein and butterfat price is published as well as a price for the liquid portion.
“They see what different processors pay. They don’t have Federal Orders. This transparency keeps everyone honest,” said Bozic.
He knows about pricing around the world because — in addition to being an associate professor of applied economics at the University of Minnesota — Bozic is founder and CEO of Bozic LLC, a global provider of technology for commodity markets analytics and risk management, with around 100 clients on four continents. He is also an advisor to several dairy trade associations.
“While it’s not easy to switch (milk markets) today, milk check transparency would allow producers to hold boards accountable and hold management accountable,” said Bozic. “Having this information, seeing the patterns, a producer can ask the question: Are you doing everything you can to make sure I am successful?”
Bozic announced his new Milk Check Transparency Report, which he said will be a monthly report generated from producers submitting their milk checks to him. The purpose is to make milk checks easier to understand and to benchmark across processors to improve price discovery.
He has been working on this project with 12 processors, mainly in Wisconsin, so far. The first report is due out in the next few weeks, and the goal is to gain more input covering more buyers in more regions.
He said he hopes to have 90 to 95% of the processors included within the next six months to be able to generate a national Milk Check Transparency Report every month.
Specifically, all data is collected from producers’ milk check statements. The collaboration is confidential and a non-disclosure agreement is signed protecting the producer. Bozic and an assistant input the data. No one else sees the individual milk check submissions.
Once enough data are collected to have a high degree of confidence in the estimates, processors are contacted to offer them the opportunity to validate or comment before publishing.
Bozic has a multi-step process for standardizing the information at national average component levels (4.0F and 3.3P). He appreciates having a document describing how premiums are set by the milk buyer. Representative hauling is also incorporated and other formulas so price discovery comparisons can be made.
“Then we can work with any milk check,” said Bozic.
He said a large number of farms from Washington to Florida and from California to New York are or will be participating in this project, and he urged producers to get involved by writing to him at firstname.lastname@example.org
Bozic was quick to point out there are other considerations and benefits a cooperative or private milk market may provide that go outside the scope of the report. He said the Milk Check Transparency Report is not meant for ranking. Instead, it is a way to look comparatively, so producers can have better market price discovery, input and accountability.
Another goal of the report is to eventually have a calculator option, where a producer can slide the pounds of volume or components, even milk quality, and see how it changes the pricing outcome.
“We are then better able to design risk management,” said Bozic, whose proprietary company owns the intellectual property he developed as the infrastructure behind risk management programs like Dairy Revenue Protection (DRP).
He believes with better information, even the Dairy Margin Coverage can be improved, and the calculators and sliders could allow producers to see how they are paid against a national index allowing them to make changes that would improve profitability and better inform how to manage the price risk they have.
Negative PPDs (producer price differentials) made headlines the past two years, Bozic acknowledged.
“There’s an impression that all this milk was de-pooled and a feeling that processors could have their cake and eat it too,” he said. “The Milk Check Transparency Report puts everyone on notice that whether differentials are positive or negative, they are in there.”
In this way, he said, the report can “promote good behavior in an unregulated way.”
On the variation in how producers are paid, Bozic said a big problem is lack of clarity on how farmers can achieve a better price.
“It’s astonishing to me that processors do not have brochures detailing how their incentives are based so farmers know how to meet them,” said Bozic.
The Milk Check Transparency Report is something Bozic is doing, for free, on his own time. He is not relying on the University of Minnesota. He said he knows he’ll get some ‘hate mail’ but believes it is important.
When asked why he is doing this, Bozic brought his reply to a personal level. He mentioned his mother, who is ailing, saying that she inspired him all his life to help people. He said it is hard for anyone to do this, but that he is fortunate to have built a technology company over the years and believes he is in a position to do something good.
On contract fairness, Bozic noted that Australia has required structures in their milk contracts, but they do not have regulated pricing.
“It’s their contracts that put them on an even keel,” he said.
For example, no cooperative or milk buyer should be able to prohibit their producers from doing third-party milk weight and test samples. Contracts should protect farmers from being ‘failed’ in inspections simply because they are ‘prickly’ or ‘vocal’ producers.
He also noted that in countries, like Australia, milk buyers or cooperatives are not allowed to require exclusivity while also doing two-tiered pricing for base and over-base milk at the same time.
“It’s one or the other,” said Bozic. “When those two lanes cross at the same time, we have a traffic accident.”
“Organizations like ADC and Edge are fighting for some of these interests of farmers, but they need more voices,” said Bozic.
He pointed out that the combination of exclusivity and base programs in the East may be insulating against production growth and surplus.
“That ‘insulation’ may be fine right now,” said Bozic. “But what about 10 years from now?”
What happens to dairy in the Northeast, for example, when processing has been built up everywhere else where production is being allowed, even encouraged, to grow?