Guest column: Federal milk marketing orders have never been so popular, or so entrenched

 

By Dick Groves

As difficult as it might be for some to fathom, both California and Idaho are contemplating joining the federal milk marketing order system. If nothing else, this bodes well for the future of federal orders.

At its annual meeting in November, the Idaho Dairymen’s Association (IDA) – which represents all dairymen within Idaho – changed its policy from being opposed to federal and state milk marketing orders to being supportive.

Meanwhile, there have been at least a couple of developments in California. Western United Dairymen hosted an informational meeting on federal orders in September. And, California Dairies, Inc., the state’s largest dairy cooperative, commissioned a comprehensive modeling study of a California federal order. Dairy Farmers of America-Western Area and Land O’Lakes joined CDI in the study.

So what does this all mean for the future of the federal order program? Well, nothing at this point. It will obviously take lots of time and effort to create federal orders for California and Idaho (or for those states to join nearby orders).

Still, we can’t help but think about what it would mean for the U.S. dairy industry if California and Idaho join the federal order program.

For one thing, it would greatly change the federal order program from a statistical standpoint. Among other things, if California and Idaho were each to form their own federal order, it would mean that there are more federal orders at any time since 1999 (the year before federal orders were merged).

Historically, the number of federal orders peaked in 1962, at 83. The number steadily declined until it reached 31 in 1997. Those orders were merged into 11 orders starting in 2000, and the Western order was terminated in 2004. Adding California and Idaho orders would raise the number of federal orders to 12.

Adding those two states to the federal order system would greatly increase the volume of producer milk pooled on federal orders. Last year, about 126.9 billion lbs. of milk were  pooled, just shy of the record set in 2010. This year, due to depooling, it looks like a smaller milk volume will be pooled on federal orders.

California produced about 41.5 billion lbs. of milk in 2011, while Idaho produced about 13.3  billion lbs. If both joined the federal order program, over 180 billion lbs. of milk would be pooled, assuming little or no depooling, sometime in the not-too-distant future.

While the volume of milk pooled on federal orders would skyrocket with the addition of California and Idaho, the percentage of milk used in Class I would plummet. Last year, 35% of the milk pooled on federal orders was used in Class I. California’s Class 1 utilization last year was 13.5%. No figure is available for Idaho’s fluid milk utilization, but considering Idaho’s relatively small population (about 1.6 million people) and high level of cheese production (842 million lbs. in 2011), it would seem that Idaho’s Class I utilization would be pretty small.

So adding California and Idaho to the federal order system would reduce the Class I utilization percentage below 30%, at least.

Beyond these statistics, it’s worth looking at the reasons why dairy producers in California and Idaho are seriously considering joining the federal order program. After all, federal orders are at least occasionally described as a relic from the 1930.

Here’s how the U.S. General Accounting Office (now the Government Accountability Office) put it in a 1988 report: “GAO believes that the premises for milk pricing under  federal orders are outdated.”

Or how about these conclusions from a study published several years ago by economists from four universities: “Virtually all consumers benefit from eliminating milk marketing orders, except for the wealthiest members of the  population ... orphans and young families with small children suffer from milk marketing orders while childless yuppies benefit ... marketing orders are a highly regressive policy tool.”

But perhaps a more important observation about the federal order program, in the context of the California and Idaho developments, comes from a USDA report issued later in 1988: “The current federal milk  marketing order system has important and significant economic effects on the dairy industry.”

It is in fact those “important and significant economic effects” that are generating so much interest in the federal order program in the California and Idaho dairy producer communities.

In California, dairy producers have for several years now been attempting to have the whey factor in the Class 4b pricing formula altered so that California dairy producers receive a cheese milk price comparable to the federal order Class III price.

In Idaho, according to IDA, since the elimination of the Western order in 2004, the price that handlers in Idaho pay for fluid milk has eroded to the federal order Class III price, which for the Boise market is $1.60/cwt. below what it was under the old Western order.

The bottom line here is, quite simply, the bottom line. Dairy producers in California and Idaho see higher pay prices going to farmers in federal orders, and want those higher prices. That’s why, heading into 2013, federal orders have seldom if ever been as popular, or as entrenched, as they are now.

• Dick Groves is publisher/editor of the Cheese Reporter, a weekly newspaper serving the dairy industry. He can be reached via e-mail: dgroves@cheesereporter.com.