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Dairy Talk: Feds to the rescue

October 11, 2012
By: Jim Dickrell, Dairy Today Editor
 
 

DICKRELL blueIt’s not without irony that fiercely independent dairy producers out West might be looking to the federal government for help.

That help could come in the form of Federal Milk Marketing Orders. While processors nationwide and large producers in the Midwest would like to see Federal Orders fade away, dairy farmers in California and even Idaho are rethinking their go-it-alone attitude.

Like producers everywhere, Western dairy producers are caught in the grip of historic feed costs driven by the drought, renewable fuels mandates and hungry consumers worldwide.

But unlike those in the eastern half of the country, most Western producers don’t have the Federal Order protections of product formulas and minimum pricing. As a result, California prices are often $1 to $1.30 per cwt below Federal Order uniform prices; Idaho prices have (until recently) been even less.


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In California, the overriding issue is a state pricing formula that doesn’t recognize the full value of whey in producer pay prices. In Idaho, the problem is too much milk and not enough processing capacity. Chobani’s new Greek yogurt plant in Twin Falls is changing that equation—but the benefit could be short-lived if Idaho dairies expand too quickly.

Idaho’s competitive position was the subject of an analysis by Scott Brown, an agricultural economist with the University of Missouri. What he found was not new: supply and demand are the critical factors.

"It’s a fine balance between producers and processors," Brown says. Farmers have to be paid a reasonable price for milk. But processors must remain competitive in both national and international markets.

Idaho is in a unique position because it is so far from other processors. Attracting additional processors—such as Chobani—will help.

"A Federal Order could also help to an extent because local prices would move more in concert with national prices," Brown says.

A marketing agency in common could be helpful as well. "But they only work if all producers work together and all producers pay for it," he says.

The irony, of course, is that in areas of sufficient processor competition Federal Orders are viewed as cumbersome, overly intrusive and an actual impediment to orderly milk movement. See "Life with No Order(s)

Chuck Nicholson, a Penn State dairy economist, did an analysis last spring of what life would be like without Federal Orders.

The overall impact is not as large as one might expect. Keep in mind that in the mid-1960s, nearly two-thirds of milk marketed through Federal Orders went into the bottle. Today, that number is 35%.

Even so, producers would notice a change in their milk checks if Federal Orders went away. If there were an immediate cessation, dairy farm revenue would drop by $5.4 billion over four years.

Nor would the losses be shared equally. Producers in the eastern third of the nation, where Class I utilization is highest, would see the largest price declines.

Should Federal Orders go away? No. Just ask the producers in California and Idaho what life is like without them.

Should Federal Orders be stream-lined? Absolutely. But good luck on getting national agreement on what those reforms should be.

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FEATURED IN: Dairy Today - October 2012
RELATED TOPICS: Dairy, Dairy Talk

 
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