Dairy Talk: Dead on Arrival

May 10, 2011 08:36 PM
 
Jim Dickrell
JIM DICKRELL is editor of Dairy Today. Send him your comments via e-mail.

The International Dairy Foods Association’s (IDFA) proposal for reforming the Federal Milk Marketing Orders is dead on arrival. The only way it makes sense is as an opening gambit for negotiating away undesirable portions of the National Milk Producers Federation’s Foundation for the Future (FFTF) plan.

The IDFA proposal calls for the elimination of minimum class prices and end product price formulas, and the phaseout of Class I differentials over six years. After that, only Federal Orders auditing functions would remain.

Yes, FFTF would also end product price formulas and make allowances for Class III milk. And it would do away with minimum prices in Class II, III and IV. But that’s where the similarity ends. Recall when FFTF proposed doing away with just the "higher of" Class III and IV prices in setting Class I minimum prices. The Dairy Cooperative Marketing Association, made up primarily of Southern dairy co-ops, almost came unglued.

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IDFA's Dairy Proposal

Had the "higher of" provision not been in place, dairy producers who share in Class I proceeds would have lost on average 48¢ per cwt., or $213 million per year. That’s a big chunk of money, but chump change if you phase out Class I differentials. If you assume the average Class I differential is $3 per cwt. and annual Class I sales are 45 billion pounds, the complete phaseout of those differentials would cost about $1.35 billion.

Doing away with minimum class prices makes sense in some respects. It would allow surpluses to clear more quickly. More importantly, it would allow for better dairy product innovation. Classified pricing and unbending product definitions often prevent truly innovative products that would and could compete with dairy imitators.

The political reality—given producer margins that are break-even at best and price volatility that seems to increase monthly—is that dairy producers simply refuse to give up any control of the market they now hold.

Federal Orders give them that last vestige of market power. There’s no way they will relinquish it. And really, who can blame them?

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