WCMA Perspectives | Contributing Columnist

Initiating Federal Order Reform

John Umhoefer executive director of the Wisconsin Cheese Makers Association

April 14, 2023


 

On March 28, 2023, Wisconsin Cheese Makers Association led the dairy industry, calling on the US Department of Agriculture to begin rulemaking and hold a hearing to adjust make allowances in the federal milk marketing order program.

International Dairy Foods Association followed up with a petition in support of this WCMA request. Both documents are available on the USDA AMS Federal Milk Marketing Order website.

WCMA focused on the No. 1 concern of our dairy manufacturer members in filing this petition: make allowances embedded in classified milk prices have not been updated in 15 years, while costs to produce dairy products have soared.

Any argument against proceeding with make allowance updates is self-serving noise: USDA knows make allowances must be accurate.
As the agency stated in its 2008 decision on make allowances: “The accuracy of deriving the minimum value of raw milk is dependent on the accuracy of the commodity sale prices reported and in large part the accuracy of the manufacturing cost factors, or the make allowance factors, that are used in the pricing formulas.”

USDA has options when a petition is filed. The agency has 30 days to issue an “action plan” to complete a hearing in 120 days, or it can request additional information from proponents, or it can deny the request.

An action plan can include USDA soliciting additional proposals from the dairy industry for topics to address at a national hearing. WCMA is certainly open to additional ideas to update federal milk marketing orders.

It’s the urgency of updating make allowances, and the efficiency of a petition with one proposal, that led WCMA to get the dairy industry moving on updates. With this petition filed in early 2023, it may likely be 2025 before the end results from a hearing are in practice in federal order milk pricing.

In February and March 2023, WCMA member cheese producers responded to a WCMA survey seeking percent changes in business costs, reflecting the time frame 2019 to 2022. While make allowances have not been updated since 2008, this survey asked members for cost changes in a more readily-researchable span of time. Those percent change data were averaged (simple average) to produce the following results received from 18 respondents – cheese makers large and small.

• The base wage level at these cheese manufacturing sites rose an average of 20.2 percent from 2019 to 2022;
• The cost of a single-person health policy premium rose an average of 20.9 percent from 2019 to 2022;
• The cost of electricity per kWh rose an average of 14.1 percent from 2019 to 2022;
• The cost of natural gas per MMBtu rose an average of 68.9 percent from 2019 to 2022;
• The cost of cultures used in cheese production rose an average of 15.8 percent from 2019 to 2022;
• The cost of salt used in cheese production rose an average of 18.8 percent from 2019 to 2022;
• The cost of cardboard packaging (bulk cheese boxes) used in cheese production rose an average of 25.8 percent from 2019 to 2022;
• The cost of plastic packaging (bulk cheese bags) used in cheese production rose an average of 36 [ercemt from 2019 to 2022.
Sixteen of the 18 respondents were small businesses as defined by the US Small Business Administration. The respondents are headquartered in six states (producing cheese in those states and additional states).

These significant cost increases are impossible to sustain. Farmer-owned cooperatives in the Midwest are routinely returning dairy farmer payments with significant deductions from federal order uniform minimum prices. Proprietary members of WCMA are absorbing losses, lowering milk price premiums, and attempting to sell specialty cheeses at prices designed to mitigate losses, and/or otherwise failing to invest in plants and facilities. This is not sustainable for the plants, nor for dairy farmers who depend on these plants as outlets for their raw milk.

In its petition to USDA, WCMA is not prescribing a certain level for make allowances. Our Association is simply seeking a hearing.

At the hearing, manufacturers, economists and consultants can illuminate manufacturing cost data for USDA to consider. The hearing process is inclusive, fair and painstakingly thorough. And as it did in 2008, USDA will sift through the facts and update make allowances
. JU

John Umhoefer has served as executive director of the WCMA since 1992. You can phone John at (608) 286-1001 or e-mail John Umhoefer at jumhoefer@wischeesemakers.org

 

The views, thoughts and opinions expressed by Cheese Reporter columnists are theirs alone, and do not necessarily reflect the views of the Cheese Reporter.

 

 

John Umhoefer

John Umhoefer has served as executive director of the Wisconsin Cheese Makers Association since 1992. You can phone John at (608) 286-1001 or e-mail John Umhoefer at jumhoefer@wischeesemakers.org


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