Editorial Comment Publisher/Editor

 

 

Will Dairy Producers Approve Recommended FMMO Changes?

Dick Groves
Publisher/Editor
Cheese Reporter

July 12, 2024


With the US Department of Agriculture having completed Step 9 of the 12-step federal milk marketing order formal rulemaking process for amending a federal order, we thought we’d skip ahead and ponder what might happen at Step 12. This is where this whole process could get mighty interesting.

Technically, there are two parts to Step 12. First, through a referendum process, dairy producers are able to approve the federal order(s) as amended, or reject the proposed changes, effectively terminating the federal order(s).

Second, if approved by producers, the amendment(s) to the order(s) are published in the Federal Register as a final rule. The publication of the final rule announces when the amendment(s) become effective and concludes the rulemaking process.

This got us wondering if there’s a possibility that producers won’t approve the amended orders. There is some precedent for this, here in the 21st century and after federal orders were consolidated starting in 2000.

Specifically, back in 2002, there was a proceeding that involved pooling and related provisions of the Pacific Northwest and Western federal orders. A hearing was held in April 2002, and in August 2003 USDA issued a tentative decision that adopted, on an interim final and emergency basis, provisions that amended certain features of those two orders.

Two months later, USDA ordered that a referendum be conducted to determine whether producers favor issuance of the order regulating the handling of milk in the Western order, as amended in the tentative final decision issued in August. Producer approval couldn’t be determined by a polling of cooperatives, USDA explained.

Then in January 2004, USDA invited comments on the proposed termination of the Western order, because the proposal amending the order had failed to receive the required two-thirds approval in the 2003 producer referendum.

Finally, in late February 2004, USDA published a final rule terminating the Western order, effective April 1, 2004.

Fast-forward 20 years, and we raise the question of whether dairy producers in all 11 orders will end up approving the orders as amended by the final decision that USDA will be issuing, probably sometime late this year.

Why would producers not approve the changes that will be included in USDA’s final decision? Well, if that final decision resembles the recommended decision that USDA released last week, producers in three of the 11 orders will end up with lower pool values than under current rules, according to a “Regulatory Economic Impact Analysis” of the recommended decision prepared by USDA’s Agricultural Marketing Service.

Specifically, the pool value would decline by $129.1 million in the Upper Midwest order, by $238.5 million in the California order, and by $8.2 million in the Arizona order, according to the AMS analysis. Also, the weighted statistical uniform price at actual component tests from 2019 through 2023 would decline by 10 cents per hundredweight in the Upper Midwest order, by 20 cents per hundred in the California order, and by three cents per hundred in the Arizona order.

This analysis would appear to set the stage for the possibility that dairy producers in the Upper Midwest, California and Arizona orders would be better off voting out their federal orders than approving the amended orders. But there are at least three points worth keeping in mind here.

First, this analysis looks at the economic impact of USDA’s recommended decision, not the final decision. It’s highly unlikely that the final decision will be identical to the recommended decision, if for no other reason than industry representatives in the Upper Midwest, California and Arizona orders will likely suggest some changes to the recommended decision, given its expected impact.

Also, for its analysis, AMS used a static analysis to determine the price impacts of the recommended amendments included in the recommended decision. That static analysis operated using several key assumptions, including, among others: the supply response to changes in producer prices isn’t captured; the supply response to changes in handler classified prices isn’t captured; and demand responses to these price changes aren’t captured.

Finally, it’s worth noting that the Upper Midwest, California and Arizona orders are all quite different, in several ways, and that might impact how producers vote in a referendum. For example, Class III dominates the Upper Midwest order (92 percent utilization in 2023), while it also represents close to two-thirds of the milk utilization on the California order (at least in 2023). Utilization is more balanced on the Arizona order.

Also, the California order is relatively new, having been in effect only since November 2018. It’s hard to imagine California dairy producers voting out their federal order so soon after working so long and so hard to establish it.

What all of this adds up to is that dairy producers in the 11 federal orders will soon have a complex and, for many, very difficult decision to make....

 

Dick Groves

Dick Groves has been publisher/editor of Cheese Reporter since 1989. He has over 45 years experience covering the dairy industry. His weekly editorial is read and referenced throughout the world.
For more information, call 608-316-3791 dgroves@cheesereporter.com
https://twitter.com/cheesereporter.


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Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to
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