Dairy Industry’s
ROSEMONT, 111. Because of
milk’s nutritional importance to
American citizens and its
perishability and fluctuations in
supply and demand, it has become
the most regulated of farm com
modities. To ensure an adequate
supply of fresh milk, the govern--
ment has three dairy programs:
federal milk marketing orders, the
minimum price support program,
and import restrictions.''
Despite depressions, wars,
changing administrations and
-constant court challenges, the milk
marketing orders have operated
successfully for more than 40
years, reports the United Dairy
Industry Assn.’s house publication.
From this Corner.
Milk marketing agreements
under the Agricultural Adjustment
Act of 1933 evolved into the first
marketing order in 1936 in the St.
Louis market. A milk marketing
order establishes mimmum pnces
milk buyers must pay for milk
purchased from dairy farmers.
These prices have to be high
enough that dairy farmers can
afford to produce sufficient milk
for the public. And an order also
spells out terms and conditions for
transactions so they're known in
advance by both seller and buyer.
8y'1962, the number of federal
milk orders has risen to 83.
Today, because of con
solidations, that' number has
declined to 47. During 1980, more'
than 117,500< dairy
delivered milk to handlers
regulated under federal milk or
ders. These producers accounted
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for two-thirds of all the milk
marketed in the United States.
Currently, 83 percent of the
nation’s milk supply is fluid grade
and about 44 percent of all milk
sold is used in fluid products.
From This Corner notes that
farmers produce more fluid grade
milk than is consumed in fluid
form because of fluctuations in
supply and demand. The Grade A
fluid milk in excess of what is
needed for and for “soft”
products is ' channeled into
production of butter and cheese
that can be stored.
The publication also points out
that all federal orders classify
milk on the basis of its use. One
classification includes milk used
for fluid products; the other in
cludes milk used for manufactured
products. In all federal orders,
milk used as fluid milk is Class I.
Many orders defme milk used for
perishable (soft) products such as
cottage cheese, yogurt and sour
cream as Class IT. Cheese, butter
and dry milk products go into Class
HI.
Federal orders also provide for
pooling and payment of a uniform
or blend price to dairy farmers.
This blend price is determined by
classifying all milk according to its
use. Then the Class I, II or 111
prices are applied to the volume pf
milk in each class. The proceeds
from all this milk ard totaled and
this money is the pool to be
divided.
farmers
Each producer in that market
area is paid a share of that pool.
This share represents a weighted
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average of the class prices applied
to the amount of milk - each
producers "has contributed. This
blend price is sometimes referred
to as the farm price.
What about the handlers or milk
buyers? Handlers have to pay
more for milk used in Class I than
for milk used in Class II or 111. And
the average price they pay also
depends on how they use the milk.
So handlers pay more than others,
yet all handlers must pay the
farmer the same amount. This
variance is corrected by „an
equalization fund that
redistributes money to handlers
who owe less than they paid for
milk.
How are milk prices paid to
dairy fanners determined? Prices
paid by milk companies to dairy
farmers for milk to be bottled
(Class I) increase as the distance
increases from Minnesota and
Wisconsin. These states are the
nation’s center of milk surplus
relative to local demand. Milk can
be shipped anywhere from Min
nesota or Wisconsin by paying
transportation costs. Therefore,
Class I prices thrbughout most of
the country tend to approximate
Minnesota and Wisconsin Class I
prices, plus transportation costs.
There is no federal order in
California where milk supplies are
adequate for local bottling needs.
' Under the federal milk order
program, prices are established in
the various markets by formula
pricing, the basic formula price for
a given montb-is the Minnesota-
Wisconsin manufacturing milk
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explains milk orders
price that reflects supply and
demand conditions in the entire
dairy industry. This price is for
Grade B milk that hasn’t been
quality inspected for use in the
bottle. Farmers are paid a higher
price to produce'Grade A milk
(quality-inspected for use in the
bottle) because of additional costs
in producing it. The pricing for
mula provides for a two-month lag.
So by watching the minimum Class
I price and the Minnesota-
Wisconsin price, the minimum
Class I price in that specific order
can be determined 60 days in
advance.^
Do milk marketing orders
stabilize the milk market? From -
This Corner states “yes” em
phatically.
Prices established under federal
orders are stable. They reflect
supply-demand situations and
changes in one order’s prices
would be made in the context of a
system of prices of all 47 markets.
But federal orders do not control
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or determine the use of milk.
Processors do that based on an
ticipated orders from their
customers. And these orders do not
set the prices consumers pay for
milk and dairy products at retail
outlets. Retail prices for dairy
foods are subject to transportation
and distribution costs plus the
competitive situation in each
market.
From This Conner emphasizes
that marketing orders do not
regulate producers. They came
into being only with the support of
producers and can be amended or
changed only if the amended order
is approved by producers. Ad
ditionally, the law requires the
Secretary of Agriculture to ter
minate an order if more than one
half the producers involved
request it.
Today and tomorrow the federal
order program must continue to be
flexible so that changes can easily
be made to meet changing con
ditions in the marketplace.
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