A3O-Lancaster Fanning, Saturday, June 22, 1991
Multiple Component Pricing In Order 4 To Bring Gains, Losses
KARL BERGER
Special Correspondent
WASHINGTON, D.C. A
recent decision by the U.S. Depart
ment of Agriculture to implement
a multiple component pricing sys
tem in Federal Order 4 would
mean small price gains for roughly
half of Middle Atlantic area dairy
men and small losses for the other
half, according to area cooperative
officials familiar with the details of
the decision.
The recommended decision,
announced in May by Daniel
Haley, administrator of USDA’s
Agricultural Marketing Service, is
not final. The department has soli
cited comments, which it will
review before issuing a final deci
sion, probably in early September,
according to Constance Brenner, a
USDA official. Assuming approv
al of the revised order by the bloc
vote of the cooperatives operating
in Order 4, the change would
become effective sometime
between November and January,
she said.
The new system would include
the level of nonfat milk solids in
the calculation of both producer
PennAg Names
Scholarship Winners
EPHRATA (Lancaster Co.)
PennAg Industries Association, an
Ephrata-based agribusiness trade
organization which represents
more than 500 firms, has recently
announced the winners of its first
scholarship awards.
The PennAg Scholarship Fund
was created for the benefit of the
children of employees of PennAg
members. The fund is supported
by fund-raising activities, includ
ing its “Divots for Degrees” golf
tournament, and membership
donations.
The 1991 award recipients are
Tracey L. Weaver, Brownstown,
Pa. and Jennifer R. Leer, Markle
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and processor prices under the
order, which regulates milk mark
eting in the metropolitan areas of
Baltimore, Philadelphia and
Washington, D.C. The current,
longstanding system determines
prices solely on the basis of vol
ume and butterfat content.
It would be, in the jargon of milk
marketing, “revenue neutral.”
Under the new system, there
would be no change in the total
amount of money paid by proces
sors to producers, according to Jim
Fraher, an economist for Atlantic
Dairy Cooperative.
However, farmers whose milk
contains more than the average
level of nonfat solids in the order
stand to gain a few extra cents per
hundredweight from implementa
tion while those marketing milk of
below-average solids content
would lose a few cents. In a study
conducted by the Order 4 market
administrator’s office in March
1988, milk produced by roughly
two-thirds of the 6,300 or so regu
lated dairymen fell within 10 cents
of current prices.
“Half will get more; half will get
less,” said Boyd Cook, general
ton, Pa. Weaver is the daughter of
Larry L. and D. Jean Weaver and is
a 1991 graduate of Conestoga Val
ley High School. She wil be
attending Millersville University,
Millersville, where she will major
in elementary education. Leer is
the daughter of Benjamin F. and
Judith L. Leer and is a 1991 gradu
ate of Rockwood Area Senior High
School. Jennifer will be attending
Conemaugh Valley Memorial
Hospital School of Nursing,
Johnstown.
For additional information
about PennAg or the scholarship
winners, call (717) 733-2238.
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manager of the Middle Atlantic
Division of Dairymen Inc.
The nonfat solids provision
would work something like the
current butterfat differential does.
But, Cook noted, the proposed
nonfat solids “differential” differs
from its butterfat counterpart in
that its base point would not
remain fixed (as the butterfat base
point does at 3.5 percent). Rather,
it would fluctuate with the average
nonfat solids content of milk
pooled in the order, which will
tend to vary by season. Cook said.
The change also could affect a
couple of cooperative-sponsored
premium programs. Atlantic cur
rently segregates a small volume
of high solids milk from certain
producers to sell to Dietrich’s Milk
Products Inc., a powder processor.
If the order implements multiple
component pricing, these farmers
would get their premium, in effect,
through the order without having
to segregate their milk, Fraher
said. Dairymen runs a similar
program for producers who supply
high solids milk to a cheese plant
in Hancock, Md. In this case, Cook
said, the implementation of the
new pricing may not remove the
incentive to continue a premium
based on protein.
Processors who buy Class I milk
for fluid use would not be affected
by the change. But handlers buy
ing Class II or IB milk for manu
factured products would have to
lake account of nonfat solid levels
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and pay a premium for shipments
of above-average milk.
The change is supported by the
four major cooperatives in the
market—Atlantic, Dairymen Inc.,
Maryland and Virginia Milk Pro
ducers Cooperative Association,
and Valley of Virginia Coopera
tive Milk Producers Association
which, together, control more
than 90 percent of the order’s raw
milk supply. And it has elicited
little opposition from processors in
the market, according to Fraher.
The four cooperatives, under the
banner of the Pennmarva Dairy
men’s Federation, originally
requested the multiple component
pricing plan in the spring of 1990.
USDA officials heard testimony
on the issue at a two-day hearing in
Philadelphia last summer. The
only opposition to the proposal
there came from representatives of
the National Farmers Organization
and two firms, Kraft General
Foods and the Dean Foods Com
pany, that buy a small amount of
Order 4 milk for cheese produc
tion. These witnesses favored the
use of protein rather than nonfat
solids in any multiple component
pricing plan for the Middle Atlan
tic market.
The Pennmarva proposal is
based on a multiple component
pricing program in effect in the
Great Basin Federal Order in Utah.
That plan does use protein rather
than nonfat solids as its additional
pricing component, but local con-
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ditions differ, Fraher noted.
Fraher, who testified for Pen
nmarva at the Philadelphia hear
ing, characterized the choice of
nonfat milk solids primarily as “a
producer distribution issue.” Most
handlers would find the prices they
pay unaffected by the new system,
he said. Among local buyers of
Class II and 111 milk, the majority
make products, such as milk pow
der and ice cream, whose yields
depend more on nonfat-solids than
on protein content Less than 10
percent of the milk pooled in the
order is used in cheese production,
for which the yield relationship
favors protein.
Under a protein-based system,
the spread between “winners” and
“losers” would be much wider than
it would be under the solids-not-fat
standard, Fraher noted. Given the
lack of incentive for such a stan
dard from the handlers’ perspec
tive, Pennmarva officials could not
justify these wider swings in pro
ducer returns, he said.
Implementing the multiple
component pricing plan will better
reflect consumers’ preference for
lower-fat dairy products, accord
ing to Bob Yonkers, a Penn State
University economist. The well
documented gains in consumption
of skim or low-fat dairy products
has the effect of boosting the value
of the nonfat components of milk,
but this increased value generally
has not been realized at the farm
level.
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