USDA Seeks Comment On Federal Order Consolidation
RICHARD M. MCKEE
Director
Dairy Division, USDA
WASHINGTON, D.C. The
1996 Farm Bill mandates that the
current 32 Federal milk marketing
orders be consolidated into 10 to
14 orders.
As part of this consolidation
process, the U.S. Department of
Agriculture is actively reviewing
all aspects of federal orders and is
considering possible options for
improving the current system.
Although not mandated, the
Department is considering various
changes t& the Class I price struc
ture, classification of milk provi
sions, and as part of Vice Presi
dent Gore’s National Performance
Review Regulatory Reform
Initiative, simplifying, modifying,
and eliminating unnecessary dif
ferents in order provisions.
Three reports are available that
discuss these issues in detail. A
summary of each report has been
enclosed for your reference.
Copies of the price structure
report, consisting of a summary
report and a technical report, clas
sification report, and identical
provisions report can be obtained
from the Dairy Division, AMS/
USDA, Room 2968, South Build
ing, P.O. Box 96456, Washington,
DC 20090-6456, (202) 7204392.
These reports can also be
obtained from any Market Admi
nistrator office or via the Internet
at http://www.usda.gov/ams/
dairy .htm under the “Federal Milk
Order Reform” heading.
These reports were drafted by
the Agricultural Marketing Ser
vice’s Dairy Division.
The reports contain sugges
tions, ideas, and initital findings to
provide a focal point for develop
ing proposed rules to implement
the order consolidation required
by the 1996 Farm Bill.
Industry and public input on the
reports and the submission of
ideas or suggestions on any aspect
of the regulatory program are
requested.
We request that all ideas or sug
gestions be mailed to the Dairy
Division at the above address or
E-mailed to Milk_order_Reform
@usda.gov by June 1, 1997,
although they will be accepted
throughout the entire process.
As addressed in my Memoran
dum to Interested Parties on Oct.
24, 1996, interested parties are
specifically invited to provide
input on the probable regulatory
Sheep Show,
At Derry Ag
BLAIRSVILLE (Indiana Co.)
The 1997 Natural Colored
Wool Growers Association
(NCWGA) Region 5 Sheep Show
and Sale will be held at the Derry
Agricultural Fair in Derry from
July 7-12.
Derry Fair is located off Rt. 22,
10 miles south of Blairsville.
The sheep show is scheduled
Tuesday, July 8 at 10 a.m. There
will be four NCWGA classes:
Fine, Medium, Long Wool, and
Aged Class. Grand champions will
be chosen in each class. The aged
class is an addition to the Derry
Fair. All entries must be NCWGA
registered. The entry fee is $1.50
per animal.
For the NCWGA Breeding
Sheep Sale, for lamb ewes, rams,
aged ewes and rams, sale entry fee
is $l2 payable to the Derry Ag
impact of Federal order changes
or modifications on small
businesses.
A dairy farm is defined as a
“small business” if it has a gross
revenue of less than $500,000 per
year, and a handler is a “small
business” if it has fewer than 500
employees.
To obtain additional informa
tion regarding small business
input, please write to the above
address or access information at
the Internet address.
Summary Of
Pricing Options
Several options for modifying
Class I pricing under the Federal
milk market order program, repre
senting a spectrum of views, are
discussed in this summary report.
The accompanying technical
report summarizes all of the com
ments and proposals received by
the Department related to Class I
pricing under Federal orders.
Most Class I pricing concepts
that were suggested would con
tinue to employ a market-driven
basic formula price (BFP), with an
added differential.
Differentials are a composite of
one or more of the following ele
ments: 1. a fixed component; 2. a
location adjustment; 3. an adjustor
relating to utilization; or 4. the
cost of balancing the market.
Based on the pricing concepts
received, the following options
were developed.
Option IA. Location-Specific
Differential—s 1.60 per hundred
weight fixed differential for three
surplus regions (Upper Midwest,
West, and Southwest) within a
nine-zone national price surface,
plus for the other six zones, an
added component that reflects re
gional differences in the value of
fluid and manufacturing milk.
Option 18. Modified Location-
Specific Differential Option
$l.OO par hundredweight fixed
differential plus an added compo
nent that reflects the cost of mov
ing bulk milk to deficit markets.
Option 2. Relative Use Differ
ential $1.60 per hundredweight
fixed differential plus a formula
based differential driven by the
ratio of Class I milk to all other
uses of milk.
Option 3A. Flat Differential
Option $1.60 per hundred
weight flat differential, uniformly
applied across all orders to gen
erate an identical minimum Class
I price.
Option 38. Flat Differential
Modified by Class I Use $2.00
Sale
Fair
Fair. The sale is scheduled Friday,
July 11. Entry deadline is June 25.
Also scheduled is the NCWGA
Wool Fleece Show. A private trea
ty on the sale of fleeces is offered.
Exhibitors must indicate weight,
price, name, address, phone num
ber, breed of sheep, and sex this
information should be labeled on
your fleece. There is no entry fee.
Every NCWGA member is wel
come. Region 5 comprises Pen
nsylvania, Delaware, Virginia,
Maryland, West Virginia, and
North Carolina.
For entry forms, contact Can
dace Buike, Region 5 Director,
Burke’s Little Twenty Sheep
Farm, 383 Iron Bridge Rd., Free
port, PA 16229. (412) 295-4928.
Send entries to Dave Durika, Der
ry Ag Fair, NCWGA Show and
Sale, RD#3, Blairsville, PA 15717,
(412) 694-8113.
per hundredweight differential in
markets where Class I utilization
is less than 70 percent on an annu
al basis and a differential equal to
$2.00 + $0,075 (Class I use %
70%) in markets where the Class I
utilization is equal to or exceeds
70 percent
Option 4. Demand-Based Dif
ferential $l.OO per hundred
weight fixed differential plus a
transportation credit based on
location of reserve milk supplies.
Estimated Class 1 differentials
are presented for each option to
provide a preliminary basis for
determining impacts that may
occur. The report provides esti
mated differentials for the sug
gested 10 consolidated orders and
for the current 32 Federal milk
marketing orders.
The report concludes by solicit
ing comments on the options pre
sented and poses a series of ques
tions for the public to address
when submitting comments back
to the Department on the issue of
Class I pricing.
Summary Of
Classification Report
The Agricultural Marketing
Agreement Act of 1937 provides
that all milk should be classified
“in accordance with the form in
which or the purpose for which it
is used.”
This has resulted in a system of
uniform classification provisions
that place milk used for fluid pur
poses in the highest use class.
Class I, and other manufactured
products in lower classes. Classes
n. 111, and m-A.
Currently, products packaged
for fluid consumption such as
whole milk, skim milk, butter
milk, and flavored milk drinks are
classified as Class I products.
Class II products include ice
cream, yogurt, cottage cheese, and
cream. Class m and Class m-A
products include cheese, butter,
and nonfat dry milk.
Among the changes in classifi
cation recommended in the techni
cal report are the following:
•Eggnog would be reclassified
By Competing, We Learn
(on nu m age 7) comes out right at ground level, back he receives from the awards,
if double-cropping beans, to use making it difficult to combine. The He also enjoys being able to beat
late group 3or early group 4 beans, later groups provide taller plants his neighbors at the challenge of
Many early varieties provide a which help at harvest time. achieving high soybean yields.
plant that is too short and the pod Rohrer enjoys the positive feed-
Like the tobacco Rohrer grows, the soybeans are planted on some of the best, well
drained soils in the county. Rohrer said he learned early on to “manage the soil,” a key
for growing tobacco and soybeans.
from Class II to Class I.
•Any fluid beverage having less
than 6.5 percent nonfat milk solids
would be reclassified from Class
II to Class I.
■Cream cheese would be reclas
sified from Class m to Class 11.
The technical report recom
mends changing the classification
of milk used in nonfat dry milk
from Class m-A to Class 111. The
report recommends that if Class
m-A pricing is not eliminated, the
following four alternatives be
considered:
•Place a floor beneath the Class
m-A price;
•Restrict m-A pricing to certain
months or to certain markets;
•Provide an up-charge for non
fat dry milk used in higher-valued
products; or
•Provide for a combination of
these options.
Maintaining the classification
of milk used to make nonfat dry
milk in Class m-A is also an
option, although not discussed in
the technical report
The technical report addresses
Class m-A pricing because of
industry concerns about the sub
stitution of nonfat dry milk for
fluid milk in Class II and 111 uses
when the Class m-A price is sub
stantially below the Class 111
price.
Summary Of
Identical Provisions Report
Federal milk marketing orders
contain numerous provisions that
establish the regulations for the
operation of the orders.
Over the years, the orders have
been individualized to account for
specific situations associated with
a given marketing area. However,
there are several provisions within
the orders that are similar or that
could be similar and still provide
for efficient and orderly marketing
of milk.
The technical report does the
following:
•Suggests a model for establish
ing the consolidated orders and
provides suggestions on the order
language that can be adopted uni-
formly throughout all orders.
■Reviewed, simplified, modi
fied, and eliminated differences in
order provisions that: a. Define
various terms used in the orders;
b. Establish regulatory standards
for plants and handlers; c. Provide
for uniform reporting dates of
milk receipts and utilization; d.
Provide for uniform dates for pay
ment of milk; 4. Provide for com
putation of a uniform price.
•Reduces performance stan
dards to make it easier for produc
ers to associate with a market.
At this time it is impossible to
determine if there would be any
financial impact on producers,
handlers, or consumers as a result
of any of these suggested provi
sion revisions.
It is projected that there will be
little impact on the overall prog
ram because the changes primarily
provide for uniformity. There may
be minimal impact on selected
individual producers, handlers, or
consumers, but this can not be
determined until more specific
information is developed regard
ing the orders (i.e., marketing area
and pricing).
The suggested identical provi
sions will be applied to each of the
suggested consolidated orders and
determinations will be based on
the marketing conditions of the
given region.
One suggested change in the
report that may stimulate some
debate is the definition of a
producer-handler.
The technical report suggests
applying the most liberal standard
to the producer-handler definition
to prevent any producer-handler
from becoming regulated as a
result of milk order reform.
Producer-handlers have been
exempt from full regulation
because they assume the full risks
associated with being a producer
and a distributor of milk produced
with only occasional and small
volumes of milk being purchased
from other dairy farmers.