Dairy Industry Framework for Self-Regulation Proposal

By Thomas L. Olson

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Summary:  This proposal seeks to eliminate all undercutting in the marketplace by milk handlers and the resulting race to the bottom in farm milk pricing through “re-blends”, “market adjustments”, pooling on distant Federal Milk Marketing Orders (FMMO), and de-pooling.  In return for this mandate on handlers, farmers will only supply the market with milk that is needed.

Definition of milk handler for this document:   1. Any party that is buying milk from any farm or collectively from a number of farms   2. Any party that is buying raw or unfinished milk components that require additional processing before they are ready for retail from a dairy plant

This proposal will be implemented by the FMMO in which the milk is produced. If a milk handler is in a region not covered by a FMMO, rates will be set by the closest order to the plants location.

The Class I milk price will go back to the higher of the advanced Class 3 or Class 4 milk price.

All milk handlers shall pay all producers the Federal Order price on all milk components shipped by producer with no other deductions that lower the pay price.

Any milk handler paying producers on a base price plus components are not allowed to deduct from components a higher rate than the federal order value of said component. The base price formula will be paid on 3.5% butter fat, 3.0% protein, and 5.6% other solids.

Make allowance for processors should be passed on to consumers and not deducted from farmers.

All milk handlers will pay federal order rates on milk or separated milk components purchased from any other milk handler. All separated milk component buyers will give 7 day notice to milk component sellers of an oversupply of component before lowering amounts of components purchased. Right now as an example. Buyers of cream from plants that have extra cream may pay less than the FMMO rate. This will put all processors on a level playing field when it comes to competing for milk at the farm gate.

PPD must be paid at FMMO rate. Handler may subtract any zone differential and fees charged by order.

All milk will be pooled in the Federal Order of where it was produced.  No exceptions–Even on milk moved to and sold in an Order other than where it was produced. This will bring financial security because they can set the rate on a fairly stable milk supply instead of guessing on how much milk is de-pooled and having to constantly adjust rates to meet their operating costs.

Grade B milk is not pooled and shall be paid at FMMO minimums with no PPD.

All milk handlers have the authority to balance their milk supply by disposing an equal percentage of milk on all of their farms.  Farms will be notified by handler at least seven days prior to this action and at what percent of a baseline production needs to be reduced and for how long.  Farmers must make this reduction by dumping (or not producing) raw milk at the farm.  This milk may be used for animal feed or must be disposed of in a sanitary manner.   Milk hauler will have the authority to release milk to accomplish desired production. Farmers are not allowed to turn off cooling tank and let milk separate and release only skim milk.  Farmers filling directly into tankers will be responsible for the disposal of milk by obtaining scale or meter tickets when tanker is unloaded. Milk handler may let direct ship loads meet their disposal amount by extending the period for one week to allow for complications that may arise from not being able to be weighed on the farm. Handler may lift disposal action early if their milk supply is interrupted for any reason.

Farmers’ milk production can be based off the previous month or the same month from the previous year in case of seasonal freshening, grazing or an on farm event that significantly lowered production for the previous month.

Dairy plants may allow for new producers and/or expansions as their market determine the need.

Milk hauling rates assessed by milk handler on producer will be assessed on a per hundred weight basis and may have a dollar amount cap per month.  Hauling rates may not be used to discriminate against producers due to size or distance.  Hauling rates may be adjusted from time to time due to increased cost of operating trucks. Hauling cost may not exceed actual cost by more than ten percent.  Any hauling over charges must be refunded to producer as decided by the FMMO.  FMMO shall allow co-mingling of milk among handlers to make transportation as efficient as possible.

Milk handler will notify FMMO of this action so FMMO may audit milk handlers’ farm records to ensure equal treatment of farms during their routine audits.

All milk handlers buying milk from another milk handler will give that milk handler a 45 day notice of changes to the amount of milk they will accept during a Holiday schedule or a planned plant shut down.

In the event of an emergency plant shut down where milk cannot be processed and must be moved to another plant the FMMO will oversee the transportation cost and may allow lower prices to be paid on this type distressed milk in the event that milk supply is long and milk is not needed at other plants.

The Enforcement of the Dairy Industry Framework for Self-Regulation

For any producer who does not comply with disposal order. The processor will give the producer one extra week to comply before turning the producer over to the producer’s state Department of Agriculture Trade and Consumer Protection Agency (DATCP). The Department of Agriculture Trade and Consumer Protection Agency will then revoke the milk producer’s license for a minimum of one farm pickup which may be one or two days milk depending on the pickup frequency or longer if this does not cover the disposal amount. Direct ship farms shall have license revoked for one day or more to meet disposal amount.

Please share your feedback on the proposal below:


Dairy Industry Framework for Self-Regulation Proposal — 5 Comments

  1. While I think that support of our dairy farmers is one of the most important things that we can do to insure food for the people of the world. We would need to look at these law changes very closely because we need to make sure any changes apply to cooperatives as they do to private companies in regard to pay rates, times of pay, hauling charges,and ability to supply class one milk. The market of these products can not have a make allowance program that is going into its 15 year of no increase to the cheese plants. We also need to change the mix of products being used to make up the pay price when we have almost no plants making sweet whey and an artificial barrel market that capsized the whole program.

  2. Here’s a thought…maybe the processor make allowances of 15 years ago aren’t sufficient today because the overall price of milk is not sufficient. Farmers don’t get make allowances, they have to survive on margin over the life of whatever price cycle milk might have. And margins on dairy farms over said price cycle certainly aren’t any better today than they were 15 years ago. Pushing for higher make allowances is simply clawing for a bigger piece of the pie while making the farmer’s piece smaller. What we need is for the pie to become bigger so everyone can pay their bills.

    This self-regulation proposal by Mr. Olson makes the pie bigger by eliminating all the undercutting in the marketplace and preventing the production of milk that is not needed. It puts everyone on the same playing field, cooperative or private entity.

  3. This self regulation would ensure a sufficient supply of milk to meet the consumer needs without overproduction. It would help eliminate the extreme price swings in the marketplace and allow for the expansion of production as needed.

  4. The purpose of the Federal Order was to work to have a sufficient supply of milk in all areas of the country. In areas of short supply that area (order) will have a higher price to encourage producers to increase production or have the monies for processors to purchase and transport milk from other areas (orders) to meet the needs of the people.
    Since the 83 Farm Bill producers continue to receive a smaller piece of the pie due to the removal of parity. The increase in efficiency by the producer and the processor can only take the industry so far for staying in business.
    This proposal is a huge step to the future of the industry for fairness and equity; there must be profit for both producers and processing. We have lost thousands of producers because of the present system, things must change.

  5. As a PA dairy producer, I support this Dairy Industry Framework Self-Regulation Proposal and think it is a good idea!

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