Credit: USDA

June 10, 2024 – Last week, U.S. Senator Kirsten Gillibrand, Chair of the Senate Agriculture Subcommittee on Livestock, Dairy, Poultry, Local Food Systems, and Food Safety and Security, led a bipartisan group of 13 senators in urging the United States Department of Agriculture (USDA) to restore the “higher of” Class I pricing formula through the Federal Milk Marketing Order system to fairly compensate dairy farmers and prevent additional losses of Class I skim milk revenue. In the bipartisan letter, the senators highlight how dairy farmers have lost more than $1.1 billion in Class I skim milk revenue over the past 5 years since the “higher of” Class I pricing formula – the pricing formula for fluid milk, also known as the Class I mover – was modified in the 2018 Farm Bill.

“When the dairy pricing system isn’t working for farmers, the economic ramifications are felt across the country,” said Senator Gillibrand. “The ‘higher of’ Class I mover was in place for nearly two decades prior to it being modified in the last Farm Bill, and despite the best of intentions, the current formula has not performed as intended and has cost dairy farmers over a billion dollars nationwide. Restoring the previous ‘higher of’ Class I mover is the right move to ensure our dairy farmers are properly compensated, and I urge the USDA to restore the formula in the draft and final FMMO changes.”

Prior to the 2018 Farm Bill, Class I milk was calculated using the “higher of” Class III or Class IV price plus the applicable Class I differential. This was changed in the most recent Farm Bill to an averaging method of Class III and Class IV plus $0.74. The resulting loss of income for dairy producers has led to increased calls from the industry for USDA to resolve this issue with the Class I mover through the Federal Milk Marketing Order system.

The letter was also signed by Senators Roger Marshall (R-KS), Bob Casey (D-PA), Mike Braun (R-IN), Sherrod Brown (D-OH), Cindy Hyde-Smith (R-MS), John Fetterman (D-PA), Peter Welch (D-VT), Ben Ray Luján (D-NM), Mark Kelly (D-AZ), Jeanne Shaheen (D-NH), Alex Padilla (D-CA), and Patty Murray (D-WA).

The full text of Senator Gillibrand’s letter to Secretary Tom Vilsack is available here and below:

Dear Secretary Vilsack,

Thank you for your department’s significant work to undertake a much-needed modernization of the Federal Milk Marketing Order (FMMO) system. In this context, we are grateful for the department’s recognition of the urgent need to address the deficiencies with the current Class I mover formula. As you move toward issuing a recommended decision on key issues this summer, we urge you to restore the previous “higher of” Class I mover in that decision.

As you know, the “higher of” Class I mover was in place for nearly two decades prior to being modified in the last farm bill. Despite the best of intentions, the current mover formula has not performed as intended in multiple economic climates, costing dairy farmers nationwide over the past five years more than $1.1 billion in Class I skim milk revenue that they would not have lost under the previous formula. This phenomenon has now played out numerous times, costing dairy producers more than $750 million in Class I skim milk revenue from July through December 2020, followed by roughly $250 million in 2022 and roughly $140 million in 2023. Additional losses have piled up every month this year, underscoring the urgency of restoring the previous mover.

We believe that reinstating the “higher of” Class I mover closely aligns with the goals of the FMMO system, which are to promote orderly marketing conditions for milk while ensuring stable incomes for farmers and an adequate supply of fluid milk for all consumers. When USDA implemented the current FMMO structure in 2000, the department determined that the “higher of” Class I mover would best fulfill the system’s overall objectives. Specifically, USDA believed that the “higher of” formula would enable orderly marketing by promoting the stable pooling and pricing of all milk. The department argued that the “higher of” would result in higher Class I (fluid) milk prices and thus support fluid milk manufacturers as they competed for a milk supply, fulfilling a key objective of the FMMO system that an adequate supply of milk be available for fluid uses. USDA also determined that the “higher of” formula would help reduce the volatility in milk pricing.

Given today’s dairy market dynamics, the current Class I mover will continue as a detriment to dairy farmers relative to the previous mover, even with the $0.74/cwt. adjustment factor. We understand that some stakeholders have suggested maintaining the “average of” structure but including a look-back mechanism to help farmers recoup losses later. We are concerned that this approach would not serve farmers well as it would not reflect the true value of milk, instead paying producers based on their milk production one or two years ago, instead of their current milk production. This approach is cold comfort to the many dairy producers who cannot wait years to be paid the money they have previously earned. Distorting the value of milk misaligns prices paid to farmers and the ability to determine the true value of Class I milk, which subsequently undermines the overall FMMO system.

Finally, we are confident that reinstating the “higher of” will not raise consumer prices. When the current mover replaced the “higher of” in 2019, the monthly Consumer Price Index (CPI) for fluid milk did not decrease and actually increased at roughly the same rate as the monthly CPI for all dairy products for several years.

Accordingly, we urge the department to restore the “higher of” mover which served producers well for decades. This structure encourages the orderly marketing of milk by determining its actual value in real time, accurately reflecting the marketplace. We appreciate your consideration of our request and hope to work with you to ensure support for this change.

Sincerely,Source: Senator Kirsten Gillibrand



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