DFA reluctantly votes yes on order reform

by Karen E. Culp

SBJ Staff

Dairy Farmers of America cast a reluctant yes vote Aug. 6 for the reform of the Federal Milk Market Orders. Aug. 6 was the deadline for dairy farmers and cooperatives to cast their votes on the new milk market order system.

Kansas City-based DFA chose not to vote no on the reform issue because a negative vote would terminate the current system for marketing milk.

"If DFA had voted no, several federal orders would be terminated, elimin-ating the need for Congressional action on HR 1402 or other improvements that may come from Congressional consideration. Without federal orders to enforce them, the need for Class I and Class III and IV prices is irrelevant," said Gary Hanman, president and chief executive officer of DFA.

The cooperative has been opposed to some of the tenets of the proposed federal milk market order system since its introduction last spring. DFA is the former Mid-America Dairymen, which merged with three other cooperatives to form DFA, the largest dairy cooperative in the country. The new system is an outgrowth of a mandate in the Federal Farm Bill of 1996, which asked that the milk market order system, a nationwide program that dictates how milk is marketed, be updated. The new system asks that the number of milk market orders, or geographic areas where milk is produced, be reduced from 31 to 11, and puts in place other new provisions for marketing milk. The provision that DFA has been most uncomfortable with has had to do with Class I milk (fluid milk) differentials, said John J. Wilson, vice president of marketing for DFA.

There are four classes of milk, and they are each priced differently. Class I differentials are paid to producers for their Class I (fluid) milk, and differentials vary from order to order.

The differentials are "price incentives to move Grade A milk from points of production to fluid milk processing plants, which are typically located closer to population centers than to production areas," according to the United States Department of Agriculture definition.

The differential is added to a calculated price for Class I milk, which is the minimum price that regulated handlers must pay for milk used in fluid products. The differential is used to offset transportation costs for producers.

DFA has said that the proposed order reform lowers the differential prices significantly for farmers in some areas, southwest Missouri being one of them, Wilson said. In its original proposed rule, on which it sought comment, the USDA, which formed the rule, had two options for differential pricing: option 1A and option 1B.

Option 1B is included in the final proposed rule, but it was option 1A that DFA favored because option 1B will lower income to dairy farmers, Wilson said.

"There is a $150 million difference between option 1A and option 1B," Wilson said.

The proposed milk market order rule also sets the Class III price of milk, the price of milk going into cheese production, too low, Wilson said.

"The Class I price differentials and the Class III price are two major, major components of this proposal that we differ with. Still, we had to cast our yes vote to preserve some type of a system," Wilson said.

DFA hopes that Congress will pass a bill sponsored by Rep. Roy Blunt, a Republican from Springfield. The bill keeps the market orders the same but adopts the option 1A provision for differential pricing. The bill has passed the Agriculture Committee in the House of Representatives, but had yet to receive a favorable vote in the House as of press time.

Dairy farmers had a deadline of Aug. 6 to cast their votes for the new system, said John Borovies, who is chief of the order formulation branch of the USDA's dairy division. Now, it is up to the referendum agents assigned in each area of the country to tally the votes.

Once the final count is made, it will be up to Agriculture Secretary Dan Glickman to announce the vote's results and move forward on promulgating a rule. The proposal, if it passes the referendum vote, will go into effect Oct. 1.

Each of the 11 proposed orders votes separately on the proposal, and two-thirds of those dairy farmers eligible and voting in each of the orders must approve the new system. If any order, such as the southeast order that contains southwest Missouri, votes no on the proposal, then there would be no southeast order, Borovies said, thereby ending federal regulation in that order.

"When producers vote, they are voting on the entire order. If the vote is no, then there is no federal regulation remaining," Borovies said.

The votes should be tallied by late August, Borovies said.

DFA is still hopeful that Congress can take action to reform the order system, Wilson said.

"We are waiting to see what happens with HR 1402. We feel confident that there is support for this measure and would hope that Congress would act accordingly," Wilson said.

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