Senate bill proposes review of milk pricing system

The rotary milking parlor at Five Mile Farm in Lisbon. Christopher Lenney/Watertown Daily Times

WASHINGTON — U.S. Sen. Kirsten E. Gillibrand wants to make the federal milk pricing system better, and she’s introduced a bill, with a bipartisan group of senators, that would take the first step to restructure the system.

On Wednesday, Sens. Gillibrand, D-N.Y, Patrick J. Leahy, D-Vermont and Susan M. Collins, R-Maine, introduced the Dairy Pricing Opportunity Act. The legislation would require that the U.S. Department of Agriculture begin to hold hearings on the Federal Milk Marketing Order within six months of passage.

The hearings would be called to discuss changes that could be made to Class I skim milk prices, and Sen. Gillibrand said they need to be called so farmers and milk producers can have a voice in the milk pricing process.

“These family farms are beholden to the federal milk pricing system, which is rightfully considered one of the most complicated commodity pricing systems in the entire country,” Sen. Gillibrand said during a press conference Wednesday.

According to the U.S. Farm Bureau, milk prices in the U.S. are regulated by Federal Milk Marketing Orders, which set the minimum prices that can be paid to milk producers when they sell to processing and distribution companies, known as “milk handlers.”

Farmers enter into FMMO pools, or groups of other milk producers, and the producers will share in the proceeds of all milk sales included in an order. The regulated minimum prices represent the individual farm’s share of the money.

Class 1 milk, which is fluid milk meant for drinking, is priced at the highest level under the FMMO system, while things like yogurt and cheese are considered Class 2 and 3, respectively. Class 4 milk is butter and dried products. Class 1 milk prices are calculated by taking the monthly average of certain Class 3 and Class 4 products, plus a set dollar amount.

Sen. Gillibrand said that the subcommittee she chairs, the Livestock, Dairy, Poultry, Local Food Systems and Food Safety and Security Subcommittee, recently held hearings about the milk pricing system.

“We heard from dairy farmers and industry experts about how the current pricing system does not cover the rising cost of production farmers face, from labor and fuel to corn and soy that is used for feed,” she said. “Family farms also face the additional challenge of being forced to compete with mega producers, who have used economies of scale to drive prices well below the cost of production.”

Sen. Gillibrand said the system, which was most recently tweaked in the 2018 federal Farm Bill, led to $463 million in lost revenue when the COVID-19 pandemic hit and some farmers were forced to dump millions of gallons of their products.

“All told, by the summer of this year, the new formula had already cost dairy farmers more than $750 million in lost income,” she said.

The senator said she promised farmers that she would work to change the federal system, and this bill is the first step there.

She said her first instinct on this issue was to revert to the pre-2018 pricing system, but heard from many farmers that other changes may be needed to truly fix the milk pricing system.

“I’ve been asking farmers for a long time, ‘If you could start from scratch and change how we price milk, what would you do?’” she said. “Nobody’s really pushed them on that. We really need to start from scratch, because the way we price dairy in this country is so convoluted.”

She said the pricing change likely wouldn’t have much of an impact on consumer prices, because most milk is produced locally and isn’t subject to significant inflationary pressure.

“This legislation wouldn’t affect (consumer) milk prices, but it would definitely affect whether our dairies can stay in business, and that does impact milk prices,” she said.

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I write about north country politics, Jefferson County and the northern shoreline towns of Lyme, Cape Vincent, Clayton and Alexandria Bay

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(1) comment

rdsouth

Using free markets as a system to guide the economy does in fact work. The economy as a whole will have superior effectiveness at producing wealth on a short term time frame. Nothing compares. That's all the salesmen usually tell you. The other half of it is that capitalism (to give it a name) works because the signals the guide and control it come from human suffering. Businesses going bust isn't a bug in the system, it's a feature. It's how the system know that the price needs to be higher. People starving is how the system knows wages need to be higher or the economy need stimulation. And that's not to mention that the system of letting the market blindly respond top forces is just that: blind and waiting for brutal forces to make things happen. It will blindly exploit an environment without foresight and then fail after a period of intense thriving. So what to do about it? Can the upside be harnessed while controlling for the downside? That depends on how smart, reliable, and trustworthy your government is. A smart government doesn't use a one size fits all approach. Farms can't wage a productive price war against each other like burger joints in the same town. There is no competition going on, and thus no individual signals of what the market will bear. The competitors are all the other farmers, and the signal takes the form of not one business starting to make less profit, but all of them suffering together. The only form of differentiation available to businesses in such a situation is to improve "efficiency" which means finding some way to cut corners once everybody maxes out on tech (as the system will force them to do). Pay the lowest possible wages for the most labor. Don't worry about animal welfare. Don't worry about the environment. Don't worry about product quality if you can hide the corners you cut. Don't worry about safety. Play the debt game smart and the politics game smart. And maximize scale efficiency. If that last one goes far enough, regular competition dynamics come back. A few big agribusinesses owning everything would then (theoretically) compete like burger joints or gas stations. If not trounced by foreign competitors with different conditions. And if they don't just form a cartel. Capitalism, like fire, is a powerful tool. And a dangerous one that must be used with skill and caution.

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