Economists Confident in NMPF Milk-Pricing Plan

The briefs are in, and now it’s up to USDA to consider the arguments and craft a proposed modernization for Federal Milk Marketing Orders, which govern milk pricing. NMPF economists Peter Vitaliano and Stephen Cain said they’re confident in the strength of NMPF’s proposals in a Dairy Defined Podcast released today. 

“If you were to read through our brief, I think you'd be struck by the fact that it is an integrated, well-reasoned, constructive proposal for doing some long overdue maintenance on the federal order program to position it for many more years of effective operation,” said Vitaliano, vice president for economic policy and market research at NMPF. “We're very confident that when we see what USDA comes up with in a recommended decision in early July, we're very confident that we've made a good enough case, that a lot of it will be adopted.”

Transcript

Alan Bjerga: Hello and welcome to the Dairy Defined podcast. The briefs are in, and it's now up to USDA to consider the arguments and craft a proposed modernization for Federal Milk Marketing Orders. NMPF has led efforts to improve orders for farmers since day one, and with last week's summation of testimony submitted to USDA, another milestone has been reached.

Talking about what's been said and what's next is Peter Vitaliano, Vice President for Economic Policy and Market Research at NMPF and Senior Director for Economic Research and Analysis, Stephen Cain. Thanks for joining us.

Stephen Cain: Thanks for having us.

Peter Vitaliano: Thank you.

Alan Bjerga: Peter, let's start with you. You led testimony on each of NMPF's proposals. Now each proposal depends on the other, and each is important, but what's the full story NMPF has been trying to tell?

Peter Vitaliano: The story we've been telling and we think we've been succeeding in it is in a couple of parts. First of all, the federal order pricing formulas, which is what the whole hearing was about, nothing else, are complicated and have been particularly made so much more as a result of the federal order reform about 25 years ago, where USDA adopted a complicated set of pricing formulas compared to the previous way of setting federal order prices.

The mechanics and the particulars of those formulas have gotten increasingly out of date because they've stayed fixed for the most part, while the dairy industry upon which those formulas are based has been changing and has been dynamic. So all of our proposals as they fit together, have basically addressed that one theme.

Another part is that in order to prevent things from getting as far out of alignment as they have gotten by the time this hearing was held, we have proposed in a couple of cases where it was possible mechanisms that would on a more automatic, a regular basis, keep those factors updated in a way that we wouldn't have to go through the same kind of long process we went through this time where things had gotten really too far out of line.

And finally, overarching all of that, we have basically reiterated the fundamental purpose of the Federal Milk Marketing Orders, which is not only to assure an adequate supply of milk for Class I fluid milk bottling purposes, but also to provide adequate prices to dairy farmers in order to get that job done.

Alan Bjerga: Looking back at the hearing, Stephen, you were in the war room planning the arguments and the rebuttals. What's the point where you really felt NMPF brought this one home?

Stephen Cain: Honestly, we have a world-class group of co-op executives. We pulled together a crack team from co-ops across the country that pulled together their efforts, their knowledge, their expertise, decades of knowledge of how to supply milk to places that needs to go in a way that is economical for dairy farmers and processors.

So we brought together this huge team, put together great arguments on all of our key points. The entirety of our arguments that we've made have been incredibly strong, have been incredibly persuasive, and I think that they're going to be in a good spot here as USDA weighs all of the data and the insights from all sides and comes together with some key outcomes and thoughts on how they think the federal order should be amended.

Some of the key pieces here for us specifically that I think will be hard to deny the credibility that we've put behind them, updating skim milk composition factors. This is just a simple factor to Peter's point. The orders haven't been amended in a very long time, and some things have just gotten out of date. Skim milk composition factors are one of them. So all we're doing here is just trying to make sure that the formulas in the federal orders today represent actual milk production in the industry. Some of these factors are pretty straightforward. I think they're pretty difficult to say that they don't carry weight or carry their own merits.

Also returning to the higher of for the Class I mover, this has been a highly contentious piece amongst throughout the entirety of the hearing. Dairy farmers have lost a significant amount of revenue opportunity from the change that was made a few years ago, and we've made it very clear that returning to the Class I, returning to the higher of for the Class I mover is what we need and expect here honestly. We made that very clear. We had dozens of dairy farmers testify at the hearing. We backed up our reasoning soundly with data and insights. So I think we feel pretty confident on getting this secured as well.

But across all of our recommended adjustments, we have very sound, solid arguments I think the USDA will take into consideration whenever they come up with their recommended decision.

Alan Bjerga: Now, this document, this brief is available publicly online. This is a public submission to USDA. It's 300 and some pages. I know USDA's hearing record itself I think was something like 12,000 pages. So how do you distill that into something that, I'm guessing a lot of people in our audience probably don't really feel like reading cover to cover themselves, but it's still a lot shorter than what you get from that voluminous hearing record.

Peter Vitaliano: Well, first of all, the hearing record is a good example of emphasis through repetition. Going to the other extreme, you mentioned that I was the lead-off testimony on each of our five proposals. If you looked at the documents that I used for that testimony, all five of our proposals, the sort of the meaty parts of my testimony, may have added up to perhaps 30 pages. That's just a guess. And it covered again in broad outline, but it basically covered all of the arguments and the rebuttals sorts of things we did on our entire package of federal order amendment proposals.

Our brief was about 10 times that long, and it sort of struck a good balance between covering all of that in the thorough method and means by which federal order briefs, particularly for organizations like ours that were the key proponents of these things. You want to do it in some detail, but you're not adding anything new. You're basically reiterating and condensing the testimony that was already in the record and exhibits that were submitted into evidence to sort of make your final more cogent statement of your position and what you're asking USDA to do.

Alan Bjerga: And while we're making our point, other organizations are as well. And of course one does not want to go uncontested in the marketplace of ideas. For example, processors were touting their proposal would pay more to producers, but that may not be the full story. So how do you address that in your own document so that folks taking a look at the full record can understand this isn't necessarily the way it really is?

Peter Vitaliano: Again, all of these points were raised in the hearing and the briefs are not allowed to incorporate any new evidence, any new information. So we covered exactly that point and many others in the brief because they were basically just repetitions from arguments that we heard in the hearing, and we thoroughly cross-examined and have information in the record to that effect.

Alan Bjerga: Stephen, what do you see?

Stephen Cain: Some other groups' ideas might pay more to dairy farmers. I think specifically there was one on the Class I mover and some adjusted or some thoughts on their mover paying dairy farmers more. And over certain periods of time that may be true. Whenever, if you have a look back period that's informing a current Class I mover or an adjuster, as prices ease, you will be lagging higher than prices are today. That the inverse is true whenever prices are on the incline. So as Class III prices increase, your mover is going to be higher than it would be under a lagged form. It's looking back at lower prices.

So when we look at that, it's a convenient time for them to make that argument. Whenever Class III prices have been easing over some time, but in the long run, their mover will not pay more to farmers than the higher of will. It's simple math. It will not and cannot happen due to how they've laid out their movers.

So we think making that argument is a little misleading, but we've made very clear arguments in our testimony and our brief to the fact that ours is the best option for dairy farmers and the dairy industry as a whole.

Alan Bjerga: So with the organization having spoken, what's next?

Stephen Cain: Well, we turned in the briefs here before the April 1st deadline, so that was the big lift that we've been working towards for quite some time. The next thing that we're waiting for is the recommend decision that will come out sometime around July 1st. We have some time here for USDA to work through all of the data and the insights and the arguments that are being brought into the briefs. That will be the next big deadline or the next big milestone in the process.

After we get that recommended decision, that will be the first time that the industry gets an idea of what the USDA is thinking for the changes to the federal orders.

We have some time back and forth after that, before a final decision comes out November 1st. That will be kind of the end-all, be-all for what the new amended federal orders will look like. After that's laid out, we'll have a referendum sometime around December 1st. After those votes go out on an order by order basis, amended orders will become fully effective sometime around Q1, the end of Q1, start of Q2 of 2025.

So we still have a little bit of time to go before we get these fully implemented, but we're following the timeline that's laid out in statute for us to go through this process.

Alan Bjerga: Peter, anything else we should know?

Peter Vitaliano: Yes. If you were to read through our brief, I think you'd be struck by the fact that it is an integrated, well-reasoned, constructive proposal for doing some long overdue maintenance on the federal order program to position it for many more years of effective operation. And we're very confident that when we see what USDA comes up with in a recommended decision in early July, we're very confident that we've made a good enough case, that a lot of it will be adopted.

Alan Bjerga: We've been speaking with Peter Vitaliano, Vice President for Economic Policy and Market Research at NMPF and Senior Director for Economic Research and Analysis, Stephen Cain. Peter, Stephen, thank you for your time.

Peter Vitaliano: Thank you.

Stephen Cain: Our pleasure.

Alan Bjerga: You can learn a lot more about our federal order efforts on nmpf.org. That's our website. For more of the Dairy Defined podcast, you can find and subscribe to it on Apple Podcasts, Spotify, Google Podcasts and Amazon Music under the podcast name Dairy Defined. Thank you for joining us.