Federal Milk Marketing Orders: What they are, why you should care

Dairy policy is complicated. Highly complex, distinct, and regional policies for producers and processors, arcane and intensely bureaucratic processes—this defines the Federal Milk Marketing Order (FMMO) system.

FMMOs were established in 1937 to ensure that prices paid for milk supported both an adequate supply of milk to consumers and a minimum uniform regulated price for that milk to farmers. It was also designed to share (pool”) the higher valued milk used to produce beverage milk. This was a worthwhile endeavor to support the growing dairy industry coming out of the Depression.

Unfortunately, there are two problems with this system nearly 80 years later.

First, the system has not undergone any significant reform. The dairy industry of today is still operating in a system established to support the dairy industry in the 1930s…before interstate highways, advanced refrigeration technology, consumer demand for a variety of manufactured dairy products, and supermarkets. Times may have changed, but the policy has not.

Second, this system never anticipated organic, which has grown into a separate and distinct commodity from conventional milk.

Under current policy, all milk processors—conventional and organic—pay into a communal pool. That pool has two goals—it provides a uniform regulated price paid to conventional dairy farmers, and it enables consistent supply of conventional milk in case of shortages. If the milk supply is short, a milk buyer could request that more milk be shipped to its processing plant.

However, neither of these benefits apply to organic milk. Organic dairy farmers are paid a price separate—and significantly higher—than the price mandated by the FMMO system. The USDA published average price for conventional milk is approximately $17 per hundred-weight, while the USDA published average price for organic milk is approximately $33 per hundred-weight. And because organic milk and conventional milk are not interchangeable, a shortage in organic milk cannot be met through the pool. Organic milk processers are required to pay into the pool, but neither they nor organic dairy farmers ever see the benefit.

Requiring organic dairy to participate in the FMMO system as it stands requires organic dairy to spend tens of millions of dollars to support the conventional milk sector, while not being able to use those monies as individual businesses to determine what is best to support organic dairy farmers, invest in increased organic dairy supply, or make other investments important to the long-term health of the organic dairy sector. This places undue and unfair burden on the organic dairy industry.

How to fix this inherent unfairness?

Simple. We treat organic milk as the separate and distinct product it is. This means amending the FMMO system to create an alternative mechanism that would allow an organic dairy processor to meet its obligation to the pool by ensuring that its payment to organic dairy farmers exceeds the FMMO-set price for conventional fluid milk (plus an agreed-upon fee). Organic dairy processors would remain part of the FMMO system and pay USDA for purposes of information and data collection and reporting and other administrative endeavors, but would see their other obligations met through their payment to farmers above and beyond the FMMO-set price. The existing regulatory system would kick in if organic dairy prices are not substantially higher than conventional at any time in the future.

This resolution is elegant—because it solves both problems. It ensures that organic dairy farmers are always receiving a price above the pool—if the organic price were to fall below the FMMO-set price (plus the agreed-upon fee), organic dairy processors would no longer find their obligations met. It also enables the organic dairy sector to use its funds to invest in maintaining a stable supply of organic milk—something the FMMO system does not accomplish.

USDA has the power to fix this problem by making this simple change. This fix would allow organic to use its resources to encourage the growth of the organic industry as a whole. If the policy were amended, it would:

  •  Continue USDA’s information collection and reporting regarding organic milk
  •  Continue USDA’s minimum price regulation of all milk, including organic milk
  •  Continue USDA’s requirements on reporting, auditing and market administrator payments for organic milk handlers
  •  Provide organic handlers with an alternative mechanism for meeting their producer-settlement fund obligations.

The proposed amendment would not change the treatment of conventional milk nor would it alter the fundamental FMMO structure. All other dairy farmers and processors would continue to participate in the same way they do currently.

It is clear that we need to make a change. It is clear that USDA should hold a hearing on this proposed amendment, which would continue the FMMO system (maintaining price to farmers and supply) for conventional dairy, while recognizing that it fails to meet those needs for the distinct and separate organic dairy sector. If USDA were to amend the FMMO system, it would be taking a monumental leap towards supporting the growth of the organic dairy industry. It is crucial that we begin to recognize organic dairy as the separate and distinct product it is. //