Milk Marketing Order Revisions Begin Jan. 1

December 27, 1999

Revisions to the federal milk marketing order system take effect Jan. 1. The changes were scheduled to be implemented Oct. 1, but legal challenges delayed implementation. Now that the suits have been dropped, USDA will begin operating the market orders under the new system.

Congress and USDA have worked on the revisions about five years. "It's been a long and sometimes challenging road during the past several years, but on balance we believe that the new milk marketing system will benefit both farmers and consumers," says Jerry Kozak, CEO, National Milk Producers Federation.

Modifications to the federal order program were authorized by Congress in the 1996 farm law; USDA was instructed to develop a variety of revisions that would help regulate the minimum price dairy farmers receive for their milk. USDA proposed a package of reforms in 1998 and, after seeking public comment, issued a final regulation last spring.

Next came a prolonged, contentious debate on Class I price differentials, which govern the price farmers receive for bottled milk. Congress approved a pricing plan different from the one USDA had proposed and also told USDA to further evaluate Class III and IV prices which govern prices for cheese and butter-dry milk products respectively during the next 12 months and consider adjusting the pricing structure for those products starting in 2001.

NMPF says that the revisions include:

--Consolidating the number of federal order regions from 31 to 11 to better reflect the realities of the movement of milk across various regions of the country and the fact that milk marketing is increasingly a national enterprise.

--Replacing the basic formula price, which is the primary determinant of what farmers are paid monthly, with a price mover, the value of which is determined by whether the Class III and Class IV prices are higher in a given month.

--Using multiple component pricing to determine the underlying value of raw milk. Producers now will be paid according to the butterfat, protein and solids content of their milk and be rewarded for milk with higher concentrations of those nutrients.

--Changing the timing of advance price notification to more rapidly reflect changes in the marketplace supply and demand conditions. Under the new system, USDA will move its announcement of Class I prices from the fifth day of each preceding month to the Friday before the 23^rd of each preceding month, a change designed to reduce the inversion of classified prices.

--Adjusting the Class I differential structure so that 408 counties in 10 states now will have Class I differentials lower than or equal to Eau Claire County, WI.