IDFA Finds Little to Support in USDA Decision

January 29, 2002

The International Dairy Foods Association (IDFA) has submitted two sets of comments with USDA regarding Class III and IV pricing recommendations. IDFA and its three constituent organizations filed one set of comments, noting a "strong disagreement" with numerous aspects of the recommended decision. Another set of comments was filed on behalf of 32 companies and organizations urging USDA to commit to "certain fundamental principles" on flexibility and fairness for its final decision.

USDA's recommended decision in October "showed us that they were missing the forest for the trees," said IDFA President and CEO E. Linwood Tipton. "USDA is focusing on technical issues, but the industry needs them to think about much broader concepts, including fair competition in the national market and the current inflexibility of the federal order system to adapt to changing economic conditions. The recommended decision displays critical errors in analyses and calculations, and USDA completely ignores many uncontested facts from the May 2000 hearing record. Their 'tunnel vision' could doom handlers in the federal order areas to lose money on everyday business. We hope that Agriculture Secretary (Ann) Veneman will reopen the entire record on this subject."

Signatories of the second set of comments were companies that represent a broad spectrum of the dairy industry, and some of the signers also submitted separate comments on the subject. The comments asked USDA to apply three fundamental principles in deciding future policy about the Class III and IV pricing formulas:

--The need for flexibility -- "Pricing formulas must therefore reflect the fact that they are not readily changed and will likely be utilized during periods of both rising and falling demand for products , and rising and falling costs." Pricing formulas that are tied too closely to specific data at one given period of time are "a recipe for disaster."

--The need to ensure competitive balance -- "Pricing formulas under the federal system must not put federal order processors and handlers at a competitive disadvantage [with processors and handlers in California and unregulated regions.]"

--The need to use current data -- "We urge the Department to reopen the record to allow more up-to-date data relative to make allowances and other inputs into the pricing formulas." The hearings for the Class III and IV decisions were held twenty months ago, in May 2000.

For example, recent changes in California show the need of these three principles to be used in federally regulated areas. Under the provisions of USDA's proposed rule, the federal market order price for milk used in cheesemaking in federal order areas would have exceeded that in California by 62 cents, from January 1, 1999 through December 31, 2001. As of January 1, 2002, California increased its make allowances for the finished product of several dairy products, including a nearly one cent increase for cheese. That change would have made the gap between California and federal order areas even larger, moving to 69 cents. USDA must build a workable rule to allow federal order area processors and handlers to compete with the more flexible, competitive, and updated rules used in California and other areas.