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Edge Dairy Farmer Cooperative Member Testifies About Milk Pricing Reform

Iowa farmer tells Senate panel ‘distorted system’ needs to be modernized

As dairy farmers across the country continue to grapple with federal milk pricing flaws exacerbated by the pandemic, an Edge Dairy Farmer Cooperative member told a U.S. Senate panel today that reform is needed for a “distorted system that is now coming unglued.”

Christina Zuiderveen, who farms with her family in Iowa and South Dakota, focused among other things on disparities in the prices farmers are paid, the negative impact of pricing factors on farmers’ ability to utilize risk management tools and the potential benefits of pricing transparency.

Zuiderveen testified on Capitol Hill at a hearing of a subcommittee of the Committee on Agriculture, Nutrition & Forestry. Senators were examining potential improvements to the Federal Milk Marketing Orders (FMMOs) in the wake of negative producer price differentials that began cutting into many farmers’ revenue last year during the pandemic.

She gave an opening statement to the Congressional subcommittee.

“This system was put in place decades ago to prevent dairy processors from making one dairy farmer bid against the other. In other words, FMMOs promise dairy producers that if their milk is as good as their neighbor’s, they will be paid the same price,” she said. “But, after decades of decline in sales of fluid milk, that promise now seems to be broken.”

She said that although her business benefited under the system last year, she was advocating for change “because I want a fair system where everyone can compete on a level playing field.”

More perspectives from Zuiderveen:

Pricing disparity

“We ship our milk to a cheese processor, so our milk price was high (in 2020). … I have spoken to dairy farmers all across Iowa who are struggling because they are paid far less for their milk because they are not paid solely on the cheese price. … On the surface, it seems that pooling rules are the problem that led cheese processors to pull unprecedented volumes of milk out of FMMOs last year. But the deeper issue is that FMMOs do not provide market-based incentives to move milk to the processing plants where it is most valuable.

“For decades, FMMOs encouraged overproduction of cheap non-fat dry milk powder. When fluid milk sales were high, they subsidized milk powder returns. With fluid sales declining, per federal order rules, cheese makers are left to subsidize powder through revenue pooling, and they of course declined to do so in 2020. Good intentions to create a system with uniform prices has resulted in a distorted system that is now coming unglued, to the detriment of dairy families whose income depends ― at least in part ― on the value of a blend of fluid milk, milk powder and butter.

“… Every day, dairy producers must compete with one another for land, labor, livestock and feed. The wide variance in (milk checks) caused by current pricing formulas creates a sense of helplessness among producers. While competition is good, it is unfortunate that federal policies create an uneven playing field.”

Risk management

“Hedging losses are an unavoidable cost of risk management. Even though we incurred a loss on our hedging, we were able to offset the loss because our milk check climbed with the Class III price. (But) our neighbors and family who receive a blended milk price were extremely disadvantaged. …

“The DRP (Dairy Revenue Protection) and DMC (Dairy Margin Coverage) have reduced the cost for producers to hedge against volatility and poor margins. But our pricing system must be improved to allow all producers to manage their commodity market risk. If dairy producers like my neighbors in Iowa and my relatives in Michigan can’t anticipate what class of milk will participate in the FMMO pool, they won’t know whether their milk checks will be based on the cheese price or the butter and powder price, and they cannot hedge effectively.”

Milk check transparency

“The current federal order system is necessary and provides a safeguard against the market power of large milk buyers. But the system should be modernized to stimulate financial transparency and promote competition and innovation as opposed to consolidation among both processors and producers.

“Making milk checks more transparent would benefit dairy producers in two ways. (Farmers) would better understand their earnings and might be able to make changes to farm management practices or co-op policies to avoid future deductions. Promoting competition between processors will give dairy families a better milk price and incentivize the development of new products and markets.”

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