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Federal Milk Marketing Order (FMMO) Proposed Hearing

By Ed Maltby, NODPA Executive Director

There will be no hearings on organic being exempt from Class 1. Obviously all the prosposals will, in some way, affect organic but there are only two from the MIlk Innovation Group which is headed up by some organic milk processors. The only two proposals from the "organic"petition to be heard are 1) To retain the current “average of” formula for the base Class I skim milk price and proposes to update the adjuster monthly using a 24-month look back period with a 12-month lag, i.e., the preceding the 13-to-36-month period. and 2) lower the current base Class I differential from $1.60 to $0.00. (added 7.23.2023). Below is an update on how the FMMO hearing might directly affect organic milk. We will not know what the USDA decides to include in the hearing until the end of July 2023. This article, written on July 7, 2023, is intended to briefly describe what different groups have submitted to the USDA to be part of the hearing process that will decide what, if any, changes will be made to the FMMO.

All the petitioners have described their proposals to their best possible advantage and have, therefore, presented their own interpretation of the effect of them on producers, processors, and customers. As is always the case in regulation, it is in the details of the proposed changes that matter, or from some points of view, that don’t matter because the system is too broken and archaic to be able to change effectively. It would be good if the petition that is directly targeted at organic is at least given a slot at the hearing to be heard and discussed.

On July 5, 2023, Organic Valley started a sign-on letter to the Secretary of Agriculture that will be delivered on July13, 2023, that states:The following letter urges USDA Secretary of Agriculture Tom Vilsack to move forward with a national Federal Orders hearing that includes the proposal calling for organic dairy producers to be exempt from pool payments that go overwhelmingly to non-organic producers and do not benefit organic dairy farmers or the organic dairy industry (see footnote 1). Our position is that an Organic Exemption would have only a small impact on the uniform prices of the 11 Federal Orders and little, if any, impact on consumers, but the exemption would matter greatly to organic dairy farmers like us.”

As many of you are aware the USDA has accepted the National Milk Producers Federation (NMPF), the Wisconsin Cheese Makers Association (“WCMA”), and National Milk Producers Federation (“NMPF”) petitions for an FMMO hearing. The proposals request that the USDA consider amending five provisions related to increasing manufacturing (make) allowances, returning to the “higher of” as the mover for Class I milk prices, updating the milk composition factors, removing barrel cheese from the Class III price formula, and updating the Class I price surface.

The timeline for USDA deciding what they will include in the hearing and the proposed hearing date is below:

In response to that announcement, the Milk Innovation Group (MIG) submitted a proposal to USDA for consideration, as did other groups. The MIG group members are T. Anderson Erickson Dairy Co., Inc., Aurora Organic Dairy, Crystal Creamery, Danone North America (owned by Danone), Fairlife (owned Coca-Cola Company), HP Hood LLC, Organic Valley/CROPP Cooperative, Shamrock Foods Company, Shehadey Family Foods, LLC (Producers Dairy Foods, Inc.; Model Dairy, LLC; Umpqua Dairy Products Co.), and Turner Dairy Farms.

MIG state that “The purpose of these proposals is to modernize Class I structure to address the inhibitors to innovation: price volatility, relatively higher prices, recognition of differentiation, and fewer risk management tools.”

Those proposals are summarized here:

1) MIG Proposal 1 – Average of Plus Rolling Adjuster for “Class I Skim Milk Price Mover”

2) MIG Proposal 2 – Update the Base Class I Differential from $1.60 to $0.00

3) MIG Proposal 3 – Establish a $0.55 Assembly Credit for Handlers

4) MIG Proposal 4 – Establish a $0.60 Balancing Credit for Specialty Milk Producers

5) MIG Proposal 5 – Establish ESL Shrinkage Level

6) MIG Proposal 6 – Organic Exemption to Pooling Requirements

While all the proposals fit into the MIG goal of modernizing the Class 1 structure, the MIG Proposal 6 is summarized as: “Under MIG’s proposal, USDA certified organic milk that is priced above the Class I minimum price is exempt from mandatory pooling. In other words, a handler of certified organic milk that meets or exceeds the FMMO regulated minimum Class I price for the purchase of certified organic milk (whether direct ship or 9(c) cooperative) would be exempt from mandatory pooling for such milk. Using Class I as a standard ensures that organic milk will always be paid at the highest conventional price for that order – a benefit for farmers. The handler (and the organic milk) would remain subject to reporting requirements, enforcement mechanisms, administrative fees and “in” the FMMO system.”

From the legislative language in attachment F which spells out the language for exempting Organic pooling requirements (new language in bold italics):

§ 1000.14 Other source milk.

(d)Receipts of any USDA certified organic milk not used to produce USDA certified organic products.

§ 1000.15 Fluid milk product.

(b)The term fluid milk product shall not include.

(1) Any product that contains less than 6.5 percent nonfat milk solids and contains less than 2.25 percent true milk protein; whey; plain or sweetened evaporated milk/skim milk; sweetened condensed milk/skim milk; yogurt containing beverages with 20 or more percent yogurt by weight and kefir; products especially prepared for infant feeding or dietary use (meal replacement) that are packaged in hermetically sealed containers; and products that meet the compositional standards specified in paragraph (a)of this section but contain no fluid milk products included in paragraph (a) of this section

(2) The quantity of skim milk equivalent in any modified product specified in paragraph

(a)of this section that is greater than an equal volume of an unmodified product of the same nature and butterfat content.

(3)Any USDA certified organic product meeting the requirements specified in paragraph (a) of this section and §1000.50(r).

§ 1000.16 Fluid cream product.

Fluid cream product means cream (other than plastic cream or frozen cream), including sterilized cream, or a mixture of cream and milk or skim milk containing 9 percent or more butterfat, with or without the addition of other ingredients. The term fluid cream product shall not include USDA certified organic products and that meet the requirements 1000.50(r).

§ 1000.20 USDA Certified Organic Milk.

USDA certified organic milk means milk that has been certified organic pursuant to 7 U.S.C. §6501 et seq. and 7 C.F.R. §205 et seq.

§ 1000.50 Class prices, component prices, and advanced pricing factors.

(r) USDA Certified Organic Milk. All USDA Certified Organic Milk that receives a producer pay price which meets or exceeds the Class I price defined under subparts (a) – (c) of this Section shall be excluded from mandatory pooling and exempt from the producer-settlement fund payments of a handler under §1000.70 so long as each of the handler’s payments to producers, dairy farmers, and cooperative associations for USDA certified organic milk satisfies the price requirement.

Extract from MIG Proposal 4 – Establish Specialty Milk Balancing Credit

Order 1 - 7 C.F.R. § 1001.56 (new), § 1001.60 preamble revised, § 1001.60(j) (new) and amend § 1001.73(a)(2) and (b)(3):

New § 1001.56

(a) “Each handler operating a pool distributing plant described in §1001.7(a), (b), (d), or (e) that receives milk from dairy farmers, each handler that transfers or diverts bulk milk from a pool plant to a pool distributing plant, and each handler described in §1000.9(c) that delivers producer milk to a pool distributing plant shall receive a handling credit on the portion of such milk eligible (“eligible milk”) for the credit pursuant to paragraphs (b) through (d) of this section. The credit shall be computed by multiplying the hundredweight of milk eligible for the credit by $0.60.

(b) For purposes of this section, eligible milk means:

(1) USDA certified organic milk, certified organic pursuant to 7 U.S.C. §§ 65-1 – 6522 and 7 C.F.R. Part 205;

(2) Grass-fed milk, certified as 100% grass-fed by a state or third-party certifier; or

(3) A2 milk, milk mostly lacking a form of beta-casein proteins called A1, and instead has mostly the A2 form of beta-casein; and

(5) Eligible milk may only receive one credit under paragraph (a) of this section regardless of whether such milk is eligible under more than one of subparagraphs (1) through (3) above.