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Understanding Federal Milk Marketing Orders
A Brief Overview and Description of the Federal Order system
Overview
Although often described as a complex program, the Federal Milk Marketing
Order system is simply a way to ensure that dairy farmers are paid relatively
uniform prices for their product. In essence, the Federal Order program
establishes a minimum wage for each and every dairy producer within a
given geographic region, although the level of that wage does vary according
to the supply and demand market forces that farmers have to contend with
on a regular basis.
Because of the uniquely perishable nature of fluid milk and the fact that milk flows from cows to consumers on a daily basis—the marketing system for the product must be sensitive to the needs of both farmers and consumers. Federal Orders are used to stabilize the process of buying and selling of fluid milk so that farmers, processors and consumers can have a safe, reliable and affordable supply of milk.
Description
A Federal Milk Marketing Order is a regulation issued by the U.S. Department
of Agriculture which requires the buyer, or handler, of fluid milk to
perform certain functions. Fluid milk handlers must pay dairy farmers
not less than a certain minimum price for their milk, depending on how
that milk is used. Milk going into bottled form is valued at the highest
level; milk used for soft goods such as ice cream and yogurt is assessed
an intermediate value; and milk used for hard goods like cheese, butter
and skim milk powder is valued at the lowest level. A Federal Order also
requires that payments to farmers within that particular area be pooled,
so that even though one farmer's product may be bottled and another's
made into cheese, they each are paid the same uniform price, called the
blend price.
The 31 regions of the U.S. regulated by a Federal Milk Marketing Order were reduced to 11 regions as of Jan. 1, 2000. About 70% of all of the milk produced in the U.S. is regulated under a Federal Milk Marketing Order. Those regions of the country that aren't subject to a Federal Order may have a state milk marketing order (i.e. California), or they may be unregulated.
One of the misconceptions concerning the Federal Milk Marketing Order system is that it regulates the price of milk at levels that have no connection to the marketplace. In fact, the opposite is true. Under the Federal Order program, the price that farmers are paid varies on a monthly basis. In 1998, that price varied more than 50% due to the combination of supply and demand forces affecting the marketplace. Federal Orders are not meant to shield dairy producers from the swings in the marketplace. They are simply a means of ensuring some degree of fairness among producers within a specific geographic region.
For more information on the Federal Milk Marketing Order program, to go: AMS USDA Dairy Programs
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