Carmel, Ind. [September 12, 2023) – FarmFirst Dairy Cooperative General Manager, Jeff Lyon, testified this morning at the national Federal Milk Marketing Order (FMMO) hearing in Carmel, Indiana and shed light on the critical issues concerning “make allowances” in the dairy industry, with particular emphasis on the challenges faced by producers and processors alike.
One of the central points in Lyon’s testimony was the adverse impact of outdated make allowances on FarmFirst members. “Current make allowances have compressed margins at processing plants, which in turn have been passed on to producers in the form of lower milk prices or premiums so processing plants can manage their margins,” said Lyon, “Make allowances need to be updated in the long-term interest of processor reinvestment in their plants.”
Lyon pointed out the financial toll these outdated allowances have taken. “From 2020through July 2023, we experienced a 24 percent decrease in the average premium paid per pound of milk, resulting in approximately $2.7million that we were not able to pay our Family Dairies USA producers,” he noted.
Lyon also stressed the importance of accurate make allowances in determining milk prices, saying, “Manufacturing costs or ‘make allowances’ are an integral part of determining milk prices, and Product Price Formulas (PPF) do not work as intended when make allowances are set below the actual cost of commodity manufacturing.”
To address these challenges, Lyon expressed FarmFirst’s support for the National Milk Producers Federation (NMPF) proposal, stating, “The NMPF proposal makes modest increases to make allowances to partially alleviate problems that have led to the disorderly marketing of milk. It balances producer and processor interests.”
Lyon acknowledged that increases may have a short-term impact on producer prices but emphasized the need for prudence, stating, “Due to the lack of agreed-upon comprehensive, industry-wide data on costs, yields, and plant volumes and the impact on producer margins, it is imperative that make allowances only be increased to the levels being proposed by NMPF.”
He further emphasized that the dairy industry’s make allowance situation cannot be resolved overnight and that it should not fall solely on the shoulders of producers. He called for a balanced approach that considers the long-term interests of all stakeholders and the industry’s need for accurate data on manufacturing costs.
“NMPF is advocating through the legislative process to give USDA authority and funding to have mandatory make allowance surveys in the future, “Lyon said, “When we get to that point the industry can decide whether to petition for a hearing. Going through this formal process ensures markets will be corrected, resulting in market stability and orderly marketing.”
Updating make allowances is just one part of the national federal order hearing. Testimony has already concluded regarding updating the milk component factors in the skim milk price and removing barrel cheese from price discovery for cheese. Other issues that will be discussed will be to return to using going the “higher of” (the Class III or Class IV price) as the Class I mover and increasing Class I price differentials.
Lyon’s testimony reflects FarmFirst Dairy Cooperative’s commitment to advocating for fair practices in the dairy industry and securing a sustainable future for dairy producers and processors.
FarmFirst Dairy Cooperative, established in 2013 and based in Madison, Wis., represents farmers in Wisconsin, Minnesota, South Dakota, Michigan, Iowa, Illinois, and Indiana by providing legislative and regulatory advocacy, dairy marketing services, disaster protection, laboratory testing opportunities and industry promotion. Learn more about FarmFirst Dairy Cooperative by visiting: www.FarmFirstDairyCooperative.com.
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