The National Milk Producers Federation, Arlington, Va., is hailing the recent ruling by the U.S. Department of Agriculture that low-carbohydrate milk products ought to be classified for pricing purposes the same as conventional fluid milk beverages, a decision the group argues will prevent further farm revenue losses.

At stake is whether dairy beverages that largely resemble fluid milk — especially the reduced-carb milk drinks — ought to be priced as Class I products, or at the lower Class II price. NMPF argued for the former, and asked the USDA to consider using a protein threshold to determine in which class the beverages should fall. The USDA’s decision in May basically agreed with NMPF’s contention, which will mean that any product at or above a 2.25 percent protein level — including low-carb milk drinks — will now be priced at the higher, Class I level.

“As technology and consumer preferences change, so must government regulations that balance the interests of farmers, processors and consumers,” says Jerry Kozak, NMPF president and chief executive officer. “We’re very pleased USDA recognized that dairy farmers’ income would be adversely affected if these low-carb products, designed to compete with and replace traditional Class I products like conventional fluid milk, were not reclassified from Class II to I.”

Under a protein standard where any product below 2.25 percent protein is considered Class II, low-carb products, because of their proportionally higher level of dairy proteins, will be returned to the Class I category — meaning that processors of such products are now obligated to pay producers the highest, Class I value for milk under the Federal Milk Marketing Order system.

Last year, a major manufacturer of low-carb dairy beverages successfully petitioned the USDA to reclassify its products from Class I to Class II, and in so doing was able to retroactively reclaim money paid to dairy farmers. This new USDA decision will again place these low-carbohydrate products in the Class I category for pricing purposes.

In addition to creating the protein threshold, the USDA still maintains a solids level of 6.5 percent. In other words, in order to be classified under Class I, milk beverages must have at least that level of nonfat solids content. The USDA ruling also counts all dairy ingredients — including whey, milk protein concentrates (MPCs), and casein — toward both the solids and proteins thresholds.

Despite some confusion last year in the industry about the stakes involved in this issue, NMPF recognized the ongoing threat to farmers’ milk checks from Class II products that take market share away from Class I products.

“These new provisions will help maintain the integrity of the Federal Order’s classified pricing system, by making sure that new milk-based products that compete with milk will be put into Class I,” Kozak says. “It levels the playing field for farmers and processors alike.”

The International Dairy Foods Association, representing processors, took the other side of the debate. “While the proposed rule does create a new exemption for drinkable yogurts, we’re concerned the new criteria will make milk ingredients less desirable in the formulation of new beverage products,” says Bob Yonkers, IDFA chief economist.

Yonkers testified on behalf of the Milk Industry Foundation (MIF) a year ago, arguing against making any changes to the current fluid milk product definition. In his testimony, Yonkers said proponents of changing the current definition had presented no data showing any market problems caused by the current regulation.  

The new immigration reform legislation that cleared the U.S. Senate in May by a 62-36 vote “is a workable compromise that recognizes the need that America’s dairy farmers have for qualified immigrant employees,” according to Jerry Kozak, president and chief executive officer of the National Milk Producers Federation (NMPF). Senate leaders forged a compromise approach to updating U.S. labor and immigration laws, one that NMPF supports “because it both recognizes the need for enforcement and employment provisions,” Kozak says. “There have to be two sides to the coin on this issue, which is the approach taken by the Senate,” in contrast to the House of Representative’s version of immigration reform, which is focused only on enforcement. A conference committee of House and Senate leaders will now be meeting to fashion a compromise approach between the two versions. Kozak says NMPF will work aggressively with other farm and agribusiness groups to ensure the resulting bill will most closely resemble the Senate version. In particular, he notes that NMPF strongly supports inclusion of a guest worker program for agricultural employees, a key feature of the Senate bill.