August 1, 2006
IDFA decries decision to postpone cost adjustments in milk-pricing formulas.
Washington, D.C.-based International Dairy Foods Association (IDFA) has expressed shock at the U.S. Department of Agriculture’s (USDA) plans to reconvene a national public hearing to amend the Class III and Class IV price formulas. In fact, top officers from 25 leading dairy companies and cooperatives continue to urge the USDA to rethink its decision.
Stressing the industry’s dire need, executives pointedly state that any further delay could force some U.S. dairy product manufacturers to close their doors, and they pressed the agriculture secretary to issue new allowances on an interim basis. USDA held an emergency hearing in January to address an urgent industry need to update costs built into the Federal Order classified pricing formulas known as “make allowances.”
IDFA believes delaying a final decision on make allowances will have a devastating effect on U.S. cheesemakers as well as the overall industry, arguing that it flies in the face of overwhelming evidence presented to USDA at the hearing in January.
“At a time when we have more milk on the market than ever, we need a strong, healthy dairy-processing sector to turn that milk into finished products. This delaying tactic appears to be a politically motivated decision that could force some cheesemakers to close their doors and send back their milk,” says Connie Tipton, IDFA president and chief executive officer. “Congress certainly didn’t intend to threaten the economic viability of the U.S. dairy industry by forcing manufacturers to lose money on every pound of cheese or other product made when it approved the creation of make allowances. USDA should follow on this wise path and update the make allowances now — without further delay.”
Created through a federal order reform process mandated by Congress in the 1996 Farm Bill, the make allowances established on January 1, 2000, fix the margins USDA permits processors to apply to cover the manufacturing costs of turning raw milk into a finished dairy product. These margins are based on industry manufacturing cost data from 1997 to 1999, so lag below current true costs.
Without an update to reflect current costs, IDFA reports, many cheese, butter and powder plants are forced to operate at a loss because they don’t have the margins to cover all the costs necessary to run their operations.
“It seems entirely unnecessary to gather more evidence when experts presented reams of data at the January hearing demonstrating substantial manufacturing increases,” says IDFA senior vice president Chip Kunde. “In fact, the two sources USDA used to set the original make allowances — the Rural Business Cooperative Service and the California Department of Food and Agriculture — provided more current data using identical methods as before.”
USDA conducted the four-day public hearing in January to consider changes to the make allowances after receiving an urgent request for an emergency hearing by Agri-Mark Dairy Cooperative. The National Cheese Institute, one of IDFA’s constituent organizations, and several other dairy cooperatives supported this request for quick relief from dramatic increases in energy and transportation costs.
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