Federal Order Make Allowance Proceeding Was Quite The Ordeal

Back in September of 2005, Agri-Mark Dairy Cooperative proposed, on an emergency basis, three changes to federal milk marketing orders. The primary proposal was to “update” (increase) make allowances for cheese, butter, nonfat dry milk and dry whey.

In the Federal Register of Friday, April 26, 2013 (as reported on page 11 of our April 26th issue), USDA announced that it was terminating this proceeding to amend the federal order make allowances.

A day earlier, USDA had published a final rule that permanently adopts changes to the make allowances and the butterfat yield factor used in Class III and Class IV product-price formulas. The effective date for this final rule (make allowances in the final rule became effective on October 1, 2008, in an interim final rule) is July 1, 2013.

Thus, the proceeding to alter federal order make allowances started back in September of 2005 and will finally end on July 1, 2013. By our calculations, that’s almost eight years that this issue has been hanging over the US dairy industry.

This process has been so complex that it actually included two proceedings, rather than just one. The initial proceeding started with Agri-Mark’s petition seeking an emergency hearing.

The dairy industry probably should have known it was in for a long proceeding when USDA finally responded to this request for an emergency hearing on November 15, 2005. In its response, USDA noted that it had received the emergency hearing request from Agri-Mark, that Agri-Mark’s request had received written support from “a number of interested parties,” and that a hearing notice would be issued in the near future.

That hearing notice was indeed published, in early January of 2006, and a hearing was held in late January of 2006 in Alexandria, VA. That hearing took four days.

Five months after the emergency hearing ended, USDA announced its intention to reconvene the hearing, and also said it would welcome additional proposals addressing Class III and Class IV price formulas for further consideration at the reconvened hearing.

That reconvened hearing took place in Strongsville, OH, on September 14-15, 2006. That was about 350 days after Agri-Mark submitted its original request for an emergency hearing.

Finally, on November 22, 2006, or about 14 months after Agri-Mark submitted its original proposals, the dairy industry got a make allowance decision out of USDA. But the decision was a huge disappointment to many industry participants, partly because the increase in the make allowance for cheese was so small (from 16.5 to 16.82 cents per pound). The new make allowances from that decision became effective in early 2007.

But that wasn’t even close to the end of this proceeding. In February of 2007, USDA announced that it would hold another national hearing to consider changes in the Class III and Class IV pricing formulas. Several proposals included in that hearing notice dealt with make allowances.

This hearing was one for the dairy record books. It included an initial hearing held in Strongsville, OH, in late February and early March of 2007 (that hearing took an entire week); a reconvened hearing that took place in Indianapolis, IN, in April of 2007 (this also took an entire week); and yet another reconvened hearing that took place in Pittsburgh, PA, in July of 2007 (mercifully, this only took three days).

Almost a year later, USDA issued a tentative partial final decision, based on the hearings held in three different states over a five-month period in 2007, that, among other things, increased the make allowance for cheese to its current level of 20.03 cents per pound. Make allowances for butter, dry whey and nonfat dry milk were also increased.

Dairy producers approved those higher make allowances, and they were originally scheduled to take effect on September 1, 2008. But a complaint was filed in federal court, which resulted in USDA delaying implementation until October 1, 2008.

Once those new make allowances became effective, the whole make allowance proceeding (nightmare?) was sort of forgotten by most people in the dairy industry. But the proceeding technically wasn’t over yet.

Indeed, in March of 2012, the Greater Northeast Milk Marketing Agency (which consists of Agri-Mark, Dairy Farmers of America, Dairylea, Land O’Lakes, Dairy Marketing Services, Maryland and Virginia Milk Producers, St. Albans Cooperative Creamery, and Upstate Niagara Cooperative) requested that USDA make the interim 2008 order final and terminate the entire proceeding.

Finally, in April of 2013, USDA issued a final rule that permanently adopts the higher make allowances that have been in place since late 2008, and separately announced a termination of the original proceeding that started way back in September of 2005.

The good news for the dairy industry is that this proceeding has finally come to an end, and thanks to this proceeding, federal order Class III and Class IV formulas now use make allowances that are a much better reflection of the actual costs of producing dairy products.

The bad news for the dairy industry is that this proceeding utilized an enormous amount of industry resources while it ran its course. There were proposals, hearing, reconvened hearings, post-hearing briefs, lawsuits, etc.

All in all, this proceeding has been quite the ordeal for the dairy industry. And we can’t help but wonder if the industry would be better off using its resources in ways that actually improve the marketing of dairy products.

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