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USDA Still Reviewing Organic Trade Administration’s Federal Order Hearing Request; OTA Responds To Opponents

USDA’s Agricultural Marketing Service (AMS) is continuing to review the market concerns raised and the information provided in a request last September by the Organic Trade Association (OTA) for a hearing to amend the 10 existing federal milk marketing orders, according to Elanor Starmer, AMS administrator.

The proposal would provide a credit to organic fluid milk handlers against their monthly federal order pool obligations, dependent upon the price paid to dairy farmers for organic milk (this is the so-called modified Wichita Option).

Meanwhile, the OTA on May 10 submitted a letter to AMS that supplements its November 30, 2015, letter in support of its proposal. In its letter, the OTA responded to objections raised in opposition to its request for a hearing. These objections were raised by National Milk Producers Federation, Pennsylvania Association of Milk Dealers, Northeast Dairy Foods Association, Dairy Farmers of America, Agri-Mark, Land O’Lakes, Prairie Farms Dairy, Michigan Milk Producers Association, and Upstate Niagara Cooperative.

The OTA said its proposal would correct “current disorderly marketing conditions.” The current federal order system requires organic handlers buying organic milk to make payment into the producer-settlement fund of monies generated from the purchase and sale of certified organic milk and shares all those dollars with conventional dairy producers; however, the federal orders do not fulfill the Agricultural Marketing Agreement Act demand to bring forth an adequate supply of milk for organic consumers.

While several assertions have been made about the disorderly pricing impact of OTA’s proposal on conventional dairy farmers, “the data underlying these claims has not been evaluated, distorts reality, and OTA has been given no opportunity to cross-examine any economist or industry specialist as to the reliability of these numbers,” the OTA said. “More importantly, this argument fails to consider the countervailing present impact on the organic industry.”

First, impact claims based on USDA data overestimates the impact of OTA’s proposal because there is no present way to estimate the mitigating impacts of organic Class II, III, and IV volumes with the data released to date, the OTA said. No market adminstrator currently tracks Class II, III or IV utilization of organic milk volumes.

Second, reliance on a comparison between conventional and organic pay prices to approximate impact “is misplaced. The fact that there is such a price difference demonstrates that organic milk is viewed as entirely different by the market,” the OTA stated.

One purpose of federal orders is to provide timely, accurate and consistent price signals to dairy farmers with respect to supply and demand, the OTA continued. Over the past year, the organic price signal incorporated into federal order pricing, because organic and conventional milk are treated the same, has “muted and softened” the price signals that conventional dairy farmers should be receiving to reduce supply” in the face of low prices.

Similarly, opponents have failed to show that any potential minor impact on conventional dairy farmers would, in fact, be disorderly marketing, the OTA said. USDA can consider and hold hearings to consider federal order proposals that may have a depressive effect on producer prices; it has done so in the past with respect to replacements for the M-W price series and make allowance and yield factors for product price formulas.

Moreover, USDA last year convened a hearing to consider promulgation of a new California federal order even though USDA’s own preliminary economic analysis suggested that adoption of such a proposal would have “significant price depressing effects” on dairy farmers under a number of other orders, the OTA said.

“The cooperatives who support a California FMMO cannot simultaneously successfully request a hearing when they want it and then turn around and demand that USDA not hold a hearing when the same issue of depressing FMMOs pricing is present in both proceedings,” the OTA said. “Thus, USDA precedent is to hold a FMMO hearing under these precise circumstances.”

The fact that a federal order may be voted out during a potential referendum process cannot be a basis upon which to deny a hearing request, the OTA stated. The Western federal order was terminated, but milk “remains available in Utah and Idaho. Should dairy farmers make the decision to vote out an order, it can only be inferred that such a result is the best outcome for those farmers.”

Other points raised by the OTA in its May 10 letter included:
• OTA’s proposal “does not alter any aspect” of the fundamental federal order structure.
• The OTA proposal is presented on behalf of, and supported by, organic industry members at all levels of participation, from farmers to retailers.
• OTA’s proposal does not create a competitive advantage to organic over conventional processors and producers because organic processors would, at least, continue to pay the minimum prices for organic raw milk, and likely pay more for such supplies.
• Organic Class I processors do not enjoy the pooling benefits from federal orders; in times of organic milk shortages, a federal order market administrator cannot resolve the situation by calling for the provision of additional supplies from conventional dairy farmers.

“OTA finds itself at a disadvantage in this process by refuting technical and data-driven arguments without the benefit of generating and introducing its own expert testimony, along with being able to cross-examine and evaluate the claims of its opponents,” the OTA said. “The complexity of the FMMO system is ill-suited to the conclusory and hamstrung process of a prolonged letter writing campaign.

“The hearing process is the appropriate venue for this necessary and healthy debate. OTA urges USDA to proceed to a hearing immediately,” the OTA’s May 10 letter concluded.

Meanwhile, Northwest Dairy Association (Darigold), Southeast Milk, Inc. (SMI) and Dairy Producers of New Mexico (DPNM) recently urged USDA to deny the OTA’s request for a hearing.

“This proposal is a very serious problem for dairy farmers and for USDA as it would undermine the intent of the vital FMMO program and would cost dairy farm families thousands of dollars each year,” NDA said.

“On balance, DPNM opposes the OTA proposal because of the unwarranted blend price dilution the proposal is nearly certain to impose upon New Mexico producers,” DPNM said. “We are also unable to ascertain any concrete benefit that the OTA proposal would confer upon our organic members.”

SMI said it opposes OTA’s hearing request because they say a basic provision of federal orders is the pooling of milk receipts, and paying dairy farmers a blend or uniform price. The OTA proposal violates this basic provision by allowing the exemption of organic milk from inclusion in the pool.

SMI opposes the request because the OTA proposal would prompt disorderly marketing by establishing a precedent in which milk with “special” characteristics could seek exemption from pooling.