December 10, 1997

MILK PRICE RULING A STEP TOWARD FAIRER PRICING SYSTEM, DAIRY BOARD SAYS

Although opinion is mixed over the recent court ruling against regional differences in milk prices paid to farmers, the Minnesota Dairy Producers Board advises dairy farmers and consumers not to forget the original intent of the federal milk pricing system of which the price differentials are only a part. Congress created the pricing system in the 1930s, called federal milk marketing orders, to ensure a constant supply of fresh drinking milk for consumers and stable prices for dairy farmers in all market order regions of the country, the dairy board explained.

In the aftermath of the ruling, that part of the federal system must be maintained for supply and price stability while a fairer system is developed to replace the price differentials, the board advises. The board said it agrees with the ruling’s affirmation that regional price differences are outdated and unfair. Furthermore, it said it commends Minnesota Milk Producers’ lawsuit against the differentials as a big step toward making a basically flawed milk pricing system more fair for all farmers and consumers.

Elimination of the unfair regional price differences is seen by the board as an opportunity to create a fairer premium system. But the board said it questions those economists who say that the market alone can do this. According to their theory, of which the board said it is cautious, upper Midwest farmers will eventually gain $.50 to $.70 more per hundredweight because eliminating the higher premiums for southern farmers will discourage them from expanding milk production. This will open up markets for Minnesota and Wisconsin farmers, according to the theory. "However, you’re still not solving the nationwide problem of low and unstable prices for all farmers. Without replacing the differentials with a fair price for everyone, farmers in one region will continue to benefit at the expense of farmers in other regions," board president Jeff Kunstleben cautioned. "Therefore, maybe what we should be looking for is a stable compromise price for all farmers in the country to replace the highs and lows in the differentials", he advised. "Also, the possibility of $.50 to $.70 more predicted by the economists isn’t nearly enough of a recovery from the chronically depressed prices paid to all farmers," he added.

While applauding U.S. District Judge David Doty’s ruling, the board cautions that it only addresses part of a dairy economy that has become so riddled with gimmicks as to make milk pricing a continual guessing game for both farmers and consumers. To begin, the ruling affects only one part of a four part premium pricing structure, called the producer price differential, which pays farmers for grade A milk. Underlying this premium structure is what’s called the basic formula price, or BFP, which is the basic price paid for all milk regardless of the different usages. It’s the continually depressed BFP at $10 or $11 per hundredweight due to last year’s crash on the dairy market which is the more serious problem, the dairy board claims.

Unless the BFP is shored up and maintained at a level to keep family dairy farms in business, changes in premiums above this basic price will provide only temporary relief at best. Focusing too much on the judge’s ruling over the premium differentials distracts Farmers and consumers from looking at more fundamental and long-term solutions for a dairy economy that has become too easily manipulated," Kunstlaben said.

CONTACT PERSON: Jeff Kunstleben, Albany, (320) 845-4336