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MILK PRICE NEWS A publication of the Minnesota Dairy Producers Board 123 1/2 E. Broadway, Little Falls, MN 56345, 320-632-5867 or 616-5847USDA’s make allowance proposal |
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MAY 1998 |
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| Amid swirling opinions over federal milk
pricing proposals, the change that would damage farmers’ income the
most is being ignored. Debate over regional price differentials and
marketing orders is diverting attention from USDA’s make allowance
proposal which would have dairy farmers paying processors to manufacture
their milk into dairy products.
By far, this is the greatest danger to how farmers’ milk would be priced in the new federal system, and would violate the free market by having a government-set fee, rather than supply and demand, determining farmers’ pay price. Other dairy groups in the country, such as dairy producers from New Mexico, also oppose a government-set make allowance which makes this a national farmers’ issue. The "make allowance" is an odd pricing practice used in California where farmers pay the dairy processors a fee set by the California Department of Food and Agriculture (CDFA) to manufacture their milk into dairy products. This fee subsidizes the processing of surplus milk to guarantee continued financing for the processors even if there’s overproduction by the producers. Farmers everywhere would be subjected to the same kind of biased price manipulation if the USDA incorporates the California-style make allowance into the Basic Formula Price (BFP) of the revised federal system.
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And the cost to dairy farmers would be
tremendous. A Minnesota farmer milking 50 cows which produce 2500 lbs.
of milk per day would pay $11,589 per year to the processor for making
that milk into cheese, according to USDA’s proposed $1.27 make
allowance per hundredweight cited by the Upper Midwest Marketing Area
office in Minneapolis.
That’s why more than 50% of California dairy farmers had negative net income in five of the last six years, according to a CDFA survey, with the highest number at 67% in 1997. The farmers’ income is siphoned off by California plants to finance their processing costs compared to plants elsewhere in the nation. If, for example, a California plant and a Minnesota plant each processes 3 million pounds of milk per day, the California plant makes $3.8 million more per year from their farmer-paid make allowance than the Minnesota plant. This is due to the California processors getting a make allowance of $.35 more per hundredweight to process butter, powdered milk, and cheese than what non-California processors get, according to CDFA data. Other years have had an even wider spread. In other words, California farmers are receiving some of the lowest milk prices in the nation in order to finance their processors with a more expensive make allowance, according to University of Wisconsin dairy economist Bob Cropp.
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