The American Farm Bureau Federation told USDA Secretary Tom Vilsack today that requests to increase make allowances – which are used in part to calculate how much a processor pays for milk – fall short of fairly supporting dairy farmers. According to 2021 USDA milk cost of production estimates, dairy farmers on average, lose $6.72 per hundredweight of milk produced. The loss for dairy farms with less than 50 cows was even greater at $21.58 per hundredweight.
Two dairy processor associations requested a federal milk marketing order hearing to increase make allowances. While AFBF is not opposed to updating make allowances, the proposals to USDA do not address the wider need for changes to milk pricing regulations. For example, the requests call for the continued use of voluntary data to set make allowances. In a letter to Secretary Vilsack, AFBF President Zippy Duvall argued for mandatory reporting. The letter states, “Large efficient processors may decline to participate [if data is voluntarily collected], which would skew the cost survey results upward. This would increase the deduction to cover processors’ cost in the milk price formula, which would skew dairy farmers’ milk checks downward. Farm Bureau believes it is critical that any changes in the make allowance be based on mandatory audited cost and yield surveying, which would provide farmers the assurance that any make allowance change reflects true costs borne by processors.”
To fully address farmers’ needs, USDA should consider a wider range of improvements to milk markets including adjustments to the Class I and II skim milk price formulas such as, updates to the Class I and II differentials, and a return of the Class I base price formula to the “higher-of” the Class III or IV formula.
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