Depooling . . . the dirty word blamed for last year’s painful negative Producer Price Differentials (PPDs) and wild price swings. Many ideas may exist for reform, but which might actually work? The panelists of the May 5 Hoard’s Dairyman DairyLivestream addressed a few.
First, a quick reminder of how milk may move in and out of the pool. Dairy order director Erin Taylor from USDA described how fluid and manufacturing processors are regulated differently under the Agricultural Marketing Agreement Act of 1937.
“The way the rules are set up, Class I handlers are required to be regulated. They don’t have a choice. They pay minimum classified prices because the orders are set up to make sure the fluid needs of the consumer are always met,” she said. “That allows our Class II, III, and IV processors to make a decision on whether they want to participate in the pool. It’s not really depooling, it’s just choosing to not pool this month.
“Depending on the class price relationships is when those manufacturing handlers will make a business decision on whether or not they want to pool the milk. Often, it’s because they’re going to get a draw from the pool to help them pay their producers the minimum uniform price, so they want to participate; there’s a benefit for them to participate and so they choose to do that,” Taylor explained.
“When class prices are inverted and instead of receiving a payment from pool and they might have to pay into the pool, well, the rules aren’t set up to make them participate,” she stated. “They have a business decision to decide if they’re going to pay into the pool or not, and they can maintain that market revenue and choose to share it with producers that supply them.”
Rules and restrictions
A common idea to reduce the movement in and out is to require processors who move out of the pool to stay out for a longer period of time. Would a year be reasonable?
“It could be considered,” said Dairy Farmers of America’s (DFA) Ed Gallagher. He noted that in the recent development of the California federal order, DFA, Land O’Lakes, and California Dairies Inc., all supported more restrictive pooling regulations, but the measure was not implemented. However, he believes there is an argument to tightening things up to make it less opportunistic to depool.
Whatever rules are proposed would likely remain a regional provision. Alan Zolin, who worked in the federal order system for a number of years, reminded that all current 11 orders are set up around the needs of their marketing area. National depooling rules would work better for some areas of the country than others.
“Solving depooling is not as simple as making a rule for it nationally. You’ve got to fix those whole pricing disparities that happen; it’s much more complicated than just a rule targeting depooling,” he said. “One easy answer is mandatory pooling, which kind of goes against the entire principle of where the federal orders started.”
An option that Zolin has supported for a while is simplifying to two milk classes, one for fluid and one for manufacturing.
“Two classes of milk could easily be handled,” he believes. “Now granted, that second class may not be as high because it would be a roll-up of Classes II, III, and IV, so it may not be the highest.” He recognized that this wouldn’t be a one-stop solution for the various concerns of the federal order system, though.
An ongoing series of events
The next broadcast of DairyLivestream will be on Wednesday, May 19 at 11 a.m. CDT. Each episode is designed for panelists to answer over 30 minutes of audience questions. If you haven’t joined a DairyLivestream broadcast yet, register here. Registering once registers you for all future events.