The author is the EV Baker Professor of Agricultural Economics Emeritus at Cornell University. His primary career focus has been on the economics of dairy markets and policy.
Negative producer price differentials (PPDs) have inspired a lot of conversations about Federal Milk Marketing Orders, including reviving concerns or questions about some things that have been lingering for quite some time. One of those issues is the ability of a dairy cooperative to cast a single vote representing all of its members who are eligible to vote in a federal order referendum, known as bloc voting. Numerous farmers and others have expressed a frustration with this provision. Reasons for this may vary.
Perhaps it is just the simple principle that producers should have the right to vote as they please. Maybe there is a particular vote from the past that has stuck in someone’s craw. Underneath this particular issue might be, for some, a broader concern with cooperative governance and the ability of individual members to influence the decisions of their cooperative.
One of three
Bloc voting was one of three privileges accorded to cooperatives when the original legislation was written. Early versions of what would become Federal Milk Marketing Orders were contained in the very first U.S. farm bill known as the Agricultural Adjustment Act (AAA) of 1933. Amendments and additions arrived almost annually until the final version of the Agricultural Marketing Agreement Act (AMAA) of 1937.
As the Roosevelt Administration and Depression era Congresses worked their way through how and to what degree the U.S. government could influence or regulate economic markets and outcomes, there was a balance between acting boldly and trying to figure out what cures were better than the disease. Dairy cooperatives had been trying to use classified pricing and pooling plans with their customers in various urban areas across the U.S. since the late 1890s.
By the time the AMAA was created, there were some 60 city markets in which a form of classified pricing and pooling was being used without any government authority. As the Roosevelt administration sought new ideas to get better financial results to dairy farmers, milk marketing cooperatives advocated for making their pricing plan a federal program, enforced with the power of the federal government.
It took a few years to persuade Congress to embrace that approach. When it did, Congress made Federal Milk Marketing Orders one of three regulatory options and allowed farmers in different marketing areas to request regulation rather than push it down the industry’s throat.
Congress also insisted that USDA use the most stringent form of administrative procedures when creating or amending an order and to create rules that balance the interests of farmers with the interests of consumers. Despite those checks and balances, it is also the fact that only farmers get to vote on a new or amended order. Processors are ultimately the ones who get regulated, and they can advocate for their issues, but they can’t vote. The downside for farmers is their vote is either “all in” or “all out.”
The big three
As key architects of the federal order system, cooperatives persuaded Congress to allow them three important privileges:
1. Exempting cooperative members from any order charges for the cost of marketing services
3. Bloc voting
The first item refers to a charge the Market Administrator is allowed to levy on farmers to cover the cost of so-called “market-wide services.” Commonly, this includes the cost of running labs to determine or verify producer milk composition tests, recorded weights, and newsletters and other ways of providing market information to farmers.
In Federal Order 1, the market-wide service cost is 5 cents per hundredweight (cwt.). The reason for the exemption to farmers who are members of cooperatives is the explicit understanding that these services will be provided by the cooperatives instead.
The second item — reblending — means that cooperatives are not obliged to pay their members the minimum blend price. Keep in mind that any buyer can always pay more than the minimum, and doing so is not uncommon.
The reason for the exemption is, in part, practical and, in part, a recognition that cooperatives incur some costs that other marketing agents do not. The practical part is an acknowledgment that paying the minimum blend price can be circumvented by higher dues or other sorts of assessments, fees, and so forth. Hence, enforcing minimum payment is tricky, if not impossible, for a cooperative member.
The other element is that cooperatives play a key role in balancing milk production with the demands of noncooperative processors. They are usually the surge tank that handles the ebb and flow of milk production. Reblending is in part a recognition that in some months, cooperatives will incur costs that are in effect a type of market-wide service.
Farmers may or may not support this concept. However, the other element that comes into play here is the belief that if a cooperative is a chronic underperformer, farmers can always vote with their feet. Today, there are areas of the country where one would question just how easy it really is to vote with your feet, though.
Lastly, bloc voting was included not as a requirement but rather as permission by the federal government to cast one unanimous vote on behalf of all of their members. I don’t know the exact rationale that went into this decision. I’m quite sure it was at the request of cooperatives. I’m also quite sure that it was based on experience that essentially said that dairy farmers generally belong to milk marketing cooperatives because they want to focus on production and leave the challenges of price negotiations, delivery, payment verification, and all the other marketing details to cooperative professionals.
By extension of that logic, it is not hard to imagine a board of directors thinking that it made sense to leave the complexity of federal order rules or rule changes to the staff members who have invested time and effort in understanding those rules and how changes would impact their business. From there it is a small step to giving the co-op’s board of directors the authority to cast a unanimous ballot on behalf of all producers who would otherwise be eligible to vote under the rules of a particular order.
More modern perspective
I also can share a little bit of history from my time at Cornell University and working in the Northeast. Federal orders started slowly. The first ones were authorized in the 1930s, beginning with St. Louis and five other Eastern and Midwestern cities in 1936. New York City joined in 1938; Chicago in 1939. After the disruptions of World War II, federal orders expanded to over 30 locations and were around long enough that people began to think about amendments.
From conversations with folks who remember those days, people, like N.Y. Market Administrator Charles Blandford, Eastern Milk Producers Cooperative economist, Purdue professor emeritus Emerson Babb, and Cornell professor Leland Spencer, began to realize that the kinds of questions being asked and proposals being made required some fairly serious technical, legal, or marketing knowledge that just simply wasn’t likely for the vast majority of farmers. There were cases where votes were called for and many producers simply chose not to vote because they felt unqualified to sort out what they were voting on.
This eventually led to a feeling that it made more sense to utilize bloc voting. Keep in mind that unless a cooperative’s membership and board of directors approves bloc voting as an option, the law does not allow a cooperative’s president or CEO to just make it up.
Another concern that I think is still pretty central today is that farmers might simply vote “No” on an amended order as a way of protesting what they thought was a bad decision. That “No” vote could be cast by those who are frustrated that a decision did not go their way, that it did not do enough to help them, or was not what they were led to believe would happen.
If enough farmers did that, a “No” vote does not mean that the current order stays in effect. A “No” vote means that farmers would rather be in a deregulated market than one abiding by the rules of the amended order. As explained by USDA’s Erin Taylor in a recent Hoard’s Dairyman DairyLivestream webcast, this “all or nothing” choice exists because of USDA’s obligation to balance producer and consumer interests from a detailed record of facts. Of course, if voting out price regulation is really what you want, then fine, but I would simply remind folks to be careful what you ask for.
Lastly, if any cooperative member feels like their cooperative is not representing their interests effectively, then that is an issue that needs to be worked through the governance structure of their respective cooperative. It really isn’t a federal order issue.