The heart and soul of federal milk marketing orders are often thought of as the classified pricing system and pooling, and the complexities of those tools make them both popular and not. But there are other benefits of federal orders that would have to be recreated in a new system if we were to drastically alter or get rid of the federal order system, reminded Mark Stephenson.
The most important piece would likely be price discovery, the University of Wisconsin-Madison economist explained on the June 15 Hoard’s Dairyman DairyLivestream. “Price discovery is one of the things they do to be able to enforce classified pricing,” he explained. Stephenson described federal orders as a neutral third party, and when they announce monthly prices, dairy buyers and sellers can agree on those standards for their contracts.
This makes the futures market possible for dairy, Stephenson continued. Since milk is a perishable, fluid, bulky product to transport, delivery markets were not a good option. Dairy needed cash settled markets, and the action of the federal orders made it possible to have a good idea of prices and milk usage.
“If you’re going to run a truly competitive market, you have to have reliable information,” emphasized Mike Brown, who oversees the entire dairy supply chain for the more than 2,000 grocery stores operated in the U.S. by the Kroger Company. He said the need for data is undebatable in order to allow for fair marketing decisions.
“One of the beauties of the work federal orders do on that part of the business is we understand production levels, we understand components, we have prices for the base commodities . . . that’s all very, very useful,” Brown expanded. “Whether you regulate a pound or not, that kind of information needs to continue to happen to have a market that works. How we regulate it is the big discussion.”
In addition to data on prices, federal orders are responsible for much measuring and testing across the industry, Stephenson added. This encompasses everything from identifying milk components to tracking processing plant activity so all production is accounted for.
There are many conversations about desired changes to federal order systems, and Stephenson acknowledged it is time to have those discussions. As that occurs, though, we will have to consider everything our current system handles. It won’t be a simple line to walk. “All of those things I think would have to be recreated if we just decided we didn’t like or didn’t want federal orders anymore,” Stephenson concluded. “The industry needs something like that in order to function.”
To watch the recording of the June 15 DairyLivestream, go to the link above. The program recording is also available as an audio-only podcast on Spotify, Google Podcasts, Apple Podcasts, and downloadable from the Hoard’s Dairyman website.
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