The Federal Milk Marketing Orders (FMMO) – or federal milk marketing boards – organize the sharing of milk value between producers and processors. Up to now, nearly 70% of the milk produced in the United States passed through these offices, this figure is on the rise: Californian farmers have just voted in favor of setting up such a regulation in the Golden State1.
California had a specific marketing board and a double-quota system
This transition should be easy for Californian farmers whose marketing was already structured by the California Milk Marketing Order (CMMO) whose operating procedures differ only in part from FMMOs. With its 19% of domestic milk production (in 2016), California should allow FMMOs to consolidate more than 80% of US milk production (see Figure 1).
In order to achieve value sharing, at the processor level, between higher value-added products and those with lower added value, transformation monitoring is carried out within FMMOs via 4 classes (Class I: liquid milks, Class II: fresh or ultra-fresh products, Class III: hard products like cheese, butter, Class IV: milk powders). California, which had up to now 5 classes of products will simply have to merge2.
Finally, Californian farmers who have a double-quota system, allowing them to have an individual historical reference offering them a better price on part of their production, will continue to benefit from it since this individual differentiation will be preserved and superimposed on the FMMO system.
The establishment of the Californian FMMO
The implementation of this new FMMO was launched in 2015 and required approval by at least 2/3 of the producers solicited in a vote held last June. The result of the vote in favor of the new marketing system did not surprise the specialists. The main motivation for California breeders is that the FMMO price formulas are more advantageous to them than those currently governing their office.
In addition, the merger process was initiated by California’s three major cooperatives: California Dairy Inc., Dairy Farmers of America, and Land O’Lakes2. The latter could vote in the place of their members, the approval of this new system was expected. In addition, this project was also supported by the California Dairy Campaign3 (CDC), an offshoot of the National Farmers Union (NFU), one of the largest US agricultural unions. Finally, Andrew Novakovic, professor of agricultural economics at Cornell University and Mark Stephenson, director of dairy policy analysis at the University of Wisconsin, asked about the issue, also urged farmers to approve the process4. The establishment of this FMMO will therefore be effective from October 17th.
The main expected implication is a relative increase in producer milk prices in California of $ 0.45 / cwt, just under $ 10 / t according to a USDA5 study on the issue. While US dairy farmers are in turn affected by the milk crisis6, the expected increase in the transition to the FMMO price formula remains low.
In the end, the changes in the policy of sharing the added value of milk in the United States echo the debates currently taking place in France, in connection with the Estates General and the draft law on food. If a system like the one that exists in the United States could be a source of inspiration for the future Common Agricultural Policy, the reorganization of producers into Producer Organizations (POs) that are sufficiently important is the necessary precondition for sharing the added value more fair in the industry.
Christopher Gaudoin, Strategic analyst for Agriculture Strategies