guest editorial/opinion
Perspective: WCMA Update

John Umhoefer is executive director of the Wisconsin Cheese Makers Association. He contributes this column monthly for Cheese Market News®.

WCMA chooses the free market

Call it a principled position. The board of directors of the Wisconsin Cheese Makers Association (WCMA) envisions and embraces a future without federal milk marketing orders.

That future may be closer than you think. The December vote to accept new make allowances was close in the Upper Midwest Order. USDA announced that all orders voted to accept this interim final decision, but they didn’t release vote totals. Each order voted independently — each needing two-thirds of farms to vote in favor of the decision.

WCMA announced a position on the future of federal orders as producers and cooperatives voted in December on the make allowance decision. Our members that are not cooperatives — proprietary cheese manufacturers, buttermakers and processors — have no vote, but bear the impact of federal milk pricing, pooling, audits and milk shipments alongside our co-op members.

It is WCMA’s position that a free market would better serve the Upper Midwest dairy industry than federal milk marketing orders. Any positives that may accrue from orders are outweighed by a system that is unwieldy, anti-competitive, wasteful, inflexible and unfair.

Product pricing formulas cannot be made flexible enough to mimic rapid changes in the cost of production of dairy products. Price differentials and pools fail to fairly distribute dollars among producers nationwide. And consolidation of producer organizations means a handful of entities now control decisions to change federal milk pricing and pooling.

It’s not a system that sensible businessmen would build today to handle the pricing and movement of raw milk.

Rather than airing past grievances in this space, WCMA will look forward. Our members are exploring milk pricing based on cheese yield and cost-plus pricing. Government-set yields, make allowances, price lags, differentials, fees and hearings would be replaced by milk pricing and movement attuned to each plant’s products, markets and costs.

In April, WCMA will join our members in looking forward. At the Wisconsin Cheese Industry Conference a national panel of economists will describe and model a dairy industry after the dissolution of federal orders. A change to milk pricing and movement based on the free market will be best accomplished if industry studies its pricing options, examines its cost of production and marketing and envisions the data needs, the systems and the opportunities that may arise when government rules are released.

The change to a free market dairy industry will stimulate outside investment and product innovation. The U.S. dairy industry has realized only a fraction of the potential for value-added dairy products. When government-set prices and pools release and profit alone becomes the driving force behind dairy processor decisions there will be winners and losers. But the potential for profitability will expand.

It is a reasonable feature of the federal order program that the control of orders is left in the hands of dairy producers (although bloc voting thwarts this democratic process). It is producers, not regulators or congressmen, that should set the course for the dairy industry.

Recent order decisions have built higher walls around regional orders to restrict the movement of milk. The September depooling decision restricted the ability to opt in and out of orders. The November make allowance decision tried and failed to match order formulas to real world costs of production. And a recent December hearing explored arbitrarily increasing class prices at the expense of consumers. Each of these actions pulls this government-run system further and further from free market principles.

Dairy producers in the Upper Midwest nearly exercised their option to embrace the free market in the December vote on make allowances. Other votes will come before producers in the next two years. It would be prudent now for dairy businesses to prepare for a free market economy, because federal milk marketing orders are a product of their time, and that time has passed.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.