Panelists representing the producer and processor sides of the industry debated the merits of the current federal milk pricing system during Dairy Forum this week. The moderator, Robert Boynton, Ph.D., adjunct professor at the Charles H. Dyson School of Applied Economics and Management at Cornell University, told the more than 650-member audience that the panel would tackle the “simple” topic of milk pricing, perhaps one of the most complex and emotional issues in the dairy industry.
“The issues are not new, the details are not new, but the direction could be,” Boynton said.
Most dairy food manufacturers believe that the current milk pricing system, rooted in 1930s-era economics, is a misfit in today’s global marketplace. Plans to update the system have been in negotiations for years, but sticking points remain.
Panel Weighs Merits of Change
The panelists – David Ahlem, chief operating officer, Hilmar Cheese Company, Inc.; Jay Bryant, CEO Of Maryland and Virginia Milk Producers Cooperative Association; and Jeff Kaneb, executive vice president, HP Hood LLC, and chairman, Milk Industry Foundation – agreed that the pricing system needs reform, but they disagreed on the details.
“Volatility and risk are not going away, even if we did away with orders, but the system exacerbates the symptoms,” said Ahlem. “Try to explain California orders to Chinese national through a translator. Talk about an exercise in futility.”
“From a pricing perspective, there are a whole lot of things that need to be changed,” said Bryant. “But there are certain aspects of the system that I would not want to see go away.”
How Much Change Is Needed?
When Boynton asked the panelists if the federal order system should be phased out completely, he got a decidedly mixed response from the panel.
“The system should include more price discovery and reporting than what it does today, but pricing itself needs to be completely overhauled,” said Kaneb. “We all have a vision of something different and better without the artificial barriers, opening the doors to innovation for both processing and product, but we don’t really know what it is or could be because the doors are closed.”
Ahlem said he would be in favor of phasing out orders, but it would need to be a thoughtful transition.
“The world is a different place, and the reasons why we have federal orders are no longer important. That purpose has been served,” Ahlem said. “The system defines value, and while we are fighting over where to slice the pepperoni pizza pie, the rest of the world is eating a different pie.”
Bryant disagreed. Doing away with orders completely, he said, would place an unfair proportion of risk on dairy producers, who he said have less control over factors affecting their business than processors do.
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