By Leonard Polzin
Overview
Federal Milk Marketing Orders (FMMOs) are one of the most consequential and least understood features of the U.S. dairy industry. They are often described as a pricing system, but that description alone misses what the orders actually do. This article explains what an FMMO is, the two core mechanisms that define the system, how minimum formula prices are built, how orders are amended, and who is and is not covered.
A common misunderstanding is worth addressing up front. FMMOs do not set the prices producers are paid. Markets set the price. FMMOs establish the rules of the game for how regulated handlers account for and pool producer milk. They generate minimum regulated formula prices derived from surveyed wholesale commodity values. What a producer receives in a milk check reflects those minimums for milk that is pooled, plus a range of market-determined items layered on top or handled separately.
What is an FMMO
An FMMO is a federal regulatory instrument authorized by the Agricultural Marketing Agreement Act of 1937. The U.S. Department of Agriculture Agricultural Marketing Service (AMS) administers the orders. There are currently 11 FMMOs, each covering a defined geographic marketing area. Together they account for roughly two-thirds of U.S. milk production. The remaining production is either not pooled on a federal order, produced in areas not covered by an order, or handled through state milk marketing programs.
In FMMO terminology, dairy farmers are producers and the dairy processors that buy milk from them are handlers. Regulated handlers in a marketing area must account for the milk they receive and pay at least the minimum regulated price on the milk they pool under the order.
Source : wisc.edu