The Food and Agricultural Policy Research Institute at Iowa State University wrote in its Feb. 2, 2006 "Dairy Policy Brief #9a: Federal Milk Marketing Orders" that:
"Federal milk marketing orders (FMMOs) require regulated milk processors, called handlers, to pay minimum prices for milk and adhere to other specified rules. FMMOs are authorized under the Agricultural Marketing Agreement Act of 1937, as amended.
There are 10 federal milk marketing orders, affecting about 60 percent of all milk marketed in the U.S. California's state order, which operates much like federal orders, accounts for another 20 percent. The rest is priced under other state orders or is not subject to FMMO regulation (primarily Grade B milk).
According to the USDA, the three major objectives of FMMOs are to: (1) assure consumers of an adequate supply of wholesome milk at a reasonable price; (2) promote greater producer price stability and orderly marketing; and (3) provide adequate producer prices to ensure an adequate current and future Grade A milk supply."
The United States Department of Agriculture (USDA) published the following description of federal milk marketing orders in its 2004 "Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing," report to Congress:
"Federal milk marketing orders (FMMO) establish minimum pricing rules for the sale of raw fluid-grade (Grade A) milk from the producer to the processor or manufacturer. Milk marketing orders were established in the Agricultural Marketing Agreement Act of 1937 (amended). In 1999-2003, between 65 and 76 percent of all milk marketed in the United States was marketed under FMMOs.
FMMOs establish monthly minimum prices that first handlers of Grade A milk must pay, and verify that those handlers pay at least the minimum for milk delivered to them. The prices that producers actually receive may be higher, depending on market conditions. The differences between actual prices paid and the Federal order minimum price are called over-order payments, are market-generated, and paid outside of the order system.
A system of classified pricing establishes minimum prices for each end use-the fluid (class I) price is the highest, reflecting the higher cost of servicing the fluid market. Formulas relate the minimum prices for milk in each class to wholesale market prices for dairy products, which in turn are influenced by the milk price support program. The minimum price paid to producers is a blend price of all uses at the FMMO minimum Class prices.
FMMOs are fundamentally aimed at equalizing competition between proprietary handlers and producers and promoting a greater degree of stability in marketing relationships. Such a system effectively prevents a concentrated processing sector from exercising noncompetitive market power over milk producers by establishing minimum prices that all processors must pay for milk."
Citizens Against Government Waste, a taxpayer advocacy group, published an article titled "Milk Marketing Orders" on their website (accessed Sep. 14, 2007) that stated:
"Federal milk marketing orders came into existence as a result of the Agricultural Marketing Agreement Act of 1937, which gave the Secretary of Agriculture open-ended powers to manipulate milk prices. The rationale for the legislation was to reduce disorderly marketing conditions, improve price stability in fluid milk markets, and ensure a 'sufficient quantity of pure and wholesome milk.'
Federal milk marketing orders operate as a federation of regional units with a raft of intricate regulations to govern the overall price to be paid for milk in each region. In addition to establishing a formula to determine a minimum national price for milk, the milk marketing orders impose a premium price - a 'differential' - based upon the distance from Eau Claire, Wisconsin, to where the milk is produced. The orders also enforce different prices depending upon the end use of the milk."