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."
