07/19/06 Milk Controversy

Milk Producers Controversy. I'm Greg Martin with today's Line On Agriculture. Early this year - USDA held hearings to review proposed amendments dealing with Class III and IV milk price formula manufacturing allowances. These allowances - also known as make allowances - are periodically reviewed through USDA hearings. But there haven`t been any changes since 2003 - and higher energy prices are taking their toll. Vice President of Communications for the National Milk Producers Federation Chris Galen says the allowance is a complex issue - and that means controversy GALEN: The way it works is that if you increase the make allowances for processing plants that make cheese or powder and butter, then the pay priced farmers goes down. And so basically either you allow the plants in many cases to continue operating at a loss or you allow them to make a little bit more money on each pound of cheese that they are making that reduces farmer income at a time of course when farm level milk prices are very low. Galen says that`s especially a concern in the Upper Midwest - where smaller dairy farmers are concerned about their prices - and cheese plants are concerned about staying in business. And particularly in the Midwest - Galen says those cheese plants affect the entire milk production industry. That`s why Galen says many in that region of the country favor increased make allowances. GALEN: What we have seen is a number of the co-ps in the Midwest asking USDA for the higher make allowances again, arguing that if they are losing money on each pound of cheese that they are manufacturing that that's not ultimately good for the farmers. Due to the controversy surrounding the make allowance - the National Milk Producers Federation has come up with a compromise proposal. According to Galen - the compromise would tie increased make allowances to an energy price index. He says that would ensure allowances could move with energy prices - coming back down if and when the cost of energy decreases. But since Class III and IV prices are used to set Class I and II prices - there`s a second piece to National Milk`s proposed compromise. Galen explains. GALEN: Our proposal was that you would actually separate out any change in the Class I and II prices. It gets a little confusing but again if you think of it this way, if in fact the make allowances are increased and farmer prices dropped for Classes III & IV you could still sort of de-link the Class I & II prices and so you blunt some of the impact that farmers feel from this. It's a way of trying to hold harmless at least some of the revenue side that farmers would experience from any change in the make allowance. Galen says USDA is getting a lot of pressure to change the make allowances. And without the compromise suggested by National Milk - Galen says producers would feel all of the revenue loss associated with the change. That's today's Line On Agriculture. I'm Greg Martin on the Northwest Ag Information Network.