The flow of raw milk is a complex ecosystem where producers, processors, and consumers are interconnected. One crucial aspect of this chain is the concept of “make allowances,” which refers to the margin or compensation processors receive for converting raw milk into consumable goods like cheeses. While this system is designed to ensure processors can cover their costs and earn a profit, raising make allowances can have significant repercussions on farmers’ bottom lines, often to their detriment.
The new Federal Milk Marketing Order from the U.S. Department of Agriculture proposes to raise the make allowance. For farmers, this translates to receiving lower returns for their milk. For instance, dairy farmers might find that the price they get for milk drops as processors take a larger cut to cover their increased make allowance. This reduction in income can be particularly harmful to small-scale farmers who already operate on thin margins and rely heavily on fair pricing to sustain their livelihoods.
While processors may claim their gains will be offset by the return to the “higher of” pricing formula for class 1 mover, it is important to remember the change simply returns the pricing formula to where it was before the change in the 2018 Farm Bill. This won’t return the billions of dollars dairy farmers lost out on because of the change, and dairy farmers were struggling under the “higher of” pricing formula as well.
Farmers already contend with a variety of economic pressures, including volatile market prices, unpredictable weather and rising operational costs. The added strain of receiving lower payments due to increased make allowances exacerbates these challenges. For many farmers, this added pressure can push their financial situations to a breaking point, potentially leading to farm closures or additional consolidation. This not only affects the farmers themselves but can also have broader economic implications, including agricultural land loss and decreased food security.
When farmers face reduced profitability, their capacity to invest in their businesses diminishes. Investments in new technologies, equipment or practices that could enhance efficiency and productivity become less feasible. This lack of investment can stifle innovation and improvement within the farming sector, hindering long-term growth and sustainability. Additionally, the inability to invest can make farms more vulnerable to external shocks, such as adverse weather conditions or fluctuating market prices, further jeopardizing their stability.
While make allowances are essential for ensuring that processors can cover their costs and remain profitable, raising these allowances can significantly impact farmers’ bottom lines. By increasing costs for farmers, reducing their profit margins, creating market imbalances, and exacerbating economic pressures, higher make allowances can threaten the sustainability and vitality of dairy farmers. USDA’s Order 30 must strive to balance the needs of both farmers and processors to ensure a fair and equitable distribution of profits across the dairy industry. This balance is crucial for maintaining a healthy and sustainable agricultural industry that supports both farmers and processors alike.
Wisconsin dairy farmers will have a choice to make in December on whether to accept USDA’s proposed changes or dissolve the Federal Order altogether. In the meantime, Wisconsin dairy farmers should submit comments to the federal registry, which can be found here, and ask USDA to lower the make allowance and return profitability to dairy farms of all sizes.
In the face of the USDA’s proposed changes to federal milk marketing orders, it is crucial that you advocate for yourselves and your livelihoods. Dairy farms already operate on tight margins, and this change threatens to further squeeze the incomes and stability of hardworking dairy farmers like you. Your voices matter, and by speaking out, you can highlight the detrimental impact higher make allowances will have on your business and rural communities. Stand firm and demand fair treatment to ensure a sustainable future for your farms and families. Advocate for fair prices, equitable market practices, and the continued vitality of the dairy industry. Your advocacy can make a difference in shaping policies that support the entire dairy community.
Wisconsin Farm Bureau Director Tyler Wenzlaff wrote this article for the Wisconsin Farm Bureau Federation.
