FMMO Authority

FMMOs are permanently authorized and are therefore not subject to periodic reauthorization. 750) to the 1933 act expanded and made explicit the authority of the U.S. Department of Agriculture (USDA) to establish minimum prices for milk. The most recent major national revision to FMMOs occurred as part of the 1996 farm bill—the Federal Agriculture Improvement and Reform Act (FAIR Act; P.L. The law mandated that USDA reduce the number of milk marketing orders from 31 to no fewer than 10 and no more than 14 by April 4, 1999. USDA published a proposed rule on January 30, 1998, to solicit public comment on proposals for consolidation of the order system, including changes to classified pricing; replacement of the benchmark Basic Formula Price; and changes in order provisions, terminology, and classification of milk by end use. Individual FMMOs are established and amended through a formal public hearing process that allows interested parties to present evidence regarding marketing and economic conditions in support of, or in opposition to, instituting or amending an order. Objectives of FMMOs

According to testimony USDA provided to the House Committee on Agriculture in 1979, the objectives of FMMOs are as follows:
to promote orderly marketing conditions in fluid milk markets, to improve the income situation of dairy farmers, to supervise the terms of trade in milk markets in such a manner as to achieve more equality of bargaining between producers and milk processors, and to assure consumers of adequate supplies of good quality milk at reasonable prices. Handlers and Usage

FMMOs regulate milk processors, known as handlers. 2. Regulatory Scope

Milk handlers (excluding cooperatives) are required to pay no less than the minimum prices established by USDA using the classified pricing system (see " Current Dairy Pricing ") for Grade A milk purchased from milk producers within the FMMO. Handlers report receipts and end use of milk and maintain adequate records for the USDA market administrator to audit and verify the accuracy of the reported uses (see " USDA Administration "). Current Dairy Pricing

Milk marketing orders require FMMO-regulated milk handlers to pay milk producers minimum prices for Grade A fluid milk. Class II : milk used for soft products such as cottage cheese, yogurt, cream, and ice cream; 3. Each FMMO pooled its milk receipts and end-use data for August to compute the uniform price, the minimum price that each handler must pay milk producers. Milk Pooling

The second key feature of milk pricing in the FMMOs is the "pooling" of milk. Milk handlers are obligated to report milk receipts and milk end use by class to the FMMO market administrator. Handlers pay milk producers and dairy cooperatives at least a uniform price based on a weighted average of the class prices. In addition, Congress can address issues related to the FMMO system through legislation. Current FMMO Issues

Some dairy stakeholders have raised concern about how AMS prices milk under federal orders and about the ability of fluid milk processors to manage risk. Some analysts believe that FMMO advanced Class I pricing and the Class I formula of the "higher of" the Class III or Class IV skim milk pricing factors compromise the ability of processors to manage price risk in fluid milk (see " Class I and Class II "). In the 1996 farm bill, Congress authorized a California FMMO if state producers petitioned and approved such an order. According to the Organic Trade Association (OTA), most organic milk is purchased on long-term forward contracts, and about 65% of organic milk is processed into Class I products. However, conventional milk cannot be sold as organic milk, and OTA argues that the FMMO system disfavors organic milk handlers and producers.
Federal Milk Marketing Orders (FMMOs) are geographically defined fluid-milk demand areas. Under FMMO law and regulations, the U.S. Department of Agriculture (USDA) establishes a minimum milk price, and those who buy milk from producers, known as handlers, are required to pay milk producers no less than this established price. Handlers are responsible for reporting milk receipts by end use to FMMO milk market administrators and maintain adequate records so that administrators may audit and verify the accuracy of the reported uses.
The two main features of the FMMO system are classified pricing and pooling of milk. The FMMO system recognizes four different classes of milk: Class I (fluid use), Class II (soft products such as ice cream), Class III (cheese), and Class IV (butter and milk powder). Milk handlers report all milk receipts by end use, and the FMMO values this "pool" of milk receipts through fixed minimum-price formulas to compute the four class prices. Milk handlers pay milk producers at least the weighted-average price of all class uses—known as a "uniform" price or "blend" price.
The main objectives of FMMOs are to (1) promote orderly marketing conditions in fluid milk markets, (2) improve the income situation of dairy farmers, (3) supervise the terms of trade in milk markets in such a manner as to achieve more equality of bargaining between milk producers and milk processors, and (4) assure consumers of adequate supplies of good quality milk at reasonable prices.
FMMOs are permanently authorized in the Agricultural Marketing Agreement Act of 1937, as amended, and not subject to reauthorization. FMMOs are established and amended through a formal public-hearing process that allows interested parties to present evidence regarding marketing and economic conditions in support of, or in opposition to, instituting or amending an order. Most FMMO changes are made administratively by USDA through the rulemaking process, which must then be approved by farmers in a referendum. Legislation can also address issues related to the FMMO system.
The most recent major national revision to FMMOs occurred as part of the 1996 farm bill (P.L. 104-127). It reduced the number of orders from 31 to 11 (now 10 since 2004) and made changes to classified pricing, order provisions, terminology, and classification of milk by end use. The 1996 farm bill provisions went into effect on January 1, 2000. FMMOs continue to operate under those reforms, although there have been some changes in the operations of orders brought about through FMMO hearings and rulemaking since then.
Several dairy issues have attracted stakeholder attention. Milk industry stakeholders have proposed two changes to how milk is priced. Milk handlers may forward contract milk purchases used to manufacture dairy products. Milk processors, who would like to use forward contracts as a risk management tool, have asked Congress to expand forward contracting rules to fluid milk. Also, both milk processors and producers have proposed that USDA change the method used to calculate the Class I milk price. Some stakeholders believe that altering the Class I milk formula could improve their ability to manage price risk.
In addition to these pricing issues, California milk producers petitioned USDA to establish a California federal order, which would bring an additional 20% of national milk production under federal regulations. Lastly, the Organic Trade Association (OTA) petitioned USDA to alter FMMO pricing requirements for organic milk handlers. Organic milk handlers are required to pool organic milk under FMMO regulations, but OTA argues that classified pricing and pooling disfavor organic handlers.