W o rl d ' s In Since 1876 EDITORIAL COMMENT C

C H E E S E R E P O R T E R2 June 30, 2006

Serv

ing

the World's Dairy Industry

Weekly

Since 1876

CHEESE REPORTER

Cheese makers, unfortunately,saw any hope for relief dashed thisweek by an inept, uncaring federalagency. Now, the squeeze on mar-gins looks like it could go on for-ever.

USDA’s Disgraceful Make Allowance Non-Decision

Cheese Reporter Publishing Co. Inc. ©20062810 Crossroads Drive, Suite 3000

Madison, WI 53718-7972(608) 246-8430 • Fax (608) 246-8431

http://www.cheesereporter.com

DICK GROVES

Publisher/Editore-mail: [email protected]

MOIRA CROWLEY

Specialty Cheese Editore-mail: [email protected]

KEVIN THOME

Advertising & Marketing Directore-mail: [email protected]

BETTY MERKES

Classifieds/Circulation Managere-mail: [email protected]

REGULAR CONTRIBUTORS:Bob Cropp, Don Dahlstrom,

Neville McNaughton, Ray Mueller, John Umhoefer, Ed Zimmerman

e-mail: [email protected]

The Cheese Reporter is the official publication of the following cheese &

dairy associations:

California Cheese & Butter AssociationLisa Waters,

1011 Pebble Beach Drive,Clayton, CA 94517

Central Wisconsin Cheesemakers’ and Buttermakers’ Association

Gordon Moen, 908 Sawyer Drive Marshfield, WI 54449

Cheese Importers Association of AmericaRichard Koby, 460 Park Ave.,

New York, NY 10022

Eastern Wisconsin Cheesemakers’ and Buttermakers’ Association

Barb Henning, Henning’s Cheese21812 Ucker Road, Kiel, WI 53042

International Dairy-Deli-Bakery AssociationCarol Christison, P.O. Box 5528,

Madison, WI 53705

Iowa Dairy Products AssociationNorm Mokledstad, 4623 Douglas Ave.

Des Moines, IA 50310-2742

Missouri Butter & Cheese InstituteTerry S. Long, 19107 Factory Creek Road,

Jamestown, MO 65046

Nebraska Cheese AssociationEd Price, 3104 Nebraska, Fremont, NE 68025

New York State Cheese Manufacturer’s AssnKathyrn Boor, 11 Stocking Hall,

Cornell University, Ithaca, NY 14853

North Central Cheese Industries AssociationDavid R. Henning, SDSU, Box 2104,

Bookings, SD 57007

North Dakota Cheese Makers’ AssnChuck Knetter, P.O. Box 309,

Medina, ND 58467

Ohio Swiss Cheese AssociationDarlene Miller, P.O. Box 445,

Sugar Creek, OH 44681

South Dakota State Dairy AssociationHoward Bonnemann, SDSU, Box 2104,

Brookings, SD 57007

Southwestern Wisconsin Cheese Makers’ Association

Myron Olson, Chalet Cheese Coop, N4858 Cty Hwy N, Monroe, WI 53566

Wisconsin Cheese Makers’ AssociationJohn Umhoefer, 8030 Excelsior Drive,

Suite 305, Madison, WI 53717

Wisconsin Dairy Products AssociationBrad Legreid, 8383 Greenway Blvd.,

Middleton, WI 53562

CHEESE REPORTER (Publication Number: ISSN 0009-2142). Published weekly by Cheese Reporter Publishing Co. Inc., 2810 Crossroads Drive, Suite 3000, Madison, WI 53718-7972; Phone: (608) 246-8430; Fax: (608) 246-8431. Subscriptions: $110.00 per year in USA;Canada and Mexico: $160.00 per year; other foreign subscribers, please write for rates. Advertising and Editorial material are copyrighted material. Any use without publisher’s consent is prohibited. Cheese Reporter does not endorse the products of any advertiseror any editorial material. POSTMASTER: If undeliverable, Form 35579 requested. Periodicals postage paid at Madison, WI. Address all correspondence to: Cheese Reporter, 2810 Crossroads Drive, Suite 3000, Madison, WI 53718-7972

EDITORIAL COMMENT

D I C K G R O V E S

Publisher / EditorCheese [email protected]

To “celebrate” the nine-monthanniversary of Agri-Mark’s petitionseeking an emergency hearing onfederal order make allowances,USDA this week announced itsintention to reconvene the nationalhearing and also seek additional pro-posals addressing the Class III andClass IV price formulas.

This decision is truly a slap in theface of cheese makers, whose finan-cial statements have been bleedingred for more than three years now.USDA’s disgusting, disgraceful “deci-sion” to basically make no decisionat all guarantees that cheese manu-facturer margins will continue to besqueezed for the foreseeable future.

This decision is particularly dis-turbing for a couple of reasons. Thefirst is USDA’s timing. As noted, itwas nine months ago this week thatAgri-Mark petitioned USDA for anemergency hearing to update federalorder make allowances.

Since then, there’s been a fairamount of foot-dragging on USDA’spart, but at least things were movingforward. About six weeks after itreceived Agri-Mark’s petition, theagency published a “Notice to Inter-ested Parties” stating that Agri-Markwas seeking an emergency hearing.

About six weeks after that, inearly January, USDA did indeedannounce that an emergency hearingwould be held later in January. Thehearing was to not only “considerand take evidence” on Agri-Mark’sproposal, but also to “determinewhether emergency marketing con-ditions exist” that would warrantskipping a recommended decision.

The hearing lasted about fourdays, parties had a few weeks to sub-mit post-hearing briefs, and thenUSDA began its decision-makingprocess. In late April and early May,USDA’s Dana Coale, who heads upDairy Programs in USDA’s Ag Mar-keting Service, told separate industrygatherings in Madison and Chicagothat a USDA decision on makeallowances could be expected aroundthe beginning of summer.

Coale also outlined some stepsAMS had implemented to speed upthe federal order amendment

process, while pointing out thatAMS only has control over someparts early in that process.

Since it’s now early summer, whena make allowance decision wasexpected just a couple of months ago,we can conclude that Coale’s divi-sion did its job, but that somewherehigher up in the USDA bureaucracy,somebody decided to pull the plugon the make allowance decision andstart the whole process over again.

Notably, USDA’s notice to recon-vene the national hearing states thatadditional proposals on the Class IIIand Class IV price formulas are dueon or before September 30. Thatmeans that fully one year, plus oneday, will have elapsed since Agri-Mark submitted its petition seekingan emergency hearing, andabsolutely no progress has beenmade. That’s disgraceful.

The other reason USDA’s deci-sion to reconvene the national hear-ing is disturbing has to do with theevidence for boosting makeallowances. Simply put, it’s over-whelming.

Again going back to last fall, afterAgri-Mark submitted its petition onSeptember 29, USDA heard shortlythereafter from eight different dairyentities, all of whom agreed withAgri-Mark’s petition. These entitiesincluded several dairy cooperativesranging from regional to national inscope, as well as one privately heldcheese company plus the NationalCheese Institute.

USDA heard from many, manymore cheese makers at the Januaryhearing. Granted, the agency alsoheard some dissenting views, but atleast among the cheese companiesthat testified, there was pretty solidconsensus that make allowancesneeded to be increased due to sharplyhigher costs that couldn’t be recov-ered by raising cheese prices.

These cheese makers spanned theUS, from the Northeast to theNorthwest. They also included bothcooperatives (which are farmer-owned) and proprietary cheese com-panies. Further evidence came fromthe California Department of Foodand Agriculture, which testified at

USDA’s January hearing and in mid-May released new cost estimates forcheese and other products.

Yet, inexplicably, USDA’s noticethis week states that, before it makesa decision on whether or not tochange the make allowances, theagency would like to include in theanalysis data on plant manufacturingcosts currently being compiled byCornell University or any other per-tinent data or information thatwould be publicly available.

Data being collected by Cornell,according to USDA, represents across-section of the “entire” dairyindustry, including large, mediumand small plants from “various geo-graphical regions.” Well, USDAalready has that evidence.

As noted, companies testifying atthe hearing ranged in location fromthe Northeast to the Midwest to theNorthwest. Perhaps there were no“small plants” represented, but ifUSDA wants data on those plants, itsimply has to look at previous CDFAcost studies to see that higher-vol-ume plants have lower costs andlower-volume plants have highercosts. And if larger plants are hurt-ing, smaller plants are hurting more.

Certainly we understand that it’snot easy for USDA to make a deci-sion that will potentially lower milkprices to producers at a time whenprices are already depressed. Not toturn this into a producer-versus-processor controversy, but producersappear to have two advantages overcheese makers on this issue.

The first is recent history. Dairyfarmers did experience record-highmilk prices in 2004 and prices wellabove average again last year. Cheesemakers, meanwhile, have sufferedmargin erosion since April of 2003,when USDA last adjusted Class IIIand IV formulas.

The second advantage for produc-ers is hope. While milk prices aredepressed right now, they won’t staythat way forever.

Cheese makers, unfortunately,saw any hope for relief dashed thisweek by an inept, uncaring federalagency. Now, the squeeze on marginslooks like it could go on forever. •

C H E E S E R E P O R T E R2 July 7, 2006

Serv

ing

the World's Dairy Industry

Weekly

Since 1876

CHEESE REPORTER

USDA Did The Right Thing

GUEST EDITORIAL

B Y

B E N Y A L EY a l e L a w O f f i c e , L PW a y n e s f i e l d , O H


Madison, WI 53718-7972(608) 246-8430 • Fax (608) 246-8431


DICK GROVES


MOIRA CROWLEY


KEVIN THOME


BETTY MERKES


REGULAR CONTRIBUTORS:Bob Cropp, Don Dahlstrom,



The Cheese Reporter is the official publication of the following cheese &

dairy associations:






New York, NY 10022




Madison, WI 53705




Jamestown, MO 65046





Bookings, SD 57007


Medina, ND 58467




Brookings, SD 57007






Middleton, WI 53562

CHEESE REPORTER (Publication Number: ISSN 0009-2142). Published weekly by Cheese Reporter Publishing Co. Inc., 2810 Crossroads Drive, Suite 3000, Madison, WI 53718-7972; Phone: (608) 246-8430; Fax: (608) 246-8431. Subscriptions: $110.00 per year in USA;Canada and Mexico: $160.00 per year; other foreign subscribers, please write for rates. Advertising and Editorial material are copyrighted material. Any use without publisher’s consent is prohibited. Cheese Reporter does not endorse the products of any advertiseror any editorial material. POSTMASTER: If undeliverable, Form 35579 requested. Periodicals postage paid at Madison, WI. Address all correspondence to: Cheese Reporter, 2810 Crossroads Drive, Suite 3000, Madison, WI 53718-7972

Dairy processors got what they havebeen asking for: a quick decision ontheir request for increases in theClass III and IV make allowances.They just did not get the result theywanted, and now they lay the blameon the USDA. But rather thanblame USDA for demanding a fulland accurate picture of actual costs,these processors should look at them-selves instead.

First, we should acknowledge thatUSDA did act relatively quickly inthis instance. The USDA noticed ahearing on January 4, held the hear-ing less than three weeks later, andissued a decision on June 28. That isa period of less than six months andonly nine months from when Agri-Mark first made its request forchanges.

USDA showed that it can quicklymake a decision. That USDA held itcould not raise make allowancesbased on the record before it doesnot negate the fact that it made atimely decision.

The long-time strength of theFMMO system lies in large part inthe hearing process that yields theregulations. It is a simple concept:the industry identifies the problem,proposes solutions, and presents evi-dence in support in the record andthe USDA weighs the record, ana-lyzes it with its expertise, adds thepublic interest factor, and issues adecision.

By law, that decision must be sup-ported by the evidence presented.The secretary cannot make anythingup or add facts outside the record tofill in gaps. If the evidence and datain the record is insufficient to sup-port a proposal, then the proposalfails.

USDA did what it was supposedto do. It responded to a request forchange, determined that such arequest was worthy of further exami-nation, called a hearing, held thehearing, considered the record andthe arguments, and came to a con-clusion.

The conclusion is not the result ofany act or failure to act by USDAand certainly not a failure of thehearing process. Can that timelinebe improved? Probably, but not atthe expense of a consideration of realdata subject to challenge andscrutiny.

USDA’s decision is the result of

the actual, verifiable evidence pre-sented at the hearing (or perhaps thelack thereof). If cheese makers areactually losing money on everypound of cheese they produce asIDFA alleged in its press release con-demning USDA’s fact-basedapproach, the record evidence cer-tainly did not convey that fact. Thereason USDA has not yet alteredmake allowances is that proponentsof changes did not prove their case.

At the January hearing the evi-dence was contradictory, at best.Though there was some evidencethat some plants in some parts of thecountry were unable to purchasemilk at minimum prices and manu-facture cheese at current makeallowances, other evidence showedthat other plants in other regions ofthe country were operating just fineunder the current formulas.

Belying the cry that makeallowances negatively affected cheesemakers was the nearly universalacknowledgment that plants were pay-ing premiums for their milk thatexceeded their claimed manufacturinglosses. There was also evidence of newlarge cheese operations being built andstarting up in areas that were part ofthe FMMO system, again open evi-dence that contradicted the claimedneed to provide increased makeallowances for the industry.

In addition to contradictory evi-dence, much of the data that sup-ported changes in make allowanceswas incomplete. Aside from theaudited cost analysis done by theCalifornia Department of Food andAgriculture there was not a validanalysis of make allowances in therest of the country. Instead of verifi-able and representative data, the pro-ponents presented anecdotalinformation about higher benefit,wage, and energy costs.

The RCBS study presented byUSDA was incomplete because itincluded data only from cooperativeplants who chose to submit data.Cooperatives could pick which of itsplants to participate or decide not toparticipate at all.

The RCBS study did not reflecttrue costs of the industry but was acreation of the proponents to supporttheir cause. These types of surveysare not the kind of independentresearch that USDA should relyupon to base a decision.

USDA’s decision to reconvene thehearing recognizes that a decisionwith a negative impact on dairyfarmer income of over $300 millionthe first year deserves better data.The secretary’s decision to defer res-olution until there was more reliabledata available from Cornell was cor-rect.

At the same time that contradic-tory evidence about the necessity formake allowance adjustments wasbeing presented, nearly every propo-nent witness complained that themajor source of their pricing prob-lem was due to the circularity ofNASS pricing in setting componentvalues. The line was: Any effort byprocessors to raise prices to coverincreased costs resulted in higherprices for milk.

Six years ago, arguments thatusing the NASS survey caused a cir-cularity problem were dismissed bysome of the very proponents thatsaid this last January it had proved tobe a problem. Based upon the wit-nesses at the hearing, that alonecould have solved their problemwith the formulas. But in January,such an examination of circularityon pricing was not on the table forconsideration.

The averaging of basis into thenational commodity pricing for for-mula purposes is fundamentallywrong and needs to be addressed.USDA has announced it welcomesadditional proposals addressing ClassIII and IV pricing formulas. Hope-fully, the pricing series will now beopen for serious discussion.

Another glaring flaw in the hear-ing was its focus on only makeallowances. Not only was the prob-lem of NASS pricing not addressed,but the unwillingness to consideryields as well. There is a tradeoff incost and yield. If producer prices arebased upon plant costs, then the for-mulas should reflect the full yieldsthose costs provide.

Finally, the impact of any reduc-tion in the minimum prices for man-ufactured products wouldautomatically result in reductions toClass I and II prices. No one testifiedin support of lowering those prices.In fact, any attempt to hold Class Iand II prices at current levels wereruled out-of-bounds by the adminis-trative law judge, probably correctlybased on the hearing notice.

Yet as this hearing was going on,the secretary was reviewing proposalsfrom a hearing held one week earlierto raise Class I prices in the South-east. These are wholly inconsistentpositions.

Over the years the federal orderhearing process has worked becausenot only were witnesses subject tocross examination, but the underly-ing data that would support a changewas transparent to the industry. All

• See Guest Editorial, p. 4


WCMA PERSPECTIVESJ O H N U M H O E F E R

Executive DirectorWisconsin Cheese Makers Association608-828-4550jumhoefer @wischeesemakersassn.org

USDA: No Vision, No Leadership

Independence Day is a good time toreflect on the positives of Americangovernment: a leader that supports afree and stable society and the effi-ciency and opportunity of capitalism.

And because we’re free, Indepen-dence Day also is a fair time to cri-tique our government.

For example, does the US Depart-ment of Agriculture have a vision forthe food industry —more specificallythe dairy industry? Does this agencymake decisions based on a vision, oris each decision a reaction to politi-cal influence?

In recent years, USDA has endedthe forward contract pilot program,has recommended a plan that limitsgrowth by capping milk pooling infederal order 30 and now has crushedan emergency effort to updatenational make allowances for dairyplants.

In each case, USDA has created aframework that blocks dairy manu-facturers from the free market, andthen levels a decision which furtherharms industry – like a straightjacketpulled tighter.

Look at each example in turn: for-ward contracting would absolutelyoccur in a free market. But theframework of federal milk marketingorders and government-mandatedminimum milk prices handicapsprice agreements.

USDA oversees an incrediblycomplicated structure of milk pool-ing, pricing, diverting and shipping.And in February USDA proposed acap on milk that can be pooled byeach plant. In a free market, growthwould be based on success in themarketplace, not a federal order rule.

And finally make allowances – a

government-set cost of manufactur-ing. In the free market that sur-rounds the dairy industry the cost oflabor, energy, health insurance,stainless steel and plastic gyrate daily(mostly upward) while the govern-ment-set make allowance remainsfixed.

Nine months after dairy proces-sors asked for an emergency hearingto update make allowances, USDAannounced last week that no deci-sion will be made, and the hearingmust be reopened.

Rather than guidingCongress and the dairy

industry with aprincipled vision,USDA executes

programs based onmomentum,

congressional mandatesand political pressure.

What happened? USDA failed tomake a decision because the agencylacks a vision for the dairy industry.

The decision last week was notbased on the preponderance of evi-dence presented at the makeallowance hearing in January. It wasnot based on the obvious need toadjust formulas to match market-place data.

It was a knee-jerk, election-yearpolitical response to concerns aboutthe price of milk for dairy producers.

Rather than guiding Congress and the dairy industry with a princi-pled vision, USDA executes pro-

grams based on momentum, con-gressional mandates and politicalpressure. The agency is not a reli-able leader for the industry.

What vision could USDAembrace? The agency should seekgrowth and prosperity for the dairyindustry based on unwavering appli-cation of free market principles.(Read that again.) With this vision,USDA could provide principled tes-timony for every ad hoc idea Con-gress throws at the industry andmake principled decisions that with-stand short-term political pressure.

This vision could have its sub-tleties. Because food production is avital industry, USDA could under-pin the free market with programsthat protect producers and proces-sors from severe market downturnsand natural disasters. The agencywould lead in all matters of interna-tional trade.

And USDA would maintain amyriad of services that assist produc-ers and processors in using the freemarket, such as providing marketinformation and regulating fair busi-ness practices.

This shift in culture may seemunachievable, but consider thatWTO trade negotiations will ulti-mately lead to a reduction in subsi-dies and supports. The drafting of anew farm bill in a time of recordbudget deficits may require land-mark changes in farm and food pro-grams. Change may be forced onUSDA in the next few years.

And consider this: dairy produc-ers in 10 federal milk marketingorders can decide to accept the freemarket at any time by voting downan order decision.

With the recent politically-moti-vated federal order recommenda-tions and decisions, it is time for theUpper Midwest to take a seriouslook at the possibility of prosperityand success in a free market envi-ronment. •

John Umhoefer has served as executivedirector of the Wisconsin Cheese MakersAssociation since 1992. You can phone Johnat (608) 828-4550; Fax him at (608) 828-4551; or e-mail John Umhoefer at jumhoe-fer@wischeesemakersassn. org

FROM OUR

ARCHIVES

50 YEARS AGOJuly 13, 1956: Madison—Thenumber of Wisconsin dairy plantscontinues to decline as the state’sbig dairy industry continues itsspectacular change. The number oflicensed dairy plants in Wisconsinis down to 1,625 compared with1,766 a year ago – that’s a declineof 141 plants in a year’s time.

Washington—A short-time, labor-saving process of making Cheddardeveloped by USDA has beenadapted for use with ordinary cheese-making equipment. The new methodreduces by half the usual six to sevenhours required for making Cheddarcheese.

25 YEARS AGOJuly 10, 1981: Madison—Notifica-tion last week to 22 Wisconsincheese plants by Borden, Inc. thatit was terminating purchase ofcheese production at the end ofthis month touched off consider-able publicity over possible direeffects to some factories involvedand the state’s cheese industry ingeneral.

San Francisco, CA—Terry Pollick,president of the English CountryCheese Council, and Christ Kam-beros, vice president of TreasureIsle stores, are the first Americansto be awarded the medal of theGrand Order of Friends of EnglishCheese. Pollick has headed up theUS branch of the ECCC, createdto promote the cheese industry ofEngland and Wales in the US,since its inception almost threeyears ago.

10 YEARS AGOJuly 5, 1996: Madison—Eric Liebe-trau of Park Cheese Company, Inc.,Fond du Lac, WI, was elected pres-ident of the Wisconsin CheeseMakers Association (WCMA)here this week. Liebetrau succeedsRon Buholzer of Klondike CheeseCompany, Monroe, who hadserved as WCMA president for thelast two years.

Madison—The Wisconsin MasterCheesemaker board of directorsrecently announced the candidatesfor the 1996 Wisconsin MasterCheesemaker program. Ten out-standing Wisconsin cheese makerswere chosen to participate this year.An all-inclusive evaluation processwill begin this summer for the newgroup as part of the three-yearapprenticeship. There are now a totalof 19 cheese makers participating inthe Master Cheesemaker program,several of whom will finish this year.

Guest EditorialContinued from p. 2

of the relevant information wasavailable at the hearing and prima-rily the statistics of the marketadministrators was sufficient. Verylittle was held by the industry andeven that could be surmised orarrived at in other ways.

For end product pricing formulas,this is not true. There is almost nodata gathered by the market admin-istrators that can assist in the settingof proper formulas.

Even the individuals entrusted byUSDA to make decisions do nothave a background in the myriadaspects of costing in a cheese plant.The information relevant to anychange lies exclusively in the handsof the industry.

But not in the industry as a whole,but individual elements of the indus-try with vested interests in certain out-comes. The producer side of theindustry has almost none of the infor-mation to be able to support or defendits positions. The processing side,understandably so, does not want todivulge the relevant information it hasfor competitive reasons.

Because evidence is needed, pro-ponents at the hearing provided apeek-a-boo hole into their opera-tions. They showed a little data hereand a little data there.

But never was the informationreally wrapped up into a transparentand verifiable mass balance pricingthat truly demonstrated the econom-ics of modern milk processing. Thegovernment, even if it knew, whichit does not, cannot fill in those gaps.

For the sake of producers, andprocessors USDA should not simplyaccept an incomplete picture at facevalue.

The industry has to provide fulldisclosure and until we all come upwith a way to price milk throughtransparent market data, then theinformation we provide has to befull, complete, trustworthy, and suffi-cient to support a decision.

Had such reliable data been forth-coming at the hearing in January, thedecision that the cheese industry hadbeen wanting would have been madeby now.

Any delay is not the fault of thesecretary, or Dairy Programs, or thehearing process, but the fault of anindustry that is unwilling to supplythe regulators what is needed to sup-port a decision. •


Serv

ing

theW

orld'sDairy IndustryW

eekly

Since 1876

CHEESE REPORTER

Given today’s high energyand manufacturing costs, man-ufacturers across the countryhave been cutting these premi-ums in an attempt to deal withthe outdated make allowances.But this is very small relief,indeed, and may threaten theirmilk supplies.

USDA Delay Definitely Not the Right Thing

GUEST EDITORIAL

B Y

B Y C H I P K U N D E

S e n i o r V i c e P r e s i d e n t o fL e g i s l a t i v e a n d E c o n o m i c A f f a i r s

I n t e r n a t i o n a l D a i r y F o o d sA s s o c i a t i o n


Madison, WI 53718-7972(608) 246-8430 • Fax (608) 246-8431


DICK GROVES


MOIRA CROWLEY


KEVIN THOME


BETTY MERKES


REGULAR CONTRIBUTORS :Bob Cropp, Don Dahlstrom,



The Cheese Reporteris the official publication of the following cheese &

dairy associations:






New York, NY 10022




Madison, WI 53705




Jamestown, MO 65046





Bookings, SD 57007


Medina, ND 58467




Brookings, SD 57007






Middleton, WI 53562

CHEESE REPORTER (Publication Number: ISSN 0009-2142). Published weekly by Cheese Reporter Publishing Co. Inc., 2810 Crossroads Drive , Suite 3000, Madison, WI 53718-7972; Phone: (608) 246-8430; Fax: (608) 246-8431. Subscriptions: $110.00 per year in USA;Canada and Mexico: $160.00 per year; other foreign subscribers, please write for rates. Advertising and Editorial material are copy righted material. Any use without publisher’s consent is prohibited. Cheese Reporter does not endorse the products of any adverti seror any editorial material. POSTMASTER: If undeliverable, Form 35579 requested. Periodicals postage paid at Madison, WI. Address all c orrespondence to: Cheese Reporter, 2810 Crossroads Drive, Suite 3000, Madison, WI 53718-7972

the current make allowances. Thisyear’s survey includes informationfrom a larger pool of companies andcooperatives as well as additionaldata on new product areas.

The real question is, with recentincreases in energy prices, does anyonereally believe the average cost of pro-ducing a pound of cheese or nonfatdry milk has not increased since 1998?

In addition, company after com-pany, representing a wide majority ofcheese producers nationwide, pro-vided testimony to support the datapresented by the CDFA and RBCS.These companies included bothfarmer-owned cooperatives and pro-prietary firms.

Significantly, at no time duringthe four-day hearing did we hearfrom Yale or any other participantthat the data provided was incom-plete. Not one statistician, econo-mist or accountant was called toquestion the collection and analysisprocedure of any data presented bythe CDFA and RBCS or to refutethe research results.

USDA did the right thing in Jan-uary when it agreed to hold theemergency hearing, but its recentdecision to stall the expeditedprocess for an update of makeallowances is just plain wrong. Dairyproduct manufacturers across thecountry desperately need relief andthey need it now.

We urge USDA to implement aninterim decision updating makeallowances without further delay. •

Editor’s note: Ben Yale’s column,USDA Did The Right Thing, ran in thisspace on July 7. After his column ran,we did receive questions about BenYale’s affiliation (in addition to Yale LawOffice, LP, as listed in his column).Here’s a brief overview:

At the January hearing, Yale repre-sented Select Milk Producers, Continen-tal Dairy Products and Dairy Producersof New Mexico. In February, Yale LawOffice submitted a post-hearing brief onbehalf of those organizations as well asLone Star Milk Producers, Inc., and ZiaMilk Producers, Inc. And at the end ofMarch, Yale Law Office submitted a let-ter, signed by 10 dairy cooperatives, toUSDA requesting that the agency staythe make allowance proceeding and filein the Federal Register a notice that thehearing has been stayed and will bereopened.

A few weeks ago in this space, BenYale suggested that “USDA did theright thing” (see: www.cheesereporter.com/USDAonMakeAllowance.pdf)bydelaying the decision to update theClass III and IV make allowances. TheInternational Dairy Foods Association(IDFA) emphatically opposes USDA’sdelay on make allowances and dis-agrees with several specific pointsraised by Yale in his column.

First, Yale contends that the evi-dence offered at the emergency hear-ing in January 2006 “wascontradictory, at best.” I attended allfour days of that hearing and didn’thear any contradictory accounts fromthe 42 witnesses who were on handto testify.

Every one of the executives for thedairy cooperatives and processingcompanies who testified clearlydemonstrated the same thing: They allwere experiencing losses stemmingfrom the outdated make allowances.

Established over six years ago, inJanuary 2000, the current makeallowances have fixed margins thatare based on industry manufacturingcost data from 1997-99. They aregrossly below today’s true costs.Without an update to reflect currentcosts, many cheese, butter and pow-der plants are forced to operate at aloss, because they don’t have themargins to cover all the costs neces-sary to run their operations.

The issue here is refreshingly bipar-tisan between producers and proces-sors. The hard financial fact is thatplants producing cheese, butter andnonfat dry milk have been losing –and continue to lose – $26 million permonth while USDA drags its feet.

Many farmers who are part ofmanufacturing cooperatives havebeen suffering, too. They’ve also hadto bear the brunt of losses caused byoutdated make allowances.

Second, Ben Yale is right thatprocessors have been paying pre-mium prices for their milk, but thiswas offered as supporting, not con-tradictory, evidence. It’s a fact ofdairy processing that over-order pre-miums must be paid to attractenough milk with the right specifica-tions to meet production needs, espe-

cially for cheese manufacturers. Unfortunately, these premium costs

can’t be recovered through makeallowances, which means manufactur-ers are squeezed all the more. Manymanufacturers are now finding theydon’t have the funds available to makenecessary upgrades to their plants orequipment, or to improve their opera-tional and energy efficiencies.

Given today’s high energy andmanufacturing costs, manufacturersacross the country have been cuttingthese premiums in an attempt to dealwith the outdated make allowances.But this is very small relief, indeed,and may threaten their milk supplies.

Yes, a few companies are buildingnew plants to meet consumer demandwhile others may be forced to close,but outdated make allowances havethe same impact on both. New plants,old plants, it doesn’t matter; as long asthey are located in areas covered bythe federal milk marketing order sys-tem, they will eventually feel the costpinch imposed by current outdatedformulas.

Third, Yale questioned the objec-tivity and completeness of the dataprovided by sources at the hearing,specifically USDA’s own Rural Busi-ness Cooperative Service (RBCS).He did recognize as valid the auditedcost analysis conducted and pre-sented at the hearing by the Califor-nia Department of Food andAgriculture (CDFA), but questionedthe RBCS study.

But this survey and the CDFAaudited data are exactly the samesources used by USDA to create thecurrent pricing system in 2000. Ifthey were good enough for USDA touse when establishing the currentmake allowances, why aren’t theygood enough now?

To participate in the RBCS sur-vey, cooperatives submit cost infor-mation in a consistent process.RBCS analyzes the data with theindependence that we expect from aUSDA entity.

What makes Yale’s claim evenmore puzzling is that the RBCS sur-vey presented this year was morecomprehensive than the earlier ver-sions that USDA used to establish

W o rl d ' s In Since 1876 EDITORIAL COMMENT C

Documents

Transcript of W o rl d ' s In Since 1876 EDITORIAL COMMENT C