The Economic Impacts of the Federal Milk Marketing Order Consolidation and Reform Proposed Rule

USDA released the proposed rule for Federal Milk Marketing Order (EMMO) Consolidation and reform on January 23rd, 1998. The rule met the mandate of the 1996 farm bill to propose a plan to consolidate the number of federal orders. Class I differential and Basic Formula Price (BEP) reform was also addressed in the report. Based on the proposed rule and USDA’s economic impact study, this briefing paper contains an analysis of the impacts of the consolidation and reform rule on U.S. representative dairy farms over the 1999-2004 period. Four options are analyzed in this report. They include: lA — A nationally coordinated system of location specific Class I price differentials. The differential has a value of $1.60 per cwt in the base zones of the Upper Midwest, Southwest, Midwest, and West. Differentials increase from the base areas to $4.30 per cwt in Florida. lB — A nationally coordinated system of relative value specific Class I differentials. Like option lA this proposal uses multiple basing points but a $1.20 per cwt base differential rather than $1.60 per cwt. Because the lB option results in substantial changes in Class I differentials, a phase in schedule of the differential changes is proposed. Three phase-in schedules are proposed for consideration in the proposed rule. Those schedules are: • lB phase-in. The new differentials are phased in over 5 years (1999-2003) at 20 percent of the price difference annually between the current and lB differential. • lB revenue neutral. To offset the revenue lost during the phase-in, and aid producers during the transition, Class I differentials are increased $0.55, $0.35, 1 $0.20, and $0.10 per cwt annually, respectively for the 1999-2002 period, over the phased in Class I differential level. • lB revenue enhanced. The transition differential is increased over the phase-in lB level by $1.10, $.70, $0.40, and $0.20 per cwt annually, respectively over the 1999-2002 period. This would provide producers enhanced revenue to aid in the transition to the new differentials