Dairy Processing - January/February 2023 - 68

ASSOCIATION INSIGHTS
John Umhoefer, executive
director, Wisconsin Cheese
Makers Association
Make allowances should reflect
changing costs that dairy
manufacturers face so they can pay
change make allowances
in 2008, and in its 15-yearold
decision USDA pointed
out a key problem: " Plant
manufacturing cost increases
may not be recovered because
Class III and Class IV product-price
formulas use make allowances that are
fixed regardless of market conditions and
change only by regulatory action. "
These 15-year-old allowances, built from even older cost data
and not revisited by USDA since, are dangerously out of date.
It's a fundamental problem that arises from layering
inflexible regulation over a free market. In theory, updating
make allowances is easy: survey dairy plants every year or
two, learn the costs they face, and announce new allowances
for cheesemakers, buttermakers, whey processors and nonfat
dry milk driers.
But the result - changing milk prices even with honest,
dispassionate surveys or audits of dairy plant costs - steps
into the politics of pocketbooks. Federal law demands this
clunky, inflexible system, but there's nothing to force it to
remain up to date: this 90-year-old train squeaks along its
tracks with no scheduled maintenance plan.
A NECESSARY FIX
Wisconsin Cheese Makers Association will work to focus
industry attention on make allowances in 2023, making
updates a key component of a national hearing on reform
ideas for federal milk marketing orders. The impact of this 15year
delay can be subtle, but signs are there: the steep decline
in milk price premiums in the Upper Midwest, deductions on
farm milk checks, the rise of processing in regions with no
federal milk marketing orders.
Less tangible is the negative impact of crippling costs on
research and development, reinvestment in dairy plants and
equipment, and consumer research and marketing. What
growth and innovation has dairy missed while it tightened its
belt each year? Which way are bottled milk sales headed in
this inflexible, government-mandated scheme?
It's true that cheese sales continue to shine. Thank
consumers for their love of great American-made cheeses.
Free market demand is pulling dairy to greater heights, and
the dairy industry succeeds in spite of its regulatory shackles,
not because of them.
WCMA believes that USDA must move as quickly as
68 JAN-FEB 2023 | DAIRYPROCESSING.COM
their workers competitive wages, keep
up with rising energy, ingredient, and
packaging costs, create new products,
grow their marketing and advertising,
and invest in their businesses. "
John Umhoefer, executive director, WCMA
possible to update the make allowances embedded in the
Class III and Class IV milk price formulas.
A few years ago, USDA retained Dr. Mark Stephenson
to conduct an updated survey of dairy plant costs. That
study was published in February 2022, based on 2019 data.
Stephenson found cheese manufacturing costs reaching
nearly 25 cents per pound vs. the standing 15-year-old
allowance of 20 cents.
If industry can gain a national hearing to update make
allowances, WCMA will ask USDA to consider an updated
version of this USDA-commissioned study. WCMA and the
International Dairy Foods Association have commissioned Dr.
Stephenson to update his study with 2022 data.
In addition to Dr. Stephenson's study, USDA can learn
details of a current cost study by Dr. William Schiek, CEO of
the Dairy Institute of California. Dr. Schiek's most current
projections, based on historical data collected by the
California Department of Food and Agriculture and updated
with current cost indices, provides another look at the 2022
costs to manufacture cheddar cheese, dry whey, butter and
nonfat dry milk. Dr. Schiek has determined that the cost to
manufacture cheddar cheese has risen 51%, dry whey has
risen 49%, butter has risen 39%, and nonfat dry milk has risen
59% compared to the current make allowance values.
Reforming make allowances with new data is a crucial
update for our government-controlled milk price formulas,
and other fixes for federal orders are certainly welcome.
But as the dairy industry turns inward to tinker with this old
system, at least as much effort should be put into devising a
new, market-driven plan to set America on a course to lead
worldwide sales of dairy products.
Wisconsin Cheese Makers Association (WCMA) has
encouraged and supported growth in the nation's dairy
industry through advocacy, education and healthy
competition and collaboration since 1891.
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Dairy Processing - January/February 2023

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