WCMA Notes: Here's Where to Set Make Allowances

Erin Taylor from USDA’s Dairy Program ended the 70-minute cross examination with a gift.

“Mr. Umhoefer, from your position, with over 30 years of experience at your role in the dairy industry, where would you set the make allowance for cheese?” Taylor, the Director of Order Formulation and Enforcement, asked.

It was the sixth week of the 2023 National Federal Milk Marketing Order Pricing Formula Hearing and the time had finally arrived for Wisconsin Cheese Makers Association to present its proposal to the presiding Administrative Law Judge, USDA staff, lawyers and industry personnel gathered in a wedding event center in Carmel, Indiana.

More than 100 witnesses will likely testify before this hearing is complete (and when that will be is another story), each speaking aloud written testimony for the hearing stenographer and facing cross examination and redirect with no limits on time. The hearing plows on like a grain barge down the Mississippi, slow and unstoppable, the embodiment of the quiet power of democracy.

WCMA initiated this hearing, alongside International Dairy Foods Association, seeking a single change to milk pricing formulas: an update to the make allowances for cheddar cheese, butter, nonfat dry milk and dry whey – key to the pricing of all milk in the U.S. and now woefully out of date. USDA was generous, accepting this proposal and 20 more from industry parties, and WCMA added the opportunity to speak against the complicating proposals to add the value of 640-pound cheddar blocks or the value of mozzarella to the price determination for protein.

Nearly every witness at the hearing has faced questions from lawyers and staff representing National Milk Producers Federation, International Dairy Foods Association, Select Milk Producers, Edge Cooperative, American Farm Bureau and others, but USDA staff always has the last word.  Ms. Taylor’s final question to WCMA was a gift – the chance to offer an open-ended opinion at how fresh milk should be priced.

“Well, it starts with having a goal,” this WCMA staffer replied. (When hearing transcripts are released in a few months, it will be clear that this reporting is from recollection, not a recording.) So, to paraphrase and perhaps embellish on the rest of this answer:

There is no correct make allowance for cheddar cheese or butter – any value USDA selects will be wrong, in the sense that every dairy plant faces different costs. So USDA’s quest, after collecting months of testimony, shouldn’t be to seek the “right” make allowance values, their goal should be selecting values that attempt to achieve a goal.

The dairy industry spends a great deal of time, money and effort looking inward, quarreling to optimize a government pricing program that attempts to improve upon free market forces. In addition, labeling regulations, wastewater limits, cooperative law vs. proprietary business, static standards of identity and more issues sap energy from the true goal of a food industry: delighting consumers with delicious, nutritious and convenient choices.

The goal of make allowances should be to support a diverse spectrum of dairy manufacturers, large, medium and small, so that our industry can produce more than high-volume, low-cost commodity products.  Specialty cheeses and butters, gourmet artisanal offerings, are the point of the marketing spear for dairy.  These products elevate dairy to the timeless craft it has always been and excite consumers to buy foods made from real milk.

Dairy farmers and processors will thrive if USDA decides that make allowances should be just high enough to keep cutting-edge, smaller dairy manufacturers healthy. These craftsmen not only bring to consumers the amazing flavors and textures that make all of dairy something special, but they also partner with smaller dairy farms for their fresh milk. Healthy small processors offer a home to healthy smaller farms – including farms with progressive ideas in grazing, breeds and feeds.

The WCMA Board of Directors discussed how to approach this hearing – an association has so many voices. We concluded that the clearest path was to offer USDA the best available data on manufacturing costs. Real data from real dairy plants, large and small.

Dr. Mark Stephenson accepted and analyzed fresh cost data from manufacturers in a study executed in 2023.  Dr. Bill Schiek looked at the gold standard, audited plant cost data the state of California gathered until 2016, and updated it with publicly available cost indices. Several large manufacturers described soaring costs to produce dairy products and, bravely, Kim Heiman from Nasonville Dairy and Bob Wills from Cedar Grove Cheese laid open their ledgers on the witness stand, providing unfiltered data from not-so-large plants that make cheddar.

With the goal of retaining a diverse, thriving dairy community, USDA can set new make allowances, and keep regulated milk pricing relevant into the future.

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