• The Federal Milk Marketing Order (FMMO) system was established in the 1930s to aid farmers facing low milk prices.
• Milk dealers (handlers) were the main agents in moving producers’ milk into more populated areas. There was no standard pricing at the time, so the milk dealers controlled the price.
• FMMOs were established to set a minimum milk price, determined by the USDA, dairy farmers (producers) are required to receive from milk processors (handlers) in a milk marketing area.
• Marketing areas are generally defined as a geographic area where handlers compete for packaged fluid milk sales.
• The Agricultural Marketing Agreement Act authorizes FMMOs and USDA amends and establishes them through a hearing process overseen by the Secretary of Agriculture.
• The goal is to assure dairy farmers receive a reasonable minimum price for their milk and give consumers an adequate supply of milk, while preventing wild fluctuations in price through periods of heavy and light milk production.
• The two main features of the FMMO system are classified pricing and pooling.
• The FMMO recognizes milk in four classes: Class I milk for fluid use, Class II for soft products such as ice cream, Class III for cheese, and Class IV used for butter and milk powder.
• Milk handlers report all milk receipts by end use and the FMMO values this “pool” of milk through fixed minimum-price formulas to determine the four class prices.
• Milk handlers then pay producers at least the weighted-average price of all class uses known as the uniform or blend price.
Sources: USDA, AMS, Federal Milk Marketing Orders; Congressional Research Service, Federal Milk Marketing Orders: An Overview.
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