July 12, 2006

 

Dairy processors urge USDA to make quick decision on margin allowances

 

 

25 leading US dairy companies and cooperatives are pressing the USDA to reconsider a decision to delay updates to allowances which establish margins for processors. 

 

These allowances, called "make allowances", establish fixed margins for manufacturers under Federal Order classified pricing formulas for milk processors.

 

The companies said in a letter to US Secretary of Agriculture Mike Johanns that the companies were in dire straits and stressed further delays could force the shut down of some manufacturers. The letter urged new allowances to be issued on an interim basis.

 

The last time the USDA did that was in January 2001. Producers say since it has been done before, the USDA should allow it again while it considers its decision.

 

USDA held a hearing in January when the dairy industry's urgently requested for updates to the make allowances and relief from increased energy and transportation costs.

 

Producers were shocked when, after six months of review, USDA announced it would delay a decision, saying it needed more time and data before issuing the updates.

 

USDA also said it planned to reconvene a national public hearing to amend the Class III and Class IV milk price formulas earlier this month.

 

The International Dairy Foods Association estimates that current formulas, which use manufacturing cost data from 1997-99, are causing dairy companies to lose US$26 million a month.

 

Due to the complexity of amendments, the new allowance probably would not be ready until 2007, the letter from the producers stated.

 

Without an update to reflect current manufacturing costs, which are higher, many cheese, butter and powder plants are forced to operate at a loss.

 

Time may be running out fast while dairy producers wait for the USDA's decision.