There’s just no easy way to summarize some of the issues facing dairy producers. Take this one on the “make allowance” problem. The National Milk Processors Federation is still trying to create a compromise on the situation.

As the dairy industry grapples with whether – and how – to best balance the interests of producers and processors that are all suffering from higher production costs, NMPF continues to push a compromise approach to resolving the make allowance dilemma, at least on an interim basis. At issue is a request by both cooperative and propriety dairy processors to increase the make allowance they are allowed to keep when they manufacture Class III (cheese) and Class IV (butter and nonfat milk powder) products. The U.S. Department of Agriculture held a hearing this past January on a proposal to raise the make allowances for those products, because processing plants are suffering from depressed profit margins due mostly to higher energy costs. Raising the make allowances would improve the economics of cheese and butter/powder manufacturing, but such an adjustment would also reduce dairy producer prices at a time when milk prices are at a three-year low.

After months of speculation, the USDA announced in late June that it would not make a decision on the make allowance issue until it had time to obtain more input from the industry. “Given the divisions within the dairy sector about this issue, USDA was faced with a no-win situation,” said Jerry Kozak, President and CEO of NMPF. “USDA’s non-decision illustrates that when the industry is divided, it becomes much harder for government regulators to act. That’s why NMPF had developed a proposal that acknowledges the concerns of cooperatives about their economic health, while also addressing the reality that producer prices have to be considered along with manufacturer’s margins.”