(click on image to enlarge)
The point, in theory, of a make allowance is the underpinning of the support system for dairy. Since the government buys no raw milk, only products, the government wanted to be certain the milk would be made into dairy products which could be stored.
In recent years, the government used the NASS product survey plus a formula which included a deduction for the make allowance, to arrive at the farm milk price. The formula is found at: http://www.ams.usda.gov/AMSv1.0/ams.fetchTemplateData.do?template=TemplateD&navID=IndustryMarketingandPromotion&leftNav=IndustryMarketingandPromotion&page=PriceFormulas2009&acct=dmktord
If you study the pricing formulas, you will notice two important points. First, the make allowance is fixed (see above graph). Secondly, with a little further analysis, you will notice, Class I (fluid, drinking milk)benefits from the make allowance -why?
Probably, the biggest problem with the make allowance is; while many talk about "market" prices, processors are somewhat removed from "market forces." The make allowance guarantees costs plus profit. It is all similar to an heiress living on a fixed income.
I was so aggravated to sit at a meeting the last time the "coops", which are really processors in sheep's clothing, asked for and got an increase in the make allowance. At the time they said they would go after an increase in Class 1 next. I must have missed that part happening.
ReplyDeleteJohn,
ReplyDeleteAt Sen. Gillibrand's Senate Dairy Committee Hearing in Batavia,N.Y. on Aug. 27th, the mouthpiece of the Northeast dairy processors, Bruce Krupke, argued passionately(and hypocritacally) that the dairy crisis be cleared by "free market forces" rather than any governmental interference... all the while knowing the make allowance, paid by dairymen, was keeping his favorite "heiress" not only in comfort but style... seems guarantees of profit are only applicaple to multinational corporations, not "peasant" farmers...
Nate Wilson