An evaluation of federal order reform

The Federal Agricultural Improvement and Reform Act of 1996 required the Se cretary of Agriculture to reform federal milk marketing orders. The Secreta ry carried out this task and issued a final rule on March 31, 1999, that wa s eventually approved by dairy farmers in a national referendum. However, a temporary restraining order (TRO) was issued on September 28, 1999, that h alted the reform process. The TRO was effectively overturned and the reform process restarted when President Bill Clinton signed the Consolidated Appr opriations Act of 2000 on November 29, 1999. The final rule as amended cons olidates the number of orders, develops a multiple component pricing system that determines new formulas for class prices, and provides a new system f or pricing fluid milk based on county-level price differentials. The impact of these changes is to provide more transparency in pricing and improved m arket signals to farmers. But the new system is also much more vulnerable t o changes in dairy commodity prices. The objective of this report is to pro vide a comprehensive overview of federal order reform and to analyze the im pact of recent changes in class price formulas.