Excerpt from Questions and Answers on Federal Milk Marketing Orders, 1989: Ams-559

Fluid milk (chiefly used as a beverage) flows from dairy farmers to consumers through a vast channel work of modern production, processing and distribution. The marketing system on which this flow of milk depends is fast and highly organized. On a daily schedule, fresh milk flows from farms through local, regional and national processors and distributors, along urban, suburban and rural delivery routes to reach consumers whose appetites also operate on a daily schedule.

Because this supply of milk cannot easily be turned on and off to fit the supply of milk to the demand, the marketing system often runs into trouble with milk prices. At times, marketing conditions can result in wildly fluctuating prices which work unnecessary hardship both on those who depend on milk for a living and those who depend on it for food.

Federal orders are used to stabilize conditions for fluid milk-to make the buying and selling of fluid milk an orderly process upon which dairy farmers, milk dealers and consumers alike can depend.

At one time, dairy farmers delivered milk to homes in the nearby town. The matter of a reasonable price was settled through simple agreements between farmers and their customers. But as marketing methods developed, farmers became separated from consumers by distributors and wholesalers who set prices for both farmers and consumers.

The effect of this change was not only to put farmers in a more difficult bargaining position but also to make the pricing of milk to farmers subject to serious new elements of instability.

Farmers observed that prices became unstable chiefly because of fresh milk supplies in excess of daily consumer purchases. Yet, they alsoobserved that some reserve milk was quite necessary to any well-supplied market. And because production varied widely from season to season, this reserve, consequently, was greater during the season of high production.

Farmers found that the presence of reserve milk in a highly competitive market tended to result in lower prices and eventually in lower production. Yet, when reserve supplies dwindled, temporary shortages resulted with upward pressures on prices.

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