**Mr. John Hitchell**

**General Manager, Raw Milk Procurement & Regulations**

**The Kroger Co.**

**Statement before the House Agriculture Subcommittee on**

**Livestock, Dairy, and Poultry**

**April 24, 2007**

As the last speaker on the panel today, Mr. Chairman, I'd like to thank
you for your patience and interest in the Federal Milk Marketing Orders.

My name is John Hitchell, and I am the General Manager, Raw Milk
Procurement & Regulations for the Kroger Co. headquarted in Cincinnati,
Ohio. Kroger operates 17 dairy plants in 14 states that manufacture a
variety of milk, ice cream and yogurt products that we sell in
approximately 2,500 retail stores in 31 states.

I will keep my comments brief. After listening to all of the speakers
today, I\'m sure the issues and challenges surrounding the Federal Order
system are clear.

Kroger has a special role on this panel as we sell directly to consumers
and believe this process, the marketing of milk and government
regulation of the US dairy industry, is intended to work for consumers
as well as farmers. My comments today are shared with our customers in
mind.

As others have acknowledged, it is not an easy task for USDA to continue
to operate a government milk pricing system that has grown more complex
through the decades. I have to give USDA credit -- they've tried to make
the rulemaking process easier to understand and allow for more dialogue
within the industry. For instance, recently they held a pre-hearing
workshop to discuss proposed changes to how milk that goes into cheese,
non-fat dry milk and butter is priced.

Even more important, the pre-hearing workshop allowed USDA to consider
the proposed changes before deciding on whether to start the formal
rulemaking process. USDA is required to base the decision to hold a
hearing on whether the changes are needed to ensure an adequate supply
of fluid milk and orderly marketing. So, this type of workshop allowed
all interested parties to help USDA understand the \"real world\" impact
of various proposals in a constructive, open and transparent dialogue.

However, less than one week after the pre-hearing workshop, USDA
commenced an emergency hearing on a separate issue to make changes to
the Class I/II formulas. There was no pre-hearing session this time,
which was concerning to The Kroger Co. because these changes would have
a significant impact on the cost of the Class I and Class II products we
process and the customers we serve.

I'm sharing this recent experience with you to point out the need to
have a more open process and a predictable pattern, before starting
formal Federal Order rulemaking. It takes a lot of time and money to get
through these hearings, and they increasingly result in more complex
changes to the government's milk pricing rules. The bar on whether USDA
should go to a hearing should be consistent, and set high. Federal
Orders were designed to set a minimum price to ensure the orderly
marketing of milk and an adequate supply, not to enhance farmer income.
Whether you like them or not, other government programs, like M-I-L-C,
are there to perform that task. And, a thoughtful and judicious approach
to Federal Order rulemaking would allow USDA adequate time to consider
the potential impact on consumers as well.

Even more than the effect on our business or our milk suppliers, USDA
needs to be the gatekeeper to make sure this system works for the people
who are consuming milk and dairy products everyday. In reality, they are
the engine that is driving this train and our future prosperity demands
heavily, some might say exclusively, on their willingness to continue to
consume dairy products. If we make this system too complicated or costly
to meet consumer demands, then they may go elsewhere to fulfill their
nutrition needs. And, I can tell you, once you lose a customer; it\'s
awfully hard to get her back.

In the same way, we need to have an open and constructive dialogue in
planning for the future of the Federal Order system and we have to
broaden our perspective to take into account the impact of Federal Order
decisions on consumers. That\'s why I join others here today to urge you
to put in place a Blue Ribbon Commission to do just that in the Farm
Bill. A Commission will allow us to talk about important and complex
Federal Order issues, and the various proposals that have been
considered to change the system.

I would also suggest that one of the commission\'s primary
responsibilities be to ensure that the Federal Milk Marketing Order
system serve the interests of milk and dairy product consumers, as well
as farmers and processors. We look forward to working with Members of
this subcommittee, USDA, dairy farmers and our fellow processors to
achieve this goal.

Thank you again, Mr. Chairman, for consideration of these issues.