The Federal Milk Marketing Order (FMMO) system was established in the 1930s to aid farmers facing low milk prices. As transportation and refrigeration developed in the late 1800s and early 1900s, milk dealers (called "handlers" in the FMMO system) became the main agents moving producers' milk into larger consumption areas. No standard pricing systems existed at this time. Instead, milk dealers controlled the price producers received. Given the high perishability of milk, local dealers were perceived as having asymmetric market power over producers that resulted in unfair buying practices. Producer cooperatives formed in attempts to develop different pricing methods to enhance producer incomes. In the midst of the Great Depression of the 1930s, the federal government established marketing orders that set minimum prices that producers receive for their milk. Thus, FMMOs were intended to level the playing field by returning some market power to milk producers. Federal milk marketing policy is based on the premise that milk producers offer a commodity that is subject to certain unique market conditions: Fluid milk is highly perishable—it must be kept cool or refrigerated almost immediately after production. This creates logistical hurdles throughout the marketing chain. Milk production has no distinct planting and harvest season as compared to field crops—that is, milk production occurs continuously on a daily basis. Most farms have limited on-farm milk storage capacity, and new milk production must move to markets on a regular basis whether prices are high or low. This puts milk producers in a weak bargaining position vis-à-vis milk buyers. Milk production and demand exhibit seasonality patterns that further complicate the marketing process: Milk production tends to increase in the spring and early summer when pastures are lush and the weather is mild, but it tends to decline in the late summer, fall, and winter months. In contrast, milk demand tends to peak in the fall and winter months during the school year and decline in the spring and summer. Fluid milk has a more inelastic demand than most other dairy products—that is, fresh milk consumption is not very sensitive to price changes. However, lower prices do affect the economic viability of the dairy farm. Milk that is produced in excess of fluid needs is processed into manufactured products with a longer shelf-life, such as butter, cheese, powdered milk, yogurt, and ice cream. The dairy industry is a high fixed-cost industry: A dairy farm has substantial investments in infrastructure, equipment, and dairy cattle. For example, it takes nearly two years from the time a calf is born until it is mature enough to join the milking herd and start to generate revenue. During that time it must be housed, fed, and cared for (including veterinary services). These factors place milk producers in a difficult market position that has the potential to lead to instability in the supply and price of milk. Wide fluctuations in the price of milk have been considered an undesirable characteristic of the milk market. Persistent price volatility can cause fluctuations in supply and prices that lead to market instability that can drive producers out of the market. It can also potentially compromise the market's ability to provide consumers a dependable supply of quality milk. FMMOs are designed to stabilize market conditions. FMMOs require milk handlers to pay milk producers uniform prices for milk and adhere to other specified rules. They are designed to assure milk producers of fair treatment in the marketplace while assuring consumers of a consistent and adequate supply of dairy products. FMMOs are permanently authorized and are therefore not subject to periodic reauthorization. The FMMO system has its origins in the 1930s with the Agricultural Adjustment Act of 1933 (48 Stat. 31), which authorized marketing agreements and licensing for processors. The 1935 amendments (49 Stat. 750) to the 1933 act expanded and made explicit the authority of the U.S. Department of Agriculture (USDA) to establish minimum prices for milk. Current FMMOs, however, are based on the Agricultural Marketing Agreement Act of 1937 (1937 act; 50 Stat. 246), as amended, which reenacted and amended the 1933 legislation. The most recent major national revision to FMMOs occurred as part of the 1996 farm bill—the Federal Agriculture Improvement and Reform Act (FAIR Act; P.L. 104-127 )—which included a provision (Section 143) requiring that USDA "consolidate and reform" the FMMO system. The law mandated that USDA reduce the number of milk marketing orders from 31 to no fewer than 10 and no more than 14 by April 4, 1999. USDA published a proposed rule on January 30, 1998, to solicit public comment on proposals for consolidation of the order system, including changes to classified pricing; replacement of the benchmark Basic Formula Price; and changes in order provisions, terminology, and classification of milk by end use. The final rule was published on December 17, 1999, and went into effect on January 1, 2000. Individual FMMOs are established and amended through a formal public hearing process that allows interested parties to present evidence regarding marketing and economic conditions in support of, or in opposition to, instituting or amending an order. This process is described in Appendix B . FMMOs are overseen as part of the Dairy Program, administered by the USDA's Agricultural Marketing Service (AMS). According to testimony USDA provided to the House Committee on Agriculture in 1979, the objectives of FMMOs are as follows: to promote orderly marketing conditions in fluid milk markets, to improve the income situation of dairy farmers, to supervise the terms of trade in milk markets in such a manner as to achieve more equality of bargaining between producers and milk processors, and to assure consumers of adequate supplies of good quality milk at reasonable prices. An additional benefit from FMMOs is that marketing order administrators collect comprehensive statistics on milk and milk markets. USDA and other dairy economists use these statistics to evaluate the effectiveness and equity of milk marketing orders. USDA achieves the objectives of FMMOs through classified pricing, pooling, and minimum producer prices. Minimum prices are formula-based and determined, in part, by the values of milk components (i.e., butterfat, protein, and other solids) that rise and fall with changing market conditions. There are both federal and state milk marketing orders. The FMMO system regulates milk marketing across state lines but within explicitly defined and geographically aligned multistate regions. Following the revisions enacted in 1996 and implemented in 2000, 10 FMMOs currently operate ( Figure 1 ), down from a peak of 83 in 1962. Some states have their own separate state-regulated milk marketing orders, with California being the largest of these. In some of the states, such as Pennsylvania and New York, price regulation of milk is covered in part by a federal order and partly by a state order. In others states (such as California, Montana, and Maine), price regulation of milk is covered by only state orders. In parts of some states, milk has no price regulation. State orders usually regulate milk prices that producers receive for fluid milk. Some states also regulate wholesale and/or retail milk prices. In states regulated by both federal and state orders, states may also consider marketing conditions unique to the state and set marketing requirements or pricing premiums beyond those required by a federal order. FMMOs regulate milk processors, known as handlers. Handlers purchase milk from dairy producers and/or producer cooperatives for fluid-milk bottling plants or dairy-product manufacturing plants. There are three types of handlers: 1. Distributing plants that receive, process, and distribute fluid milk. 2. Supply plants that manufacture dairy products, play a role in balancing milk surplus in a marketing area, and supply milk to fluid plants if needed. 3. Dairy cooperatives that process fluid milk or manufacture dairy products. Unlike other handlers, cooperatives may pay their producer members in whatever manner the cooperative determines. They are not required to pay the FMMO minimum prices, but milk from cooperatives is classified and pooled like milk from other handlers. Handlers qualify for either full or partial regulation. If a plant has sales into a marketing area and meets certain criteria, such as volume thresholds, or the plant is not operated by a government agency or university, its milk sales are fully or partially regulated. Typically, a plant is fully regulated in the marketing area where it distributes most of its milk. A partially regulated plant has sales into a marketing area but does not meet certain criteria. For example, a producer-handler that produces milk, processes it, and markets it may be exempt from obligations to the marketing order pool. Perhaps the most critical aspect of federal orders is their regulation of the price paid to milk producers by handlers of Grade A milk, which accounts for 99% of total U.S. milk production in the United States. In 2015, 61% of U.S. milk production was pooled and marketed under FMMOs. Most of the remaining Grade A milk is regulated by state marketing orders, the largest being the California state order, which regulates about 19% of U.S. milk. About 1% of U.S. milk production is Grade B, which can be used only for certain manufactured dairy products. Grade B farm milk prices are not regulated by FMMOs. Milk handlers (excluding cooperatives) are required to pay no less than the minimum prices established by USDA using the classified pricing system (see " Current Dairy Pricing ") for Grade A milk purchased from milk producers within the FMMO. Milk handlers, however, are free to purchase milk from any producer and to sell their processed milk at any price in any market. Handlers report receipts and end use of milk and maintain adequate records for the USDA market administrator to audit and verify the accuracy of the reported uses (see " USDA Administration "). Each handler operating in the FMMO is treated similarly so that none gain advantage based on a cheaper milk supply. The FMMO system does not regulate milk producers or restrict milk production.