We're no strangers to criticizing the Federal Order system. We find a way to do it almost every episode.

But this month, we're devoting the entire conversation to the fact that the regulatory framework in the dairy industry has hurt producers' bottom lines more than helped.

It's a phenomenon we've noted in bits and pieces in previous episodes, including near the end of our conversation last month. But in this episode, we examine the lack of competition and innovation in the industry with an eye toward its earliest source—the Capper-Volstead Act of 1922.

Ted shares an idea for how to fix the problem. It might seem backward—but only at first.

T3: What do we want to talk about?

Ted: Well, one thing as Anna can testify we've gotten some emails from mostly dairy farmers who express a lot of paranoia with regard to the federal order system and the regulatory system and where the money is going and so on. I think we had part of that discussion last time, didn't we? Didn't we shelf part of it?

Anna: I know we started that conversation.

Ted: Yeah. We beat it a lot. And we've also danced around it a lot. The tenor of the emails that we got was paranoid. You know, somebody's going south with the money, the co-ops are no good, they're stealing the cash, and that isn't what's happening and that's not the problem.

Anna: You know, even some of our producers have had a little bit of paranoia, and not about the co-ops or us, but about the Federal Order system in general. Because when everybody has money taken out of their check, they don't understand that somebody is getting it. It looks like, you know, the MA office is keeping it or something, when really it's not that. It's that it gets distributed to the co-ops and everything, especially the ones who are using, you know, lower price utilization.

Ted: You know, if we want to go back to square one and the Capper-Volstead Act, and then regulation that developed not at the same time but eight or ten years later, the Capper-Volstead Act gave the co-ops power to collective bargaining similar to a labor union. Well, let's take a look at the results of that. In the '30s, when the Capper-Volstead Act came in, we had basically fluid dairies, bottling plants, were 70% or 80% of the market in cheese, and it was a balancing item similar to what powder is today.

It was not a good retail product in the '30s. And the collective bargaining was mostly targeted towards the fluid end of the industry. Look at the results. The fluid end of the industry has been destroyed. So, how do we solve that problem? The problem is not necessarily the fault of cooperatives. The problem basically goes back to the structure and the fact that we've eliminated competition for the milk. Now, that, of course, that gets back to, well, what's competition? Is it collective bargaining or is it handlers bidding for the supply?

So that's a discussion, I think, that probably needs to be had but it needs to be had in the vein of not being anti-cooperative because that's not the right way to do it. There's some very good cooperatives in the United States and in the world actually. But generally speaking, they don't do a good job on the marketing side of the business. And that's where 50% of the price on the retail shelf is. It's in marketing. The dairyman winds up lucky, 20%, 25% of the retail price. So, obviously, to my mind, there's something wrong. And I think it comes back to the fact that you don't have the competition for the milk, and that's a regulatory issue. I'm not sure how you solve it. Clipping the wings of the cooperative a little bit.