Dairy Policy Summit from PDPW shows variety of ideas

How to determine the price of milk has always been a tricky question and policies that tried to answer that question have taken a winding road throughout the years. The process being taken to change farm policy this year is more unusual than ever thanks to the presence of a powerful budget committee.

Policies have often been put in place to take care of problems the market can't fix on its own, said Mark Stephenson, a dairy economist with the University of Wisconsin-Madison. One such policy was enacted to stop people from adulterating milk with water and chalk and selling it as the pure product, he said. That policy became the "standards of identity" that still protect the integrity of dairy products.

Others, like those designed to even out the price of milk between the traditional spring flush and shorter fall season have had mixed results, he said. The government program to buy dairy products to bolster prices has had a checkered history. In 1983, the government bought $2 billion worth of dairy products in a year.

"Policy fails if it tries to do too little or too much," he said. "And policy doesn't necessarily determine the end result."

Most in the dairy industry would agree that the current dairy price support program is not working as it was supposed to. "That safety net is just inches off the floor," Stephenson said. "If we got to that point we'd be in pretty big trouble."

Today, there are many different ideas floating about how to moderate the fluctuations in the milk price. Most of them have focused on supply corrections like temporary quotas and cull cow programs.

Many programs in the past have created divisions in the industry, he said - Western versus traditional farms, big versus small, organic versus conventional and manufacturing versus fluid producers. "Many people are calling for the system to be simplified. They're saying it's all too complicated."

Stephenson moderated a panel of experts in Madison Nov. 9, during a Professional Dairy Producers of Wisconsin (PDPW) dairy policy summit. The group talked about various ideas on how dairy policy might be changed this year as Congress considers a dairy measure and potentially a farm bill. Stephenson said the process is shaping up to be very different this year.

The so-called "Super Committee" in Congress has been given the task of identifying $1.5 trillion in savings from the federal budget by Nov. 23. Stephenson said the "group of four" that includes the chair and ranking member of each of the two agriculture committees has been working to prepare a complete package of farm proposals for the Super Committee, although they missed two self-imposed deadlines in early November to get that document done.

That means that a new dairy policy and even an entire farm bill proposal could be hammered out in the next few weeks, without the traditional hearings or input that normally goes into farm bill deliberations.

The Super Committee can accept, reject or modify the farm bill proposal, Stephenson said, and Congress will vote up or down on the entire budget reduction package. Whatever proposals the Super Committee comes up with must be acted on by Congress by Dec. 23 and no amendments will be allowed.

There are a lot of "ifs" in the current process, Stephenson said. "If the group of four can't come to an agreement in time, and if the Super Committee doesn't agree to a farm bill inclusion or if they do get all these things done but Congress votes down the Super Committee bill," he said, "then we are back to a more normal farm bill timetable and debate."

Jaime Castaneda, a vice president with National Milk Producers Federation, said the recently introduced Dairy Security Act, based on the Foundation for the Future plan created by his organization, would establish a margin protection program for dairy producers and a dairy market stabilization program that would control supply during times when farm margins got out of kilter.

The margin, he said, is defined as the all-milk price minus the total feed cost per hundredweight and it includes every animal on the farm, he said, with the advantage going to farms with more productive cows.

Under the measure, the Milk Income Loss Contract (MILC) program and the Dairy Price Support Program would be eliminated and the federal budget money from them would be used to help fund the crop-insurance-like program designed to help farmers protect their margins. In the original proposal, all farmers would be required to participate, but later revisions made it a voluntary program.

However, he explained, farmers who are in the margin protection program would also automatically be enrolled in the supply management portion of the program.

Castaneda said his members began meeting in 2009 to work on a proposal for new dairy policy because they decided "they couldn't chase price anymore." The plan was developed by producers. "One thing we heard," he said, "is that crop insurance is great but the premium goes up every year. We focused on a premium that doesn't change."

There is one level of protection for producers who only want basic coverage and there is a higher level of protection for farmers who want that, he said. Since it would be a government program, it would be handled by the Farm Service Agency (FSA) through its county offices.

Since the program was unveiled, various groups on the processor side have claimed that if enacted, the Dairy Security Act could impact exports negatively. "We are very, very confident this is not going to affect exports," Castaneda said. "The (current) price support program has been damaging to exports."

Robin Berg, a dairy farmer from southwest Wisconsin, spoke about a new dairy organization that is trying to have an impact on dairy policy. The National Dairy Producers Organization, Inc. was formed about a year ago. "Our members asked us to write a farm bill," he said.

Their proposal would establish a program that would manage the supply of milk going into butter, non-fat dry milk and cheese through inventory controls, production history and a system of triggers. It would not be used to affect the supply of Class I or II milk.

The country would be divided into six regions in this program, he said, and all cheese processing plants would be surveyed to determine the price of milk. When inventories tripped a given trigger, product would be taken out and given to feeding programs.

Another part of the plan would raise the milk quality standards, bringing the somatic cell count requirement to the same level as that of Europe. Berg said their proposal hasn't gotten to the point of having a sponsor or being an actual bill in Congress.

Berg said dairy farmers, who lost $10 billion in equity in 2009 while the wholesale and retail communities had record profits, need to do something to prevent this from happening again.

"Not once from 2005 through 2010 did we receive the cost of production," he said, basing the price of producing a hundredweight of milk on USDA figures. Dairy farmers, he said, were caught in 2009 growing to meet the export demand when that demand dried up - but in that same year dairy imports grew by 1,000 metric tons.

According to Berg, the average producer lost 35 cents per hundredweight in the 1990s and has lost $1.14 per hundredweight in the 2000s. That contributed to the loss of more dairy operations - there were 165,000 producers in 1990 and in 2000 there were 97,460 producers.

"What is today's supply management program?" he asked. "Terminate producers."

His new dairy producer organization is also working on a label that they hope will be used on dairy products that are all U.S. made. "The government is dragging its feet on Country of Origin labeling," he said, "but consumers have told us they are willing to pay 5 percent more to know that it is USA made."

The Canadian dairy industry for years has had its own mark to denote its domestically produced products, he said. "We need to be more like them."

Berg has been farming in Lafayette County since 1977 where today he has 60 cows and 260 acres. He is also the author and president of a Dairy Pricing Association, Inc., a cooperative that takes a check-off from members and uses that money to buy excess dairy products when prices fall below a certain pre-determined level.

Those dairy products are then donated to humanitarian food programs. The Dairy Pricing Association has already purchased and donated 85 40-pound blocks of cheese in Wisconsin, which was gone in less than a week. Recently they purchased 600 gallons of fluid milk in Pennsylvania where they have some members. It was distributed to through a hunger program to needy there.

"Disappearance positively affects price," he said. The membership in that cooperative believes that they are going in the right direction by taking matters into their own hands and leaving Washington out of the equation, he said.

Allan Kozak (no relation to Jerry Kozak who is president of NMPF) is a dairy producer milking about 450 Jersey cows in Millersburg, Ohio with his wife Sharon. He is a board member with the Dairy Policy Action Coalition (DPAC), an organization of dairy producers that grew out of town hall meetings across Pennsylvania and Ohio. At one of those meetings in 2009, 500 producers came.

Then the organization spread to other states in 2010 and 2011. The board of DPAC includes only dairy producers "who have cows and who sell milk," he said. It has been organized as a non-profit organization and its operation is funded by donations not dues, Kozak said. Their proposed dairy solution is in the Dairy Advancement Act, or S. 1682, sponsored by Sen. Bob Casey (D-PA.)

It would eliminate the dairy price support program, but Kozak admits there has been a lot of pushback from cooperatives that have non-fat-dry milk processing plants. The bill would also create a processing equipment loan fund to stimulate investment in making new products that would help develop new markets.

"Do we want to sit back and protect what we have or go after supplying world markets?" he asked rhetorically. "Our mission is to equip dairy producers for global realities of the 21st century and position them for the opportunity to be profitable," he said.

Kozak said he sees a conflict of interest in cooperatives' dairy policy proposals. "They represent the interests of the processors that they are," he told the PDPW audience.

One of the things he and his organization would like to see would be greater market transparency and price discovery mechanisms. They would like to see daily reporting of milk product prices and the addition of more product price reporting like mozzarella cheese and yogurt. This additional reporting would dilute the influence of the "thinly traded" Chicago Mercantile Exchange, where members often trade "against their own interest," he said.

"We also don't feel there's one blanket solution, no one-size-fits all answer," he said. "But we think less is more when it comes to government."

Kozak said when the industry gets together to debate what policies to pursue, they must begin with agreeing on what the problem is. He doesn't agree that supply management will be the answer to what has ailed the dairy industry in the last few years. He said the Eastern states are a milk deficit area while the West has a milk surplus.

Overall there is a 1.5 billion pound milk shortage in the United States. "It's not a surplus, so why would fixing a surplus be a solution," he said. "World prices are not volatile and we don't believe the United States should be the balancer of the world's supply."