DBA, Cheese Makers group
oppose Dairy Security Act
Economic model, they say, shows that USDA could spend about $2 billion more than current dairy programs and farms would exit faster
Saying the Dairy Security Act, which was recently introduced to overhaul the nation's dairy policies, would cost the government more money and cause farms to exit the industry at an even faster rate than today, two of Wisconsin's leading dairy organizations have come out against the plan.
The Dairy Business Association and Wisconsin Cheese Makers Association said Monday (Oct. 24) that they remained "steadfastly opposed" to H.R. 3062, the Dairy Security Act, in light of economic modeling from a leading dairy industry economist.
The conclusions of economist Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison, convinced the two organizations to maintain their opposition to the Peterson measure, which is largely modeled after the "Foundation for the Future" plan, forged at the National Milk Producers Federation.
The dairy policy bill recently introduced by U.S. Representatives Collin Peterson (D-MN) and Michael Simpson (R-ID) includes a proposed 'Dairy Market Stabilization" program for supply management when there are times of poor margins in milk production. It would allow farmers to have a certain amount of production during those times and would not pay farmers if they marketed milk over that level.
That is where most of the opposition of the two groups lies.
"The Dairy Security Act is bad policy," said Jerry Meissner, president of the DBA. "Dr. Stephenson's modeling shows that there would be a milk price reduction of $.80 to $1.63 per hundredweight for all size farms with only moderate milk price volatility improvement. We recognize that volatility has been a real problem, but dairymen can't be willing to accept any type of change, just because it is something new.
"We don't need another dairy policy program of the same nature. Farmers need to be better educated on using risk management tools that are currently available. Our industry cannot afford this severe net revenue loss on every load of milk that farmers sell," Meissner said.
Laurie Fischer, executive director of the DBA, said the analysis by Stephenson was the first in-depth economic analysis of the legislation that has been done since the Congressional Budget Office (CBO) scored an early draft of the bill. Scoring is a way for the budget office to determine the budgetary ramifications of a legislative proposal.
She told Wisconsin State Farmer that she had contacted the International Dairy Foods Association, the National Milk Producers Federation and others to find out if a more in-depth analysis of the dairy proposal had been done and learned that Stephenson was in the midst of doing so.
Stephenson created the "systems dynamic economic model" of the U.S. dairy industry with economist Chuck Nicholson at California Polytechnic State University in 2005. The model has been used to examine various dairy policy ideas in recent years. Fischer said it was coincidence that the two economists had met to go over the finer points of the dairy bill recently and were willing to give their insights at a DBA producer meeting.
Fischer said that when the new policy proposal was run through the model, it showed the accumulated cost of the Dairy Security Act, over the five years of the life of the farm bill, would exceed $3 billion dollars - about $2 billion more than current dairy programs, the economists found. (All economic models use assumptions and here it was assumed that farmers representing half of the national milk supply would register to cover 50 percent of their milk at a level of $7 margin protection.)
The analysis of the two economists comes in at a much higher cost than the CBO came up with. In Stephenson's economic model, domestic dairy sales are expected to increase, but at the expense of farms more rapidly going out of business, Fischer said. The model showed that export volumes would increase, but also showed that total dollar value of export sales would decline.
Fischer said DBA and WCMA were talking about their position now because things are moving so swiftly in Washington. Stephenson, she said, is in the process of releasing the details of his analysis "any day", but the dairy groups didn't want to wait.
"The ag leadership is writing language and giving it to the Super Committee on November 1," she said. There are some political watchers who are saying there could be a farm bill before the end of the year, she added. It isn't known yet if Peterson's dairy bill would stand alone or if it would be rolled into a farm bill.
The primary objection of her members, said Fischer is the supply management portion of the program. "We are concerned about our cheese makers. We want to make sure our processors have the milk they need," she said.
But the DBA's membership is also generally opposed to having more government involvement in the dairy industry. "We are very afraid there are going to be unintended consequences," she said. One of those consequences, the DBA believes, will be lower milk prices overall and reduced milk production.
They were speaking out now against the proposal, Fischer said, because everything is moving so fast in Washington. There may not be a chance for the process to go through hearings and other analysis before a deal is struck and many producers may not understand the deals that are being made.
"Too many farmers may not understand all these policies. It's hard for me to understand them and I work on these issues every day for my job," Fischer said.
Stephenson's conclusion that small farms would leave the dairy industry at a faster pace is a troubling outcome in the model, according to DBA president Meissner. "We hope Representative Peterson will take the economic modeling by Dr. Stephenson and Dr. Nicholson seriously, since this work has provided our industry with the only evidence on impacts since the initial CBO budget scoring," Meissner said.
The Dairy Security Act includes a dairy price margin risk management tool designed to help farmers survive during difficult times. Meissner pointed out that while this program could provide effective protection for dairy producers, the milk revenue losses that would likely result from the broader policy package would not bode well for Wisconsin's dairy industry.
"Risk management tools like margin insurance are important, but should not be packaged with other programs that surely will have unintended consequences," Meissner said. "We need to enact policy that will help our dairy sector compete in today's global marketplace."
Fischer added that her organization fully endorses risk management and hopes farmers take advantage of programs that are out there to help in this area, but the package of other policies in the Peterson bill are troubling.
John Umhoefer, executive director of the Wisconsin Cheese Makers Association, said that his organization is looking for a reduced role for government in dairy policy. "The Dairy Security Act is a complicated proposal for milk production and pricing," Umhoefer said. "Dairy producers and processors need to seize the opportunity in the upcoming farm bill to diminish the role of government over time."
Wisconsin Cheese Makers Association, representing Wisconsin's growing cheese industry, has seen its members add jobs, find new export opportunities and build new cheese plants during America's economic downturn, he said.
"Wisconsin's dairy industry is poised for solid growth and job creation," Umhoefer said. "A Dairy Stabilization program designed to cut back on U.S. milk production is out of step with the free market and the opportunities we see for Wisconsin's dairy industry."
