The Policy Answer Is Exports

Volume 136, No. 23 Friday, December 2, 2011

The failure of the Joint Select Committee on Deficit Reduction - the Supercommittee - to cut US government spending is an ominous sign of the times, but the opportunity to revisit dairy policy reform may be one silver lining.

US Sen. Debbie Stabenow, chairwoman of the Senate Committee on Agriculture, Nutrition and Forestry, announced Dec. 1 that farm bill hearings will resume in late January or early February.

As in previous farm bills, dairy policy proposals have polarized the industry. Yet the tug of war over dairy reforms in the 2012 farm bill is actually less divisive than previous dairy policy battles. The fact is, this year’s philosophical differences really boil down to one issue - supply management - and a more open, deliberative farm bill drafting process in the coming months could yield real reform.

The key lies in rethinking the approach to dairy policy. The policies selected by agricultural leaders in Congress and offered to the Supercommittee last month reflected the Foundation for the Future principles from National Milk Producers Federation. Underlying those NMPF policies is an earnest attempt to address volatility in milk pricing.

As a starting point for rebuilding dairy policy after the Supercommittee failure, perhaps all parties could agree that easing price volatility remains a reasonable goal.

But what if the means to reaching that goal were shifted off managing or stabilizing the supply of milk? Without supply management in the center of the debate, dairy farms of all sizes could join dairy processors in a united set of dairy policy reforms.

The answer lies in refocusing policy tactics on exports. In recent years (with the exception of 2009), US exports have served as a free market improvement over supply management, tightening dairy product demand and strengthening milk prices.

In the 1990s, US exports hovered at 4-5 percent of all milk solids, but the last decade saw a steady rise to 9.3 percent in 2006, 9.8 percent in 2007, 11 percent in 2008, a retraction to 9.3 percent in 2009 and strong growth to 12.8 percent last year.

This year, exports of NDM, whey products, butter and cheese are sopping up 13 percent all milk solids.
Focusing policy on exports does not guarantee an end to milk price volatility, but long term prospects for dairy exports are favorable. A focus on exports shifts the policy discussion away from making less milk and toward supporting dairy farm growth and dairy processor innovation.

In June 2011, the Innovation Center for US Dairy commissioned an update of a 2009 dairy globalization report prepared by consultants Bain & Co. The “Dairy Globalization Refresh: 2011 Update” is a wealth of data with these bottom-line conclusions:
—Long term demand for dairy products will remain strong, driven primarily by emerging markets (with China remaining a net importer).

—Traditional sources of supply are constrained and will fall short of expected demand, although Europe and New Zealand may expand output more than originally anticipated. Brazil and Ukraine stumbled in recent years and Argentina and Belarus have yet to emerge as major global players.

—The demand gap is likely to be wider than anticipated, the window of opportunity remains open over the long term, and US dairy is the primary source of supply to satisfy that demand.

—However, company, industry and policy efforts to increase pricing and supply flexibility, reduce the impact of volatility and improve commercial focus are still necessary.
A serious emphasis on dairy exports in the farm bill could include the following policy concepts:

—End the dairy product price support program.

—Create tax deferred savings accounts for dairy farms.

—Develop a producer-funded margin insurance program executed by USDA.

—End the MILC program.

—Use MILC savings to build exports and product expertise.

The US dairy industry has developed effective tools to support (but not subsidize) dairy exports. Government funding could double or triple the budget for the US Dairy Export Council, the producer- and processor-supported trade facilitator. USDEC is a valuable resource in discovering markets, linking buyers and sellers and building US intelligence on trade policies, free trade agreements, trade barriers and the ever-changing competitive picture.

Funds earned from MILC and support price savings could be targeted to the Innovation Center for USDairy and existing dairy research centers. Success in exports means understanding the nutritional needs, flavor preferences and performance requirements of consumers abroad.

Exporting commodity white cheese and skim milk powder is a short-term strategy. Long term, dairy and nutrition scientists should aid processors in developing market-specific whey powders, milk powders, cheeses, cultured dairy foods and butter to gain more permanent, higher-value business.

A dairy title in the new farm bill should overtly focus policy and spending on dairy exports. The future of the US dairy industry isn’t government warehouses full of dry milk and USDA docking milk checks when farms grow.

The future is the US using its research and marketing skills to sell more and better dairy foods around the globe.

John Umhoefer has served as executive director of the Wisconsin Cheese Makers Association since 1992. You can phone John at (608) 828-4550; Fax him at (608) 828-4551; or e-mail John Umhoefer at jumhoefer@wischeesemakersassn. org


Other John Umhoefer Columns

 The Policy Answer Is Exports
 Productive Changes In Wisconsin

 The Successful Idea Of DBIC
 Cheese Cuts Both Ways: Consolidation and Growth
 IDFA's Deep Dairy Reforms
 Wisconsin In The Spotlight
 An Overbuilt Foundation
 What the New Governor Means To Wisconsin
 No Man's Land
 Dairy & Wisconsin’s New Leadership

Wisconsin Cheese Is Investing, Expanding
 Talking Competition
 Being Big Dairy
Upper Midwest Prospects in 2010
Upper Midwest Growth: Perspectives From The Farm
Blue Skies or Bust
Pushing Back Against A Tough 2009
Support Demand, Not Price
Dairy: A Good Bet in a Bad Economy
Wisconsin's Future: Growth
Keeping Sustainability Real
Nose Dive
Dairy Dives into 2009
Consider This...
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Implement Make Allowances ASAP
Security Reforms
Spring Forward
A Week of Clarity

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