An Overbuilt Foundation

Another Name For "Foundation the Future": Supply Management

Volume 135, No. 32 Friday,February 4, 2011

Credit National Milk Producers Federation (NMPF) for building and marketing a plan to radically change federal dairy policy. The concepts found in the co-op organization’s “Foundation for the Future” are driving the dairy policy debate as the 2012 US farm bill looms in our industry’s future.

At the US Dairy Forum in January, NMPF’s leader, Jerry Kozak, joined Connie Tipton from International Dairy Foods Association (IDFA) in describing the groups’ mutual agreement on several parts of the Foundation plan as a “historic occasion.” That’s only a slight exaggeration.

The Foundation plan calls for replacing the outdated Dairy Product Price Support Program, and ending MILC (Milk Income Loss Contract), in favor of a Dairy Producer Margin Protection Program. It also seeks the improbable dream of reforming federal milk marketing orders to spur product development and simplify milk pricing and payment. All good ideas.

But complete alignment between the nation’s top dairy lobbying organizations is unlikely. NMPF’s Foundation is overbuilt, because it also includes a “Dairy Market Stabilization Program” that is, in essence, supply management.

Unlike other supply management ideas that use a government board to predict and control the nation’s milk supply, the NMPF plan uses a computed price margin for dairy farms: as margins are squeezed, farmers’ monthly milk payments are reduced by 6 percent to 8 percent.

Less money means less milk, the NMPF plan assumes.

Processor groups such as IDFA and Wisconsin Cheese Makers Association fundamentally abhor an artificial construct designed to curb the nation’s milk supply. Wisconsin, in particular, has more than adequate dairy processing capacity and buyer demand to accept more fresh farm milk, not less.

A Dairy Market Stabilization plan is nothing more than an imposition on the free market. The marketplace would see milk prices decline if supplies become burdensome. But the Dairy Market Stabilization plan piles onto that market reaction - adding cuts to farm milk checks in addition to a decline in classified milk prices.

Interestingly, the Dairy Market Stabilization plan cuts more sharply than free markets: this program will cut milk check payments if rising feed grain prices trim dairy producer margins. In other words, farms may see their paychecks cut even when their milk output is stable.

This scenario (margins lowered by rising feed costs) plays out with disturbing impact in the Upper Midwest. Up here in corn country, dairy farms produce a greater percentage of their own feed grains and silage and are less concerned with higher grain prices.

A recent study commission by IDFA (“Regional and Farm Level Impacts of the Foundation for the Future’s Dairy Market Stabilization Program,” available at puts numbers to this concern. The report overlays the proposed Dairy Market Stabilization plan from NMPF over recent years and executes the math, noting: “In 2009, the worst financial year on record for dairy farmers, $390 [million] would have been withheld [from farm milk checks], with the majority of it, $236 million, coming from just five states; Wisconsin, New York, Minnesota, Pennsylvania, and Michigan.”

In fact, in 2009 Wisconsin would have seen a $104 million reduction on milk checks, dwarfing all other states, according to the IDFA report. Over the period 2000-2009, IDFA found the program would have kicked in (due to low margins) four times and overall Wisconsin is the biggest loser: America’s Dairyland would surrender $150 million in milk check money to the program in this 10-year time span. New York State lands a distant second with $63 million in withheld dollars.

It’s a punishing outcome for Wisconsin, a state that has spent a decade clawing back from the brink of decline to rebuild a proud, efficient dairy industry.

Where will this money go? Looking across 2000-2009, the IDFA study found the proposed Dairy Market Stabilization program would have taken in $626 million from producer paychecks (24 percent of that from Wisconsin).

The recipient of that cash would be a new industry board which would purchase dairy products for food assistance programs; encourage dairy products in school nutrition programs; promote dairy exports and develop new uses for dairy products.

These ideas have a familiar ring to those familiar with programs at Dairy Management Inc. (dairy’s check-off dollars) and the export assistance program run by CWT (Cooperatives Working Together). The CWT program, operated by NMPF, is specifically cited in this discussion on using the Dairy Market Stabilization dollars.

NMPF describes Foundation for the Future as an indivisible package of reforms. But the Dairy Market Stabilization piece isn’t necessary. The Foundation proposal for an insurance-like Margin Protection Program will supplement farm income when margins are low.

NMPF’s Foundation for the Future, without the supply management piece, could provide the foundation for a historic agreement among all parties in the dairy industry.

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

 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...
 Fulls Vats
Implement Make Allowances ASAP
Security Reforms
Spring Forward
A Week of Clarity

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