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1509 PD: Why no cold storage auditing? Let’s have transparency

Barbara Martin Published on 07 October 2009

I am a third-generation California dairy farmer married for 26 years to a third-generation dairy farmer. Never have we seen business as bad as it is now, and our loss has been great.

I am not one that wants subsidies or price support. I am grateful for those tools because without them things would be worse. I want to make a fair wage for our work.

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As you know, our price is based on the Chicago Merchantile Exchange (CME) which is very thinly traded with a lack of transparency. I believe with all of my heart that their is no way we can compete with the forces behind our price discovery system. I have been shut down by many but continue to push on.

As my mother would say, “something is stinkin’ in the wood pile!”

In California and other parts of the nation we are becoming short on milk. Many co-ops have requested dairy farmers to produce more milk with no assurance of our price going up. The reason the milk price has not gone up more quickly is due to inventory reported in cold storage (cheese and butter).

Thirty-day cold storage facilities for cheese and butter are required to report to National Agricultural Statistics Service (NASS) their inventories. (There are approximately 800 facilities required to report.) Their reports are available online.

I wanted to receive a copy of the audits of their inventories. I was told that there is no auditing function … none … none whatsoever! I was shocked, and questioned why. Every American reporting taxes is accountable to report accurately because of the fear of an audit.

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Dairy farmers, as are most in business, are accountable to their banks by audits. Why would these companies be graced with the honor system?

I asked the NASS and also the Agricultural Marketing Service (AMS) if any inaccuracy of inventory reporting could have an indirect factor on our milk price? The answer from both agencies was an astounding yes!

I was told that it would take an “act of legislation” to get an auditing function in place. By not being subjected to a formal auditing function processors and cold storage facilities are not required to maintain the same accountability that every other American is bound to also maintain.

I have spent two hours this morning calling Washington, D.C. Since word of Kraft and Dean Foods’ record profits last quarter and dairy farmers’ record losses, I have been perplexed. I have been bothered for a very long time about our price discovery system, its accuracy and transparency in light of it being so thinly traded.

Our co-ops are stating that we are “short” milk in California. They are worried about contracts. Yet we have not seen our milk prices rise or even the futures move yet. I am asking why? I mean if we are short and our product is needed … wouldn’t we get more money?

The answer stated is always the same, “They have too much in their inventory.” So it begins to nag me again. Whose inventory? Who is reporting? Who is auditing?

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So after many calls I got to speak with Mr. Colwell. He handles NASS Cold Storage Reports and explained who they survey. They only survey long-term cold storage facilities that hold cheese and butter for more than 30 days. They don’t require distributors or exporters to report.

He admitted that questions of “ownership” have come up, for example, cheese purchased but held for aging. I asked if these reporters are subjected to audits.

He stated, “There is no auditing function in place. It is the ‘honor system.’”

I hate to be cynical, but I have a huge issue with this! Our banks audit our facility. Do they think that greed and corruption cannot breed when cheese reporters have no accountability? Any fraction of misreporting inventory is an indirect factor of the price we get.

We need to take action! I was told that we could request an “authority to audit” but might be declined due to funds. I can assure you that price support or MILC money would be better invested in auditing and making these facilities accountable for their reported inventories.

I have left a message for AMS Chief Economist of Dairy Programs, John Mengle, to call me. I am going to directly ask what it will take to get a formal audit of cold storage inventories. I suggest that you do the same.

If they get enough pressure, quite possibly, we might know the true numbers in the inventories and obtain an unbiased audit report. Please contact your co-op reps, industry reps, anyone that can put pressure for these audits. These audits are our right.

It is our livelihood at stake on the word of those making record profits while we struggle to feed our cows. Please take action. PD

Barbara Martin blogs at www.dairygoddess.wordpress.com

Barbara Martin
Dairywoman
Tony Martin Dairy

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