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PD POLL: Dairy Reform [Updated July 2]

Published on 27 April 2010

top25

This article was #1 in PDmag's Top 25 most-well read articles in 2010.

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Summary: Over the course of several months, Progressive Dairyman provided information about front-leading dairy reform plans, including National Milk Producer Federation’s Foundation for the Future, Holstein USA and Milk Producers Council’s Costa-Sanders bill and the Specter-Casey bill. These articles investigated the core principles of each of these plans, including supply management, margin insurance and cost of production.

NMPF's Chris Galen and Milk Producer Council's Rob Vandenheuvel provided updates about dairy reform in 2011:

Q. What are the issues that still need to be resolved to reach consensus around dairy reform in 2011? What will your group's role be in advocating for change in 2011?
A
.
We’ve made great strides during the past 12 months in putting together a comprehensive package of dairy policy reforms now known as Foundation for the Future. In particular, there is a much greater understanding of two key elements: the need for dairy policy to have a safety net addressing margins, not just milk prices; and second, the need to have a market management system to help put the brakes on milk production if and when we see conditions turn sour, as they did in 2009. Where we’ve made progress – but still have more work to do – is building a shared understanding that not only is FFTF the best plan economically, it’s also the best plan from a political standpoint. Given our new divided government, successful legislation must be bipartisan, and must achieve a consensus in Congress, not just among farmers. We believe our approach will appeal both to Republicans, and Democrats – it has to, in order to succeed.

As we continue to build momentum in support of Foundation for the Future, NMPF’s role is to continue reaching out to the entire dairy producer community, both those that understand and support where we’re going, as well as to those who are still undecided or skeptical. Where there is clarity, there is much less resistance to change. So our role in advocating change in 2011 first depends, to a great extent, on our ability to make clear both the economic advantages of FFTF, as well as its political advantages. We can’t necessarily control what schedule Congress will have in 2011, but we can control the effort we put into educating everyone from dairy farmers, to elected officials, about the need for change, and the benefits of our solution. We want to have a proposal ready to go at the start of next year.
—Chris Galen, Senior Vice President, National Milk Producers Federation

A. This past year has been a time of great discussion about the future of our industry. There is widespread agreement that: (1) our industry lacks effective tools for maintaining stability and profitability for our dairy farmers; and (2) the tools we do have – such as the MILC program and the Dairy Price Support Program – have proven to be woefully inadequate for providing a true safety net for our nation’s dairy farmers.

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With those two fundamental facts widely recognized, I believe our industry has an opportunity to present fundamental dairy policy reform to the 2011 Congress, hopefully with broad support from our nation’s dairy farmers. While there are countless other issues that we should definitely address in the coming years, they pale in comparison to the fundamental changes we need right now in response to the widely-accepted facts listed above.

Milk Producers Council has been an active participant in discussing fundamental dairy policy reform with not only fellow industry leadership, but with our fellow dairy farmers throughout the country. We will continue that effort until meaningful change is signed and implemented by the President. Now is not the time to sit back – now is the time to mobilize producers around a unified industry proposal, and Milk Producers Council is looking to play a leading role in that effort.
—Rob Vandenheuvel, General Manager, Milk Producers Council

Click a link below to read other articles in the Top 25:

5 Things I can't do without: Hugh Love http://bit.ly/PDTop25_2

The boogey man in the milking parlor: http://bit.ly/PDTop25_3

12,000 hooves: Trim them all at once, twice per year http://bit.ly/PDTop25_4

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Do you know the new calf and heifer-raising standards? http://bit.ly/PDTop25_5

India: The world’s largest milk producer: http://bit.ly/PDTop25_6

Margin outlook not as strong for 2011: http://bit.ly/PDTop25_7

Carcass composting project unearthed in California: http://bit.ly/PDTop25_8

5 things I can't do without: Leon Leavitt: http://bit.ly/PDTop25_9

CityBoy cartoon Issue 18 2008

Students obtain “hands-on” experience through summer dairy program: http://bit.ly/PDTop25_11

Sorghum: An economical forage for dairy producers http://bit.ly/PDTop25_12

Running out of time: U.S. must become a global dairy supplier http://bit.ly/PDTop25_13

Should I exit the dairy industry? http://bit.ly/PDTop25_14

Crossbreeding study participants share observations, opinions: http://bit.ly/PDTop25_15

Every herd has metritis: http://bit.ly/PDTop25_16

World Dairy Expo video: http://bit.ly/PDTop25_17

5 Things I can't do without: Darin Dykstra: http://bit.ly/PDTop25_18

Let's agree on a few things about MPCs: http://bit.ly/PDTop25_19

Oregon State cows monitored 24-7: http://bit.ly/PDTop25_20

Brubakers find many benefits with methane digester: http://bit.ly/PDTop25_21

How to adjust rations to incorporate BMR corn silage: http://bit.ly/PDTop25_22

Time to reclaim animal well-being as our issue: http://bit.ly/PDTop25_23

3 open minutes with Doug Maddox and Gary Genske: http://bit.ly/PDTop25_24

3 open minutes with David Martosko of HumaneWatch: http://bit.ly/PDTop25_25

ARTICLE

0710pd pollquestion full

Q: Which of the following plans do you support most for dairy industry reform?

This issue features the final summary we will publish in Progressive Dairyman. Strategic Dairy Reserve is a plan authored by Marc Perosio. He was asked to explain why his plan is the best option for the dairy industry and how it would work.

After reviewing what each plan says, please vote for the plan you support the most. Be sure to share your views on the subject through the poll on the right hand side of the page, as well as through the section at the end of the article.

If you have a special interest or concern you believe needs addressed, please let us know at .

In the next issue we will ask each plan to comment on specific issues and will present the information in a table, so that the plans might be compared easily.

If there is a less-prominent plan with support in your region of the country, please tell us about it. We will continue sharing reform plan summaries in upcoming issues.

Read the background and plans for this poll from the May 4, 2010 issue of Progressive Dairyman.

This analysis starts with Click to go directly to:

SENATE BILL 1645The Federal Milk Marketing Improvement Act of 2009

Notable supporters: Senator Arlen Specter (D-PA), Senator Bernard Sanders (I-VT)

Why our plan is best option for the dairy industry?

Senate Bill 1645 will stabilize farm raw milk prices and will give all dairy producers the average national cost of production. S1645 will create transparency. S1645 will balance milk production and supply by balancing imports and exports, this includes MPCs and casein. S1645 will provide a supply management program. S1645 will be burden free from the tax payers. S1645 will protect the continuation of the Federal Milk Marketing Orders (FMMO). S1645 will create stability for processors and consumers, lenders and rural infrastructure. S1645 will eliminate the make allowance.

How the plan would work?

The Economic Research Service (ERS) of the USDA already collects cost information for producing milk. The national average total economic cost of production would become the minimum farm price for manufactured milk, which would all be classified as Class II. This price would be in effect for all 48 contiguous states. The Secretary of Agriculture would announce the minimum Class II price by November 1st for the following year based on the national average total economic cost of production from data collected by the ERS. The price would be adjusted quarterly. This price would include operating cost and allocated overhead. Class I differentials would remain the same. The secretary would also be required to report on import/export volume, milk displacement and dollar value. The secretary would be authorized to implement a supply management program only when dairy exports exceed dairy imports by both the amount of milk represented and by dollar value.

The first phase of supply management would affect all dairy producers by reducing the Class II price by up to 50 percent and up to five percent of production. This could be seen as a signal to hold production down.

Under the second phase, the secretary would announce a reduced price on all milk production that is in excess of the producer’s preceding year’s production. A three million pound exemption would apply to new start-up producers for the first 12 months of operation. The funds collected from the supply management assessments would be transferred to the Commodity Credit Corporation (CCC) to be used to remove excess product from the market. Essentially, the secretary would be using producer money to purchase dairy products at full market value. The support program would be superseded by the farmer-funded program. These funds may also be used to export product.

Who has verbally committed support for this plan?

Senator Arlen Specter (D-PA), Senator Bernard Sanders (I-VT), Progressive Agriculture Organization (Pennsylvania), Pennsylvania Farmers Union, American Raw Milk Producers Pricing Association (ARMPPA) (Wisconsin), National Family Farm Coalition (NFFC) (Washington, DC), National Farmers Organization (NFO) and National Farmers Union (NFU) have passed resolutions supporting the concept of S1645, and numerous individual dairy farmers and consumers who give their support but don’t want their names published but we have them on file.

What needs to happen next for this plan to be implemented?
It needs to be voted on and passed in the US Senate. A companion Bill needs to be introduced, voted on and passed in the House of Representatives. And then signed into law.

Additional resources

PD

FARMERS UNION PROPOSAL

National Farmers Union Special Order of Business 2010: Dairy Crisis
Notable supporters: 600 members at annual conferencewww.nfu.org

Why our plan is best option for the dairy industry?

National Farmers Union is a general farm organization. We have dairy producer members in New England, the Upper Midwest and on the West Coast. Therefore, our dairy policy has to be very comprehensive of all types of dairy production systems when it pertains to size, markets and supply production chains. However, consistent across the organization is the call for supply management and a federal program that will take the volatility out of dairy prices. Though NFU’s dairy policy does not prescribe specifically the supply management program details, our policy states that it has to take into account all of the different types of production systems. There is no need to re-invent the wheel. There are many programs that are already developed and being considered.

There are several issues facing the dairy industry that need to be addressed in addition to the basic dairy program. We have credit issues that need to be addressed immediately as well as trade issues that allow an unaccountable amount of milk protein concentrate into the country in products that go unaccounted for by the National Agriculture Statistical Service.

How the plan would work?

The plan should take into account several key points: It should be flexible; address new dairy producers entering the market; contain a supply management component; include a federal order system that takes in the entire U.S.; and should complement the 2008 Farm Bill by implementing a Federal Milk Marketing Order that is responsive to the market and updates the antiquated system currently in place to price milk. Cost of production should also be taken into consideration when determining the price of milk.

Who has verbally committed support for this plan?

The Special Order of Business on dairy policy was ratified at National Farmers Union’s (NFU) annual convention in March 2010, in Rapid, City, S.D., by unanimous consent. The national convention is the largest meeting NFU holds each year to ratify the policy the organization will advocate during the legislative year. More than 600 members were in attendance, with voting delegates from all 20 state/regional chapters. NFU has members in all 50 states.

What needs to happen next for this plan to be implemented?

Several groups are working on dairy policy for the next farm bill. The House Agriculture Committee is seeking input from Members of Congress representing dairy producers. Secretary of Agriculture Tom Vilsack formed the Dairy Advisory Industry Council, which NFU has made presentations to, and different working groups within the industry. A comprehensive solution the entire industry can agree upon will need to be presented for consideration in the next farm bill. The credit crisis must be addressed sooner. If we wait for the next farm bill to address the credit issues in the dairy industry, many dairies will not survive.PD

Additional resources

Click here to read President Roger Johnson's letter to Secretary Vilsack

Click here to read the April 13, 2010 testimony to the Dairy Industry Advisory Committee

HOLSTEIN USA PLAN

Dairy Price Stabilization Program

Notable supporters: Dairy Farmers Working Together, Washington State Dairy Federation

Why our plan is best option for the dairy industry?

The Dairy Price Stabilization Program (DPSP) is currently the best alternative available to reform our milk pricing system. Granted, our current pricing system is broken and more reforms are needed for the dairy industry to thrive. Managing the growth of our industry results in positive gains for producer and consumer alike. Instead of waiting for the next Farm Bill in 2012, we contend that putting supply management framework into place will only bolster other efforts made to reform price discovery, Federal Milk Marketing Orders and safety net programs.

By giving the DPSP a chance to work, we would alleviate the “lowest-lows” that are causing financial pain to dairy producers nationwide. It would also lessen effects of the “highest-highs,” which force our dairy customers to look for replacement products and imports when prices double in less than one year. The key is to send correct market signals to dairy farms, allowing the producer to decide, based on national needs, when they should grow. Our plan can be implemented without affecting any current dairy programs, will not require opening of the Farm Bill and can have a positive effect on mailbox milk prices now and in the future.

How the plan would work?

First, current dairy producers would be assigned their “allowable milk marketings.” This would be an initial starting point, based on average production numbers from the past three years. From there, every quarter (three months) would be compared to the same quarter in the previous year. Producers who have started during or after the three-year period could have their allowable milk marketing numbers adjusted by an appeals committee.

The U.S. Secretary of Agriculture, in concert with a board consisting mainly of producers, but also a consumer, a milk bottler and a dairy product manufacturer, would announce two numbers each quarter: “allowable growth” and a “market access fee.” The allowable growth would be the percentage that every dairy could grow, compared to a quarter in the year prior, without needing to pay the “market access fee.” After the market access fee is announced, producers will be able to determine how much milk they want to produce on their farm for the next three months and the next year. A market access fee is paid for twelve months on each hundredweight of milk above the allowable milk marketings, plus allowable growth. The fee would be locked in for the twelve months, so producers are able to plan accordingly.

The program would be administered through the USDA, much like MILC is now, at a cost no greater than $0.02/cwt. New producers would be phased in by having to pay less of the market access fee upfront.

The ultimate goals of this program are to prevent severely depressed producer milk prices, reduce milk price volatility and risk and complement existing industry and government programs, yet be able to adapt to additional reforms. The key to this program is that dairy farmers now have an incentive to produce milk for the market instead of simply producing all the milk they can.

Who has verbally committed support for this plan?

Addison County Young Farmers, VT; Associated Milk Producers Incorporated (AMPI); California Dairy Campaign, CA; Dairy Farmers Working Together, VT; Farmers Union Milk Producers Association, PA; Georgia Milk Producers Inc., GA; Lanco-Pennland Quality Milk Producers, PA; Oregon Dairy Farmers Association, OR; Washington State Dairy Federation, WA; and over 500 individuals from 44 states.

What needs to happen next for this plan to be implemented?

A coalition of organizations is currently working to make sure this happens, giving supply management the best chance it has had since it was first proposed sixty years ago. While the principles of supply management are the same, this specific program allows for a lot of flexibility and decisions to remain with the individual dairy producer. Ultimately, the Dairy Price Stabilization Program is the only bona fide, detailed, legitimate proposal for consideration today that will reduce the volatility of milk prices which have been so hard on our nation’s dairy farmers.

Additional resources

http://www.wdexpo.org/2009/10/01/milking-parlor-podcast-from-world-dairy-expo/

http://www.youtube.com/watch?v=WUx5RMLJLQs

PD

NMPF PLAN

Foundation for the Future

Notable supporters: NMPF’s 30 member cooperatives

Why our plan is best option for the dairy industry?

Unlike the other programs which are primarily supply management programs, the Foundation for the Future is a multi-dimensional program that addresses the challenges facing the dairy industry from several directions:

  • Dairy Producer Income Protection Plan (DPIPP) – This provides a safety net superior to both the Dairy Product Price Support Program and the MILC program by protecting all dairy farmers’ margins. In recent years, the rise of input costs has made apparent the inadequacies of existing safety net programs. A government-funded safety net that considers margins (the difference between feed costs and milk prices), rather than just milk prices alone, is an important improvement.
  • Federal Order Reform – The goal of this reform effort is to develop a milk pricing system that compensates producers fairly, reduces price volatility and creates a more dynamic dairy industry.
  • Dairy Market Stabilization Program (DMSP) – A simple, predictable government program that will be triggered only as necessary to send signals to farmers to lower their production when margins suffer due to excess production and/or reductions in demand. The second element of this is a voluntary, farmer-funded sales assistance program that will build upon the existing structure of the CWT program in order to boost both domestic and overseas product sales.

How the plan would work?

DPIPP – Neither the Dairy Product Price Support Program nor the MILC were designed to function in a more globalized market, where not just milk prices, but also feed costs and energy expenses, are more volatile and trending higher. DPIPP will help insure against the type of margin squeeze farmers experienced in 2009 (and also at other points in the past), when milk prices dropped, feed costs rose – or both conditions occurred in tandem.

We think the resources currently budgeted for the Price Support and MILC programs can be better spent on the DPIPP. The USDA would pay for a base level of coverage covering a portion of a farm’s historical annual milk production and protect against extremely low margins. The DPIPP margin is defined as the difference between the all-milk price and feed costs. A second level of protection would allow a farmer to purchase a greater level of coverage, with a portion of the cost of that additional insurance subsidized by the government.

Federal Order Reform – The product price formulas would be replaced by a competitive pay price for Class III (milk for cheese making). The competitive Class III price would be a survey of what proprietary cheese plants processing over 500,000 pounds of milk a day are paying for milk.

The Class I minimum price would use a national competitive pay price for Class III, plus the appropriate location differential. The Class II minimum price would be the national competitive Class III price plus a differential. Class IV price options are being evaluated.

DMSP – This program is designed to prevent extreme margin volatility by sending strong and timely signals to farmers that a portion of their production is in excess of what is needed to meet demand. The program is triggered when dairy producer margins (all-milk price over feed costs) fall below certain margin trigger levels. Once a trigger level has been engaged, producers will receive a reduced milk payment for a portion of their production. The reduced payment will remain in effect until producer margins are above the trigger level for two consecutive months. This doesn’t require forecasting supply and demand, nor is it subject to political controls or other subjective influences.

The sales assistance program funded by voluntary producer contributions and operated by CWT would evaluate requests for sales assistance from member cooperatives for products to be exported. CWT also would provide financial assistance to members through a structured bidding process that would allow successful bidders to provide a domestic dairy product alternative to imported dairy products.

Who has verbally committed support for this plan?

The NMPF Board of Directors, representing NMPF’s 30 member cooperatives, has endorsed the concepts in the Foundation for the Future, and has authorized staff to complete development of those concepts for final presentation to and approval by the Board in June 2010.

What needs to happen next for this plan to be implemented?

As stated previously, the NMPF Board of Directors needs to approve the final version of the Foundation for the Future in June 2010. With Board approval, NMPF will work to have the Foundation for the Future become part of the 2012 Farm Bill. While some would like Congress to move faster, history tells us that no major piece of dairy legislation has moved on its own at the federal level. That being said, however, NMPF would remain vigilant with respect to any suitable legislative openings that might arise in the intervening period.

PD

DAIRY GROWTH MANAGEMENT INITIATIVE

DGMI

Notable supporters: National Milk Producers Federation’s Strategic Planning Task Force
www.dfamilk.com

Why our plan is best option for the dairy industry?

DGMI is based on the belief that in order to maintain and grow a healthy, sustainable and globally competitive U.S. dairy industry, there is critical need for a growth management plan. Such a plan should: Be market-oriented to allow for growth both domestically and internationally, be responsive to quickly changing market conditions, have 100 percent financial participation by producers, be global in nature to consider the impact of imports and exports and be national in scope with the ability to implement regionally.

However, DGMI was created to bring policy ideas to the table that could be used to build consensus in the industry – it was never intended as the single, best or only option. DFA believes strongly that the final plan should incorporate DGMI concepts for reducing volatility and assisting producers in times of need, but the ultimate goal is to create a new plan for the industry – regardless of what it is called – that generates broad support from producers, as well as policymakers.

How the plan would work?

At its core, DGMI is based on the formation of a National Milk Market Board made up primarily of dairy producers. The board would have broad authority to implement plans and programs to manage growth and price volatility.

The 30-member board would be composed of at least 24 dairy producers, elected by peers on the basis of experience and overall industry knowledge. The balance would be other industry leaders and at least one consumer. The board would meet at least quarterly to determine what actions, if any, could and should be taken to balance milk supply and demand, in an effort to reduce the volatility of producer and consumer milk prices.

To capture the distinct needs of different areas of the country, representation on the board would be based on regions, with a portion of board seats allocated equally and the balance apportioned by regional milk production. The board would have responsibility to manage a Milk Stabilization Fund and would have the authority to collect from all U.S. producers, through a check-off, $0.12 per hundredweight on all milk produced during the month. Should the fund balance reach $400 million, an automatic suspension of the assessment would occur, unless a producer referendum authorizes a higher limit. Some examples of potential fund use include: Herd (partial or whole) reduction programs, including heifer purchases; export assistance; dairy commodity production incentives that allow for the displacement of imported dairy products, such as casein; programs to enhance risk management tools and opportunities among producers, cooperatives and customers; managing inventories of dairy commodities to limit price volatility

In addition, the board would have authority to implement a program to manage unbridled growth in milk supplies. The program would include a direct economic signal to incentivize individual dairy farmers to avoid the production of additional milk during times of low milk prices relative to feed costs. The role of the USDA would be limited to audit responsibility of the program funds and administration of all referendums.

It is vitally important that DGMI remains a program governed by and benefiting domestic producers. Therefore, USDA would hold a producer referendum on the continuation of the DGMI three years after implementation and upon the request by 10 percent of the producers thereafter. Cooperative block voting would be allowed; however, members could choose to “ask out” and vote contrary to their cooperatives.

Who has verbally committed support for this plan?

Dairy Farmers of America, Inc. (DFA) has discussed the concepts of DGMI with many producers and their organizations from around the country, and has received considerable support for the concepts and many constructive comments. From the beginning, DFA’s hope has been that a single national plan could be created that addresses volatility and provides stronger support for producers in times of low milk prices. Several other industry groups have expressed interest and general support for DGMI, and National Milk Producers Federation’s (NMPF) Strategic Planning Task Force is now developing a plan that incorporates several key DGMI concepts.

What needs to happen next for this plan to be implemented?

DFA is fully supportive of NMPF’s current direction and will continue to be a part of that effort. NMPF’s current plan incorporates key components of many different industry proposals that have been brought forth in recent months. It is imperative that the industry builds consensus among producers before it is reasonable to expect support and action by lawmakers. PD

DAIRY PRICE STABILIZATION ACT OF 2010

H.R. 5288: The “Dairy Price Stabilization Act of 2010”

Notable supporters: Congressmen Jim Costa (CA), Peter Welch (VT), Rick Larsen (WA)

Why our plan is best option for the dairy industry?

The policy behind H.R. 5288 is aimed at addressing the biggest threat to dairy farmers – extreme milk price volatility. Over the long-term, the market has and will continue to provide a profitable price for dairy farmers, but the “busts” in our “boom/bust” cycles are getting so deep and so long that otherwise-healthy dairies are simply unable to survive these wrecks. Economic analysis has shown that this volatility is tied to a chronic imbalance in supply and demand for milk, and this imbalance is largely due to a lack of any real incentive for individual farmers to manage their growth in milk production.

Finding consensus for fundamental changes in dairy policy is a very difficult task. Oftentimes, regional differences get in the way of making real policy changes. However, H.R. 5288 is structured in a way that treats all regions the same, which allows any region and any dairy farmer an opportunity to grow, while sending a tangible financial signal to those dairies that are not in “growth mode” to manage their growth in milk production.

How the plan would work?

H.R. 5288 is designed to continue providing any dairy with the opportunity to grab a larger share of the market, while providing those dairies that aren’t in “growth mode” with a tangible financial incentive to better manage their year-over-year growth in production.

  1. Prior to each quarter, an “allowable year-over-year growth rate” in milk production will be announced, based on a set of triggers clearly outlined in the bill. This figure, which will normally be 3 percent annual growth, is what any dairy can produce without being considered an expansion.
  2. For any dairy that chooses to exceed this allowable growth (i.e., plan an expansion in milk production or start a dairy), a market access fee is announced, based on a set of triggers clearly outlined in the bill. This fee will range from $0.03 to $0.50 per hundredweight on all a facility’s milk, or $0.15 to $2.50 per hundredweight on only the expansion, whatever is cheaper for the dairy. It’s important to note that the fee will only be paid until the expansion has been in place for a year.
  3. 100 percent of the funds collected as market access fees will be distributed to the dairies that did not exceed their allowable year-over-year growth in milk production. This is a key as these funds create the tangible financial incentive for dairies that are not in “expansion mode” to maintain their production within the allowable growth.
  4. A producer board would oversee operation of the program. The parameters of the program are set in the statutory language of H.R. 5288, so the board would only be authorized to make adjustment to the program if they have 2/3 majority support for such changes.

Under H.R. 5288, every dairy would decide: Do I expand my share of the market and budget for a market access fee over the next year? Or do I manage my production growth to less than 3 percent this year and receive my share of the fees that are paid? H.R. 5288 is a uniquely-American proposal for achieving stability in the dairy industry. It’s about incentives, not control.

Dairies choosing to grab a larger share of the market would choose to pay either the fee on “new milk” or a smaller fee on all their facility’s milk, whichever is cheaper. New dairy facilities would pay the “all-milk” market access fee, as the cheaper option for them.

Who has verbally committed support for this plan?

Congressmen Jim Costa (CA), Peter Welch (VT), Rick Larsen (WA), Joe Courtney (CT), John Larson (CT) have all co-sponsored this legislation. In addition, many dairy producer groups from around the country have supported the concept and are currently assessing the details of the legislation. These groups supporting the concept behind H.R. 5288 include Dairy Farmers Working Together (VT), Milk Producers Council (CA), Associated Milk Producers Inc. (MN), California Dairy Campaign, Georgia Milk Producers, Holstein Association USA, Kentucky Dairy Development Council, Lanco-Pennland Quality Milk Producers, Northwest Dairy Association (Darigold), Oregon Dairy Farmers Association, and the Washington State Dairy Federation.

What needs to happen next for this plan to be implemented?

The proposal has been introduced as H.R. 5288 in the U.S. House of Representatives. While producers continue to control their own destiny in the program, Congress plays the role of “referee,” making sure everyone plays by the same set of rules and we avoid the “free riders” issue.

In order to be implemented, this bill would have to be passed in both the House and Senate, and the President would have to sign it. Once in place, producers would hold a referendum vote, and assuming a majority of producers support it, the program would be set in place. Three years after implementation, producers would hold another referendum vote, giving the industry a three-year “trial period” before authorizing H.R. 5288 for the long-term.

Additional resources

All supporting documents, such as summaries and news articles can be found at www.stabledairies.com. In addition, the bill relies on multiple analytical reviews done over the past couple years on milk price volatility and an analytical review of a “Growth Management Plan” for dairy producers by Drs. Mark Stephenson and Chuck Nicholson, two respected dairy economists.  PD

RATION-ALL

Ration-all Milk Pricing

Notable supporters: Rep. Kathy Dahlkemper, Rep. Bob Gray and Rep. John Wilson

ration-allmilk.com

Why our plan is best option for the dairy industry?
The Ration-all Milk Pricing program is a market-based two-tiered pricing structure which can provide stable prices while sending the correct market signals to keep supply and demand in near perfect balance at the same time. The Ration-all Milk Pricing program eliminates the current system of end-product pricing, low support prices, CCC purchases of unwanted products and MILC type subsidies, which have magnified the volatile pricing by interfering with the market signals for less milk when supply is in excess of demand. A single-tiered pricing structure cannot provide stable pricing and pay the proper value for milk without a separate supply management system. The price stability provided by this program will allow long-term contracts to be formed between processors and retailers which benefits the entire dairy industry. Dairy product usage and consumption can benefit from stable pricing by reducing the chance that pizza shops or ice cream stores try to cut cost by reducing the amount of cheese on pizzas or the amount of ice cream on a cone. Pricing structure encourages the dairyman to strive for efficiency and elimination of the inefficient cow quickly when the milk is not needed.

How the plan would work?

A “60-month moving average” is calculated using the prices that the market has produced in each federal order. The price period is intended to represent at least a full cycle of the volatile prices while minimizing the effects of one month. The 60-month average may be reduced to a 36-month average as the volatile months are eliminated from the time period. This price will be paid on 90 percent of each farm’s 36-month production base. The moving average price and base will provide the stable prices that are necessary for dairymen to make proper long-term business decisions. The milk produced over the 90 percent base (about 10 percent) will be priced in each federal order based on the bids submitted by processors for the milk they want over and above what they will receive from their shipper’s 90 percent base. The processors will submit bids to each federal order’s market administrator up to the 20th of the month. Then the administrator will average the bids that expect to be filled based on current production numbers in that order. He will announce the overbase milk price by the 25th of the month prior to the month being bid for. The price that the processors bid will reflect the current supply and demand in each federal order.

The dairyman can now decide after the 25th of each month how much of the overbase milk he wants to produce the next month based on announced price. If the overbase price is near the trend price or above then I expect him or her to produce as much as possible. If the bid price is below or well below the trend price, indicating that there is plenty of milk to fill current needs, then I expect he will look for ways to ship less of the overbase milk to avoid shipping low or no-profit milk. Because the dairyman can cash flow fairly well from the 90 percent base he is more likely to respond properly and reduce his overbase production before it is even produced. A new moving average is calculated at the end of each month by blending the 90 percent base milk price with the over base milk price on a weighted basis. The trend is projected out 12 months and announced so everyone will know a year in advance what the price will be for the 90 percent base.

Who has verbally committed support for this plan?

U.S. Rep Kathy Dahlkemper and staff members, Jake Kuhns - staff of U.S. Rep Tim Holden, Mary Knigge – assistant to house ag. committee are in stages of understanding and have been helping me more it forward. Bob Gray a lobbyist for northeast co-ops thought it had enough merit that he spent a day helping me show it to 6 U.S. congressmen from Pa. and Senator Specter’s office. Bob Cropp has been helpful to me and suggested I get this plan to secretary Vilsack early on. DPAC invited me to be part of their milk pricing workshop. John Wilson –vice president of marketing DFA has been discussing it with me and circulated it to members of their pricing committee. I’m discussing it with NMPF with regard to WTO compliance.

What needs to happen next for this plan to be implemented?

Ideally NMPF and other industry groups would see the benefits of stable pricing to the entire milk industry. There will have to be enough support from industry groups for the legislators feel that there is a consensus enough to go ahead with these changes in the next farm bill. The unregulated areas would have to be brought into the system so that all are part of the solution. It would have to be deemed WTO compliant. If the moving average is not WTO compliant then I will express them on a margin over feed cost basis.

Additional resources

Multiple references in Farmshine including a full report after the DPAC pricing workshop.

Click here for even more additional resources about the Ration-All plan. PD

STRATEGIC DAIRY RESERVE

Notable supporters: Farm Net of Cornell University

Why our plan is best option for the dairy industry?

Most of all, it is critically needed at this time. It is extremely fair to large and small farmers, young or old. It treats every farm and farmer the same. It does not penalize anyone trying to enter the industry. It is simple, straightforward and can be implemented by use of existing infrastructure. Nothing new has to be created for it to function. It deals with the fundamental flaws with our industry. Problems of diseased animals and the inability to deal with supply when it outpaces demand in a manner that reduces the wild fluctuations we are experiencing in the prices we receive for milk.

How the plan would work?

First, have a national herd buyout large enough to reduce national herd to 9 million cows. Second, over the next four years test 25 percent of the cows in each state for diseases common to dairy, i.e. Johnes, T.B. and cancer. Pay $2,000 for each infected animal and pay for the testing and removal of said animals. During the four-year testing period, gather the necessary people together and rework the Federal Marketing Orders to better reflect the changing times. This system has worked well for a long time but is in need of modernization.

The supply management part of my program works like this. The CCC would be renamed The Strategic Dairy Reserve. Arbitrary amounts of cheese, powder and butter would be established as a base line. Sellers of these products can sell to the SDR at anytime. Not as a market of last resort as is with the CCC now. If supply outpaces demand by 1 percent, automatic subsidation of foreign and domestic sales would take place. If supply outpaces demand by 2 percent then, automatically, a herd buyout at a preset price per hundredweight would take effect and would stay in effect until supply shrinks. Thus allowing dairy to be proactive rather than reactive and allows for a seamless way for dairy to deal with its inability to deal with changes in supply in relationship to demand. That has not existed before and is the root cause of the situation we are in right now.

This is funded by a 450 million dollar loan guarantee and a 40 cent per hundredweight assessment, mandatory for all milk produced in the U.S. and entering the U.S. from other countries. Assessment will commence six months after start of program and will remain in place until loans are paid off and a reserve of one billion dollars is accumulated, to be used to subsidize sales of product and herd buyouts when necessary. Approximately 6-7 years to repay loans and accumulate the one billion dollar reserve.

Plan administered by NMPF and the existing CWT program. These are good people that know what they are doing and can handle this job.

What needs to happen for this plan to be implemented?

There needs to be support from each farmer. We need to stop pointing fingers at each other and agree that the time is critical for dairy. The most efficient way to do this is to tell the Dairy Advisory Board in Washington that this is what is needed. It has the support of bureaucrats, and cross section of our industry.

The government seems to be willing to listen to the advisory board at this time and will take serious its recommendations. This is also the quickest way to get something done at a time when speed and getting it correct are paramount. PD

Q. Which of the following plans do you support most for dairy industry reform?

There is no denying the last two years have been very difficult for dairymen and women all over the country. Like healthcare reform, most recognize the dairy industry has problems, but there are many opinions on how it should be fixed.

Lawmakers on Capitol Hill took some action last year with direct payment assistance to stop the financial bleeding. During debate on the measure, many recognized it was just a band-aid on a larger wound.

“It’s time for the dairy industry to come together to figure out a route tosustainability,” U.S. Secretary of Agriculture Tom Vilsack has said. “It will mean change, it will mean you have to identify changes that have to be put in place to create price stability.”

Progressive Dairyman would like to help facilitate dialogue in this matter and offer dairymen a chance to compare and contrast the viewpoints on proposed changes being presented by industry groups. Dairymen don’t need to just agree; they need to find the best solution to agree on.

In upcoming issues, we will print written summaries of the most prominent plans. We hope to shed some light on what each plan offers and how it proposes to fix the most obvious problems impacting the dairy industry.

We will also ask each of the plans to answer the same set of questions so each reader can see in a side-by-side comparison how one plan stacks up against another.

As always, we invite your comments. If you have a special interest or problem you believe needs addressed in the industry, please let us know. If there is a less-prominent plan with support in your region of the country, please tell us about it.

We also invite you to visit our website for voting on our poll, additional resources and added features. This is a complex issue and we want to give our readers the best opportunity to be informed, share their voice and move forward toward the best solution possible.

PD IMPORTANT ISSUES

  • Price structure – cost of production or product-based
  • CME transparency
  • Supply management
  • Support programs maintained (CCC)
  • MILC
  • CWT
  • Changes to FMMO boundaries
  • Make allowances – keep them or not
  • COOL requirements
  • Region regulations
  • Disease control
  • Import/Export regulations

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