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1209 PD: What you need to do to improve pay prices

Joel Eigenbrood Published on 05 August 2009

The other day, a dairyman client called regarding a side business he was considering and wanted some advice.

He had begun making a product for his own use but had also received interest from others who wanted to purchase his new product. After offering some suggestions, I jokingly suggested to him that his new side business might really take off and that he could retire from dairy farming. He laughed, and then I commented that at least then he could set the price he received for his product. His reply was a question in itself: “Wow, I wonder what that would be like?”

The point was that dairy producers, while doing a great job of producing more and more milk with astounding efficiency, have done little in the way of marketing the product they produce. Most producers in the past have given little thought to what happens after the milk is in the tank. Very few, if any, successful businesses have ever operated like this. The historical response to this scenario in dairy farming is that because of the short shelf life of our product a price cannot be predetermined, but the government has in place a pricing system to ensure that producers receive a “fair” price for their product. I think most would agree that the last six months have shown us that isn’t entirely true.

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Today producers have opportunities and certainly motivation to improve the marketing of and the price they receive for their milk. Some of these opportunities have been around for awhile and others are fairly recent developments.

Opportunities include forward contracting and using futures contracts to hedge milk prices, although given the current state of the markets, this would most likely only lock in future losses.

Other opportunities to improve pay prices include voicing opinions to elected officials and industry leaders regarding the proposals currently being discussed. These include the different supply management programs being considered, the need to regulate the importation of casein and milk protein concentrates and the need to replace or repair our current, flawed pricing system. I believe there are many in Congress who are willing to help, but they are not industry experts and need to hear what producers want and need. They are not willing to go out on a limb without knowing that they will have the industry’s support. All dairy producers, their families and friends should be calling and writing their representatives regarding the need to improve producer pay prices.

A final option, and I believe the most important, that producers can do to improve the marketing of their milk is by demanding strong, effective and proactive leadership from their cooperatives and co-op board members. Your co-op board members are your elected representatives and need to represent you and your interests in the boardroom. Co-ops, by their membership in National Milk Producers Federation (NMPF), dictate the actions of NMPF and the CWT program it administers. When producers believe these organizations do not act in their best interests, they should hold their elected co-op leadership accountable. Ask yourself these questions:

When NMPF announces they are forming a task force five months after milk prices collapse, does this demonstrate proactive leadership?

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When CWT uses its funds for export assistance, cooperatives themselves certainly benefit, but is this in the best interest of dairy producers?

When co-ops are unsupportive of supply management programs, who is best served – producers or co-ops’ own interests?

When co-op leadership suggests either publicly or quietly that it may be best to let some of the financially weaker or less efficient producers fail, is that decision in the best interest of all co-op members?

When will you be one of the producers who is weaker or less efficient than those still left? Should the co-op let you fail then?

Producers own their cooperatives, and they must demand that co-ops make their first and foremost priority the effective marketing of members’ milk and the maximization of producer pay prices. Anything less is doing a disservice to producer co-op members who work tirelessly to produce one of the most healthy, wholesome products in the world, a product for which they should always have some say in how much they are paid for. PD

Joel Eigenbrood
CPA/Partner
Genske, Mulder & Co.

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