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Dairy Summit finds support for milk supply management

Progressive Dairyman Editor Dave Natzke Published on 11 September 2018

Dairy farmers attending a summit meeting to explore dairy policy and marketing options overwhelmingly supported some method of milk supply management but worried congressional action might take too long for many of them to survive.

The meeting, held Aug. 13 in Albany, New York, was hosted by Bob Wellington, senior vice president of economics, communication and legislative affairs for Agri-Mark Dairy Cooperative. It brought together about 350 participants, about half of whom were dairy farmers and many in search of a national solution to the ongoing dairy economic dilemma.

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Due to both domestic and international factors, dairy markets are down for a fourth straight year instead of turning higher during a normal three-year cycle, Wellington noted. When farm prices fall, cash flow requirements lead to increased milk production, aggravating the national situation, he said.

“That leaves farmers at the mercy of prices that are not recovering,” Wellington said. “Things are not fine on the farm. We’re losing farms every day. The only thing that drives milk prices higher is when dairy farmers are forced out of business, reducing supply.

How can farmers do the right thing for their farm and the right thing for the industry? The bottom line is: The system is broken. Clearly, all dairy farmers have the same issues and need to work together. Severe financial stress is being felt across all-size farms, all locations and all types of milk production.”

Government, co-op programs reviewed

Catherine de Ronde, Agri-Mark economist, offered a historical review of government efforts to provide dairy price stabilization and supply management, with varying degrees of success. She noted the latest effort, the Dairy Market Stabilization Program, was ultimately removed before passage of the 2014 Farm Bill.

Ben Laine, senior economist with CoBank, described current approaches, many implemented by individual dairy cooperatives, in attempt to limit member milk supplies. Those steps include reducing premiums and added fees, lowering blend prices to cover costs of hauling, marketing or disposing of excess milk and establishing base/excess programs or quotas. More recently, private processors have resorted to cancellation of milk contracts and termination of markets.

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“There’s no one size fits all for limiting the supply of milk,” Laine said. Cooperative decisions frequently fall in two categories: spreading the economic pain across all members through reduced premiums and using re-blended prices or implementing base plans which place the burden of larger, expansion-minded farms. Regardless, most are designed to manage excess milk to limit costs and match processing capacity, with a secondary goal to stabilize member milk prices.

Capper-Volstead limitations

Cooperative legal experts Marlis Carson, senior vice president and general counsel with the National Council of Farmer Cooperatives (NCFC), and Todd Eskelsen, Eskelsen Law Group, provided an overview of how the Capper-Volstead Act impacts a cooperative’s ability to manage commodity supplies.

Adopted by Congress in 1922, the law gave “associations” of persons producing agricultural products certain exemptions from antitrust laws. However, the law did not specifically address supply management, Carson noted.

While Carson and Eskelsen emphasized Capper-Volstead allows co-ops to manage supplies for processing capacity and cost reasons, they said broader supply management efforts would likely require congressional or regulatory action.

Individual co-op base programs are “private” business actions between co-ops and their members in an attempt to limit costs and match processing capacities and marketing abilities, they said. As such, they are permitted under Capper-Volstead.

“Co-ops are extensions of the farm. They can take actions on a private basis, but there are limitations on what they can do,” Eskelsen said.

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“In short, supply management programs that aren’t part of a government-sanctioned program, aren’t part of a marketing order or aren’t based on processing capacity have been shown to be prone to regulatory challenge and extensive and expensive litigation,” Carson said. “There is reason to believe class-action lawyers will look at the dairy industry for other opportunities.”

There’s little case law regarding Capper-Volstead, but Eskelsen and Carson shared cautionary tales of how other commodity groups – including mushroom, potato and egg producers – have run afoul with the law, resulting in U.S. Department of Justice regulation and lengthy and costly litigation.

“Short of voluntary actions, you have to go to the government to get legislative action or regulatory action by the USDA. That’s going to take time,” Eskelsen said. “Co-ops can work together under Capper-Volstead to implement some of these things. The bottom line is: You have to come up with a plan that will pass.”

Time running out for farmers

Time is a luxury many dairy farmers attending the summit said they no longer have.

“Farmers are suffering an equity drain, bankers aren’t too impressed in how we’re doing business, and rural America is falling apart,” said Bill Rowell, Vermont dairy farmer. “A lot of good people are getting hurt. Our mentality needs to be a little more anxious.”

He urged lawyers representing dairy co-ops to find a way to make Capper-Volstead and Federal Milk Marketing Orders “a plausible path forward.”

Kara O’Connor, government relations director with the Wisconsin Farmers Union, was among a group of Wisconsin dairy producers who traveled 18 hours by bus to attend the summit. Summarizing a recent dairy producer survey, she said the stress of low and volatile milk prices was affecting dairy farmer mental and physical health and their relationships with family members. She said responses showed farmers felt betrayed by their lawmakers and co-ops.

Mark McAfee, California Dairy Campaign, urged consensus behind efforts to support supply management.

“The price discovery system is broken,” McAfee said. “It’s going to take a fight; it’s going to take working together. We can’t feed everyone else until we can feed ourselves.” He called for a three-legged stool approach in which farmers control prices and supplies, and mandate discipline in imports/exports.

What’s ahead?

Attorney Daniel Smith identified five available pathways to managing milk supplies: enabling legislation from Congress; congressional changes to the Agricultural Marketing Agreement Act that would allow action through the Federal Milk Marketing Order program; establishment of base-excess plans by individual co-ops with no legislative action; collective action by co-ops without legislative authority, but likely vulnerable to legal challenges; and state actions, which may face challenges related to the U.S. Interstate Commerce Clause.

With upcoming elections in November, the chances of a stand-alone bill that addresses dairy’s needs would be unlikely. There may be opportunity to insert language in a compromise House-Senate Conference Committee 2018 Farm Bill. However, the current farm bill expires Sept. 30, 2018, making the short timetable challenging.

Diversion program possible?

One idea breached near the close of the summit was suggested by John Wilson, senior vice president and chief fluid marketing officer with Dairy Farmers of America.

He said using some of the USDA emergency aid earmarked to offset the negative impacts of trade wars on dairy prices could go toward a short-term diversion program, paying farmers to reduce milk production as a bridge until enabling legislation could develop a long-term supply management program. However, USDA did not include any such provisions in announcing distribution of trade tariff financial assistance on Aug. 27.

Meeting provided ideas, support

For 15-year-old Justin Briggs, who farms with his parents near Stratford, Wisconsin, the meeting provided more than ideas on how to address milk supplies and low prices. It also offered support and motivation.

“Many people, including me, are relieved to know we’re not alone, other dairy farmers are struggling all around the country, and it was enlightening to hear them talk about their struggles,” Briggs said. “I think everyone came out of that meeting feeling some kind of hope or relief, knowing they are not the only people who support some form of supply management.”

“We may have reached a point where fellow dairymen are willing to unite if we have any chance of fixing the oversupply issue in our industry,” said fellow Wisconsin dairy producer Joshua Nett, who milks 250 cows near Fremont. “I personally believe this may be our last chance to get meaningful reform in our industry.”  end mark

Dave Natzke
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Proposals posted for review, comment

Dairy farmers and others were invited to submit policy and marketing ideas for discussion and review during the dairy summit. About a half-dozen policy ideas were shared. Since the meeting, the list of proposals has grown to more than 15, ranging from direct crisis management payments for dairy farmers to base-excess programs and mandatory supply management.

To facilitate more input, the proposals are available for review, download and comment online (Dairy farm income enhancement program).

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