Current Progressive Dairy digital edition
Advertisement

Relying on too small a lifeboat

Ben Yale Published on 18 May 2012

0812pd_yale_1

History becomes reality as one walks among the markers in Fairview Lawn Cemetery in Halifax, Nova Scotia. Among the final resting places of Halifax notables lie the remains of some of the victims of the SS Titanic.

advertisement

advertisement

Walking among the several rows of markers, one comes to understand that real, living human beings were brought to a sudden and unexpected end in one of the greatest sea-borne disasters.

The nearly identical stones are universal in one thing – one after another states as the date of death, “April 15, 1912.” After seeing 121 of these, the enormity of the loss overwhelms.

The community paid for the basic markers but some family and friends added more than the basic information, such as the one to Herbert Cave, “Dearly beloved Husband of Gertrude Agnes Cave,” which includes a poem with the last stanza that reads “Angels to beckon me, nearer my God to thee, nearer to thee.”

Other verses from this song, believed to be the last one the ship’s orchestra played as it went underwater, appear on other stones. Where known, the victims’ ages span from the infant to elderly, some representing entire families. But many of the markers are unnamed. They bear simply “Died April 15, 1912” and a number, known only to God.

This disaster, which pitted the inevitability of mortality with choice of morality, continues to attract the interests of millions. Merely saying something is like the Titanic speaks of the unspeakable tragedy at sea.

advertisement

A century later buses loaded with visitors daily come not only to the Fairview Cemetery, but Titanic museums in Belfast, Orlando, Branson or Las Vegas, and moving exhibitions held throughout the world. Movies are played over and over again. TV specials repeat the story. And there are the countless books and articles.

Many of these try to explain how a ship carrying over 2,200 passengers and crew had only enough lifeboats that, if fully filled, were enough for 1,178 people, and that even that inadequate number exceeded the required capacity of 1,060.

Some want to make it an argument of insensitive greed over humanity but, as in all things, it is not that simple. True, the regulations for lifeboats were developed when ships were much smaller than the Titanic by several magnitudes. True, the White Star Line thought about and had room for more but did not add them.

What was placed on the ship exceeded the regulations, not just out of other concerns, but the belief that the government regulators knew what they were doing. And for good reason – lifeboats were not intended to hold the entire passenger list and crew in small crafts while the ship sank.

Rather, the lifeboats were intended to ferry passengers to safety to either a nearby land mass or rescue ships.

This assumption that the ship would sink slowly (and the Titanic was, after all, unsinkable) and that other ships in the heavy shipping lane would come to the rescue meant that there was no need for a seat in a lifeboat for every person on board. The most recent disaster at that time was the loss of the Republic, which took 36 hours to sink. The Titanic went under in four.

advertisement

It is a tragic reminder of how regulations fail. Regulations are not humans. They are rules that respond to a snapshot in time based upon limited assumptions. Often, when the regulations actually mean something, the snapshot does not represent the reality of the situation and the assumptions can be found to be false.

Today, the economic livelihoods of more than 50,000 family dairy farms and hundreds of milk plants are based upon a regulatory scheme designed at one time to be a lifeboat to save the industry from the troubled waters of the Great Depression.

But it was designed to provide safety against the economic conditions of nearly a century ago and is based on assumptions that have no relationship to reality today. In point of fact, when the industry faced its worst crisis in 80 years, the FMMO system not only provided no solace but, on its eve, actually reduced producer prices.

The FMMO system is a Class I or beverage milk regulatory scheme. The assumption is that Class I is the most valuable category of milk and that by capturing that value and spreading it to all milk, producers gain. Every fight in the FMMO system comes down to how much Class I plants will pay, who shares in the money and under what terms. But this money source is drying up.

February 2012’s milk utilization report showed that the FMMO Class I usage after adjustment for depooled milk was down 4.7 percent from a year earlier. Record levels of milk production were not the only cause of this relative reduction. The absolute weight of milk sold daily in Class I, too, fell short.

This continued an unbroken trend of same month-to-month reductions since late 2009, and only infrequently broken since the modern FMMO system went into force in 2000. Class I, once the dominant use of milk, has dwindled to small fractions in all but the Southeastern orders.

Overall, Class I represented just 32 percent of the milk on the FMMO system in February. California sales of Class 1 also are deteriorating.

The cause of this reduction in overall beverage milk consumption comes from lower per capita consumption. For 2011, the amount of milk the average person (total 53.7 billion pounds of milk in beverage divided by population of 311.6 million and pounds converted to gallons) dropped to less than 15 gallons per year, compared to 17 gallons in 2000.

This reduction in Class I sales is evidence that Class I is becoming a less reliable driver of milk value. The extra value from the Class I was to supplement the lower prices of other classes. The USDA has made it clear over the last decade in litigation regarding the minimum prices for Class III and IV that it is the blend price, read the value from Class I, that is the target for producer prices, not the manufacturing class prices.

Under that argument, low Class III and IV prices do not mean too-low producer prices, for producers receive those prices enhanced by blending with the Class I. Or, at least that is the assumption. But with ever-weakening Class I sales, Class I value no longer has enough lifeboat capacity to support all milk production.

The added value in Class I also comes from an older day. In the late 1990s, the USDA determined that to meet Class I quality, producers needed approximately an extra dollar per hundredweight (cwt) to meet Grade A standards. The assumption was that producers competed with Grade B milk for the other classes and thus that milk was worth less.

Producers have continued to meet and exceed ever-higher standards for Grade A milk to meet the demands of plants for cheese, powder, ice cream and other dairy products, demanding nothing less. There is no Grade B or manufacturing grade milk in the major markets.

That dollar is part of the Class I differentials. So too are the costs to move milk to Class I markets and balancing of Class I plants. But if all milk has to meet the same standards, move the same distance to market and be balanced, those charges should apply to all milk, not just some.

With an ever-shrinking source of funds from Class I and an ever-growing demand from milk used in Class III, the economic benefit in the lower- utilization orders is ever weaker and weaker.

Currently milk used for Class III exceeds that used for Class I and is approaching half of all of the FMMO pooled milk. When combined, including milk used for cheese in the FMMO system, California and unregulated areas, we see that most of the milk produced today in the U.S. goes into cheese.

Modern cheese plants run around the clock every day of the year, demanding the same quality milk that Class I plants do. These plants meet the growing demand for cheese (three pounds per person per year more in 2011 than 2000). Even here, assumptions used to form pricing formulas in the late 1990s no longer apply.

In the decade, the production and consumption of Italian-style cheeses in general exceeded that of American cheese. Even mozzarella exceeds cheddar. But cheddar formulas underly the pricing in the FMMOs and those used by the CDFA.

Then there is the assumption that the regulations are for regional, not national markets. When milk and milk products were geographically restricted due to ineffective means to control spoilage, such considerations reflected market reality. Not just milk products but raw milk moves throughout the nation today.

Fully regulated pricing in California competes with somewhat regulated pricing in the FMMOs and unregulated pricing in Idaho.

The disaster of 2008 and 2009 exposed the greatest false assumption – milk is a domestic commodity. It was the world economic drop and milk demand drop with it (compounded by the falsely premised dairy price support program) that brought pain to dairy farmers.

Imagine today, with 4 percent more milk than a year ago, what prices would be like if the 8 percent or so of milk being exported stayed home. The FMMO does not even recognize the existence of that reality.

Other international icebergs threaten the regional model. The ability of Class I milk to be sourced from outside our borders will end the FMMO system or that international companies pool foreign farms on the regional pools will certainly end the pooling favor.

The current regulatory pricing system, as now designed and operating, cannot provide safety to the dairy industry that now floats in the ocean of international markets with ever-changing consumer tastes and universal use of Grade A milk.

This is not to say there is no place for a system but only that, if one is to be useful as opposed to endangering, it should be designed to meet the needs of the 21st Century world market of Grade A milk, not a 20th Century state and regional one with manufacturing grade milk.

The Titanic disaster has also brought another phrase to the English language – “It would be like rearranging deck chairs on the Titanic.” It is a hackneyed expression but, in the current discussion, aptly describes the futility of doing nothing less than a complete re-engineering of an important industry safety program. PD

00_yale_ben

Ben Yale
Yale Law Office

LATEST BLOG

LATEST NEWS