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Setting dairy policy priorities: A choice of failure or success

Ben Yale Published on 11 January 2011

Failure often is succeeding at the wrong thing. Complex projects and programs seldom are fixed by single or limited solutions. Whether it be a government regulatory system, a military campaign, a sporting event or running a dairy farm, there are always a lot of things that can be improved or even need fixed.

And to complicate things further, there is no correlation between the effort and the result. The big fixes can bring little improvement, while the small yield great change.

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When there is so much that can be, or needs to be done, where are the resources to be properly directed? Success is the selection of the right thing in which to succeed. Dairy farmers in business today have succeeded in enough of the right issues to survive.

More, but more of what?
In dairy, there is no end to the options which can bring success or failure, all of which are underscored by a persistent and sour economic condition. In simple terms, at the farm level, success or failure are also known as profitability or loss.

The logical response to such loss has been finding ways to get more money, a higher gross, to cover the costs. But what makes this one different is that the old answers do not seem to apply. No longer is income the dominant issue, but historic climbs in feed and other new uncertainties.

Beyond the farm, the view is that the government can cover this shortfall by increasing dairy income through changes in dairy policy.

Throughout the country, farmers, organizations, universities, the government and others in the dairy industry are debating, defining and designing potential solutions, or government fixes, for the industry.

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These inevitably move to the Farm Bill as the vehicle to make that something happen, in other words, successful. The Secretary of Agriculture has even created a Dairy Industry Advisory Committee to help him understand the issues and opportunities.

Debating the issues
What does the new Congress promise dairy farmers in the form of legislation? What will be in the dairy title in the upcoming Farm Bill? Does this proposal or that proposal have a better or worse chance of being the one adopted? Predicting such outcomes will be difficult.

Since the passage of the 2007 Farm Bill, the country has experienced significant shifts in political power twice. First, in 2008, the Democrats claimed a level of power unknown since the 1960s, taking a commanding control of Congress with a Democratic president.

Then, the 2010 midterm election provided Republicans one of their greatest victories in history. The GOP now controls the House with one of its largest margins in a century and has a caucus in the Senate large enough to demand a place at the legislative bargaining table.

It will be a relatively inexperienced Congress. The freshman class counts almost a hundred members. The GOP just added 16 new members to the House Agriculture Committee.

In the Senate, more than 40 of the 100 Senators serve in their first term. All of this means that debates on dairy policy will happen with a lot of new faces and new priorities. Many of those priorities will not even lie in dairy or agriculture.

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The switch was more than in party label. Those elected, of both parties, are more conservative. There is clearly a huge portion of the electorate demanding a rethinking of not only spending, but the intrusion into private lives from Washington, D.C.

With a presidential election ahead in 2012 and the Republican nomination literally wide open, Congress will certainly be tugged by the gravity of this large mass.

The difference between the size of the Democratic caucus in the House and just the Republican Study Committee, the conservative conscience of the House Republicans, is less than a dozen members.

The dairy producer sector has also undergone changes and still is undergoing changes. Since the 2007 Farm Bill was first being debated in 2005, just shy of 50 percent of milk was produced on 3,073 farms with 500 or more cows.

Today, about 3,400 farms of the approximately 65,000 produce more than 60 percent of the milk. This trend, continuing uninterrupted since the middle of the 20th Century, will continue so that by the time the next farm bill becomes effective, that small percent of milk producers will be producing 65 percent or more of the milk.

This is no longer a West versus East issue. The growth by fewer farms is most promising in the Midwest as the West struggles under higher feed costs. Regional positions of the past will be replaced by regional posturing for the current dairy situation.

Yet dairy is no longer regional or even a domestic market. During the five years of the 2002 Farm Bill, dairy exports totaled more than $8 billion, less than exported in the last three years alone.

Issues of survival
Change has come with more than numbers – it is also issues. In the past, you could begin and end a discussion of important federal dairy policy issues with the Farm Bill and federal marketing orders. Not today.

Exhibit A is health care reform. The impact of health care legislation directly affects owner-operators and their employees. It is a major cost for employees and the owner family.

As insurance companies and states adapt to the new legislation, court decisions are holding it, in part, unconstitutional, and GOP leaders plan to either repeal it or de-fund it. Health reform is not a Farm Bill issue, although it affects farmers.

Or, look at what almost happened and did not, in the area of card check for union elections and cap-and-trade legislation. The card check bill would have certainly resulted in a massive union organizational effort nationwide, and dairy farms would not be exempted. Card check is not part of the Farm Bill.

Next, the Senate did not pass a climate change bill, leaving the House cap-and-trade bill dead at the end of the 111th Congress. With a Republican House and more conservative Senate, that is as close to passage as such a bill would get.

The remaining issue is whether or not Congress and the courts will be able to limit the EPA’s expansive administrative fiat from doing the same thing through regulation. The agriculture committees have no jurisdiction over these regulations.

Consider also what did not happen, but should have, regarding immigration reform. The need to reform immigration, from border control to creating an ample supply of agricultural labor and high tech émigrés, is ever more critical.

What if, by some incredible ability, the government was able today to identify and immediately remove all individuals in the U.S. who are working without proper documents? What would the economic impact of that be on your dairy farm?

Those dairy farms who have experienced raids from ICE or those dairy farmers in states, such as Arizona, which have taken a very hard stand against undocumented immigrant employment, have learned firsthand how economically crippling such an event would be. Again, this is not a Farm Bill issue.

There is increasing scrutiny on the impact of corn-based ethanol on dairy farm economics. At a minimum, the high feed prices resulting from the ethanol mandate reinforces the wisdom of some business models and totally undermines others.

A shift away from favorable dairy farm economics will result from continuation of the policy. In a recent study by Bruce Babcock at Iowa State University, it was noted that the higher purchased feed prices in response to the high demand for corn in ethanol production added at least $3 per cwt to the cost of producing milk.

That is in addition to other increases since 2005. While its genesis came from agriculture, much of the control over the ethanol mandate lies with the EPA, and the taxation comes under the Ways and Means Committee.

These issues do not include such broader issues such as income and estate taxation. The full impact of the Food Security Act just passed in the closing days of Congress is still unknown.

The upcoming trade talks for the Trans-Pacific Partnership and the possibility of New Zealand getting access to our domestic markets is no small economic threat either.

At the same time, there are actions happening at the state level that are as compelling as anything at the federal level. The likelihood of union card check and changes to agricultural overtime pay in California, CAFO permitting in New Mexico, and animal welfare in Ohio are just a few.

Then there is the upcoming Farm Bill itself. Economic modeling of the various proposed changes to dairy policy suggest that out of a projected $360 billion in producer revenue over the next 10 years, government payments will total no more than $1.8 billion, or less than one-half of 1 percent.

All of the economic research that’s been done showing the impacts of various proposals discussed for inclusion in the 2012 Farm Bill suggest very little overall change in the economic status of dairy farmers, predicting a change of plus or minus .25 cents per hundredweight.

Not a small number, but when you look at the impact of any of the above, there is not enough to overcome those costs.

Discussion of dairy policy and what would be in the Farm Bill is important, but it is not the be-all and end-all. The dairy economic debate needs to be expanded into these other areas.

How do proposed changes to the FMMOs or MILC, or the adoption of supply management, compare in the scheme of things to immigration or corn-based ethanol policy or other issues affecting the dairy farmer’s bottom line? Should efforts be made on the other issues? Can dairy farmers even have a say in those?

Meanwhile, back where it all counts, these broader policy discussions take second place to the day-to-day issues of success which have to be tackled. After all, dairy policy is not an academic exercise.

Real people operating real dairy farms feel it when new policies are adopted. They feed, breed and milk cows; sow and harvest crops; purchase, maintain and use equipment; and in the end, want to be profitable.

An individual farmer can look at the books, consider the impact of the various proposals on his or her farm and know where the real money is, the place for the real effort, the place where success means success. PD

Ben Yale

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