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You cannot coast down the hill in a broken cart

Ben Yale Published on 27 April 2010

As a boy, many of the summer hours were spent building things – huts, tree houses, tunnels, forts and carts. We scavenged lumber from the pallets and crates that brought paper to my father’s printing shop, shipping crates to the town’s hardware stores, fruit and vegetable crates at grocery stores. Cleaned of nails, we would have a stack of wood to build whatever we wanted.

Their structure was limited by the odd assortment of building materials, rough hand tools and the limited construction skills of boys. The then-popular TV show The Little Rascals showcased the handiwork we lived. That show almost always had an episode of a run-a-way “go-cart” or other vehicle that sped across golf courses and through intersections, throwing those in its path high into the air. Inspired, we built our own hand-built “go-carts”.

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One year at the summer festival, the men of the community decided to recognize this activity and have a derby to race the carts in an organized way. Dreaming of victory, and maybe an official or two flying in the air from the speed of my cart, I built a car just for the race. It was a rough wooden frame with a fruit crate as a seat. A piece of an old clothesline was attached to a pivoting front axle to steer. A strategically located stick could be pulled so that its other end hit the pavement for a brake. If that did not work, two feet could drop from the cart to the surface and bring it to a halt.

On the makeshift work bench made of cement blocks, I could spin the wheels quickly. This was going to be one fast cart! On the level sidewalks around my house, it moved easily.

The day of the race came and I and my teammate pulled the cart to the top of the hill. The rules were simple – one person rode, one person pushed. Halfway down you switched pushers and drivers. Though we had never practiced this routine, we were ready – how hard could it be?

The starter shouted “Go!” and off we went. Things seemed well until it came time to switch drivers. My teammate jumped out, I jumped on, and the axles on my wheels broke off. As the other carts spun towards the finish, I was sitting on a fruit crate on a wooden frame surrounded by four wheels going nowhere.

These childhood memories added to life experiences that would become invaluable guides as a teenager and an adult. Among the lessons learned, here are two: Thinking something will do the job is no substitute for knowing it will, and you have to design and build it to withstand the sudden, extraordinary forces of life, not just the ordinary.

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It’s a lesson for the dairy industry. As the dairy industry ran rapidly through 2008, there was a sudden change of driver when the international market jumped off and a suddenly busted domestic market jumped on. The wheels fell off of the industry. No longer racing to financial success, we sat still as profits and equity fled.

Some fared better, some worse due to their planning, or lack of it. The personal reevaluations of what went wrong will provide a valuable lesson as families and farms move on. No one will operate their farms the same.

As an industry we also have a chance to see if the carts we thought were so slick and so fast stood the real stress of the race. In retrospect, using some hand-me-down programs from decades past not only did not help the industry, but may have actually hurt the industry.

The Dairy Product Price Support Program failed dairy farmers. This 60-year-old program was intended to provide a floor, a low one at that, on commodity prices. For cheese it failed to provide a floor. For all but three days in January, CME 40-pound blocks traded below the support level. Of the three above, one was higher by one-tenth of a cent and the other two by less than two cents. Designed to work in a domestic market that was less volatile with more competing plants of smaller manufacturing capacity, it was ill-equipped to provide the much larger, more streamlined and focused, modern cheesemakers the opportunity to floor commodity prices.

Commercial practices had changed making compliance with the CCC standards more expensive and difficult. The shift from competitive pricing to end product pricing with guaranteed margins provided no incentive for plants to quickly shift. Cheddar cheese is no longer the big cheese, but shares the position with Mozzarella-style cheeses. Hit with a rapidly deteriorating economy, the price support for cheese was not there.

Price support for non-fat dry milk (NFDM) actually worked, but that is also why it failed the industry. When powder prices dropped there was still a world demand for the product. Rather than meet that demand at the lower prices, the price support program removed millions of pounds of powder from the market. The result was our foreign competitors, mostly New Zealand, stepped in and met that demand. Knowing that the U.S. suppliers were floored in their price, they could benefit by selling just below it.

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Meantime, the mountains of powder put a damper on dairy prices in the U.S. Though the USDA used some deft accounting and product moving tactics, the reality is that no new market demand was really created and the excess powder in the domestic supply kept dairy producer prices lower longer than they would have had the product moved off shore. In short, the excess of supply over demand in the U.S. was in part created artificially by the CCC purchases and storage, not market forces. There was ample demand for our powder. Clearing the market is better than building up inventories.

The price support for NFDM also means that we are producing product for the USDA that the market, especially the world market, does not want. Without the price support program, demand for dairy producer products would have been stronger and more effectively marketed. In short, the price support has become a world price support program.

Another program from the past failed dairy producers. During the worse financial crisis felt by dairy farmers since the 1930s, the Federal Milk Marketing Order (FMMO) program did nothing to help producer prices. By allowing the highest-use milk to be purchased from farmers at prices that at times were less than the cost of feed, the FMMO program gave up its ability to say that it was there for the farmers. When they needed it most, it did the least of all the programs. In point of fact, on the eve of the price collapse it reduced the minimum producer prices.

This is not an argument to scrap the program, rather it is to point out that the justification for continuation is not for producer price protection. Staffed by gifted and helpful people, it provides wonderful service in terms of data collection, test verification, and data reporting. While these are great benefits to producers of the FMMO system, pricing is no longer one of them. For it to remain relevant, major changes in its policies, purpose and formulas will have to be made. Current proposals to replace the pricing with market-driven competitive pricing is a step in that direction.

The dairy crisis showed us the price of trying to save every dairy farmer. The regulations of payments to producers, well-meaning to be sure, came like a shock to the system, which has resulted in overproduction. By reducing the risks to all farmers, we effectively expanded the risk to every dairy farmer. As painful as it is, letting the weaker go when the time comes is far better than burdening the system with anti-market regulations that place all producers at risk. But that pretty much describes the dairy industry today – everyone is suffering.

Gravity was both a friend and an enemy for me and my cart. While it would take a properly designed and built cart to the finish line, the force of gravity as a new driver jumped on ended all of that. So it is with market forces. Allowed to operate as they can, they can take the properly designed business to the cash we want. But when well-meaning regulations and interference weaken the design, market forces of rapid changes in economics will bring a crash, not cash.

In many offices and farms throughout the country, there are those who are building the next winning program for dairy. Largely borrowing programs used or talked about in the past or in other countries, they set these untested ideas on the blocks, spin the wheels and think they have designed a winner. But thinking is not good enough. We have to know. When placed into service, it will not just be an easy ride down the hill. Market forces will come in all directions and at force levels altogether different than that.

The lesson from the last year or so of tragic economics is that much of the pain was industry- and government-, not market-inflicted. The brutal forces of the economy tested our carts and they were found wanting. The wheels came off. PD

Ben Yale
  • Ben Yale

  • Attorney
  • Yale Law Offices
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