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Does DMI's MOU mean an IOU for producers?

Ben Yale Published on 03 February 2010

This headline: “USDA Announces Agreement with U.S. Dairy Producers to Cut Greenhouse Gas Emissions” was a shocker to me, so I read on.

COPENHAGEN — December 18, 2009, The U.S. Department of Agriculture (USDA) announced on December 15 an agreement with U.S. dairy producers to cut their greenhouse gas emissions by 25 percent by 2020 while turning manure into electricity using anaerobic digesters. Under a Memorandum of Understanding signed by the Innovation Center for U.S. Dairy, the USDA and dairy producers, the groups agreed to work together to reach the target. USDA will contribute by undertaking research initiatives, allowing implementation flexibility and enhancing efforts to market anaerobic digesters to dairy producers.

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Questions flew: What dairy producers? What was the agreement? Why Copenhagen? Why now? Once those passed, other questions came. Does this obligate dairy farmers? Has there been a buy-in from dairy farmers? Do dairy farmers believe that the claimed climate change (rising greenhouse gases and temperatures) is happening? Is this issue important to dairymen? The answers came: No, No, No, and, most certainly, Yes.

The summit, one time promised to be the meeting of the world to establish a worldwide treaty to control carbon dioxide emissions, reverse the climate change, and save the world as we know it, accomplished none of that. But at least one agreement was reached there, not between world powers, but between USDA, Dairy Management, Inc., and, according to USDA press releases, “dairy farmers.”

So what did U.S. dairy producers agree to? The Memorandum of Understanding, MOU, obligates dairymen to nothing. The MOU, available at www.usda.gov/documents/final_USDA_dairy_ghg_agreement.pdf , is an agreement between USDA and Dairy Management, Inc. , and only those two. No one has signed on representing to be producers or on behalf of producers. So as to the question of whether or not this imposes a legal obligation on dairy farmers, the answer is no. The headlines reporting that “dairy farmers agreed” quoted the press release of USDA which says, in the first sentence, “an agreement with U.S. dairy producers to accelerate adoption of innovative manure-to-energy projects on American dairy farms.” The press release can be found at the USDA Newsroom, Latest Releases for December 15, 2009 . Sometimes, surprising as this may sound, the government does not always get it right, even when reporting on itself.

The MOU itself is pretty simple. USDA agrees to streamline its processes to maximize the amount of help USDA can give American dairymen as they develop, install and operate digesters and other ways of converting animal waste into energy. Although dairymen did not agree, they certainly benefit.

But the real story here, the one that impacts dairy farmers, has nothing to do with the MOU itself. The real story, the one most important to dairy producers, is the events that caused DMI to seek this agreement in the first place. That story, simply stated, is that markets for milk and milk products are increasingly demanding that those who supply the milk to the American consumer reduce their carbon footprint.

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Carbon footprint

Carbon footprint measures how much greenhouse gases (GHG), human activities, in this case, dairy farmers, emit. There are a number of GHG and each have their own source (power plant or animal breathing). Some are naturally occurring, some are manmade. Each of these gases trap heat in the atmosphere differently. To have a simple way of measuring GHG, all of the gases are computed in terms of carbon dioxide equivalents (CO2e). The amount of CO2e a dairy farm emits is its “carbon footprint.”

This phase of the sustainability or carbon footprint debate is independent of the global treaty efforts. It is also independent of EPA’s actions to regulate CO2 and tax dairy farmers for emissions or the efforts in Congress for a climate bill. This is not government doing it to dairy farmers, it is the market bringing dairy farmers and the buyers of milk together to reduce the emissions, and the costs, of producing the quality product we proudly sell.

This issue of reducing the carbon footprint comes in virtually every discussion and contract negotiation between major retailers of milk and their suppliers. The expectation is, of course, that dairy farmers reduce their carbon footprint so that the retailer can market the quality and value of their products in terms of reduced GHG. These companies, responding to consumer demand, media attention, stockholders, environmental activists, and their own sense of what is right, are actively seeking ways to reduce the impact of their business on the environment.

The pressure starts at the highest levels of business. Pushed down, those who do the day-to-day operations are being held accountable not just for profits but for what they are doing to reduce carbon footprints. Sometimes called “making the business sustainable,” these lower- level managers and employees are doing what they are asked to do and respond to how they are rewarded. Within their stores and operations they are finding ways to reduce energy needs, reduce waste, recycle more and other efforts to reduce their carbon footprint and costs of doing business.

But even if they eliminated all energy use in their stores, they still have a big carbon footprint. That is because the footprint that is measured does not look only at what happens from the receiving dock to the store exit, but in the entire chain. For dairy it is grass to glass.

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Producing crops means expending energy. Producing energy produces GHG. So producing crops means emitting GHG. Harvesting, hauling, handling and storing crops produces GHG. So it goes into producing milk, milking, hauling the milk, processing the milk, refrigeration and so forth.

In the total scheme of things, CO2e from the dairy chain is small. A study by the Applied Sustainability Center at the University of Arkansas estimated that CO2e from dairy was less than one-half of 1 percent of the net GHG emitted in the U.S. But for retailers focused on their operation, it is much larger.

When a retailer looks at the total carbon footprint, from grass to glass, it is huge and most of it occurs before the milk reaches the processing plant, let alone the store. Studies found that the single-biggest chunk of emissions from milk production comes from all that action in the cow’s gut. The most significant source of GHG emissions come from the enteric fermentation released methane from digestion. To compound the problem, methane gas is 23 times as potent a GHG as carbon dioxide when computing CO2e. Methane also comes from the manure decomposed anaerobically.

Retailers, being held accountable for the total footprint, want it reduced. The biggest emitter is at the farm, so that is where the biggest reduction can come from. Thus, the pressure is put on dairymen to reduce the emissions. And as is often the case, the market does not want to pay more for this. It is not all negative. Dairies with lower carbon footprints will be more efficient and profitable operations in the end. At the same time, such efforts go a long way, if not all the way, to bring dairies into compliance with current and future environmental regulations.

While resisting unwarranted intrusions by environmentalists, consumer groups and the government should continue, dairymen must realize that being part of today’s economy and part of the larger community in which we grow our business means that we must show that we are good stewards of what we have and provide our good and wholesome product with minimal adverse impacts on the earth in which we live. It is a collaborative effort between our markets and us.

Contrary to some beliefs, meeting these standards does not mean going back to dairy farming methods of the past. In fact, the mere process of continued consolidation and efficiency in milk production will accomplish a lot of that goal itself. A Cornell study, “The Environmental Impact of Dairy Production: 1944 compared with 2007,” concluded that the carbon footprint for a gallon of milk produced in 2007 was only 37 percent of that produced in 1944. There were a number of factors. Of the decrease, 40 percent is due to more cows producing less milk. Farms are more efficient and less wasteful of resources required to produce the same amount of milk in 1944. Most significantly, dairy farmers produced only 24 percent of the manure and 43 percent of the methane output per gallon of milk compared to farming in 1944.

Besides the consolidation, the biggest opportunity for the American dairyman to reduce their carbon footprint requires changes in feed and digesting the manure. As it stands now, manure is a net carbon emitter. By converting the manure to energy through a digester, emissions drop and the energy produced offsets other carbon emissions of energy. Milk closer to the markets will also help in reducing the total carbon footprint.

At first blush, converting something that is worth less than nothing, a cost, such as manure, into energy, ought to result in a cheap source of energy. But converting manure to energy costs money, a lot of money. Up-front capital costs are huge and the ongoing operational costs, especially equipment maintenance, are also significant. The income from the sale of energy and sometimes the nutrients left over from the digestion offset the costs in part. Energy produced on the farm costs more than it costs to buy from the grid. To some degree the use of the produced energy on the farm can be priced at the higher utility costs but even after adjusting for loss avoidance of energy and manure handling, digesting the gas costs more money than it generates.

There are a number of programs including grants, investment tax credits and production tax credits to help. Grants come from all kinds of sources including federal and state governments, foundations and others. The investment tax credits allow a credit against income tax for up to 30 percent of the capital costs. Even if you have no income, you can sell the credit almost dollar for dollar. Production tax credits (PTC) are tax credits based upon sales of electricity to other parties. Utilities have incentives to purchase energy from alternative sources. These renewable energy credits (REC) can offset some of the losses as well.

Getting through all of the grants and loan opportunities is complex, but there are some programs that can assist in matching income to costs. Getting Congress to pass more tax and other credits is not likely soon, if at all. But in the recent Farm Bill as well as other programs, Congress has authorized USDA to spend a lot of money in a lot of programs for renewable energy. The MOU with DMI means that USDA will become more efficient and flexible in administering that money so that dairy farms can in fact become sustainable.

The Copenhagen MOU did not impose on dairy producers an IOU. It brings to the attention of dairy farmers what is already expected of them and provides some additional help to meet the new “green” standards of being a dairyman. PD

Ben Yale
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