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Published February 01, 2011, 09:07 AM

Dairy industry leaders weigh proposals to fix issues for farmers

MIAMI — International Dairy Foods Association CEO Connie Tipton and National Milk Producers Federation CEO Jerry Kozak put on a display of cooperation on many issues at IDFA’s recent Dairy Forum in Miami, but agreed to continue to disagree on National Milk’s proposal for supply management as part of a reform of the federal dairy program.

By: Jerry Hagstrom, Special to Agweek

MIAMI — International Dairy Foods Association CEO Connie Tipton and National Milk Producers Federation CEO Jerry Kozak put on a display of cooperation on many issues at IDFA’s recent Dairy Forum in Miami, but agreed to continue to disagree on National Milk’s proposal for supply management as part of a reform of the federal dairy program.

Their joint appearance came a day after IDFA released a study that concluded dairy farmers would have lost $626 million in payments between 2000 and 2009 if National Milk’s supply management program had been in place.

After Tipton noted the two groups work together on many nutrition and regulatory issues, Kozak, who once worked for IDFA, said, “We’re together a lot more than people realize.”

Tipton and Kozak agreed they should move forward with reform whether the price of milk is high or low when the next farm bill is written.

Tipton said she agrees with National Milk’s proposals to end dairy price supports and the Milk Income Loss Contract program, start a margin insurance program and simplify federal milk marketing orders, but continues to oppose the supply management proposal that National Milk calls the dairy market stabilization program.

Tipton proposed the two groups go to Congress with the three elements they agree on, but Kozak said “That’s not going to happen. We are going to continue to put forward Foundation for the Future as a package.”

Areas of disagreement

The depth of the disagreement was apparent in their statements. Under the market stabilization program, if the margin between the government’s all milk price and the cost of feed goes below a certain level, farmers would be paid by milk buyers only for a “base” level of production. If they sell more, the milk buyer would send the money to USDA where a panel of government officials and producers would attempt to spend in a way to increase demand.

“Farmers don’t know what they are getting into,” Tipton said, but Kozak replied, “Oh, no, they do.” The dairy market stabilization program, he said, is “a way for us to look collectively at times when there are imbalances.”

Kozak emphasized farmers lost billions in equity in the 2009 dairy crisis and such an event cannot be allowed to happen again. Tipton said that she does not think “you can design a program to insulate us from a global crash.”

Tipton also suggested the dairy industry go after some of the money that currently is used to subsidize the corn industry and use that money for a bigger insurance program. But Kozak said it is politically difficult to go after crop growers’ money. Tipton also said IDFA opposes the ethanol program, but Kozak said National Milk does not take that position because it has farmer members who grow corn and sell it as well as using it for feed.

Tipton and Kozak also disagreed over National Milk’s program to stimulate foreign sales with payments, a program Tipton calls a subsidy but Kozak says is not a subsidy because farmers are using their own money rather than government money. IDFA member companies have complained National Milk’s program has caused customers to shift to U.S. co-ops as their suppliers.

“I don’t think subsidies should take away people’s customers,” Tipton said.

Kozak said he had met with House Agriculture Committee Chairman Frank Lucas, R-Okla., and ranking member Collin Peterson, D-Minn., and they have shown “a willingness to move Foundation for the Future.” He added, “Congress doesn’t want us to go through another 2009. I hope we can begin the debate in another month.”

Dairy study

IDFA’s study was released Jan. 25, but National Milk defended its proposal.

The study, conducted by Informa Economics, is an analysis of a proposal National Milk put in place in reaction to excess milk supplies and reduced dairy income in 2008 and 2009.

The study, conducted by Informa Economics, a consulting firm, found farmers in the traditional dairy states of the Upper Midwest and Northeast would have had more money withheld than those in the growing Western states because farming practices differ. One of the reasons the dairy industryfell into a crisis in 2008 and 2009 was, while demand declined because of the recession and trade problems such as the discovery of melamine in dairy products in China, the cost of feed went up.

Demand on dairy

The rising cost of feed put more pressure on dairy farmers in Western states such as California, Arizona, New Mexico and Texas because those farmers buy feed produced mostly in the Plains states than it put on dairy farmers in traditional dairy states such as Wisconsin, New York, Minnesota, Pennsylvania and Michigan, where the farmers grow their own feed.

The study said farmers in the traditional dairy regions would have had more money withheld because they did not feel the pinch of increased feed costs as quickly and continued to expand production.

“This report shows that (National Milk’s) growth management plan will take money out of dairy farmers’ pockets when they need it most,” Tipton said in a release accompanying the report. “Margin insurance and other proposals where processors and producers agree should be part of that plan. Programs to limit milk supply or impose penalties on producers should not even be on the table in our industry discussion.”

Kozak said in a statement the proposal “has been carefully designed to offer protection for their hard-earned equity.” In his statement, Kozak added, “Dairy farmers in every state saw their collective milk income drop more than ten billion dollars in 2009, which doesn’t even include billions more in lost equity. This catastrophe was the result of current dairy policy that doesn’t offer farmers of any size, in any state, the protections they need against catastrophic financial losses. While providing all farmers in all regions a better safety net, Foundation for the Future also discourages periodic marketplace imbalances that generate enormous volatility, hurting all dairy producers.”

Production and supply

IDFA traditionally has opposed any limit on milk production because it would raise prices and reduce the supply of raw materials processors need to enter growing foreign markets.

National Milk has not expressed much enthusiasm for supply management in the past, but the dairy crisis has been so severe farmers have put pressure on National Milk to put supply management into the proposal. Some dairy groups have said the National Milk proposal does not go far enough in supply management.

While Kozak was restrained in his criticism, Jaime Castaneda, a Washington lobbyist for National Milk who also attended the Dairy Forum, called it “a sloppy study.”

Other data

Castaneda urged policymakers to refer to a study by The Food Policy Research Institute, an institution jointly operated by the University of Missouri and Iowa State University. That study found the program of withholding payments would not be in effect for as long a period as the Informa study said because farmers would reduce production.

Castaneda also said farmers’ production patterns would change in other ways if the entire National Milk proposal is adopted because the current price support structure and the Milk Income Loss Contract payments would be eliminated, the margin protection program would be introduced and federal milk marketing orders would be changed.

Nate Donnay, a senior dairy analyst for Informa Economics, told the processors the study did not discuss how farmers might change their behavior because “we really don’t know how farmers would react.”

Patricia Stroup, a group manager for Nestle USA Inc., said Nestle uses supply management when it tells farmers how much it will buy.

Stroup said, “I am absolutely pro-supply management, private supply management.” Stroup said that Nestle views the United States as “the most interesting supply source in the world” but if Congress imposes a supply management program, the company would consider trying to develop sources in Indonesia and China, where so much of its demand comes from.

David Ahlem, a vice president of dairy procurement for the Hilmar Cheese Co., said, “It is wrong to assume volatility will go away.”

Ian Cumming, a dairy farmer, said he moved his operations from Canada to New York state to get away from strict Canadian dairy rules, but warned processors that politicians make policy based on what is in the newspapers and low dairy prices make the papers.

“If processors pay what they did in 2009 . . . you will have supply management,” Cumming said.

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