WASHINGTON -- As the National Milk Producers Federation held the last of its information meetings on dairy reform proposals Aug. 22 in Nashville, House Agriculture Committee ranking member Collin Peterson, D-Minn., was making plans to introduce his bill with the co-sponsorship of Rep. Mike Simpson, R-Idaho.
Peterson has said Congress should take up the bill as soon as possible, but House Agriculture Committee Chairman Frank Lucas, R-Okla., has said he will not move a dairy bill separate from the farm bill unless all sectors of the industry including processors are in agreement. Such agreement is elusive.
The House Agriculture Committee Democratic staff recently released an op-ed article Peterson had written urging consideration of his discussion draft. The National Milk Producers Federation supports it and has been trying to convince dairy farmers around the country to support it while the International Dairy Foods Association, a processors' group, says that a dairy market stabilization provision amounts to supply management that will reduce the milk supply and make it difficult for the U.S. dairy industry to compete in world markets.
Failed safety net
"It has been nearly three years since the combination of declining milk prices and escalating input costs devastated the dairy industry," Peterson wrote in the article released Aug. 19. "The dairy safety net did not work in 2009 and it won't work if similar events occur now. Current dairy programs are not keeping pace with the challenges facing today's industry. In fact, the current levels of support will actually decrease in September of next year."
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In an indication of how unresolved the issues are, Peterson added, "Releasing a discussion draft, rather than legislation, gives the dairy industry the opportunity to weigh in and perhaps offer other suggestions. The reforms outlined in the discussion draft are not written in stone and there will certainly be changes before legislation is introduced."
But he added, "We need to act sooner, rather than later, with real solutions not just heated rhetoric. The symptoms leading up to the 2009 dairy crisis are again presenting themselves and I fear we could lose half our dairies if we have another collapse. That would be devastating not only to the entire dairy industry but also consumers in this fragile economy. With the continued uncertainty in Washington, this is our best chance to act. . . . I plan to introduce bipartisan, cost-effective legislation in the coming weeks."
At an Aug. 15 Brainerd, Minn., meeting of Minnesota Corn, a growers group whose members supply feed to Minnesota's substantial dairy industry, Peterson praised National Milk CEO Jerry Kozak because he "stuck his neck out a mile" by developing the "Foundation for the Future" proposal that would eliminate some current dairy programs and establish new ones.
The new dairy program amounts to "government-mandated hedging," he said, noting that the hedging program could be developed by private crop insurance companies but that the bill does not call for that because "dairy farmers are not ready to sign up with the insurance companies."
Peterson's reference to decreasing dairy support reflects Congressional Budget Office estimates on dairy spending.
In fiscal year 2009, when Congress and the Agriculture Department provided special aid to dairy farmers, dairy spending was $994 million, but in its March 2010 baseline, CBO said that actual net spending for fiscal year 2010 was $355 million and that its projected 10-year spending for fiscal years 2012 to 2021 is $672 million, with annual spending ranging from $176 million in fiscal year 2012 to $48 million in fiscal year 2021.
Market stabilization approaches
National Milk's "Foundation for the Future" proposal and Peterson's draft contain a dairy market stabilization program that National Milk says "is intended to send quick market signals to dairy producers when milk prices drop, feed prices escalate, or the combination of those factors compresses the margins between milk and feed prices to the point where a severe imbalance has developed."
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This supply management provision is the most popular element in the proposal with some dairy groups and the most disliked by others, particularly IDFA.
An IDFA official told Agweek that the provision's intention to limit the milk supply and keep prices up will push the cost of the dairy program onto the processors in the same way that the sugar program, which gives producers the right to forfeit sugar to the government if prices falls below a certain level, forces sweetener users to pay higher prices.
While IDFA opposes this approach, Rep. Peter Welch, D-Vt., recently told the American Sugar Alliance when it met in Vermont, "One of the great things about your program is that it does not cost taxpayers money." Welch added, "I think your supply management principles have been very helpful to you. I would like to see that integrated into dairy."
The dairy market stabilization program has become the subject of rumor and speculation. National Milk recently issued a news release to announce that the market management program would not have been activated in 2010 or 2011. NMPF said it made the announcement "to clarify misconceptions that farm-level margins would have been tight enough in the past 18 months to activate the stabilization program."
Making calculations
NMPF also explained in the news release that the underlying basis for the program is different in Peterson's bill than in the NMPF proposal. As originally drafted by NMPF, the Dairy Market Stabilization Program's calculation of margins used futures settlement prices found on the Chicago Mercantile Exchange for corn, soybeans and alfalfa hay, the group said.
But under the legislative draft, the DMSP margin calculation will use the feed costs reported by two USDA agencies -- the National Agricultural Statistics Service and the Agricultural Marketing Service -- to accommodate USDA reporting requirements for implementation of the program.
NASS currently reports the average corn and alfalfa prices received by farmers in the United States, and AMS currently reports soybean meal prices at seven specific locations within the country.
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NASS corn price reports are generally lower than the prices used in the CME corn contract settlements, according to NMPF. During the period January 2009 through June 2011, for example, the NASS U.S. corn price averaged 41 cents a bushel lower than the CME-derived corn price. While using the AMS reports, instead of CME prices, for soybean meal would tend to have the opposite effect, the overall impact of using USDA's NASS and AMS calculations of feed costs in 2010 and the first half of 2011 would have meant margins would have been wider under the legislative draft, and thus the Market Stabilization Program would not have been activated.
"The use of USDA feed price reports again demonstrates that the Dairy Market Stabilization Program will act only in those rare instances when margins are so bad that catastrophic losses of producer equity are at hand, as was the case in 2009," said Neal Rea, a dairy producer from Cambridge, N.Y., and a member of the NMPF task force that developed the DMSP, in the news release.
The lobbying on the measure has become intensive.
Dairy Farmers of America, a major co-op, has endorsed the Peterson draft.
"We look forward to the bill's introduction when Congress reconvenes in September, and are working with Peterson and Simpson to secure additional support for this measure," John Wilson, a DFA senior vice president said in an Aug. 12 statement.
The Minnesota Milk Producers Association and the Wisconsin Dairy Business Association issued a joint statement Aug. 1 that they have problems with the market stabilization portion of the proposal. IDFA on its website said that the statement signaled that "producers in key dairy states oppose draft policy bill," but in fact, the statement said that the groups were calling on Peterson to modify the proposal.
