PHOENIX -- Dairy leaders agree that the current dairy program did not provide a safety net for farmers when prices plummeted in 2009, but are struggling to find a consensus on a new program that farmers could support when the next farm bill comes up in 2012, according to presentations at the International Dairy Foods Association Dairy Forum Jan. 18 and 19 in Phoenix.
At the core of the problem is increased volatility in both dairy prices and input prices in a globalized economy. Dairy exports and milk prices soared in 2008, but both came tumbling down in 2009. Meanwhile, continuing foreign demand for corn and soybeans and for corn for ethanol have made feed prices more volatile. The problems have been around for years, but when prices were high in 2007 and 2008, "you couldn't get dairy farmers interested in the volatility issue," said Cal Covington, CEO of Southeast Milk Inc., a Florida cooperative.
Covington said he meets with his members about once a month and that one-third favor a free-market system, one-third favor "some type" of governmental control, and one-third are "in the middle" between approaches.
"With producers there is such a polarization of views," Covington added.
The current dairy program, which originated in the 1930s, includes federal milk marketing orders under which Grade A fluid milk is "pooled" in a geographic area to generate a uniform average price. It was set up to give producers' more market power in dealing with buyers. The program also includes a dairy price support program and the Milk Income Loss Contract program, which makes payments when prices are low. Last year, the Agriculture Department also bought dairy products to take excess production off the market and made congressionally mandated special payments to dairy producers.
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Still reeling
Dairy prices have begun to rise slightly, but the nation's 60,000 dairy farmers still are suffering from a loss of equity and were so stung by the severity of the 2009 crisis that they want to be prepared for the next downturn, several leaders said.
The National Milk Producers Federation, the largest dairy producer group, is working on plan that would revise the current programs and set up a new insurance program that would protect dairy farmers against income losses rather than price drops. Jaime Castaneda, an NMPF senior vice president, likened the program to the 2008 farm bill's new Average Crop Revenue Election program for plant commodities. Castaneda said NMPF hopes to have a proposal ready by June so farmers could look at it and so the group can promote it in 2011 as the farm bill debate becomes serious.
But some dairy leaders want a program that tries to manage supply and demand the way the Canadian and European dairy programs have. Rob Vandenheuvel of the Milk Producers Council, a California group, said the volatility issues must be addressed on an industrywide, rather than individual, basis. Agriculture Secretary Tom Vilsack also has appointed a dairy task force, but big Western producers say they are underrepresented on it.
Free-market advocates proposed increased use of forward contracting and the futures market to create more stable pricing, but some dairy leaders said those market tools could worsen the volatility and high prices that discourage consumers from buying dairy products and food companies from using dairy products as an ingredient. John Kaneb, chairman of HP Hood L.L.C., a Massachusetts processor who worked in the oil industry, said oil futures contracts increased volatility in the price of oil by putting it in the hands of Goldman Sachs and hedge funds "to whom volatility is mother's milk." Kaneb said he would oppose any attempt to turn milk pricing into "another casino."
