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Guest Columns

Finding ‘the best of all possible worlds’ for our U.S. dairy industry

Connie Tipton

Connie Tipton is president and CEO of the International Dairy Foods Association. She contributes this column exclusively for Cheese Market News®.

In Washington, D.C., the Department of Agriculture is putting out headlines about record-high farm incomes, while at the same time acknowledging difficulties for livestock and dairy producers stemming from rising feed costs. The mainstream media is writing about global food shortages and rising domestic food prices in supermarkets and restaurants. Gasoline and diesel fuel costs also are high and appear to be on a trajectory higher. And all of this is happening while many are still unemployed or underemployed.

Years ago, I read Voltaire’s “Candide” in which the oracle, Dr. Pangloss, argues that there is “no effect without a cause” and is convincing in his doctrine that his is “the best of all possible worlds.” I find this philosophy — if that’s what one might call it — comes to mind now and then, perhaps because it’s a lovely idea to have the best of all possible worlds. At least it’s a worthy goal. I am an optimist, after all.

As we start this new year with so many challenges, it is all the more important to come together as an industry around sound and effective policies — or causes, if you will — that will have good effect on the industry and bring us closer to Pangloss’ “best of all possible worlds.”

This year’s Dairy Forum is bringing together another record turnout of dairy executives, cooperative leaders, dairy producers, top public figures, industry suppliers and partners, stewards of public and private programs serving the U.S. dairy industry, and many others with a stake or interest in our future. Surely with all of these great interests converging, we can make great progress.

There is overwhelming acknowledgement that current dairy policies have put us in a proverbial strait-jacket, reining in our capacity for success. Fortunately, there are many areas where the entire industry agrees on reforms — like completely retooling our dairy farm-safety net. But that elusive “best of all possible worlds” isn’t quite in our grasp. The National Milk Producers Federation’s “Foundation for the Future” gets us part of the way there by moving to a risk management-based safety net, but there are two major areas where consensus still eludes us.

First, we must find agreement on simplification of the Federal Milk Marketing Order program. While we all agree that the current milk-pricing program discourages movement of milk to its highest value use by encouraging production of lower-valued products, and that product price formulas and make allowances should be a thing of the past, we haven’t yet found a way forward. It’s tough because it’s complicated, and we’re still working at it, but this is an essential component of reform for our dairy industry.

Second, we disagree over policies that would attempt to limit milk production or put new penalties on dairy farmers when margins are tight. Simply put, dairy farmers are the bedrock of our community and our industry. Programs to support them, not penalize them, should be our focus, along with ways to grow our markets and, therefore, our industry.

Not only will National Milk’s Dairy Market Stabilization Program (DMSP) take money out of dairy farmers’ paychecks when their margins are already squeezed, but it will have little if any effect on milk production when it kicks in.

The problems don’t stop there. A study by Informa Economics, which will be featured at Dairy Forum, finds regional inequities will result from DMSP. For instance, if DMSP had been in place during 2009 when margins were at their worst, an estimated $390 million would have been withheld from dairy producers, with the Upper Midwest and Northeastern states taking the largest hit.

It leaves us asking “why?”, since we know that milk production doesn’t respond quickly or significantly to lower prices. Informa’s study supports this with facts: the U.S. all-milk price fell from $18.40 per hundredweight in August 2008 to $12.10 per hundredweight in August of 2009, a 33.5 percent drop in the price, but milk production was only down 0.1 percent in August 2009 compared to August 2008 (Source: USDA data, Informa calculations).

This is a mandatory program where govThis is a mandatory program where government will collect these producer penalties and a new government-appointed board will advise as to how best to use that money to try to spur demand. We would rather let producers keep the money owed for their milk and make sure we have programs and policies to provide a better safety net, as well as allow our markets to work more efficiently.

Making progress on policies where we agree reform is needed, as well as working out our differences, will be important as we go to Capitol Hill where the ideas of others will mix with the political minds and agendas of the times. We must remember that, at the end of the day, members of Congress have the votes, not us. Finding agreement on Federal Milk Marketing Order reform is extremely important, as is putting in place real risk management support policies. But ideas of limiting supply or imposing price penalties on producers shouldn’t be on the table at all in our industry discussion of finding dairy’s “best of all possible worlds.”

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The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.

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