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Industry Issues

Taking policy changes to Capitol Hill without consensus is unacceptable

Connie Tipton

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

When you identify a problem, the process usually leads you to the possibility of a solution. And I think it’s pretty clear that most of us working in or with the U.S. dairy industry recognize the problems created by our federal milk marketing order system. The solution, however, remains elusive.

For most of us, it’s not surprising that a program developed in the 1930s is out of step with today’s markets, despite the many tweaks made to the program over the years. And it’s not surprising that many agree the federal pricing system should be simplified. Moving to fewer classes, developing a competitive pay price instead of complicated and rigid formulas, and eliminating “make allowances” for manufacturers, for example, are all steps that would move us in the right direction.

What does surprise me, though, is that we still haven’t been able to find significant consensus on what the right fix would be. This lack of consensus has become especially critical now because our entire industry is facing so many market challenges and missing opportunities that could be assisted by a workable solution to this broken system.

So, why the delay? It’s certainly not for lack of trying.

For many years, our leadership at the International Dairy Foods Association (IDFA) has embraced changing this system to allow markets a greater role in setting prices for milk. In fact, in January 2007, the IDFA board of directors formed a Federal Order Strategic Planning Committee under the leadership of John Kaneb, CEO of HP Hood. By July of that year, this group of 15 top dairy executives reached consensus on a path toward substantial reform, even though they acknowledged that the federal order system affects every manufacturer in different ways and the changes would bring consequences. Fortunately, the executives recognized that if we did not work to develop agreement with dairy producers and dairy producer organizations, our reform concepts would go nowhere.

In the following year, Bain & Co. conducted an extensive study on the global challenges and opportunities facing the U.S. dairy industry. Basing its recommendations on the study, Bain identified a clear path forward for the dairy industry, provided that U.S. dairy policies could be streamlined to promote market growth. In fact, Bain concluded that a “collective effort to reform” federal milk marketing orders was essential to position the United States dairy industry as a consistent exporter.

Recognizing the opportunities, the National Milk Producers Federation (NMPF) developed aggressive proposals for reform. Since then, we’ve talked and talked about directions that reform might take.

Despite much activity by joint committees of IDFA and NMPF members, we appear to be no closer today to a consensus position on the reform of this cumbersome and complicated regulatory pricing system than we were four years ago. This is a real shame, because much is at stake. But the outcome will be even worse if a proposal to reform the federal order system is given to Congress to arbitrate an outcome without the consensus of the industry.

We all recognize how complex the federal milk marketing orders are and agree that they must be changed. This pricing system is fundamental to everyone’s business, producers and processors alike. But changes must be developed carefully and considered seriously because the impact on and consequences for the industry can be great.

It is, therefore, a dangerous idea to tee up changes to this system on Capitol Hill without a broad consensus that the changes will make the industry work better. It is doubtful that an adversarial legislative process — rife with compromises, vote trading and last-minute deals — that is driven by those who are not experts in this Byzantine system could yield an end product that is better than the one we now have. In fact, the commercial uncertainty created by a “reformed” federal milk marketing order system, combined with inevitable unintended consequences, could land the dairy industry in a far worse position than we are now. Hard to imagine? For me, the Affordable Health Care for America Act comes to mind.

Let’s face it, putting Congress in the driver’s seat on changes to our pricing policies without industry agreement is folly, or worse. Broad consensus on federal milk marketing order changes must precede any legislative proposal taken to Capitol Hill. The old proverb, “Better the devil you know than the devil you don’t know,” certainly applies here. Without consensus, we’ll be better off with the program we have than with any new programs that might evolve. Let’s hope it doesn’t come to that.

CMN

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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