Guest Columns

Perspective:
Industry Issues

Markets will work without federal programs paving the way

Connie Tipton

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

I am struck by how little people think about the implications of our farm policies. The focus is on helping the farmer make ends meet or, in some cases, being in the business of farming at all. I’m all for assisting those who are in need, but there are consequences beyond just providing assistance, particularly when policies ignore or try to outwit markets.

The U.S. sugar program is a perfect example. As I write this, I’m attending a conference called the International Sweetener Colloquium — a meeting that has been organized by IDFA for more than 30 years. The purpose of the meeting is to bring together those who make and market sugar and other sweeteners with those who buy and use those sweeteners in their products so that, together, they can explore issues facing the industry. The issues ebb and flow, but supply and demand are always key in the discussions.

The elephant in the room is that our domestic sugar policy is the only reason the United States grows sugar.

In other words, we have a government program that restricts sugar imports from countries that can grow it much more cheaply in order to hold prices high enough to support growers of beet and cane sugar in the United States.

We are obviously a country that is wealthy enough to afford this luxury of growing whatever we want, but what about those countries that actually have the comparative advantage to grow sugar? These are countries that have the natural conditions for growing sugar, often tropical or semi-tropical, with few other options for crops, animal agriculture or other means of making a living. If rich, developed countries with lots of options for making a living (the United States and Europe) produce their own sugar supplies, they are, in effect, robbing less developed countries of sources of income and growth out of poverty.

What about U.S. dairy policies that attempt to control price and markets? Even though they aren’t as stark a contrast as the U.S. sugar program because they aren’t denying other countries the ability to produce and market dairy products, there is no question that policies like the federal milk marketing orders have market-distorting effects that I believe farmers, processors and consumers would all be better without.

The federal order system sets prices for farm milk differently depending on the products made from the milk.

Fluid milk prices are the highest, followed by cultured products and ice cream, cheese, then butter and powder. Farmers are paid a “blend” price that’s an average of the prices for uses in their market, blunting market signals. The result on the product end of this scheme is that those who want dairy in a glass pay as much as 50 cents more a gallon to cover the cost of the farm milk used to make it as those who want their dairy in the form of cheese. And the system also sets differential pricing depending on where you are located, so folks in Miami pay 35 cents more a gallon for the farm milk used to make their glass of milk than those who drink milk in Chicago.

This is all completely unnecessary. We have an extremely capable dairy industry with increasingly efficient and effective dairy producers and processors. We have growing market demand, particularly in developing countries with a large, rising middle class that wants and can afford high-protein, nutrient-dense dairy products. And we have a government safety net program to provide payments to farmers when margins are squeezed between milk prices and feed costs, just to make sure we don’t end up with catastrophic consequences for farmers.

A government milk pricing regime such as the federal milk marketing orders (on the books since 1937, by the way) is simply out of step and in the way of markets working proficiently. It does nothing to contribute to the success of the U.S. dairy industry, and it’s totally unnecessary.

Think about it: Would we have an adequate milk supply without the pricing and pooling provisions of this federal milk pricing system? Of course. And milk would move according to market demands rather than as a result of fabricated pricing provisions.

Farmers, processors and manufacturers all need to step up to the reality of producing for markets. No one is entitled to produce whatever amount they want and expect someone to buy it. That’s just not how markets work. I know someone reading this is thinking, “but milk is perishable and you can’t just turn cows off and on.” Of course, that’s true, but most perishables available in markets everywhere move quite nicely without government pricing regimes to help them get there.

Florida and California, for example, have lots of freshly grown produce year-round, but that’s not the case in many other states. And while there may be some differences in what consumers pay from one region to another, produce is available in Chicago and Boston, for instance, even in the winter without government getting involved in the equation. Markets will work.

Just last month, I had a conversation with an international dairy cooperative leader who was shocked to learn that we still have a government program setting milk prices. Chances are, if you have a conversation with a friend who is a regular dairy consumer, he or she will likewise be dumbfounded to hear we have such a complicated government program to get dairy products to market.

It is time for the industry to come together and agree on a phase-out plan for milk pricing and pooling provisions under the federal milk marketing orders. This would make our markets work more efficiently and, in the long run, position the U.S. dairy industry to better take advantage of market growth opportunities.

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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