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Risk management tools important to farmers and processors

Michael Dykes

Michael Dykes is president and CEO of the International Dairy Foods Association. He contributes this column exclusively for Cheese Market News®.

I recently testified before the House Agriculture Committee, along with Jim Mulhern of the National Milk Producers Federation, to discuss the state of the dairy industry as Congress readies for the next farm bill. The hearing provided a great opportunity for me to outline the opportunities and challenges facing our industry and to request new risk management tools that will help to spur growth and innovation in dairy farming and processing.

Enhancing demand for U.S. dairy products was a common thread throughout my testimony. I wanted committee members to know that the opportunities are clearly out there, and the U.S. dairy industry — throughout the entire value chain — is poised to take full advantage.

While our companies continue to innovate and provide new products, packaging and portions to gain the attention of American consumers, the U.S. dairy industry is looking more and more to the global market for additional growth opportunities. Taking advantage of these opportunities, however, is not without risks because the increase in global demand inherently brings with it increased volatility in global markets. So, what can we do about it?

The dairy industry needs better mechanisms for risk management, for both farmers and dairy foods companies. For producers, the 2014 Farm Bill overhauled the farmer safety net in recognition of this new global environment, and producers are looking to improve the Margin Protection Program and the Livestock Gross Margin insurance programs in the upcoming farm bill. IDFA supports the fine-tuning of these programs so that they function effectively and don’t distort markets.

For processors, we’d like the new farm bill to extend and expand the current forward contracting program.

Here’s why: Global customers are accustomed to buying dairy products at fixed prices that cover multiple months of deliveries, and they are reluctant to take on the price volatility generally associated with the U.S. dairy industry.

I mentioned this potential barrier to global growth in my testimony, noting that establishing the forward contracting program for manufacturers of dairy products other than fluid milk has been a positive step because it allows companies to contract directly with individual farmers or coops at a fixed price. Making the program permanent, instead of reconsidering it every five years during farm bill discussions, would add stability for global and domestic buyers. Extending the program to fluid milk processors would help them also to curb the negative demand impacts of price volatility.

We intend to start a dialog with NMPF and other farmer stakeholders about these concerns in an attempt to develop a timely consensus proposal. We pledged to keep the committee members apprised of our progress to develop a comprehensive solution that advances the interest of the entire dairy industry.

As we look at the importance of risk management’s role in international trade, we also continue to focus on the U.S. dairy industry’s needs for trade relationships and agreements that open market access for American products and eliminate tariffs and other barriers. In the few months since President Donald Trump has been in office, IDFA has worked with colleagues across the industry to make the case for protecting our dairy trade with Mexico and to obtain fair market access for U.S. dairy exports to Canada. We’ve made great progress in gaining the attention of President Trump and his administration, letting them know that global trade represents the most significant demand growth opportunity for our members and the dairy farmers who supply them.

I recently traveled to Mexico City with Jim Mulhern and former Agriculture Secretary Tom Vilsack, who is now president and CEO of the U.S. Dairy Export Council, to meet with Mexican dairy farmers, processors and government officials. It’s clear that the North American Free Trade Agreement (NAFTA) has been very successful for both the United States and Mexican dairy industries. It provides exactly the type of win-win business opportunities that each country needs, and we want to maintain that positive relationship going forward in NAFTA renegotiation efforts.

Unfortunately we haven’t had the same success with Canada. Since January, our three organizations have actively addressed Canada’s repeated and escalating disregard for its trade obligations with President Trump and his administration, and our efforts have made a huge difference. Earlier this month and again just this week, the White House turned its trade spotlight on Canada, calling out the country’s protectionist policies and promising to act.

IDFA also welcomes the confirmation this week of Gov. Sonny Perdue as the Secretary of Agriculture. We hope he’ll play an active role in developing the administration’s strategy to renegotiate NAFTA and to initiate other trade agreements. Having Secretary Perdue advocate for dairy in Cabinet meetings with President Trump will be very important for our industry.

With the proper policies and tools in place, I’m confident our industry will meet and increase the demand for milk and dairy products. Developing and implementing better mechanisms for risk management for both farmers and processors will go a long way toward keeping our industry healthy and poised for continued growth, and we look forward to working collaboratively with National Milk on these issues of mutual interest in the upcoming farm bill.

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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