A year ago, when Congress was in the thick of trying to pass a new Farm Bill, NMPF played the key role in crafting and getting included in the bill a significant revision of the Dairy Product Price Support Program (DPPSP). Yet it was hard to find anyone too interested in that effort. In Congress, it was viewed as little more than a formality, and it wasn’t even the subject of much debate within the dairy industry.
The big revision we achieved was that rather than supporting an overall milk price of $9.90 per hundredweight, the law was changed to have the USDA support specific commodity prices, those used to calculate farmers’ classified prices. The DPPSP purchase prices were the same as they had been previously (80 cents for powder, $1.05 for butter, $1.13 for block cheese and $1.10 for barrels), but by specifying an individual price for each of these products, it removed the ability of the USDA to “tilt” the relative values of butter and powder that it might buy. This was a major victory, given how the USDA had earlier in the 2000s played politics with the butter/powder tilt, and reduced dairy farmers’ incomes.
Another change written into the Farm Bill was that the USDA could not turn around and resell any nonfat milk stocks at less than 110% of the purchase price (which would be 88 cents). This provision was inserted so that the USDA could not undermine farm-level milk prices by selling commodities at reduced levels, cutting farmers’ income.
Part of the reason for the general lack of interest in the price support program during the Farm Bill was where milk prices were at the time. A year ago, the Class I price was still above $20/cwt., where it had been during most of the deliberation over the Farm Bill. Last December, nonfat dry milk powder prices were above $1.70/lb., after reaching more than $2 during much of 2007. The bottom line was that the price support level of 80 cents per pound for nonfat seemed to be of little concern in a world – and it was literally the world market – where prices were more than double the price support minimums.
My, how the world has turned. World and domestic nonfat dry milk prices have collapsed, and millions of pounds of powder have been sold this autumn, at 80 cents/lb., to the USDA. What seemed like an anachronistic program a little more than a year ago is now helping to support dairy farmers’ incomes as the world heads into recession.
Because the DPPSP is still such a critical safety net, defending it is an important part of what NMPF does. That’s why we went to court this month, to stop the USDA from further ignoring the spirit of what Congress wrote into the Farm Bill concerning how the DPPSP is supposed to work.
NMPF filed a Temporary Restraining Order on Dec. 8 with a court in Chicago to prevent the USDA from allowing a private trading company to auction off 20 million pounds of nonfat dry milk. Under this agreement, the USDA gives a third-party the ability to sell surplus commodities back to commercial channels. The third-party company then uses the proceeds from those sales to purchase value-added foods, such as canned goods, to be used in other USDA feeding programs.
The concept is OK, and NMPF strongly supports feeding the hungry, but not at the expense of lowering dairy farmer income. The problem with USDA’s arrangement is that there is no stipulation in the auction process that sales of nonfat milk powder have to be at least 88 cents/lb. If this were Ebay, rather than setting a minimum starting bid, the USDA is allowing buyers to start with no minimum at all, and certainly not an 88 cent minimum.
This flies in the face of what Congress wrote into the brand-new Farm Bill: a clear proviso that the Dairy Product Price Support Program is meant to support dairy farmers’ incomes, and it should be respected, not circumvented. It’s unfortunate that during this Christmas season, the USDA wants to play Grinch and undercut an important safety net, even as farmers (and the rest of the economy, for that matter) are looking at a tough winter ahead.
The good news is that as a result of NMPF’s legal action, the USDA will suspend plans for the milk powder auction until at least Jan. 22, 2009, when the court can delve into the issues involved.
The Dairy Product Price Support Program is a producer safety net that NMPF will continue to vigorously defend, in court if necessary.
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The growth hormone-free bandwagon continues to roll on in 2007, after creating quite a splash in the past year in its coast-to-coast journey. Just in the last month, Starbucks corporate coffee outlets, along with Safeway's stores in the Pacific Northwest, have put their dairy suppliers on notice that they will only accept milk from cows not treated with recombinant bovine somatotropin, which I'll henceforth call rbST (and yes, I know all milk contains growth hormones. No, this isn't a commentary about whether rbST is bad for cows or people).
While the rbST-free trend has percolated along in some markets for years, it really blossomed in 2006, affecting the Northwest, the Northeast, and even Midwestern and Southern milk markets. Where it will stop – if it does – is the question many in dairy marketing are wondering. Why it began at all, or at least emerged from a relative state of dormancy into major news, is the real puzzle.
The two primary schools of thought addressing that last question seem to be, first, that there is renewed consumer concern about food safety – an issue that has always seemed to simmer where rbST is concerned, dating back to when the product was approved by the FDA in 1994, but lately has boiled over.
The second school of thought is that processors and retailers, particularly those who are sourcing rbST-free milk but not paying any more for it than milk not certified as rbST-free, are looking for new and different ways to make extra money. In most cases, products sold as rbST-free are priced above conventional milk, yet below certified organic milk.
In that respect, the stratification of milk into premium, mid-grade and regular is similar to other products (consumers are already used to purchasing gallons of gasoline in three grades). Most retailers array their consumer staples, from laundry detergent to coffee to soup, in a tier of prices designed to appeal to every socioeconomic group. Perhaps this is a sign that the marketing of milk is now becoming sufficiently nuanced to employ a similar merchandising approach.
Regardless of the factors that have forced this issue to a head right now, I think the real concern for the dairy industry down the road is two-fold: first, that servicing the market for rbST-free milk has costs that need to be accounted for; and second, that this is part of a larger trend towards skepticism of farming practices that demands reasonable responses from farmers, yes, but also marketers and consumers. Let me explain.
The decision to use Posilac, the rbST product marketed by Monsanto, is a personal choice for dairy farmers. Some use it, most don't. NMPF traditionally has supported the right of farmers to exercise that choice. In doing so, we also have to recognize that some processors, retailers, and consumers should have the right to choose milk not produced through the use of Posilac. That's the way the market should work.
But when processors and their customers seek sources of rbST-free milk, it costs at least some producers the use of a profit-making tool. The market has to recognize that fact, by offering incentives to compensate for the opportunity cost of not using rbST. There are additional expenditures with sourcing, transporting, and processing rbST-free milk supplies that also deserve compensation. The hope here is that, assuming the rbST-free trend continues, it doesn't do so literally – meaning that it should not be offered for free, at the expense of at least some farmers' economic viability. That's not how markets should function.
The other dynamic of this trend is that farmers' practices are facing a level of scrutiny today that is only going to grow in the coming years. Technology on the farm was once viewed as a positive force; it brought us the green revolution, which allowed millions worldwide to eat more and better. But today, the green revolution is ironically defined as a back to basics movement involving sustainability, small farms, and traditional practices that few can readily define, but which some people think are far superior to the productivity-enhancing tools of conventional agriculture.
The pushback against rbST is really part of a continuum of objections raised by voluble consumers about how and where food is produced, and by whom. Those voices (and they exist among farmers as well as consumers) are what led to the creation of a certified organic system, and they are now also raising objections to those same organic standards because of the commodification and vertical integration of organic food production.
Farmers and their marketing organizations need to acknowledge and address those concerns, but they also must be prepared to defend against a litany of complaints about other practices. Today, it's rbST and veal crates. Tomorrow, it could well be sexed semen, prostaglandin hormones, tail docking, grain-based rations, or free-stall barns. Like it or not, food is not just big business; it's become a political statement, and as those in Washington, DC, know, politics is a brutal business.
The process of crafting a national farm bill is not unlike another prominent national ritual that everyone knows as March Madness. The annual NCAA basketball tournament subjects the best 64 teams in the country to a series of progressive tests that culminates in a championship game to anoint the top team in the land. The winner is often not the team with the best overall record, but the one that can focus on each step of the process, survive that game and advance to the next round.
In the same fashion, developing a farm bill is a winnowing process. Ideas and policies must be debated – both within the dairy industry, and ultimately by Congress. The ideas that generate the most amount of buzz at the outset may not be the ones left standing once the bill is finally signed into law.
As many are now aware, NMPF has fielded a package of proposals for the 2007 Farm Bill. Think of our idea lineup as a team – some proposals are bigger or better known than others, but each is a critical component to the outcome of the game. Our ideas were recruited over the past year from throughout the dairy producer community. We had our Conclave meetings in 2006, where different concepts were scouted and scrutinized. Our Economic Policy Committee last year served as coaches, putting those ideas to the test to achieve the balanced team we wanted. In the first week of March, the NMPF Board of Directors approved this farm bill package, in effect devising a game plan for our organization and its members heading into the ultimate competition.
As a result of all this preparation, we feel we have the best series of players in the game – big ideas that will be impactful in the coming months.
First, we are revising the dairy price support program. Historically, Congress has told the USDA to achieve a $9.90/cwt. milk support price, by giving the agency discretion to buy storable products at varying price levels. Unfortunately, as we've seen many times, the monthly classified prices have dropped below that level – even below $9 earlier this decade – because of USDA's approach to purchasing and selling certain products. So, what we are fielding is a better system: a dairy product price support program, where Congress sets the level of support for each product independently. Under this new idea, USDA will continue to provide a basic safety net as before, while achieving a true minimum support of farm-level prices.
NMPF is also, for the first time, endorsing a familiar concept to help deal with market volatility in both milk and feed prices: a reliable & consistent direct payment.
Our producer security program will feature regular payments to producers, with an expenditure level similar to the payments made by the current MILCX program. But the payments would be based on historic, not future production, and they would also be decoupled from price – meaning they would be predictable. Part of the challenge that dairy producers will face in coming years is that while milk prices may be higher, so too will input costs (fuels and feed grains) be higher than average. A predictable payment system will help farmers grappling with unprecedented pressures from higher costs of production. Agriculture Secretary Mike Johanns has called for the next farm bill to be predictable, and we think our producer security program achieves that goal better than other game plans.
While the product price support and milk security programs may be viewed by some as the twin towers of our policy team, we've got some other equally great contributors on the court along side them.
In the area of conservation and renewable energy, we think the Farm Bill is the right place to push for credits for renewable energy, specifically, for producers who want to invest in not only manure digesters, but also some nutrient management efforts that can capture the biofuels potential of animal waste. This is a win-win scenario that helps generate electricity from a natural source, while also improving the environment. Likewise, we are pushing for more assistance in the Environmental Quality Incentives Program, and the Conservation Security Program.
A stellar performer on our idea team is the nutrition title of the farm bill. We want to build on dairy's prominence in USDA feeding programs, with an additional focus on lowfat and nonfat milks and yogurts in schools, and in the WIC program. We also don't want to take our eye off the ball of animal health: we need continued support for programs that prevent the spread of BSE, Johne's, tuberculosis, brucellosis, and other dangerous animal health concerns.
As part of our dairy team, we also want to address the issue of risk management. NMPF's proposal includes a program that would allow producers to forward price their milk in Classes II, III and IV, for the duration of the farm bill. The USDA milk market administrators would enforce the terms of the contracts.
Last but not least, we are finally going to slam dunk the checkoff assessment on imported dairy products. We thought we scored big with that in the 2002 Farm Bill, but a timeout resulted in it never being implemented. It should be an easy two points in this bill.
We have a deep bench of other additional ideas for the Farm Bill. More will be revealed as the tournament of ideas develops. We look forward to matching our players with those on other teams, because we feel that our comprehensive approach to the game of national farm policy is battle-tested, and has the ability to go the distance. We are ready to play.
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February 2007