New Version Would Give Farmers Choice of Opting for Government Safety Net

ARLINGTON, VA – The National Milk Producers Federation’s Board of Directors voted today in favor of a revised approach to reforming federal dairy policy, with the key change of allowing farmers an individual choice between receiving the financial protection of a government safety net, or opting out of such protection.

As originally proposed back in 2010, NMPF’s Foundation for the Future (FFTF) program contained a government-subsidized safety net, the Dairy Producer Margin Protection Program, to protect against periods of low milk prices, high feed costs, or a combination of the two. This program offered a Basic level of subsidized insurance coverage, plus the option of Supplemental fixed-cost coverage partially paid by farmers. The FFTF program also contained the Dairy Market Stabilization Program, which was a mandatory means to reduce market volatility by discouraging new milk production during periods of compressed margins.

Under the revised approach backed today by NMPF, the Dairy Producer Margin Protection Program (DPMPP) would continue to be voluntary, but if a producer opts to participate in the DPMPP, his/her participation in the Dairy Market Stabilization Program (DMSP) would then be mandatory. If a producer chooses not to participate in the insurance program, then participation in the DMSP would not be required. As with NMPF’s original reform package, the Milk Income Loss Contract program would be eliminated, as would the Dairy Product Price Support Program.

The NMPF Board believes that the new approach will result in beneficial changes to the legislative version of Foundation for the Future, which is expected to soon be formally introduced in the House of Representatives by Reps. Collin Peterson (D-MN) and Mike Simpson (R-ID).

“Based on the feedback we received this summer from our cooperative membership, and during our grassroots tour, when 1,300 farmers came to 12 cities to talk with us about Foundation for the Future, we decided that a slightly different approach to reforming dairy policy was the best way to go,” said Randy Mooney, NMPF Chairman, and a dairy farmer from Rogersville, MO. “Clearly, a number of farmers are uncomfortable about having a mandatory government program to manage milk production. So we are endorsing a new approach which gives farmers a clear choice.”

“This new approach of making the Market Stabilization program optional will appeal to those who philosophically do not want government telling them what to produce. At the same time, those who want the benefits of a government safety net must accept some government-led market stabilization as the price of that protection,” Mooney said.

The other changes endorsed today by NMPF include:

• Increasing the Basic Plan’s coverage to 80% of a producer’s production history on margins between $0.00 and $ 4.00 per cwt. In the legislative draft of FFTF released earlier this summer, the Basic coverage was limited to 75% of a farm’s production history.
• Giving farmers the option of acquiring coverage for their production growth under the Supplemental Plan. Under such an option, the production history would be revised annually as the producer’s production grows. The percentage of the producer’s production history to be covered, and the premium rate per cwt., would remain fixed over the life of the Farm Bill.
• Accepting an administrative fee to be charged to all producers signing up for margin protection coverage under the DPMPP, with modest fees on a sliding scale. This will help keep the cost of the program to a minimum.
• Eliminating the distribution of 50% of producer-generated funds to the U.S. Treasury under the Dairy Market Stabilization program, ensuring that all of the monies generated by producer withholdings would be available to purchase dairy products for donation to non-commercial food assistance programs as originally proposed.

Lastly, the revised FFTF package endorsed by NMPF alters how reforms to the Federal Milk Marketing Order system would be pursued. Under NMPF’s original approach, the legislation would have specifically prescribed how competitive prices and a streamlining of the classified pricing system were to be implemented by the USDA, without a hearing process. The new version directs the USDA to eliminate the cumbersome end product price formulas and make allowances for Class III, and use a competitive pay price instead to determine the Class III price. It also specifies that after USDA makes its decision, a majority vote by producers will put the changes into effect. If the changes are not approved, the current Federal Order provisions remain in place.

“The underlying objectives we have been pursuing for the past two years – offering a better dairy program featuring protection, stability, and growth – remain intact in what our Board has endorsed today,” according to NMPF President and CEO Jerry Kozak. “But by making some adjustments, we strongly believe that many of the concerns raised in the past year to our first approach now have been addressed and eliminated.”

Kozak went on to point out that NMPF’s Foundation for the Future proposal, along with the initial legislative discussion draft released this summer by Rep. Peterson and cosponsored by Rep. Simpson, allowed the dairy industry and Congress “to kick the tires and really scrutinize the best way to reform dairy policy. We’ve listened, we’ve analyzed and considered options, and now we’re endorsing a course correction that will still take us to the same place, only with greater unanimity and support from dairy farmers, and hopefully from others across the industry and on Capitol Hill.”

Mooney added that “it’s time everyone in the dairy industry recognizes that the Peterson-Simpson bill offers the best – and perhaps only – opportunity to create an effective safety net that allows us to take advantage of the challenges and opportunities of a global marketplace.”

The National Milk Producers Federation, based in Arlington, VA, develops and carries out policies that advance the well being of dairy producers and the cooperatives they own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill and with government agencies.

          ARLINGTON, VA – Past attempts to reform – and simplify – federal regulations affecting dairy pricing have achieved mixed results at best, but the changes included in the National Milk Producers Federation (NMPF)’s Foundation for the Future (FFTF) program represent a once-in-a-generation opportunity to make major improvements, NMPF said today.

Reforming the current complex milk pricing system is one of the key elements of FFTF, along with providing a better margin-focused, farm-level safety net, and a means of temporarily adjusting milk production when conditions warrant.

But revamping the Federal Milk Marketing Order system “is perhaps the most daunting, because the current structure is difficult to alter unless comprehensive and specific adjustments are written into legislation,” said Dave Fuhrmann (above), President of Foremost Farms USA, a dairy cooperative based in Baraboo, WI. Fuhrmann chaired an NMPF committee that developed the Federal Order improvements featured in the FFTF package.

Under the proposal that NMPF has helped to design, and which has been drafted into legislative form by Rep. Collin Peterson (D-MN), the U.S. Department of Agriculture will no longer specify a monthly minimum price for four classes of milk, derived from a weekly price survey of dairy commodities.

Instead, the system will feature just two classes: one for fluid milk, and another for manufactured products. This will “allow the discovery of a true, competitive market price for milk, rather than a price derived from an unwieldy and divisive formula-based approach,” Fuhrmann said, noting that the current end-product pricing formulas, featuring make allowances for manufacturers, will be eliminated. This change, along with the elimination of the Dairy Product Price Support System, “will significantly enhance the ability of the U.S. to grow export markets over the long term.”

Reducing the system to two classes not only simplifies things, it will also reduce price volatility, because more milk is moving in response to the same prices and adjusts supply and demand more quickly and more consistently, according to Fuhrmann.

The FFTF proposal maintains a minimum price for fluid milk, using the “higher of” feature in the current system, to help maximize the return to dairy producers for bottled milk sales. Current Class I differentials in the ten Federal Order areas are also maintained as they are, as is the overall geographic structure of the Federal Order regions. Farmers in states like California, which are governed by a state pricing system, would not be impacted by the changes to the federal system.

Some farmers have expressed concern that the proposed change to a competitive pricing system will not mandate component pricing, featuring a regulated minimum value for the protein in their milk.

However, “producers and cooperatives will still be able to negotiate for components values in their milk, since the proposal doesn’t preclude the use of component pricing, particularly when the plant buying the milk places an importance on protein for their products,” Fuhrmann said.

Fuhrmann noted that those who are calling for the complete elimination of any type of milk marketing orders “have to realize that dairy farmers support Federal orders. We’re taking great strides in reforming it, but we’re not looking to end the system entirely,” he said.

There is still widespread support for the beneficial aspects of Federal Milk Marketing Orders, including the fact that they help enhance the bargaining power of producers, and help balance supplies of milk to ensure adequate fluid milk for bottling.

The National Milk Producers Federation, based in Arlington, VA, develops and carries out policies that advance the well being of dairy producers and the cooperatives they own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill and with government agencies.

ARLINGTON, VA – The House Agriculture Livestock, Poultry and Dairy Subcommittee held a dairy policy hearing on Thursday, September 8. The hearing witnesses included U.S. Department of Agriculture (USDA) officials from the Farm Service Agency (FSA) and Agriculture Marketing Service (AMS).

After attending the hearing, NMPF President & CEO Jerry Kozak issued this statement:

“The general tone of the questions at today’s hearing from the committee members indicates a concern that current dairy programs are not up to the task of providing a meaningful farm-level safety net.

“NMPF shares that concern, and that’s what has driven the creation of Foundation for the Future. We believe we have the best answer to the bottom line question of what should come next for dairy policy.”

NMPF President & CEO Jerry Kozak (l) discusses dairy policy with Congressman Tom Rooney (R-FL), Chairman of the House Agriculture Subcommittee on Livestock, Dairy and Poultry.

The National Milk Producers Federation, based in Arlington, VA, develops and carries out policies that advance the well being of dairy producers and the cooperatives they own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill and with government agencies.

Congress returns to Washington this week with a busy agenda, including a heavy focus on economic issues, such as the Obama Administration’s unveiling of a new job growth plan, and the first meeting of the congressional budget-cutting “super committee,” both set for tomorrow.

Dairy policy is also likely to be a lively topic, as House Agriculture Committee Ranking Democrat Collin Peterson prepares to formally introduce legislation modeled after NMPF’s Foundation for the Future package. Last month, Congressman Mike Simpson of Idaho’s second district, a senior Republican from one of the largest dairy states, announced he will be a cosponsor of the draft legislation, once it is introduced. The current draft is available online.

NMPF believes Simpson’s support is “an important step in demonstrating the bipartisan, national scope of the effort to reform dairy policy,” according to NMPF President and CEO Jerry Kozak. “We’ve come a long way in the past two years in devising a sensible compromise approach to new dairy policy. While still have a great deal of work ahead of us, the advent of legislation based on Foundation for the Future is a huge opportunity to make badly-needed changes in the status quo system.”

Peterson, along with Simpson, will now be seeking additional cosponsors, in both parties, to cosponsor the legislation.

The House Agriculture Livestock, Poultry and Dairy Subcommittee will host a dairy audit hearing on Thursday, September 8. The hearing witnesses will only include U.S. Department of Agriculture (USDA) officials from the Farm Service Agency (FSA) and Agriculture Marketing Service (AMS). A video stream from the hearing, which starts at 2 pm EDT, is available here.

USDA will testify and answer questions regarding current dairy policies and programs. NMPF will be preparing written testimony for the record outlining why Foundation for the Future (FFTF) is the best approach for reforming dairy programs. For more information on FFTF, please visit www.futurefordairy.com.

The Cooperatives Working Together (CWT) Export Assistance program continued in August to assist CWT member cooperatives in exporting dairy products to benefit all dairy farmers. Last month, CWT accepted requests for export assistance totaling 4.6 million pounds of Cheddar and Monterey Jack cheese to six different countries in Asia, North Africa, and the Middle East. The product will be delivered in 2011.

That brings the total cheese that CWT has provided assistance for in 2011 to 62.3 million pounds of cheese export sales. When combined with the export sales it assisted in 2010 that have been or will be delivered in 2011, a total of 86 million pounds of cheese will be leaving the domestic market in 2011. That’s equivalent to 860 million pounds of milk, or the annual production of over 40,000 cows.

CWT will continue to assist CWT member cooperatives in building overseas markets of U.S. cheese through the remainder of 2011.

The program also continues to build membership participation for 2012-13 with a goal of achieving the 70 percent level. As of August 31st, 16 cooperatives representing 41 percent of the nation’s milk production have joined CWT for the next two years.

There is no question that moving the equivalent of 860 million pounds of milk overseas enhances the milk price every dairy farmer receives. That’s why every cooperative, whether they export dairy products or not, should be making the two-cent per hundredweight investment in CWT.

The United States and Mexico signed a Memorandum of Understanding (MOU) on July 6, 2011 formally outlining a pilot program to allow Mexico-domiciled motor carriers to operate throughout the United States.

Despite concern raised in a recent report by the Inspector General of the U.S. Transportation Department, the Federal Motor Carrier Safety Administration (FMCSA) is ready for implementation of the U.S. – Mexico cross border trucking program. Some areas of concern in the Transportation Department IG’s report are: clarification of how it will accomplish compliance reviews inside Mexico’s borders, site specific plans for verification of drivers and trucks at the border, implementation plans for electronic on board recorders for pilot program trucks, and training for inspection personnel for the pilot program.

In addition, Department of Transportation (DOT) has stated that approximately 46 Mexican carrier companies will need to participate in the pilot cross-border trucking program before it terminates in three years. A Federal Register notice stated that this “statistically valid sample” must be achieved by the pilot program before a longer-term cross-border trucking program can be implemented. However, analysts suggest that, absent a longer-term cross-border trucking program, Mexico is entitled under NAFTA to re-impose “retaliatory tariffs” on US goods previously lifted.

Registration is open for those wishing to attend the 2011 annual meeting that NMPF hosts jointly with the National Dairy Promotion and Research Board and the United Dairy Industry Association. This year’s meeting will be held November 14 – 16 at the Town and Country Resort & Convention Center in San Diego, CA.

With the theme of “Navigating a New Course,” the meeting offers attendees several days of informative programming in addition to opportunities to interact and network with dairy producers and industry leaders from across the country. Dairy producers, cooperative staff, Young Cooperators (YCs), industry suppliers, trade press, and others from within the dairy sector are all invited to attend.

Individual and group meeting registration, along with hotel reservations, can be made online at www.dairyevents.com. Although online registration is preferred, a registration form may also be filled out and submitted via mail or fax. Online, mail, and fax registration must be submitted with payment by Monday, October 24. Visit www.nmpf.org/nmpf-joint-annual-meeting for more information about the annual meeting.

ARLINGTON, VA – Dairy farmers of all sizes will benefit from the risk management opportunities featured in the Foundation for the Future (FFTF) dairy policy program, designed by the National Milk Producers Federation (NMPF), and drafted into legislative form by Rep. Collin Peterson (D-MN).

In particular, the Dairy Producer Margin Protection Program (DPMPP) presents farmers with the opportunity to proactively insure up to 90 percent of their milk production against catastrophically low margins, due either to low milk prices, high feed costs, or the combination. Because the financial stability of dairy operations increasingly depends on operating margins, rather than milk prices, giving farmers a way to protect their operation’s equity when margins are tight is a huge improvement over the status quo government safety net programs, which are solely focused on milk prices, according to NMPF.

“It’s always being said that farmers are price takers, not price makers, but under this new safety net, dairy producers will have the option of making a smart investment to prepare for the type of worst-case scenario like what we experienced in 2009,” said Doug Nuttelman (left), a dairy farmer from Stromsburg, NE, and a member of the NMPF task force that developed the DPMPP.

Nuttelman explained that the DPMPP offers a Basic level of margin insurance at no cost to producers; all they will have to do is sign up for it, once the Foundation for the Future program is implemented. Under the congressional draft, 75 percent of a farm’s milk production history will automatically be eligible for protection at $4 per hundredweight margin (defined as the gap between the all-milk price, and a national average of feed costs).

But the real opportunity for farmers to manage risk comes under the Supplemental option of the DPMPP, according to Nuttelman, because up to 90 percent of a farm’s production history can be insured in increments up to an additional $4/cwt. The cost of this optional, additional insurance will be shared between the USDA, and producers who elect for Supplemental coverage.

“This gives farms of all sizes the chance to indemnify themselves at a level up to eight dollars per hundredweight, meaning that if the milk price is $14, and feed costs are above $6 per hundred, the insurance program will pay them the difference between the actual margin and $8 on almost all of their production that particular month. Or, if milk prices are $20, and feed costs are above $12, they’ll get paid,” Nuttelman said. If producers don’t want that level of protection, the Supplemental program offers a sliding scale of options, in 50 cent per hundredweight increments.

And the real attractiveness of this program to smaller-scale operators is that “the margin insurance program allows for risk management regardless of whether you produce 100,000 pounds of milk per month, or one million,” he said. “Many other types of private risk management tools require a minimum volume of milk in order to enter into a contract. But the DPMPP is open to everyone, large or small. This brings a new degree of protection to even the smallest dairies,” Nuttelman said.

He also noted that the DPMPP is compatible with other risk management programs already in use, such as forward contracts. That type of program allows farmers to lock in a future price that may be attractive and profitable to them, whereas the DPMPP allows producers to insure against an unattractive scenario where poor margins may bleed away their equity.

For Nuttelman, whose multi-generational Nebraska farm involves two sons, having insurance against equity loss “would make it easier for us to sit down with the banker, because if he sees that we are protected against the downside, both he and I can invest more confidently in the future of our farm.”

The National Milk Producers Federation, based in Arlington, VA, develops and carries out policies that advance the well being of dairy producers and the cooperatives they own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill and with government agencies.

ARLINGTON, VA – The Foundation for the Future (FFTF) dairy policy program has been designed to allow the U.S. to build on its burgeoning role as a consistent global exporter of dairy products, according to the National Milk Producers Federation, which helped design the proposal.

The U.S. is on pace to export 13 percent of its milk production in 2011 – the highest portion ever – and many overseas markets for dairy products are expected to continue growing at a faster rate than the U.S. market. Thus, any changes to current dairy policy “must not place the U.S. farmer at a competitive disadvantage,” according to NMPF board member Les Hardesty (left), a dairy producer from Windsor, Colorado.

In order to make the U.S. more competitive globally, the multi-faceted approach of FFTF eliminates the Dairy Product Price Support Program, Hardesty said. Currently, the price support program acts as a government-funded buyer of last resort for commodities including cheese, butter and nonfat dry milk powder. But the program also can act as a disincentive to export, when, during periods of low price, product manufacturers have greater incentive to sell surplus commodities to the government, rather than on the world market. Such was the case in 2009, when U.S. dairy exports dropped and government price support purchases surged.

“Once this program is eliminated, markets, during periods of surplus, will clear more quickly,” Hardesty said. This will be in contrast to what happened in 2009, when global dairy sales didn’t drop, but the U.S. portion of those sales did, because products were sold to the government, rather than commercially, Hardesty said.

Some critics have alleged that Foundation for the Future’s Dairy Market Stabilization Program (DMSP), if and when it activates, will so greatly reduce domestic production that exports will be choked off. But Hardesty disputed that, saying that the DMSP “only activates when margins are extremely low, and would not be active when domestic or international demand is sending strong signals for more milk output.”

Also, the Foundation for the Future proposal contains a provision that prevents the DMSP from kicking in if U.S. prices are 20% or more above world prices for cheddar cheese and skim milk powder. This clause will ensure that any market stabilizing slowdowns in milk production don’t unintentionally distort the relationship between U.S. and world prices, creating an imbalance that could incentivize more imports, and/or hinder exports.

“American dairy farmers have invested millions of dollars in building and fostering an export capability, through the creation and continued funding of both the U.S. Dairy Export Council (USDEC), and the Cooperatives Working Together program,” Hardesty noted.

“We are fully aware that foreign sales of U.S.-made dairy products are crucial to the current and future health of our industry, and don’t want policies that would detrimentally affect our export capabilities.”

The National Milk Producers Federation, based in Arlington, VA, develops and carries out policies that advance the well being of dairy producers and the cooperatives they own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill and with government agencies.