Proposed Dairy Reform
Dairy Market Stabilization Program Proposed Reform:
- The Dairy Market Stabilization Program (DMSP) would help prevent extreme margin volatility for dairy producers by sending producers strong and timely market signals that do not currently exist. Those signals alert producers when additional milk production entering the market may have significant consequences on their overall margins.
- When the actual national margin is below $6 for two consecutive months, producers will receive payment for 98 percent of their base milk marketings and be subject to a maximum reduction in payment equal of 6 percent of current milk marketings.
- When the actual national margin is below $5 for two consecutive months, producers will receive payment for 97 percent of their base milk marketings and be subject to a maximum reduction in payment equal of 7 percent of current milk marketings.
- When the actual national margin goes below $4 in a single month, producers will receive payment for 96 percent of their base milk marketings subject to a maximum reduction in payment equal of 8 percent of current milk marketings.
- USDA would be authorized to periodically conduct audits to ensure compliance with the program.
- Under the proposal, a producer board will be appointed by the Secretary of Agriculture with the authority to purchase products through commercial sources for donation to food banks and other appropriate sources, as well as to conduct other activities that expand consumption and build demand for dairy products without duplicating activities by the dairy check-off.
Source: The Democrat House Committee on Agriculture
According to Peterson, the 2009 dairy crisis showed that the current dairy safety net is inadequate and in need of reform.
"Current dairy programs aren't working," Peterson said in a statement following the draft release.
"They're not keeping up with the challenges facing today's dairy industry. This proposal addresses these challenges.
The proposal creates a strong safety net that will provide the support all sectors of the diverse industry need during tough times."
But some Wisconsin dairy farmers say the major portion of the reform package, the Dairy Market Stabilization Program, would be detrimental to large and small dairy farmers -particularly to those in Wisconsin.
Jim Winn, a South Wayne dairy farmer and a member of the Wisconsin Dairy Business Association, said the stabilization program, amounts to a fine on farmers who are seeking to expand, and it will stifle growth in the dairy industry - growth that Wisconsin farmers in the past ten years have worked hard to accomplish in part to meet the demands of Wisconsin cheese makers.
"There is a milk deficit in this state," Winn said. "Our production was on the decline, and we have worked to increase production.
"The dairy industry has entered the global economy. People in China and around the world want our product.
We have established ourselves to increase production to fill that gap."
Winn said the proposal also limits farmers seeking expansion to include grown sons and daughters in the family farming business.
Peterson's proposal consists of three main components: a margin protection program, a Dairy Market Stabilization Program and reforms to the Federal Milk Marketing Order system. The Margin Protection Program is an insurance program that provides a floor for producer margins.
It is a government funded catastrophic loss safety net for all producers and includes a supplemental program for farmer who wish to purchase additional coverage.
The Federal Milk Marketing Order simplifies and reduces the number of dairy product classes from four to two Class I is bottled or fluid milk and Class II is processing or manufacturing farm milk into something else.
Winn said those two parts of the bill are acceptable to him; however, the third portion, the Dairy Market Stabilization Program (DMSP) -intended to prevent extreme differences between milk prices and production costs - is a problem.
According to a fact sheet from the Democrat House Committee on Agriculture, DMSP quickly "alerts producers when additional milk production may have significant consequences on their overall margins."
That alert could come in the form of reduced milk checks to the farmer, if he or she produces more milk than the set base milk markets.
Winn said calculations to be used to determine the farmers' reduced earnings are complicated, but in effect, the farmer is "fined" or "taxed" a percentage of his milk revenues.
The money collected from the milk check reductions does not go back to help the farmers, said Winn.
"Half of the money goes to the federal deposit, to help pay the federal debt," he said. "The other half goes to purchasing excess food for food pantries."
Winn suspects most of the excess food the government will buy up will probably be in the form of cheese, but that move will also reduce commercial cheese sales.
The Dairy Price Support Program
The current Dairy Price Support Program (DPPSP), developed in 1949 to encourage milk production in the United States, allows the government to purchase dairy products off of the market and store them for future sale or use. However, the dairy industry looked drastically different in 1949 than it does today, according to Peterson.
The DMSP takes into account export markets, which proponents say allows the industry to continue meeting increased worldwide demand.
According to the Democrat House Committee on Agriculture, the export market today is a major driver of demand growth for U.S. dairy products and a key component of stronger milk prices.
In this environment, interrupting the flow of U.S. dairy products to export markets by temporarily diverting those products to the government is detrimental to maintaining export markets.
But opposition to the government handling the world-wide demand is sharp.
"Dairy farmers want to be in the open market," said Winn. "How do we protect ourselves? We do that on our own, like we have been. Sure, we miss out on some of the highs (milk market prices), but it sharpens our skills, or you can get a firm to do that for you."
Peterson said he released "this discussion draft now because we need to act before the next farm bill. If we have another dairy crisis like we had in 2009, we could lose half our dairies. The discussion draft allows us to keep the ball moving while continuing to have a dialogue with the dairy industry."
The draft language and package of reforms is based on reform proposals put forward "by the dairy industry," according to Peterson.
Some dairy groups support bill
The major backer of the plan is the National Milk Marketing Federation, a farm commodity organization representing numerous dairy marketing cooperatives. NMPF members market the majority of the milk produced in the U.S. NMPF President and CEO Jerry Kozak has praised Peterson for including elements of his group's "Foundation for the Future" program in the bill.
Local area NMPF members include Ellsworth Cooperative Creamery, Ellsworth, Wis.; Foremost Farms USA, Baraboo; Manitowoc Milk Producers Cooperative, Manitowoc, Wis.; and Swiss Valley Farms Company, Davenport, Iowa.
Associate members include Grande Cheese Company, Brownsville, WI; International Milk Haulers Association, Middleton; National Dairy Herd Information Association,Verona; The Wisconsin Center for Dairy Research (CDR), University of Wisconsin-Madison campus; and Wisconsin Dairy Products Association. The International Milk Haulers Association and National Dairy Herd Association did not respond to e-mail requests for comments on the DMSP.
AG Committee data
A fact sheet from the Democrat House Committee on Agriculture states "the Congressional Budget Office (CBO) has reviewed [Peterson's] discussion draft and determined it shows savings."
The Minnesota Milk Producers Association and the Wisconsin Dairy Business Association said in a statement August 1 that the draft language proposes to raise the price of Class I milk, which would cause Class III farm milk prices to drop, which is "further discriminating against Upper Midwest dairy farmers."
Both associations claim their states face milk production deficits due to cheese making demands, and that cheese plants continue to expand their capacities.
The two states account for nearly 20 percent of the milk produced in the U. S., which translates in to 186,000 jobs and an economic impact of more than $38 billion.