Milk co-ops pushing dairy pricing shift
WASHINGTON — The next five-year update of farm and food policies is still two years away, but Capitol Hill is beginning to stir with signs of possible changes to come for the milk business.
The National Milk Producers Federation, representing the cooperatives that sell milk on behalf of farmers, is mulling a big change: abandoning two programs that have been at the center of the dairy farm safety net for several years, and replacing them with what the NMPF considers a more market-oriented approach.
Although the details are far from worked out, the NMPF's basic idea is to replace the dairy price support program — through which excess dairy products are bought by the government or others at guaranteed prices — and the Milk Income Loss Contract program, a subsidy the government pays farmers when market prices fall below certain levels.
Instead, the government would pay dairy farmers when they suffer operating losses, no matter what the price of milk is.
In addition, the NMPF proposes to revamp the federal milk marketing order system, which sets minimum prices farmers must be paid for milk, and to reduce the nation's milk supply through herd buyouts and other means already under way in an industry-funded program called Cooperatives Working Together.
But the new system of payments to farmers could attract the most attention because it marks the greatest departure from the current system. The International Dairy Foods Association, representing milk processors, has been supportive of the NMPF's approach, according to a Congressional Research Service report distributed to congressional offices last week.
The report outlined several ideas the industry and Congress are considering for dairy policy in the next farm bill.
The calls for change, which are fairly universal in the industry, are tied to last year's deep decline in farm-level milk prices but also to the wide swings that farmers, plant operators and consumers have seen in milk prices for several years. But processors have complained more about record high prices that occurred a few years ago, while farmers have suffered prices well below their costs of production for the past year.
The cooperatives' latest idea amounts to an acknowledgment that the MILC program, intended to protect farmers from deep swings in milk prices, is falling short of that goal even with an adjustment for high feed prices that Congress added during the last farm bill update, in 2007. Its proposal takes some of the focus off milk prices, and puts it on the imbalance between what farmers spend to make milk and what they receive in return — and keeps the federal government as a sort of safety mechanism.
"The NMPF proposal, as initially designed, would appear to guarantee a payment when farm margins collapse, regardless of the cause (whether low farm milk prices, high feed costs, or some combination of the two)," the CRS reported.
The NMPF's chief executive officer, Jerome Kozak, wrote in a March column for the organization's Web site, "It's important to acknowledge the existence of this twin-headed monster in order to find a way to slay it. Fixing just the price problem is only half the battle, in the same way that focusing just on either supply or demand only deals with half of any product's price."
Critics of the NMPF's approach say that paying farmers even when milk prices are high could encourage overproduction and that any new milk price regime needs some sort of supply management. The NMPF has said its Cooperatives Working Together program accomplishes that goal, but government-sponsored supply management has long eluded the dairy industry.
Among other obstacles, reducing dairy herds tends to push down beef prices and has faced opposition from the cattle industry.
Another sticking point in the NMPF plan is that unlike the MILC program, it is not tailored to smaller farms. States with smaller farms, such as New York, tend to favor programs that direct aid at the smaller operations that are less able to ride out big dips in milk prices.
Whether the dairy industry will be at least somewhat united behind the NMPF proposal remains to be seen. A spokeswoman for the IDFA, Peggy Armstrong, emphasized this week that her organization hasn't committed to any proposal. A spokesman for the NMPF, Christopher Galen, said his organization is not working with the IDFA on the details but has shared with that organization's staff the outline of what cooperatives want to do in the next farm bill.
The Congressional Research Service report also notes several other ideas, including supply management and a proposal from some lawmakers and lobbyists to set farm-level milk prices based on farmers' cost of production. That would lead to higher milk prices, the agency reported, although the secretary of agriculture could also set lower prices to reduce national milk supplies in case of overproduction.
