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					Farm Bill 1.11: A Discussion of Dairy Farming and Policy
Reform
Submitted by caitlin on Mon, 04/02/2012 - 11:26

by Caitlin Salemi and Abby Youngblood



With our abundant grasslands, moderate climate, and proximity to population centers and processors, New York State

is a dairy state. We are a top agricultural producer nationally and dairy is our number one industry with over $2.3

billion in sales annually. Our vibrant urban areas have evolved alongside our rich agricultural resources, with fertile

bottom lands producing fresh fruits and vegetables and our once forested hillsides and pastures producing an

abundance of milk, meat, and eggs. In times past, these products were transported via railroads and along the

Hudson River to urban areas and this agricultural abundance helped to fuel the state’s economic development.



Previously, dairy farms dotted the rural landscape. But in the past 20 years, the number of dairy farms in the state

has decreased by half. Currently, fewer than 6,000 dairy farms remain in the state (out of 65,000 nationwide) and

dairy farmers struggle to make a living. For example, dairy producers Robert and Fred Fulper, who were interviewed

in a recent Planet Money Podcast, “The High Tech Cow”, work an average of 85 hours per week. Even in a good year,

the Fulpers pay themselves considerably less than minimum wage for their long hours and hard work.



The future of agriculture in New York State is intertwined with the dairy industry. Over the last ten years, an average

of 200 dairy farms have been lost each year in New York State. As dairy farms continue to go out of business, the

health of our rural communities and the health of other agricultural enterprises are negatively impacted. For example,

vegetable growers depend on their dairy farming neighbors to share equipment and all agricultural enterprises rely on

the same hardware stores, mechanics, and equipment dealers in the local community. When dairy farms go out of

business, the local businesses and infrastructure that supports all agriculture may also struggle to survive. For

example, in Jefferson County, the loss of ten dairy farms since 2009 has resulted in a loss of $27 million of income per

year and has had a ripple effect that negatively impacts the local businesses providing supplies and services to these

dairies.



In this article, we explore why it is so challenging to make a living as a dairy farmer and we look at federal policies

that impact our dairy industry. We explore proposals that have been put forward for inclusion in the 2012 Food and

Farm Bill that will have a tremendous impact on dairy producers and, as a result, the vitality of New York and regional

agriculture.




The following three factors characterize our dairy industry and help explain the challenge of surviving as a dairy

farmer: dairy farmers are price takers, not price makers; milk and feed prices are extremely volatile; and lastly,
concentration and consolidation in the dairy industry have resulted in fewer and larger farms, cooperatives,

processors, and retailers.



Dairy Farmers are Price Takers, Not Price Makers

Milk is highly perishable, so it must be transported quickly (usually on a daily basis) from the farm to dairy processing

facilities via milk trucks. Due to milk’s perishability, farmers cannot stockpile milk and wait for prices to rise and must

depend on whatever prices buyers will provide. Farmer-owned dairy cooperatives were formed to help farmers

achieve a good market for their milk. One of the first dairy cooperatives in the nation, Dairylea, formed in 1907 in

Orange County, New York. Originally called the Dairyman’s League, by the 1920s membership had grown to more

than 100,000 farms. In 1923, the cooperative combined the words Dairymen’s and League to introduce the name

“Dairylea” for the cooperative’s product line, which went on to become a leading brand in the region.



Cooperatives serve many different functions and may perform some or all of the following on behalf of their members:

negotiate prices, procure raw milk from the farm, transport milk where needed, process milk, manage surplus milk,

and market milk and dairy products. Approximately 65 dairy cooperatives operate in New York State, including some

of the nation’s biggest farmer owned cooperatives: Dairy Farmers of America (DFA) (which processes more than one

third of all U.S. milk), Dairylea, Agrimark (associated brand names include Cabot Creamery and McCadam Cheese),

and Upstate Farms (products are sold under the Upstate Farms brand). Dairylea has now merged with Dairy Farmers

of America and together they have formed Dairy Marketing Services (DMS), LLC to manage the sale and distribution

of the raw milk for both organizations as well as other independent producers and cooperatives. Supermarket brands

affiliated with DMS include Hood, Dean, Farmland, Kraft, Hersheys, Turkey Hill, Great Lakes Cheese, Sorrento cheese,

and more.



Milk production is a biological process: the volume of milk produced varies with the season and depends on other

biological factors related to the herd. Milk production does not always track with demand for milk products. Part of

the role of cooperatives and processors is to help balance supply and demand by assisting in marketing fresh milk and

processing the remaining milk into cheese, yogurt, non-fat dry milk, and other less perishable dairy products.



Dairy farmers have large amounts of capital invested in their herds (each dairy cow is worth approximately $1500), in

their farm’s infrastructure (milking parlors, barns, equipment, etc), and in the land itself. During periods of low

prices, farms cannot decrease production easily and may actually try to increase production to survive difficult

economic times. As production continues to increase, prices may fall even lower resulting in a vicious cycle.



The U.S. Department of Agriculture regulates the price of milk through the Federal Milk Marketing Order system

(FMMO). There are eleven FMMOs in the nation that establish minimum prices for approximately 70% of all Grade A

milk produced. Milk prices for Grade A milk are set each month and go up and down based on complicated formulas
that rely on a variety of factors including milk component values (i.e. protein, fat), wholesale dairy product prices for

butter, cheddar cheese, nonfat dry milk and dry whey and other factors which vary according to the milk marketing

order.



Established in 1937, this system was set up to help dairy farmers market their milk but many dairy farmers believe

the system no longer reflects current dairy marketing needs and does not take into account the influence of a global

marketplace on U.S. milk supply and demand that drives the extreme highs and lows in milk prices paid to farmers.

According to a 2008 report by Food and Water Watch, “For the past decade, the price that dairy farmers receive for

their milk has been near or even below the cost of producing the milk, while the cost of fuel, labor, and veterinary

services has continued to rise.” Recognizing milk production and delivery systems have changed in the last 70 years,

producers, processors, and policymakers are now investigating how to update this federal pricing structure.



Given these conditions, dairy farmers struggle to break even. In 2009, dairy farmers experienced the largest drop in

milk prices since the Great Depression - the price farmers were paid for their milk decreased by more than half

between December 2008 and June 2009 . According to testimony submitted to the New York State Senate by Farm

Credit East, “Many dairy farmers lost over $1,000 per cow in 2009 - this eroded their equity, dramatically reduced

funds for family living expenses, and erased any savings they may have had. While the price of milk has begun to

recover, the financial impact will be felt for a long time.” In states with heavy development pressure, farmers have

been compelled to sell their land given the difficulties of remaining viable businesses.



Price Volatility

Dairy farming was a relatively stable business during much of the 20th century. Profits depend on the difference

between the price of milk and the cost of feed and fuel and other production costs (the “margin”). Farmers’ margins

are good when milk prices are high and feed and fuel are relatively inexpensive. Until recent years, government

policies helped ensure relatively stable prices for both feed and milk. As a result, dairy farmers’ incomes were

relatively predictable. But shifts in government policy starting in 1981 have resulted in an end to milk price

minimums. Since 1981, the price farmers receive for the milk has declined steadily in real terms and price volatility

has increased dramatically. Milk prices are now allowed to fluctuate with global markets and dairy producers have

become more dependent on export markets, which has exposed them to the volatility of those markets. Corn and

soybeans (the primary ingredients in animal feed) are global commodities and prices can fluctuate wildly on the world

market. Droughts in New Zealand or conflicts in the Middle East that impact the price of oil can also impact what

dairy producers are paid for their milk.



According to a recent Cornell study, price volatility may be the biggest threat to the dairy industry. For example, this

chart from a Cornell study shows how the price of cheese (Federal Order Class III) has fluctuated over the past forty

years. As this chart demonstrates, the peaks and valleys for cheese prices have become more dramatic in recent
years.




As a result of this volatility, dairy producers must have more and more sophisticated tools to manage risk. It is now

possible to buy and sell milk and animal-feed futures. Doing so allows producers to lock into favorable prices and

hedge against low prices. Most small-scale, producers, however, are not financial experts nor do they have the

capacity to hire a financial expert to help manage risk in this way. The bigger farms are better equipped for managing

these risks, leading us to the next trend in dairy farming -- the dairy industry has become increasingly consolidated.

The trend has been towards fewer and bigger farms.



Concentration and Consolidation in the Dairy Industry

Consolidation in the dairy industry has resulted in fewer and larger operations all along the production and marketing

chain from farms to cooperatives to processors to retailers. Because larger operations tend to have lower per-unit

costs, they have been able to out-compete smaller operations. Despite these trends, dairy farms in New York remain

relatively small (in terms of numbers of cows per operation) compared to other regions of the United States.

According to a Congressional Research Service report on consolidation and concentration in the dairy industry,

concentration, the extent to which a small number of firms controls the market for a particular sector, has increased

in the dairy industry as well.



Despite the fact that tens of thousands of dairy farms have been lost over the past 50 years, steady increases in the

amount of milk produced per cow have meant that total milk production has actually increased. These increases in

production per cow are the result of genetic selection and advances in animal feeding, health care, and management

techniques. As described in a recent New York Times Magazine article, during the depression, a small herd of 15 cows

(a typical size at this time) being milked by hand might produce 350 pounds of milk per day. A present day herd of

135 cows (a typical size at present in New York State) can produce as much as 8,000 pounds of milk per day and

cows are milked automatically using vacuum technology. While a handful of larger dairies in New York support about

as many as 6,000 cows, the average dairy herd size in New York (113 cows) is significantly smaller than the average

herd size in some of the other top dairy states. California, the largest dairy state, has an average of 850 cows per

farm and Idaho, the third largest dairy state, has an average of 661 cows per farm. Nationally, the largest dairies

house more than 10,000 cows.



According to an Environmental Protection Agency report, “Better roads enhanced the ability to transport milk to

processing plants, improvements in housing and environment to keep cows more comfortable, less competition for

alternative land uses, and the ability to raise feed under irrigation has led to a shift in dairy production to Western

states. California surpassed Wisconsin in milk produced in 1993 and in number of dairy cows in 1998.”
What is the impact of concentration and consolidation in the dairy industry? According to the Congressional Research

Service (CRS) report cited above, one concern is that concentration in the industry reduces competition. As fewer

companies control more of the market, there is the potential to use this market power to influence prices.     Another

concern is that fewer industry participants mean fewer market transactions. The CRS report states “Typically,

markets work more efficiently when there are many ‘observable’ transactions that provide sufficient information to all

market participants about demand, supply, and prices.” Cheese, butter, and non-fat dry milk are traded on the

Chicago Mercantile Exchange (CME), but at this point in time the actual quantities traded are small. This is

problematic because the prices determined by buyers and sellers at this market are used to establish wholesale price

contracts around the country. Wholesale dairy product prices are then used to set monthly minimum prices for farm

milk under the Federal Milk Marketing Orders.



According to the CRS report, “Some dairy producer groups believe that the CME is an inadequate pricing mechanism

because of perceptions that the market is too thinly traded, lacks transparency and sufficient oversight, and creates a

highly volatile market that adversely affects producers. The Government Accountability Office (GAO) concluded in a

2007 study that certain market conditions at the CME spot cheese market, including a small number of trades and a

small number of traders who make a majority of trades, continue to make this market particularly susceptible to

manipulation.” In 2008, Dairy Farmers of America (DFA) and two former DFA executives were fined $12 million for

attempted price manipulation of fluid milk through purchases of cheddar cheese on the CME.



A second concern related to concentration and consolidation in the dairy industry has been raised by Food and Water

Watch, among others. The concentration of many animals in one area results in tons of manure that can pollute

water and air if handled improperly and can have negative health impacts on the communities surrounding dairy

farms. Industry representatives, however, point out that the dairy industry in New York is made up of mostly smaller

producers, New York has some of the most stringent environmental regulations in the country for dairy producers, and

dairy producers’ compliance rate with environmental regulations is high.



Current Federal Dairy Policy

As detailed in a 2010 Congressional Research Service report, there are five elements of current federal dairy policy

including the Dairy Product Price Support Program (DPPSP), Federal Milk Marketing Orders (FMMOs), the Milk Income

Loss Contract (MILC) program, the Dairy Export Incentive Program (DEIP), and tariff-rate quotas on dairy imports.

These policies are briefly described below.



The Dairy Product Price Support Program (DPPSP)

Through the DPPSP, the government can purchase dairy products (cheddar cheese, butter, and nonfat dry milk) from

processors at a legislated minimum price when market demand for those products has declined, therefore indirectly

supporting the price of farm milk. Last used in FY 2009, the program is currently authorized through 2012 under the
2008 Farm Bill and is administered by the USDA Farm Service Agency (FSA).



Federal Milk Marketing Orders (FMMOs)

Federal Milk Marketing Orders operate in two ways. First, they mandate minimum prices that processors must pay

dairy farmers or their agents (cooperatives) for farm milk. Second, they establish a system to equitably distribute

proceeds to farmers in a marketing area based on a “blend price.”



Set monthly, FMMO price minimums are determined by a combination of market-based and administered pricing

systems. Market-based, wholesale cash prices for dairy products (including cheese, butter, and non-fat dry milk) are

determined daily at the Chicago Mercantile Exchange (CME) based on trading between a relatively small number of

large companies. In turn, the USDA determines the “administered price” of farm milk which is based on the wholesale

prices set at the CME combined with a tiered class system that signifies the end use of the milk (current dairy policy

uses a four-class system with the price of fluid milk set higher than that of milk to be used for processed dairy

products). FMMOs operate in ten geographic marketing areas and regulate the price of about two-thirds of the

country’s farm milk. FMMOs are permanently authorized under the Agricultural Marketing Agreement Act of 1937.

Formal hearings are required to change the orders.



The Milk Income Loss Contract (MILC) Program

Under the MILC program, the federal government compensates dairy farmers when the price for fluid farm milk falls

below a certain specified level (the target price). Payments are 45 percent of the difference between the target price

and the lower price and are limited to specified maximum production levels (approximately equal to a 160 cow

operation). To be eligible, producers must be in compliance with certain conservation provisions. The MILC program is

authorized under the 2008 Farm Bill through September of 2012 and administered by the USDA Farm Service Agency

(FSA). The MILC program supports smaller producers because of production level limitations. If the MILC program is

allowed to expire in 2012 before a new safety net is put in place, this will have a negative impact on the small dairy

producers who are dependent on the program.



The Dairy Export Incentive Program (DEIP)

Originally intended to counter European dairy subsidies and remove surplus dairy from the domestic market, the DEIP

pays cash bonuses to U.S. dairy exporters and provides market development assistance. The program is authorized

through 2012 under the 2008 Farm Bill.



Tariff-Rate Quotas on Dairy Imports (TRQs)

Intended to limit dairy imports, tariff-rate quotas impose tariffs on dairy product imports above certain quantities,

except those from other World Trade Organizations (WTO) member countries. Import tariffs are authorized in Section

22 of the Agricultural Adjustment Act of 1937.
Approaches to Dairy Policy Reform

In this section, we highlight different approaches to dairy policy reform. Each approach is intended to improve the

viability of dairy farmers’ operations, either by reforming the price system used in FMMOs, reducing price volatility in

the market, providing a safety net for dairy farmers, or increasing access to markets. Within each category, there may

be different opinions for how to best implement the approach.



Revise the Dairy Pricing System

As described above, the current system for establishing and supporting farm milk prices through FMMOs uses a

complex formula that bases farm milk prices on the wholesale price of cheese (an “end-use” product of milk) traded at

the Chicago Mercantile Exchange (CME). Critics argue that the system is overly complex, opaque, and open to price

manipulation. Several strategies have been put forward for how to revise this price system.



Some, including the National Dairy Producers Association, the National Farmers Union, and Food and Water Watch,

argue that to increase farm revenue the minimum price for farm milk should be based on the cost of its production.

However, the strategy for price system revision that has gained the most traction recommends replacing the current

“end-use” price system with a “competitive pay system” that more directly ties pricing to demand by using a formula

based on the price of raw/producer milk taken from actual market transactions. Initially proposed by the National Milk

Producers Federation, variations of this strategy are included in both the Dairy Security Act of 2011 and Dairy Pricing

Reform and Farmer Protection Act of 2011 (see below). Other dairy pricing recommendations include making price

triggers more transparent to dairy producers and increasing the frequency of USDA price reporting (currently, there is

a one to two week lag time in price reporting). The International Dairy Foods Association, which represents dairy

processors, supports the elimination of price floors in FMMOs, arguing that minimum prices stifle innovation and

competition.



Provide Risk Management Tools

Recommendations to improve risk management for dairy producers include authorizing farm savings accounts and

creating an optional margin insurance program.



Farm Savings Accounts

Currently not a part of federal dairy policy, farm savings accounts would allow dairy farmers to move income from

profitable years into tax-preferred or untaxed accounts that could be drawn on in less profitable years. Farm savings

accounts are included in The Dairy Advancement and Investment for Retail Yogurt Act (DAIRY Act) (see below). The

International Dairy Foods Association, which represents processors, includes this recommendation in their platform.



Margin Insurance
Given that prices for inputs (feed and fuel) are expected to fluctuate, the dairy industry is likely to remain volatile.

The MILC program, which pays dairy farmers when farm milk prices fall below a certain level, is set to expire on

October 1, 2012. Margin insurance proposals are new approaches to providing a “dairy safety net.” If adopted, margin

insurance would pay participating farmers when farm milk price minus feed price (the “margin”) falls below a certain

level.



At present, there is a program administered by the USDA’s Risk Management Agency, called the Livestock Gross

Margin for Dairy Cattle (LGM-Dairy) insurance policy but the authorized funding level does not meet the demand of

dairy farmers for the product. Current proposals, including the Dairy Producer Margin Protection Program (DPMPP) (as

part of the Dairy Security Act of 2011), suggest a new approach to margin insurance that would use different

benchmarks than the ones used in LGM-Dairy, which are set by insurance agents. To participate, producers would pay

an administrative fee based on milk production levels and would have the option to purchase higher margin levels.

Some proposals for margin insurance, including the DPMPP, would require dairy producers who opt into the program

to participate in a supply management program.



Implement Market Stabilization through Supply Management

Supply management proposals are intended to reduce price volatility and prevent depressed farm milk prices by

curtailing raw milk production when market demand is low. Supporters of this approach, who include some dairy

producers and cooperatives, argue that current dairy policy encourages overproduction (which drives prices down)

because the government creates an artificial market for dairy products by buying cheese, butter, and dry milk (via the

DPPSP). Additionally, to maintain cash flow, farmers may add extra cows even when true market demand for farm

milk has fallen. Opponents, including the International Dairy Foods Association, which represents processors, would

like to keep milk prices as low as possible and argue that this approach rewards inefficiency, reduces competitiveness,

and will raise prices for consumers. Current proposals that include market stabilization programs, such as The Dairy

Security Act of 2011, also recommend eliminating the existing DPPSP and the MILC program and implementing a

complementary margin insurance program, as described above.



Invest in Regional Infrastructure and Small-Scale Processing Facilities

Food and Water Watch's recommendations for dairy policy reform call for adopting policies that support developing

and rebuilding regional, small-scale processing facilities and distribution infrastructure so that small and mid-scale

dairy farms can more easily access markets. This recommendation affects all local and regional food and farm sectors

(not just the dairy sector) and the recommendation is therefore part of many other farm bill platforms, including the

National Sustainable Agriculture Coalition.



Investigate and End Anti-Competitive Behavior in the Dairy Industry

As detailed in a Congressional Research Service report on consolidation of the dairy industry, some dairy producer
groups argue that the current price discovery system used to set minimum farm milk prices for FFMOs is open to

manipulation and price fixing by a few large corporations (both cooperatives and processors). A 2007 Government

Accountability Office report concludes that while there is government oversight of “spot cheese market” trading at the

Chicago Mercantile Exchange, the current system remains susceptible to price manipulation. Food and Water Watch

recommends that Congress further examine the extent of consolidation in the industry and continue to investigate

whether price-fixing by large cooperatives and corporations is occurring. The National Farmers Union also supports

government action to address lack of competition in the dairy industry and argues that Federal Milk Marketing Orders

should apply to all dairy producers, including the ones who currently operate in areas not under federal regulation

(like California).



Proposed Legislation

In the 112th Congress, multiple proposals have emerged to reform federal dairy policy. Referred to as marker bills,

these proposals are often some combination of the approaches listed above. The purpose of a marker bill is to

introduce specific legislative ideas into a much larger legislative debate (like that of the Farm Bill). While we do not

give an in-depth analysis, the principle elements of the bills are provided below. For a more in depth treatment of

most of these proposals, see the 2011 Congressional Research Service (CRS) report “Dairy Farm Support: Legislative

Proposals in the 112th Congress.”



Dairy Security Act of 2011 (H.R. 3062) (Rep. Peterson, D - 7th CD, MN)

The Dairy Security Act eliminates the Dairy Product Price Support Program (DPPSP), the Milk Income Loss Contract

(MILC) Program, and the Dairy Export Incentive Program (DEIP). The Act proposes a margin insurance program called

the Dairy Producer Margin Protection Program (DPMPP) and a complementary supply management program called the

Dairy Market Stabilization Program. Producers are only eligible for the margin insurance program if they opt into the

supply management program.



The Dairy Security Act also calls for revising the price discovery system used for FMMOs so that farm milk prices are

based on the prices of raw milk rather than cheese traded at the Chicago Mercantile Exchange (CME). The Act is

modeled after the platform of the National Milk Producers Federation, a trade association that represents large dairy

cooperatives. The International Dairy Foods Association, which represents processors, strongly opposes any proposal

that includes a supply management mechanism.



According to the House Committee on Agriculture, the Congressional Budget Office (CBO) has reviewed the Dairy

Security Act and determined that the cost of the proposed programs are contained within the bill and that the Act will

contribute to cutting the overall budget of the Farm Bill. Given this finding, the Act is seen as politically favorable.

Other analyses of the Dairy Security Act, conducted by the Dairy Markets and Policy Consortium (DMPC) at the

University of Wisconsin, conclude that the cost savings of the program will occur only in the first five years of the
program with the elimination of the DPPSP, MILC program, and DEIP. The analyses also conclude that while price

volatility is likely to decrease, the average price of farm milk is likely to decline, resulting in lower dairy farm revenue.

Furthermore, the DMPC analyses argue that government expenditure will vary drastically based on the level of farmer

participation in the margin insurance program.



Note: the Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011 (S.1658, referred to as REFRESH)

contains dairy provisions that are the same as those contained in the Dairy Security Act. The REFRESH Act has been

introduced in the Senate (Sen. Lugar [R-IN]) and the House (Rep. Stutzam [R-IN3]) and addresses the entirety of the

Farm Bill, not just dairy programs.



Dairy Pricing Reform and Farmer Protection Act of 2011 (S. 1715) (Sen. Gillibrand, D-NY)

The Dairy Pricing Reform and Farmer Protection Act is similar to the Dairy Security Act in that it eliminates DPPSP,

MILC, and DEIP and proposes both a margin insurance and market stabilization program. According to the 2011 CRS

report cited above, this proposal offers better margin protection for smaller producers than H.R. 3062 because

production limits apply when the margin is below a certain threshold. A second difference is the way that the market

stabilization program functions. In the Dairy Pricing Reform and Farmer Protection Act, the market stabilization

program is designed to reduce overproduction by large farms in regions with low demand for milk, while allowing

continued production in areas with increasing demand for milk (as in New York). No formal analysis of this Act has

been conducted and therefore it is hard to determine the market and farm impacts of this supply management

strategy. However, in New York State, the market demand for milk is higher than what the state’s dairy farmers can

produce, so a further analysis of the projected impacts of this program may be in order.



The Act also directs the USDA to investigate revising the price discovery system used for FMMOs to be a competitive

pay pricing system as opposed to an end-use pricing system. This Act has not been scored by the Congressional

Budget Office and no outside policy analyses have been conducted. Therefore, the projected cost of the bill and its

market and farm impacts remain unknown.



Dairy Producer Income Protection Act (S. 1714) (Sen. Gillibrand, D-NY)

This Act extends the MILC program for five years (until September 2017) and adjusts the target price monthly based

on inflation. The Act also directs the Secretary of Agriculture to use the hearing process to evaluate the impact of

revising the pricing formula used in FMMOs, as in the Dairy Pricing Reform and Farmer Protection Act of 2011. This Act

has not been scored by the Congressional Budget Office and no outside policy analyses have been conducted.

Therefore, the projected cost of the bill and its market and farm impacts remain unknown.



*Note: Senator Gillibrand’s two bills take different approaches to providing support to dairy farmers.
The MILC Continuation Act of 2012 (H.R. 4085, S. 2126) (Rep. Welch, D-VT, At Large, and Sen. Leahy, D-VT)

This Act extends the MILC program for one additional year.



Federal Milk Marketing Improvement Act of 2011 (S. 1640) (Sen. Casey, D-PA)

The Federal Milk Marketing Improvement Act would revise the current dairy pricing system by replacing the four-class

system for categorizing dairy with a two-class system (fluid milk and manufacturing milk). The Act also specifies that

minimum prices in FMMOs would be based on the national average cost of production for milk rather than on market

demand. Additionally, the Act proposes an inventory management program, wherein the government could reduce the

price of milk if it is determined that overproduction is occurring nationally.



The National Dairy Producers Organization, the National Family Farm Coalition, the Progressive Agriculture

Organization, and Food and Water Watch have endorsed this bill. The Act is also in line with the platform of the

National Farmers Union. However, Foundation for the Future (a program of the National Milk Producers Federation)

argues that there are problems with establishing a minimum price for farm milk based on the cost of production. This

Act has not been scored by the Congressional Budget Office and no outside policy analyses have been conducted.

Therefore, the projected cost of the bill and its market and farm impacts remain unknown.



Dairy Advancement Act of 2011(S. 1682) (Sen. Casey, D-PA)

The Dairy Advancement Act eliminates the DPPSP and pays dairy farmers a subsidy to opt into the existing Livestock

Gross Margin for Dairy Cattle (LGM-Dairy) insurance program. The Act also provides loan guarantees to dairy farmers

to upgrade equipment and adopt new technologies. This Act has not been scored by the Congressional Budget Office

and no outside policy analyses have been conducted. Therefore, the projected cost of the bill and its market and farm

impacts remain unknown. Although they support Sen. Casey’s other marker bill, the National Dairy Producers

Organization opposes the Dairy Advancement Act.



*Note: Senator Casey’s two bills take different approaches to providing support to dairy farmers.



The Dairy Advancement and Investment for Retail Yogurt Act (DAIRY Act) (Sen. Schumer, D-NY)

In New York, where there is an increasing consumer demand for Greek style yogurt and several large corporations are

already operating or plan to build plants to manufacture Greek yogurt. The DAIRY Act provides tax incentives for

dairy farmers to purchase additional cows (which will subsequently increase production). The Act also authorizes tax-

preferred farm savings accounts. This Act has not been scored by the Congressional Budget Office and no outside

policy analyses have been conducted. Therefore, the projected cost of the bill and its market and farm impacts remain

unknown.



Conclusion
The nature of dairy farming and the current structure of the dairy industry make surviving as a dairy farmer extremely

challenging. Existing dairy policy and proposals for dairy policy reform are incredibly complex. Given the many

interests represented in the dairy sector (for instance, small, mid, and large scale producers, cooperatives, and

processors), it is difficult to get agreement on any proposed dairy policy. Additionally, the current debate in Congress

about how to cut the federal deficit is pervasive in all legislators’ conversations about how to draft the 2012 Food and

Farm Bill. In this context, proposals to reform dairy policy that represent industry agreement and are low-cost or offer

cost savings are seen as the most politically viable.



To complicate matters further, the Milk Income Loss Contract (MILC) program, which has been instrumental in helping

dairy farmers (especially small dairy producers) survive the dairy crisis that occurred in 2009, is set to expire on

October 1, 2012. Extending the MILC program does not have the support of the entire dairy industry because it

provides a safety net only up to certain production levels. Therefore, large-scale dairy farmers do not see it as

adequate and the general consensus in the industry is for overall reform of dairy policy. Given that the MILC program

is expiring, there is an urgency to make sure some form of dairy safety net is in place.



The complexity of existing and proposed dairy policies makes them incredibly difficult to evaluate and analyze.

Conclusions about proposed policies will differ based on assumptions regarding the participation decisions of farmers

and the specifics of the economic models that are used to project market and farm impacts. According to the House

Committee on Agriculture, the Congressional Budget Office (CBO) has reviewed the Dairy Security Act and determined

that the cost of the proposed programs are contained within the bill and that the Act will contribute to cutting the

overall budget of the Farm Bill. The National Milk Producers Federation, whose platform the bill is based on, conducted

listening sessions with dairy farmers across the country and incorporated feedback into their platform that is reflected

in the Dairy Security Act. Although many producers acknowledge that the bill is not perfect, the Act is talked about as

if it represents a compromise among dairy producers. As a result, the Dairy Security Act has gained the most traction

of all proposed dairy policy reforms and is viewed as the most politically viable. For the reasons just outlined, the New

York Farm Bureau supports the Dairy Security Act of 2011.



However, the entire dairy industry does not support the Dairy Security Act. In a Februrary 2012 poll of dairy

producers conducted by the publication Progressive Dairyman, 77 percent of respondents opposed the Dairy Security

Act. Producer groups, including the Dairy Policy Action Coaltion and the National Dairy Producers Organization oppose

the bill. Additionally, processors, including the International Dairy Foods Association, strongly oppose the bill and

assert that they were not heard at recent hearings held by the House Committee on Agriculture. Two New York State

processors submitted testimony to the House opposing the market stabilization program of the Dairy Security Act.



The current climate of deficit reduction and the upcoming expiration of several key dairy provisions means that dairy

producers will be heavily impacted by the outcomes of the Food and Farm Bill debates that are currently taking place.
Moving forward, the survival of dairy farms in New York, many of which are small and medium scale operations, will

depend on what transpires in the 2012 Food and Farm Bill.

Thank you to Ed Yowell from Slow Food NYC and Kelly Young and Catherine Calzada Mural from the New York Farm

Bureau for reviewing and providing feedback on this article.



Selected Resources:

Davidson, Adam. “Even Dairy Farming Has a 1 Percent.” New York Times Magazine, March 6, 2012.

http://www.nytimes.com/2012/03/11/magazine/dairy-farming-economy-adam-da...



DiNapoli, Thomas. “Local Government Snapshot: March 2010 - New York’s Dairy Industry in Crisis.” Office of the New

York State Comptroller, 2010. http://www.osc.state.ny.us/localgov/pubs/research/snapshot/0310snapshot.pdf



Food and Water Watch. March 2011. “Consolidation and Price Manipulation in the Dairy Industry,”

http://documents.foodandwaterwatch.org/doc/DairyCompetition-web.pdf



Food and Water Watch. October 2008. “Dairy 101.” http://documents.foodandwaterwatch.org/doc/Dairy101-web.pdf



Food and Water Watch. February 2011. “Factory Farms in New York.”

http://www.foodandwaterwatch.org/factsheet/factory-farms-in-new-york/



Henehan, Brian. April 27, 2010. “An Overview of Dairy Marketing Cooperatives Operating in NYS.” College of

Agriculture and Life Sciences, Cornell University.

http://dyson.cornell.edu/outreach/extensionpdf/2007/Cornell_AEM_eb0703.pdf



Murphy, David. June 14, 2009. “Dairy Crisis 2009: Stand Up For Rural America While You Still Can.” Civil Eats.

http://civileats.com/2009/06/14/dairy-crisis-2009-stand-up-for-rural-ame...



Shields, Dennis. April 27, 2010. “Consolidation and Concentration in the US Dairy Industry.” Congressional Research

Service. http://www.nationalaglawcenter.org/assets/crs/R41224.pdf



Shields, Dennis. 2009. “Dairy Pricing Issues.” Congressional Research Service.

http://www.nationalaglawcenter.org/assets/crs/R40903.pdf



Shields, Dennis. 2010. “Previewing Dairy Policy Options for the Next Farm Bill.”Congressional Research Service:

http://www.nationalaglawcenter.org/assets/crs/R41141.pdf
Shields, Dennis. 2011. “Dairy Farm Support: Legislative Proposals in the 112th Congress.”

http://www.fas.org/sgp/crs/misc/R42065.pdf



Stephenson, Mark and Charles Nicholson. October 2011. “The Dairy Security Act (HR 3062) and the Dairy Provisions

of the Rural Economic Farm and Rach Sustainability and Hunger Act of 2011 (S1658).” Dairy Markets and Policy

Consortium, University of Wisconsin-Madison. http://dairy.wisc.edu/PubPod/Pubs/DSA%20Provisions.pdf



Stephenson, Mark and Charles Nicholson. October 2011. “Market Impacts of the Dairy Security Act of 2011

(H.R.3062) and the Dairy Provisions of the Rural Economic Farm and Ranch Sustainability and Hunger Act of 2011

(S.1658)” Dairy Markets and Policy Consortium, University of Wisconsin-Madison.

http://dairy.wisc.edu/PubPod/Pubs/DSA%20Market.pdf

Stephenson, Mark and Charles Nicholson. October 2011. “Farm-Level Financial Impacts of the Dairy Security Act of

2011 (H.R. 3062) and the Dairy Provisions of the Rural Economic Farm and Ranch Sustainability and Hunger Act of

2011 (S.1658).” Dairy Markets and Policy Consortium, University of Wisconsin-Madison.

http://dairy.wisc.edu/PubPod/Pubs/DSA%20Farm.pdf

				
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