By Catherine Merlo
For several weeks, critics have been calling for Dairy Farmers of America (DFA) to do more to help its 18,000 producer-members through 2009’s dairy crisis. An e-mail campaign is being waged questioning DFA’s “limited efforts” in helping producers survive this year’s financial disaster.
Rick Smith, DFA’s president and CEO, is all too aware of 2009’s toll on dairy producers – and the target the nation’s largest dairy marketing cooperative has become. But the industry’s problems are beyond the ability of any one organization to fix, Smith told me yesterday by telephone.
“There’s tremendous frustration, anger and fear out there among the producer population,” says Smith. “Dairy farmers are getting hammered, and they’re shell-shocked. It’s been extremely gut-wrenching because there’s nothing they could have done to prepare for the economics they’re faced with.”
It’s natural in this environment for criticisms to be expressed about major players in the industry, “whether they’re valid or not,” Smith adds, his voice growing hoarse during the 30-minute conversation.
“Almost anything we do, people will criticize,” he says. “We’re not going to get unanimity in the dairy industry. But we’re doing what we’re supposed to do.”
Reacting to the Crisis
The answer to the current down cycle isn’t popular or easy, he says. “We need the marketplace – supply and demand -- to be realigned,” says Smith.
From 2005-2009, the industry saw five years of production growth. “What absorbed that run-up in production was the unprecedented growth in exports,” he says.
But the “worldwide economic tsunami” coupled with China’s melamine scandal, hit hard in the fall of 2008. “We lost billions of pounds of exports overnight,” he says. “No one was prepared for the end of 2008.”
Many in the industry, including DFA, could see what was to follow. Beginning in January, the co-op warned producers and bankers about the storm clouds that were coming. As 2009 unfolded, DFA took several steps to help producers with the crisis, Smith says. Those ranged from setting up a member hotline to handle stress-related calls to issuing a special $9.5 million cash payment in July and early 2008 patronage checks in August. DFA also worked to encourage the two herd retirements that the Cooperatives Working Together (CWT) held this year.
DFA also urged USDA Secretary Tom Vilsack to re-implement the Dairy Export Incentive Program (DEIP) for 2009-2010. The co-op has continued to support the $350 million appropriations sought by Sen. Bernie Sanders of Vermont.
Is DFA Doing Enough?
Even so, critics say those haven’t been enough. If the sharp drop in exports is behind the downturn, critics ask, why hasn’t DFA worked to put tariffs on the milk protein concentrates (MPCs) or casein products that are entering the U.S.?
“We’ve been supporting tariffs on MPCs for for five to seven years," Smith says. “This is not a new issue. “
The major obstacle to import tariffs is “people on the other side,” Smith says, those U.S. companies that use the imports in their own products. They are pushing for freer trade, something the dairy industry should also support because it represents opportunity in the world market. How can the U.S. oppose free trade when it seeks such a large role in global exports?
Also from the critics: Is DFA more interested in protecting its profits – and those of Dean Foods – than those of its producer-members?
“We supply Dean Foods less than half of their milk,” Smith says. “Other major dairy marketing cooperatives are also involved in supplying and pricing milk to Dean Foods. If there’s an over-supply of milk, it’s hard to get more for your product. “
DFA is price-competitive, he adds. “We want to have a constructive relationship with Dean Foods, but I work for dairy farmers, even if they feel we’re not working for them.”
DFA’s Next Steps
Smith would not venture an economic outlook, saying the industry had seen two false starts already. In part, it’s hard to forecast since no one is sure about the inventory of dairy products that exist in private hands and whether it’s large enough to impede a recovery.
“I still think we’re just about there for prices to start moving,” he says.
Prices will eventually recover, Smith says, but it’s important to recognize that the status quo doesn’t work. “Farmers and co-ops need the tools and a system that doesn’t create this harm, that can manage price volatility.”
DFA is working with the National Milk Producers Federation, which recently announced a four-pronged proposal to change the milk pricing system. The co-op is also continuing its support of the CWT program. And DFA is talking to the Holstein Association USA about its Dairy Price Stabilization Program. While Smith wouldn’t comment on whether he supports the supply management program, he says, “I commend the Holstein Association for the quality level of their discussion.”
In the meantime, one displeased DFA member tells me he will continue demanding more from the co-op. He will be writing more letters and taking other steps to get DFA to step up with more solutions. “That people have lost billions [of dollars in this downturn] is unforgivable,” he says.
The story will continue to unfold, but until then, there’s one area where Smith and his detractors may agree.
“It’s going to take more than one good price cycle to compensate for this down cycle,” Smith says. “Balance sheets – and psyches – have been seriously harmed. We’ll be dealing with the consequences of this downturn for a number of years.”