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January 2013 Archive for Dairy Talk

RSS By: Jim Dickrell, Dairy Today

Jim Dickrell is the editor of Dairy Today and is based in Monticello, Minn.

Dairy Still the Center of Farm Bill Debate

Jan 25, 2013

A Texas food policy analyst says the No. 1 reason we don’t have a farm bill is John Boehner’s absolute opposition to supply management.

Just like in farm bills past, dairy is at the center of the 2012-slash-2013 farm bill.

Never mind that dairy programs account for "just" $432 million of the Congressional Budget Office’s (CBO) 10-year baseline cost of $995 billion. Everyone argues the hang-up is food stamps, which account for $772 billion. Even crop insurance commands $90 billion of the baseline and conservation $65 billion.

So dairy’s contribution is a paltry 0.04%. It’s a flea on a fly on an elephant’s backside. CBO has also "scored" the National Milk Producer’s Dairy Security Act at just $107 million over five years, which would make dairy programs just 0.02% of the farm bill cost.

And yet dairy remains the key reason the 2012 farm bill didn’t come to the floor of the House of Representatives last year, says Joe Outlaw, co-director of the Agriculture Food Policy Center at Texas A&M. "Dairy is the reason the farm bill has been held up," he says. Outlaw spoke at the Southern Dairy Policy Conference in Atlanta last week.

Outlaw is in a position to know. He and his co-workers have provided the Senate and House Ag Committees with numerous sets of analysis of how various farm bill provisions would play out at the farm level. In dairy, he works with 22 panel farms in 10 states to develop detailed budgets. He is then able to use that information to gauge how various farm bill provisions would impact cash flows and farm profitability.

He’s on the speed dial list of numerous House and Senate Ag committee staffers, and they’ll call him at any hour to get information. As a result, Outlaw is in a unique position to know what’s driving the farm bill debate.

"The No. 1 reason we don’t have a farm bill is Congressman John Boehner (R-Ohio), who has publicly stated his absolute opposition to supply management," says Outlaw. As Speaker of the House of Representatives, Boehner is in a pretty good position to decide if the farm bill moves forward—or not. "It’s not about the money involved, but the philosophy," says Outlaw.

So what will happen? Congress still has two choices. The first would be to pass the 2013 farm bill with the current version of the Dairy Security Act that includes market stabilization for those producers who sign up for the margin insurance program. The second option is to pass the Goodlatte-Scott amendment that reduces the amount of production covered by margin insurance but also strips out the market stabilization component.

"Congress either needs supply management to keep the costs under control, or if they don’t, costs of the program skyrocket because there’s nothing to restrain production," he says.

"My gut feeling is that we’ll get something closer to Goodlatte-Scott" he says. "But as soon as it costs too much, they will ratchet it back."

There’s a chance Congress will again take up the farm bill prior to the next round of budget reduction negotiations in March. More likely, he says, it will get done a few days before the end of the fiscal year in September when the current extension of the farm law expires.

Read more here on why the House of Representatives must debate the farm bill and the Dairy Security Act.

Read more here on DSA's farm impact. 

Dairy Policy Deserves House Debate

Jan 14, 2013

Back-room deals only come back to haunt us.

There was more than the usual gnashing of teeth and beating of breasts when Congress and President Obama extended the old farm law at the end of last year.

I wasn’t jumping for joy either. But the alternative—a 2012 farm bill passed by Congressional and Presidential edict without a floor debate in the House of Representatives—was potentially worse. Much worse.

Go back to the mid-1990s when the 1996 farm law was debated and eventually passed. A five-minute-to-midnight deal, made in the Senate-House conference committee, delivered us the Northeast Compact. We’re still dealing with ramifications of that back room meeting 17 years later.

The Northeast Compact was supposed to be a temporary transition through Federal Order reforms then being transitioned into place. New England politicians, in particular Sen. Patrick Leahy (D-Vt.), feared Federal Order reforms would depress milk prices so severely that a special program, created specifically for New England, was in order.

So Leahy insisted the Northeast Compact be part of the 1996 farm bill, holding the entire bill hostage until he got his way. (Leahy is potentially even more powerful this go-round. He is now Senate pro tempore, second only to the Vice President in the U.S. Senate and third in line to the presidency.)

The Northeast Compact outraged producers in just about every other region of the country. Southern states even tried to form their own compacts.

The "temporary" Northeast Compact was eventually extended two years, finally expiring in September 2001. Morphing into its place was the Milk Income Loss Contract (MILC) program, which continued to use the same Boston Class I target price of $16.94/cwt.

Though the MILC program was national in scope, it was limited to the first 2.4 or 2.985 million pounds of annual milk production—depending on the particular period. While every dairy producer qualifies for this coverage, this might represent 12-month protection for a herd with less than 150 cows but just one month’s protection for a herd with 1,500 and a couple of weeks of protection for a herd with 3,000 cows.

That lack of fairness basically brought us to the Dairy Security Act (DSA) in the 2012 farm bill. The DSA has two main components—a margin protection program and a market stabilization program for those who sign up for margin protection. Most importantly, all herds are covered—they merely need to sign up.

But the market stabilization program—dubbed supply management by opponents—is still highly controversial. Had Congress and the President enacted DSA without a House floor debate, dairy processors and many dairy producers here in the Midwest would have been mighty unhappy. (See Robin Schmahl’s column last week.)

It’s one thing to lose a vote after full debate; it’s quite another to be shut out of the discussion.

Collin Peterson, (D-Minn.), ranking minority member of the House Agriculture Committee, was incensed that Republican House leadership refused to bring the farm bill up for debate:

"I see no reason why the House Agriculture Committee should undertake the fool’s errand to craft another long-term farm bill if the Republican Leadership refuses to give [written] assurances that our bipartisan work will be considered."

The farm bill deserves a full debate and vote by the House of Representatives. Back room deals only come back to haunt us.

Inability to Compromise Becomes Dangerous

Jan 01, 2013

The inability of politicians and government regulators to find common ground for the common good has moved beyond standing ground on principle and has entered the realm of dangerous.

Exhibit A. The posturing between President Barack Obama and Speaker of the House John Boehner (R., Ohio) has sucked so much oxygen out of the Washington political atmosphere that nothing else can happen in the vacuum. Among its most vulnerable victim is the 2012 farm bill.

At this writing on New Year’s Eve morn, it’s still not clear if the country is taking a dive over the fiscal cliff. Nor is it clear we’ll get a farm bill with—or without—a budget deal. The House filed three separate farm bill motions over the weekend. The first would extend current farm law through Sept. 30, 2013, and contains the Dairy Security Act, dairy margin insurance and the controversial market stabilization program. The second simply extends current farm law through Jan. 31, and third reportedly prevents a four-fold spike in dairy price supports.

Throughout the farm bill debate, everyone thought the dairy provisions—though controversial within the dairy industry—would never be the linchpin in getting a new farm bill passed. Crop insurance and food stamps, billions more expensive than dairy price supports were thought to be, would be the key hang ups. But if current farm law expires today, dairy price supports will once again be front and center.

The reason: Without a new farm bill, dairy provisions revert to permanent, 1949 law. That law stipulates that dairy prices must be supported at 75% to 90% of parity. In November, the parity price for milk was $52.10/cwt. So 75% would be $39/cwt.

It will take the United States Department of Agriculture (USDA) some time to actually implement this support price and make offers to cheese, butter and non-fat milk manufacturers to purchase these commodities at this level. Nevertheless, it would throw markets into turmoil and consumer demand into havoc. The price of a gallon of milk could theoretically double—and make organic milk appear to be the bargain of the day.

More likely, retail sales of milk, cheese, butter and yogurt would plummet. It would be a mess, to say the least. And the need for the government to actually buy product would become acute.

Exhibit B. The inability to reach compromise by government and industry also was manifested when USDA released its final rule on animal identification and disease traceability last week. USDA essentially threw in the towel, accepting 19th century brands and tattoos to combat 21st century globalized disease threats. The rule becomes effective February 28.

USDA had originally proposed much more progressive rules utilizing RFID tags and computerized data bases. But it was thwarted in those efforts—even belittled—by the least progressive elements of the beef industry. The irony, of course, is that these same cowboys will be the first to blame USDA should a foot-and-mouth disease (FMD) outbreak occur in the United States.

Sure, some individual states—particularly in the Midwest--have good disease traceability programs in place. But an FMD outbreak won’t stop at state borders: It will shut down meat and milk movement regionally, if not nationally. And it won’t be for a day or two as USDA and state veterinarians try to trace the disease. It will be weeks, maybe months, before livestock commerce returns to normal. RFID tags, 48-hour traceability and linked computerized data bases would not prevent such a tragedy from occurring. But they stand a far greater chance of getting things back to normal than looking for brands and tattoos.

At some point, politicians and regulators must become the leaders we all pay them to be. Enough is enough.

For more on the farm bill, click here.

For more on USDA’s animal disease traceability rule, click here.


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