Dairy Talk: Think Global

August 9, 2011 12:24 PM

Jim DickrellThe National Milk Producers Federation’s 12-city road show for its Foundation for the Future (FFTF) dairy reform package is now history. I was able to attend only one of the meetings, but reports were that producers were seeing the program through some pretty nearsighted lenses. That’s understandable—everyone wants to know "How would reform affect me?"

But there’s an old adage, coined in the 1970s by the environmental movement: "Think global, act local." That’s apt advice for evaluating FFTF.

The Great Dairy Recession of 2009 was a defining event for the current generation of dairy producers. Most still have not recovered their lost equity. Like it or not, any dairy reforms will have to prove their mettle against 2009.

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To be clear, the 2009 price collapse was not the result of domestic policy. Yes, production was on the increase after 2007 and 2008. But the global recession caused a credit and liquidity crisis, which froze export markets. With 11% of U.S. milk solids going offshore, a 25% decline in exports meant up to 3% more product was left in U.S. warehouses. The result: a 30% decline in milk prices.

Could FFTF prevent a recurrence? Maybe. It does away with the dairy price support program. That would allow U.S. prices to crash even lower, but markets would clear much faster. FFTF’s Dairy Market Stabilization Program also has a "snubber" that would halt the program if U.S. prices were 20% higher than world prices. The reasoning: If production drops too much, U.S. prices could rise and actually encourage imports to flow in.

But is 20% too wide a margin, preventing the U.S. from continuing to export products? Today, we are exporting 13% of our milk solids, and we’re on the way to 15%.

Maintaining our ability to export one out of every 7 lb. or 8 lb. of milk solids through thick and thin is critical. In the final analysis, all the rest of FFTF is just details.

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