FAPRI estimates price response to NMPF plan
Milk prices would have been $2.21 per cwt. higher in 2009 had the Foundation for the Future plan been in effect, says the Food and Agricultural Policy Research Institute (FAPRI).
The analysis comes in response to an Informa Economics study that shows huge regional cost impacts if the plan—proposed by the National Milk Producers Federation (NMPF)—had been in effect.
Informa suggests Wisconsin producers would have paid in $150 million in excess production penalties over the past decade. California producers, who market 55% more milk than Wisconsin producers, would have paid in just $28.2 million.
The reason: California and other high-feed-cost states would have cut back production faster in response to those feed costs. Midwestern and Northeastern states, which grow a higher percentage of their feed, would not have cut back production as quickly.
The FAPRI report cites only March 2009 cutbacks, the first month producers would have been subject to production penalties. It shows that California would have had only 0.4% of milk subject to payments because milk buyers would have already placed production caps.
But Texas would have had 8% of its milk production subject to payments; New Mexico, 7.6%; and Florida, 7.3%. The Midwest would have seen less: Minnesota, 5.6%; Wisconsin, 5.2%; and Iowa, 3.5%. Michigan would have seen 8% of milk production subject to the program.
"States that grow milk production when the program is initiated will be more affected," says Scott Brown, a FAPRI dairy economist.
FAPRI estimates that penalty revenue generated from producers’ excess milk marketings would have totaled $85.4 million in 2009 if the plan’s Dairy Market Stabilization Program had been in effect from March through May and September through October. Those dollars would have been used to purchase 12 million pounds of cheese per month from April through December.
Those purchases (and removal of cheese from the market through noncommercial distributions) would have generated producer revenue that was three times their cost, Brown estimates, for a $3.4 billion increase in dairy cash receipts.
The FAPRI analysis says dairy producers would have had to cut back production 4% from March through May and 3% from September through November to avoid payment reductions in their milk checks. FAPRI assumes that 50% of this milk would not have come to market.
The Informa study estimates that producer pay prices would have been reduced $390 million under the plan in 2009, or $626 million over the past decade. But it does not estimate how much less milk would have been brought to market or how cheese prices would have been enhanced through cheese purchases.
"The Informa analysis ducked these questions," says Peter Vitaliano, NMPF lead economist. "And the industry was poorly served by this analysis."