National Milk’s Radical New Dairy Plan

February 2, 2010 06:00 PM
By Jim Dickrell

Finally. Jerry Kozak, National Milk Producers Federation (NMPF) president and CEO, has started talking publicly about his organization's proposal to revitalize U.S. dairy policy for the 21st century.

It's a decade late. But change always comes slowly—and usually incrementally—to dairy policy. Safe to say, too, that without the debacle of 2009, co-ops would still be arguing among themselves about product pricing formulas and make allowances. Nothing galvanizes the mind like a crisis, and it appears that NMPF has put this latest one to good use.

Kozak made appearances in Georgia and Wisconsin (at Lambeau Field in Green Bay, no less) last week to outline the plan. Parts of the plan are bold and creative. Parts are head scratchers. And there are one or two really dumb things as well. "Everybody will hate something in our package a little bit,” Kozak acknowledges. "But that's a sign of a good program for an industry as diverse as ours.”

The program has three legs. Each is needed to support the other two; the program pretty much collapses without all three, Kozak says.
• Federal Order reform. Class I would be retained for fluid milk along with differentials, but only the differentials would be pooled. Classes II, III and IV would be collapsed into a single class, and price formulas and make allowances would be eliminated. Class II prices would be based on competitive ability to pay. Reporting of these competitive prices would be mandatory to ensure transparency and to set a base for Class I prices.

• Dairy Producer Income Protection Program (DPIPP) established. The Dairy Price Support Program and the Milk Income Loss Contract program would be eliminated. Budget savings would be used to fund the DPIPP, which would be a margin-over-feed-cost insurance program.

DPIPP would pay an insurance indemnity when the margin—either because of low milk prices or high feed costs—falls to a certain level. Producer participation would be voluntary, but government-subsidized (like crop insurance) for minimal protection. Producers would also be able to purchase additional coverage at their own expense. The program is patterned after the current Livestock Gross Margin-Dairy insurance, but would be simpler and would pay indemnities much faster.

Eliminating the Dairy Price Support Program would mean prices could—and would—fall to market clearing levels. "The DPSP has outlived its usefulness,” Kozak says. The U.S. has become the balancing plant for the rest of the world with current price support levels—allowing lower-cost producers such as New Zealand and Australia to continue to profit with our $9.90 floor even in times of surplus. Eliminating that floor will put all competitors on the same footing, he says.

• Revitalized Cooperatives Working Together (CWT). "People [who participate in CWT] are tired of free riders,” Kozak says. Current participation is at just 68%. So NMPF is looking for ways to increase voluntary participation and is considering making the program mandatory. New programs might include partial herd retirements and heifer buyouts—a couple of the dumber ideas, in my opinion. Remember USDA's diversion program of the 1980s that accomplished nothing?

More creative options include a "domestic product diversification initiative”—fancy lingo for a program to help U.S. manufacturers produce products such as liquid casein, which is currently being imported. Also being considered is an Export Marketing Agency in Common (stealing a page from the Kiwis' bag of trade tricks) and Food Bank Assistance to move commodities to domestic feeding programs for the disadvantaged.

Final approval of the package by the NMPF board of directors could come as early as June. Then the real selling begins—to producers, processors and Congress. NMPF's goal is to get the package passed into law in the 2012 farm bill. Phased implementation will take years more.

This is not a quick fix. Current federal dairy programs took some 75 years to get to their present state. It will take a few more to dismantle them.

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