In a 90-minute webinar this morning with dairy media, Jerry Kozak and other officials of the National Milk Producers Federation (NMPF) provided more detail on the organization's Foundation for the Future plan, which is intended to change U.S. dairy policy direction.
The plan was overwhelmingly supported by NMPF Board members in a vote Wednesday.
Rather than relying on a set price support floor and formulas, the new plan offers a number of programs to protect income-over-feed-cost margins. If it had been in place over the past 10 years, it would have provided less total support to dairy farmers over that time, but would have provided more direct aid in catastrophic years like 2009, says Kozak, NMPF President and CEO.
The plan would eliminate dairy price supports and Milk Income Loss Contract payments, and instead would offer margin protection insurance. "This portion of the plan is only supposed to kick in catastrophic times,” says Kozak. "It is not intended to give a payment every year or when farmers don't need it.”
All dairy farms would be covered under the base program, with 90% of farm's annual production covered. Farms could purchase additional margin protection at their own expense.
In addition, when income-over-feed-cost margins drop below $6/cwt, dairy producers would only be paid for a portion of their total milk marketings. The idea is to encourage farmers to reduce production in times of over-supply, high feed costs or shrinking demand.
Over the past 10 years, such a plan would have been activated five times—in some cases for a few months, or in the case of 2009, perhaps for an entire year. But NMPF officials argue their plan would likely shorten these periods by reducing milk production.
Revenues obtained from the sale of the excess milk would be used to increase domestic consumption, and be governed by a dairy producer board. This Dairy Market Stabilization Program would be subject to a producer referendum after the first year, upon request by a majority of producers.
The plan would also eliminate make allowances that are used in formulas to set Federal Order prices across the country. To set baseline prices, the plan would rely on a monthly pay price survey of proprietary cheese plants across the country. To be included in the survey, plants would have to purchase more than 500,000 lb. of milk per day. Currently, 76 plants out of the country's largest 110 are proprietary and would be required to participate.
At first blush, the plan appears complex, utilizing different base periods for different programs. But Kozak argues that once producers understand the system, it will offer more stability because the triggers to enact each portion of the program will have been set before hand. "I actually think we're simplifying the system,” he says.
He also acknowledges the plan is still a work in progress, particularly the portion that deals with Federal Orders. Originally, NMPF had proposed going with just two classes of milk: Fluid and manufacturing. But after further discussion with co-op manufacturers, the current plan retains all four classes of milk. "The Federal Order piece of the plan is a work in progress. We're still evaluating it,” he says.
The International Dairy Foods Association applauded much of the plan in a news release yesterday. "Replacing outdated safety net programs for dairy producers, like price supports, with a program that will help our producers have a more reliable income makes a lot of sense,” says Connie Tipton, IDFA president and CEO. "IDFA is pleased to see that the NMPF plans calls for the elimination of make allowances and simplification of Federal Order milk price regulations.”
But she said not all parts of the plan are forward-looking. "The plan's Dairy Market Stabilization Program, which is intended to increase prices and limit growth, will have dire consequences for our industry and consumers. Supply management will decrease demand for dairy products and dairy ingredients, and will drive low-cost non-dairy substitutions in foods and restaurants across the country,” she says.
NMPF will now undertake a national education campaign to familiarize dairy producers with the program. Although the plan is targeted for inclusion in the 2012 Farm Bill, Kozak does not rule out the possibility of taking it to Congress sooner if the right legislative vehicle comes along.
For more details of NMPF's plan, click here
for a slide set or click here
for a 41-page narrative of the plan.