Supply Management Debate Heats Up

June 1, 2009 07:16 AM
With several organizations now pressing to implement supplement management programs for the U.S. dairy industry, the two sides of the debate are starting to form skirmish lines.
At this week's semi-annual meeting of the Minnesota Dairy Leaders Roundtable, two Midwest co-ops staked out the two sides of the debate. Ed Welch, CEO of Associated Milk Producers Association (AMPI) headquartered at New Ulm, Minn., argues in favor of some type of supply management program. (For the record, AMPI has long been a supporter of some type of national supply management program.)
"We need dairy product price stability, and we need to get the volatility out of dairy markets,” Welch says. "Now is the time to get some kind of mandatory program in place.” 
Dairy farmers, he says, are tired of the wild swings in milk prices. And so are their customers, such as McDonald's. Per capita dairy sales would likely increase if milk prices would stabilize between $15 and $18/cwt, say Welch. But the run-ups to $20 and then the crashes to $10 are causing buyers to back away from dairy, he says.
 "McDonald's would love to lock in five-year contracts for cheese at $1.65/lb,” Welch says. But dairy producers are reluctant to accept those types of contracts in fear that wholesale cheese prices could climb to $1.85 or higher. Right now, every producer in the country would love $1.65/lb cheese.
But Clint Fall, CEO of First District Association, a cheese producing co-op in Litchfield, Minn. some 60 miles north of AMPI urges caution. First District operates a single cheese plant, processing about 3.8 million lb. of milk per day. But the co-op recently installed driers that could eventually take the plant's capacity to 7 million lb./day.
Fall notes that the Midwest has been growing cow numbers and milk production in recent years. Minnesota, for example, has been growing cow numbers for the past five years. A national supply management program could stifle and even stop that growing momentum.
Fall implies that a national supply management program could permanently lock in the competitive advantages for the modern, highly-efficient cheese plants that have sprung up in the West and Southwest in the past few years. "Hopefully, we can position ourselves to meet the growth that is occurring in the Midwest,” he says.
So stay tuned. The supply management debate might not only pit region against region in the coming months, it could embolden debate within regions. The gentle sparring at the Minnesota Dairy Leaders Roundtable this week might just be a taste of things to come.

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