No Slam Dunks in Dairy Legislation
Feb 10, 2013
Given the economic analysis, philosophical differences and Congressional paralysis, it’s difficult to see where dairy policy will end up.
The two major dairy policy proposals before Congress agree on the need for margin insurance. Virtually all of the debate has been on the merits and potential dangers of market stabilization program, a.k.a. supply management.
The Dairy Security Act (now part of the farm bill) bundles margin protection with market stabilization. In contrast, the Goodlatte/Scott amendment offers standalone, if more restrictive, margin insurance.
Which works better? According to preliminary analysis presented by Marin Bozic, a University of Minnesota dairy economist, it all depends on how producers use it.
Economists from Michigan, Minnesota, Ohio and Wisconsin have done a retrospective analysis using dairy prices from 2007 through 2012 to compare the Dairy Security Act (DSA) to the Goodlatte/Scott amendment.
For a 450-cow herd, Goodlatte/Scott provides more net revenue than DSA for basic margin insurance and supplemental insurance with coverage levels less than $6.50/cwt.
The biggest take home, however, is that when the economists looked at the "sweet spot" at which level of margin insurance was best, DSA and Goodlatte/Scott were nearly identical. Both provided very generous benefits to farmers. When margins were protected at the $6.50/cwt. margin level, DSA netted about $56 per cow per year. Goodlatte/Scott netted $58 per cow per year for $7 margin level.
But this all has to be taken with a grain of salt because the economists used retrospective prices. Consequently, there was no way to account for supply responses from production cutbacks from the market stabilization component in the Dairy Security Act.
Congress will ultimately decide which version will become the law of the land. "If the farm bill is going to see the President’s desk, it has to pass through the House [of Representatives] floor, including through the amendment process where all members have an opportunity to have input," says Tyson Redpath, senior vice president of government affairs for The Russell Group, Inc. Redpath lobbies on behalf of dairy processors and the International Dairy Foods Association.
"[But] only half a dozen House members understand dairy policy, and only a couple serve on the agriculture committee," says Harry Katrichis, of counsel, for The Advocacy Group, who lobbies for California Dairy, Inc.
As a result, lobbyists for farm and dairy policy must continue efforts to educate members of Congress and their staffs. Given the complexity of the issue, that isn’t going to be easy. Plus, the disagreement over supply management still splits dairy producer groups and dairy producers and processors.
Jackie Klippenstein, VP, industry and legislative affairs for Dairy Farmers of America, says the dairy stabilization program contained in the Dairy Security Act already is already the product of compromise. Originally, the stabilization program was mandatory along with minimum, $4/cwt. margin insurance. "The program might not be ideal for everybody, but it does suit the needs of the industry," she says.
But opponents of the stabilization program fear it could morph into something more onerous later. "What’s past is prologue," says Redpath. "The Northeast Dairy Compact became the Milk Income Loss Contract program and on and on we go."
Given the economic analysis, philosophical differences and Congressional paralysis, it’s difficult to see where dairy policy will end up. There is no slam dunk, easy answer.