September 5, 2017 at 3:32 p.m.

Dairy Security Act: Industry divided

Supply controls, margin insurance part of Farm Bill proposal

By By Ron Johnson- | Comments: 0 | Leave a comment

Mention "2009" to a dairy farmer and you're likely to elicit an angry nod of recognition. That year will be long remembered because of the devastation its unusually low milk prices wrought on dairy farms across the United States.
Now, three years later, with the memory of billions of dollars of lower income and more billions of lost net worth still fresh in their minds, some farmers and milk processors are ready to swallow the bitter pill of supply controls. A milk supply control mechanism is part of the draft of the 2012 farm bill the Senate Agriculture Committee approved April 26.
But the supply control portion of the Dairy Security Act (DSA), forged and promoted by the National Milk Producers Federation (NMPF), is just one part of the hoped-for cure to milk price volatility. The Senate Ag Committee's draft also includes margin protection insurance. Signing up for this margin protection would be voluntary, but farmers who do choose it would be bound to also participate in a "market stabilization" program and cut their farms' milk output when low milk prices create slim profit margins.
Dairy farmers and others in the industry are divided in their assessments of the DSA.

Collin Peterson, House Agriculture Committee
The impact of the DSA on milk production would be "minimal - less than one percent for two or three months every three to four years," said to Rep. Collin Peterson (D-Minn.), the ranking member of the House Agriculture Committee.
Nor does Peterson expect the supply control portion to damage the U.S. dairy industry. He cited the analysis of economist Scott Brown, at the University of Missouri.
A problem that frequently dogs voluntary programs is that of so-called "free riders" - those who benefit without participating. How much U.S. milk needs to be represented for the supply control part of the DSA to work and counteract the free rider effect?
"We had 30 percent free riders with CWT (Cooperatives Working Together) and things would have been much worse without it. We expect better than 70 percent participation, probably over 80 percent," Peterson said.
What about a 100-cow dairy farmer who does not plan to enlarge his or her herd for the next five to 10 years? Should that producer sign up for the DSA's margin protection and the accompanying supply controls?
In Peterson's view, "Yes." And he suggested the $6.50 coverage option for that 100-cow farm, saying, "This appears to be the sweet spot for a lot of producers."
What has Peterson been hearing from farmers and processors about the DSA, especially the supply control component?
"The people that understand it and understand the national dairy industry support it," Peterson said. "The producers I've talked to in my district, and the producers that stop by my office in (Washington) D.C., support it. The processors are generally against, but I've been told privately by more than one large processor that they are not that concerned."
An old argument that's been used against voluntary supply controls in the past is that they act as a "foot in the door" toward an eventual mandatory program or quota system. Peterson did not address the long-term aspect, but he did say he would oppose mandatory supply controls for this farm bill. He added that he believes the entire House Agriculture Committee would oppose it."
Peterson pegged the chances of the Dairy Security Act becoming part of the next farm bill at 100 percent.
It was in the Senate farm bill that passed the committee."
As for when the U.S. will have a farm bill to replace the current one that expires Sept. 30, Peterson said, "I think there is a 60 percent chance the farm bill will pass before the August recess. The DSA needs to be implemented as soon as possible. The No. 1 question I have gotten from producers is, 'Could we do the DSA by itself this year if the farm bill stalls?' I tell them the answer to that is 'No. We need to get the farm bill done in the next couple months.'"

Clint Fall, CEO First District Association
First District Association, Litchfield, Minn., supports the margin insurance component of the DSA, according to Clint Fall, chief executive officer of the milk processing cooperative that counts 1,100 dairy farmer members.
"We wanted a mechanism that would provide a strong safety net to small and medium-sized producers," Fall said. "We're not opposed to farmers, regardless of size, being able to protect themselves, as far as disasters in the marketplace."
On the other hand, the co-op does not support the market stabilization component and its production controls, Fall said.
To get to the point where it could find favor with even part of the DSA, First District Association worked hard to remove a provision that would have tried to reform the federal milk marketing order system, Fall said. Instead of reform being part of the farm bill, the cooperative prefers a separate USDA hearing on milk marketing orders.
"We will support the revised Dairy Security Act because we believe it's important that we get a farm bill done...I guess we'd rather have something versus nothing," Fall said.
"A farm bill containing the DSA might end up being a foundation for a dairy program that can later be tweaked and is "better than what we've had," Fall said.

David Scheevel, Foremost Farms
Another large milk processor, Foremost Farms, Baraboo, Wis., also supports the DSA. Board chairman David Scheevel milks 120 cows near Preston, Minn., and personally likes the farm bill proposal.
"I think what we have now doesn't work. When milk prices drop, we really need to get product out of the country, so it's taken off the market," (rather than bought by the federal government's Commodity Credit Corporation (CCC), Scheevel said.
The DSA, as it's written, would do away with the Milk Income Loss Contract (MILC) program that was written into the 2002 farm bill. MILC pays dairy farmers when milk prices dip low enough, but it limits payments to the first 2.985 million pounds a farm sells each year.
Some people argue that MILC discriminates against farms that produce more than 2.985 million pounds a year. Others counter that the program is fair because all dairy farms are eligible for payments up to the cap.
Scheevel likes the changes the DSA would make.
"I think the margin insurance is a better way to go than strictly the MILC, because there are times when (milk) prices aren't that great, but feed costs are low and you might still be making a little money. And there may be times when the (milk) price is up there but the MILC doesn't quite kick in, but feed prices are sky high and you're in a worse position," he said.
On the supply control aspect of the DSA, Scheevel said. "I'm not going to comment on that part. My position, publicly, is going to be from Foremost. As chairman of the board of directors, we are favoring the program in its entirety."
On milk marketing order reform being deleted from the DSA, Scheevel said, "It would be nice if we could have done that, but that was the toughest part of the whole process. Again, that comes from my position with Foremost. There was some stuff there, but apparently the stomach wasn't there to tackle those."
On the whole, though, he said a farm bill that contains parts of the DSA is a good beginning.
"I believe it's an important step to get started on reforming federal dairy policy," said Scheevel. "There's more to do, but I think we need to start with this."

Craig Edler, Dairy Farmers of America
The DSA has also found favor with Dairy Farmers of America (DFA). Craig Edler, a member of the DFA Board, milks 550 cows near Browntown, Wis., in Green County.
"The margin insurance is the biggest part I like about it. It'll give you more control over your own destiny," he said.
You can buy up and get more coverage, Edler said.
"Instead of having MILC or some of the other support programs, it'll be more like crop insurance," he said.
When it comes to the supply control component, Edler said, "I'm not completely in favor of that. But I understand that in order to make the program work, you have to have both. If they help guarantee everybody a price, with the (margin protection) program, you've got to have a way controlling production, too."
Edler said that he would probably sign up for the margin protection program, and by default, milk production controls.

Darin Von Ruden, Wisconsin Farmers Union
The Wisconsin Farmers Union has not endorsed the DSA, said Darin Von Ruden, the organization's president. He milks 50 cows on his organic farm near Westby, Wis.
"The way it's written, we're not really in favor of it," Von Ruden said. "We like the supply management part, but we just don' think it goes about doing it the right way. They're talking about a sliding scale, rather than some more-permanent numbers.
"We can foresee a situation where there's always going to be increased demand for products," he said. "But the way the proposal is set up, somebody can expand by 50 percent one year if there isn't a reason for supply control that year. And then they could continue to see that 50 percent growth and not really suffer any consequences."
In addition, the WFU would have liked milk marketing order reform kept in the DSA. Specifically, a different method for pricing milk is needed, said Von Ruden.
"The price," he said, "is what's causing farmers to go out of business.

Vance Haugen, grazier
Taking a more philosophical approach to the DSA is Vance Haugen. His family has a grass-based farm near Canton, Minn., and milks 199 cows.
"It's a good attempt at a humanitarian effort," said Haugen. "The way I understand it, there is, basically, going to be a quota system, and it's in response to the terrible bloodletting that was done the last time we got milk prices down to 10 bucks. The humanitarian part of me says, 'Well, I'd like to see dairy farmers survive. We need to have some folks in the industry.' That part I applaud."
But Haugen wonders which dairy farmers the DSA is really aimed at helping.
"Are we going to reward the folks who have gone out and expanded the most? And how do we take care of that problem? Because there are going to be winners and losers in this. While I don't want to make this into regionalism, it seems to me that this is going to benefit the folks out in Washington, California and Idaho way more than folks in Minnesota or Wisconsin," he said.
Haugen said he likes the current MILC program, because it's fair across the board. Each farm can receive money on its first 2.985 million pounds of milk.
"Do you need a whole heck of a lot more than that?" Haugen said. "If so, maybe you should take a look at your business model, to see what the profitability is."
An obvious concern, the dairyman said, is the supply control mechanism in the DSA. How would it treat farmers who want to enlarge their herds to bring a son or daughter into the operation?
"I'm not quite convinced the mechanism they have is going to work real well," Haugen said. "I think having some sort of supply control makes perfect sense, he added. "The devil is in the details. In Canada, the dairy farmers went to bed one night and the next morning they were millionaires because the (milk) quota (system) was put in. I'm not convinced that's going to be a good thing for the industry."
Haugen concluded, "I'm leaning against it (the DSA) unless we can see some more details on how they're going to take care of some of those problems."[[In-content Ad]]


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