Stabilizing the roller coaster

    CHIPPEWA FALLS, Wis. – Some may enjoy a good amusement park ride but most dairy farmers would probably agree the roller coaster ride the dairy industry has been in the last decade has not been a whole lot of fun.
    Stabilizing milk supply and prices has been a lingering question with a bevy of ideas bandied about from coast to coast. Finding a one-size-fits-all approach that is palatable to all industry stakeholders is a proposition that makes winning at a carnival game look like a sure bet.
    A collaborative effort between Wisconsin Farmers Union, Wisconsin Farm Bureau Federation and the University of Wisconsin called the Dairy Revitalization Plan is underway to find that solution to bring stability to the industry.
    The framework of that plan was presented to dairy farmers in a series of three meetings held in western Wisconsin in March, including one in Chippewa Falls March 25.
    “Over the last decade, we’ve lost over 17,000 U.S. dairy herds, which is about one-third of the total,” said Bobbi Wilson, WFU Dairy Together coordinator. “This most recent downturn was particularly problematic here in Wisconsin, losing an average of one or two dairy farms a day. That really got our attention.”
    While there has been resistance to the implementation of a strict quota system, or any program that would severely impact a farmer’s ability to grow their farm, Wilson said there has been wide-spread support for the idea of managing that growth.
    “We heard from large and small farmers, from California to Vermont, that there was interest in a national program that coordinates milk production growth, so that one farmer’s decision to expand doesn’t put somebody else out of business,” Wilson said.
    To make the proposal palatable to dairy farmers nationwide, the core principles allow for both growth opportunities and reduced price volatility and to slow the loss of farms as well as allowing for the entry of new farmers.
    The proposal has its roots in the Holstein Association USA’s Dairy Price Stabilization Act that was proposed for the 2014 farm bill but was not included in the final legislation.
    Chuck Nicholson, an associate professor at the UW-Madison, shared how the suggested Dairy Revitalization Plan is being formatted and the affects growth management could have.
    The Dairy Revitalization Plan has two main parts: allowable growth and a market access fee. One potential parameter for establishing allowable growth would be to establish a base using an average of three years of production and allowing a percentage of growth.
    A dairy farm that stays within the specified allowable growth for the year will pay no market access fee, instead garnering an incentive payment from a pool of dollars created by farms that chose to grow in excess of the specified allowable growth. That fee is paid only for the year that the farm’s production growth exceeds the allowable growth parameters. The program is broken into two tiers, one allowing for a more modest level of increased growth and one for farms choosing to grow more rapidly.
    “The market access fee would vary based on the amount you exceed the allowed growth to reflect the potential for a bigger impact in the marketplace you would have by increasing your supply,” Nicholson said. “You have to think about how much growth is allowed before you pay a market access fee, and then how much growth is allowed before you go from tier one to tier two. It can be thought of as a percentage of your production from the year before, or you can think of it in terms of pounds. The good news is there is a lot of flexibility on how you might do that.”
     Nicholson said that evaluations, using several different parameters, showed that allowing new producers to enter the market would not appear to have the ability to undermine the program as a whole.
    “It really makes you plan to be strategic with how you might choose to grow your business,” said Joe Bragger, WFBF District 4 representative.
    Besides stabilizing prices and managing production growth, the plan takes into consideration other areas that play a role in the dairy landscape, such as domestic markets and consumer prices; trade and exports; and the money paid out through government programs such as Dairy Margin Coverage.
    “We took all those into account, simultaneously, to see how all the different moving pieces that are part of dairy markets interact when we have a program like this,” Nicholson said.
    When the data was analyzed, comparing what actually took place in the dairy industry versus what could have taken place if growth management had been implemented with the 2014 farm bill, Nicholson said all of the variations of growth management programs that were studied reduced the average price variation and enhanced the average milk price for each size of farm.

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    The overall impact showed an increase in the net farm operating income for all types of farms studied. The programs studied increased both wholesale and retail dairy prices. While dairy exports continued to grow under the models, the rate of growth was slowed to a more even level.
    “We found that over the past seven-year time period, there was an average all-milk price of about $16.30 per hundredweight, including that really great year of 2014 and all the years that happened after that,” Nicholson said. “With one version of a growth management plan, we would have an average increase in the all-milk price of about $1.41 per hundredweight over that same time period. What the growth management plan does is basically take out the troughs of the big price cycles, creating greater stability over time.”
    More information on the proposed Dairy Revitalization Plan can be found at dairymarkets.org.