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IDFA Concerns with Failed Dairy Programs Echoed by USDA, Others at Senate Agriculture Committee's Dairy Hearing

Jul 24, 2006

IDFA Concerns with Failed Dairy Programs Echoed by USDA, Others at Senate Agriculture Committee's Dairy Hearing

Jim Green, IDFA chairman and president, and CEO of Kemps LLC, testified last week at a hearing before the U.S. Senate Committee on Agriculture, Nutrition and Forestry Oversight and issued failing grades to current national dairy policies. This sentiment was echoed by representatives of the U.S. Department of Agriculture (USDA) and several others who testified at the hearing.

"The outmoded dairy policies of today are preventing U.S. dairy producers and processors from taking full advantage of new opportunities here and abroad," Green told the committee. "Dairy processors across the country support a safety net for dairy farmers. However, we believe the current set of programs is failing the industry and consumers."

Committee Chairman Saxby Chambliss (R-GA) opened the hearing on July 20 by acknowledging the ag e and complexity of the current programs, and said the industry needs policies that will minimize market disruptions.

"IDFA applauds the chairman for holding the hearing and Senators Norm Coleman (R-MN) and Mike Crapo (R-ID) for speaking out on issues important to producers and processors," said Connie Tipton, IDFA president and CEO. Patrick Leahy (D-VT) also attended the hearing.

Green testified that USDA currently administers two costly and conflicting support programs: the Dairy Price Support Program and Milk Income Loss Contract (MILC) program.

"The Dairy Price Support Program essentially encourages overproduction of nonfat dry milk and discourages production of valuable dairy proteins," said Green. "The Milk Income Loss Contract program actually works at cross purposes with the price support program by stimulating overproduction, resulting in huge government outlays and regional divisions among dairy farmers."

Through September 2005, USDA reported that over $2 billion in MILC payments were made to dairy producers. During this same period, USDA also spent $1.5 billion purchasing dairy products, mostly nonfat dry milk, under the Dairy Price Support Program, he testified.

Green highlighted the Federal Milk Marketing Order system as a classic example of how dairy policies no longer reflect today's market demands or technological advances, which leads to unintended and undesirable consequences.

"The most recent example is USDA's failure to update much needed cost adjustments, or 'make allowances,' in federal order pricing formulas in a timely fashion," he said. "Every month of delay is costing dairy processors $26 million."

Coleman echoed Green's sentiment that the make allowances should be updated immediately. In answer to a question posed by the committee chairman, USDA's Administrator of the Agriculture Marketing Service Lloyd Day testified that the issue was an important one and said USDA was waiting for data from Cornell University before issuing an interim decision.

Green also urged the committee to learn from past successes and reinstate the Dairy Forward Contracting Pilot Program permanently.

"This program simply levels the playing field by making forward contracting available to all producers and processors of Classes II, III and IV milk," Green said. "This risk management tool allows producers and processors to manage price volatility without reliance on the government."

Chambliss asked the dairy farmer witnesses if they used forward contracting, and all confirmed that they did. Crapo, the champion of forward contracting, confirmed his strong support for forward contracting along with Coleman who said the program "made common sense."

Other witnesses, representing the government and producers, agreed with Green. USDA's Deputy Chief Economist Dr. Joe Glauber acknowledged in his testimony that MILC distorted market signals and could work at cross purposes with the price support program. Ken Hall, an Idaho dairy producer, testified that that the two programs were incompatible because they artificially depress prices, and they have outlived their intended purposes.

Glauber and Hall also testified that a permanent dairy forward contracting program would provide a good risk management tool for the industry. Hall recounted his positive experience with the pilot forward contracting program. Glauber emphasized that critics were wrong to think that the program undermines the Federal Milk Marketing Orders or pooling obligations.

Other dairy industry representatives who testified were Charles Beckendorf, chairman of National Milk Producers Federation and vice chairman of Dairy Farmers of America and Leon Berthiaume, general manager of St. Albans Cooperative.

The committee members expressed their opinions on dairy programs, demonstrating distinct differences on the success of current programs. Crapo explained that dairy producers in the West favor fewer government regulations and freer markets, while Leahy said smaller dairy operations in the East need programs like MILC, for example, to stay in business.

Chambliss said he hopes to bring processors and producers together while working on the next Farm Bill to create a single, national dairy program that would work for all parts of the industry. He announced that the committee will hold a second dairy hearing in the fall to consider the appropriate direction for future dairy policy.

"We applaud Senators Chambliss and Crapo for recognizing the need to develop policies that will minimize disruptions in the marketplace for both producers and processors," said Chip Kunde, IDFA senior vice president. "We hope Senators Crapo and Coleman can champion dairy forward contracting, and we look forward to working with them to make the program permanent in the next Farm Bill."

To read Green's full testimony, click here. For information, contact Chip Kunde, IDFA senior vice president, at ckunde@idfa.org or 202-220-3512.

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Posted July 24, 2006

 
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