DairyLine Broadcast: Limiting Access to Dairy Forward Contracting Would Curtail Competition

By Chip Kunde, IDFA Senior Vice President

The first steps in writing the dairy title of the 2007 Farm Bill have been taken. The House dairy subcommittee produced a balanced bill that most producer, processor and co-op groups seem to be pleased with.

There are trade-offs in the package that we are reviewing to ensure that the long-term health of the industry is not compromised. But, all in all, the subcommittee's bill is an excellent foundation and should be maintained.

For instance, co-ops benefit from separate price supports for butter, powder and cheese, and new requirements for the U.S. Department of Agriculture (USDA) to maximize dairy export subsidies. The bill also makes the federal order decision process at USDA more responsive, which will help everyone. Many producer and processor groups, including IDFA, hailed the long-awaited renewal of the dairy forward contracting program which will allow everyone, not just co-ops, to forward contract for milk used to make cheese, ice cream and nonfat dry milk.

Unfortunately, some co-op groups want to upset this balance. The National Milk Producers Federation, which represents co-ops, says it's now only willing to support forward contracting on a temporary basis, and only if Congress saddles producers who sell their milk to proprietary plants, and not to co-ops, with new regulatory red tape - making it all but impossible for anyone to offer forward contracts except co-ops. This doesn't sound fair, and with co-ops receiving 86% of the farm milk in the country, constraining competition by giving them exclusive forward contracting privileges will not serve us well.

The forward contracting program was fully tested by USDA between 2000 and 2004, and the Secretary of Agriculture supports it. It contains producer safeguards that require verification that contracts are voluntary, not coerced, with USDA oversight.

Dairy producers understand contracts - they sign mortgages, take out bank loans for new farm equipment and forward contract for their feed and fuel. They should be able to forward contract their milk freely with whomever they choose.

The House subcommittee bill got it right. Attempts to unravel this carefully crafted compromise to gain an unfair competitive advantage for co-ops would limit farmer options and should be vigorously opposed.

Posted June 18, 2007