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USDA Report Provides Helpful Basis for Policy Discussions

Aug 14, 2006

USDA Report Provides Helpful Basis for Policy Discussions

The U.S. Department of Agriculture's (USDA) Economic Research Service has published a 25-page "Dairy Backgrounder" that provides a helpful primer on industry trends and policy.

"Policymakers and the general public will be better able to evaluate proposed dairy policy or program changes by understanding the complex economic relationships that characterize the industry," the report states.

IDFA Chief Economist Bob Yonkers said, "The report helps illuminate the importance of consumer eating trends, dramatic changes in milk production, and the inherent friction between some current policies and trends in global marketing."

The report begins with a helpful synopsis of trends in dairy product demand, noting the dramatic rise of cheese consumption as well as the tapering off of that trend.

"The narrowing base of growth in cheese sales raises the possibility that the cheese market might soon become fully mature," the report states.

Away-from-home eating and food processing now account for most dairy product use, the report notes. Processed food manufacturers have shown renewed interest in using dairy-derived ingredients, raising the importance of milkfat, skim solids, whey proteins and lactose due to "desirable taste, nutritional and functional characteristics — but partly also due to cost advantages."

The report draws a helpful picture of consolidation and concentration trends in the U.S. dairy industry, fueled by similar trends among dairy customers in retail, foodservice and manufacturing.

The backgrounder also includes a synopsis of current federal and state dairy policies, including a brief analysis of how programs can affect the market. Classified pricing leads to higher prices for fluid milk over cheese, for example, potentially affecting consumption of the higher-priced fluid milk products.

"To the extent that classified pricing...might raise the minimum price of milk used in beverage and perishable manufactured dairy products above cost-justified levels, quantities demanded of these products will be reduced," the report notes. "The diverted milk lowers the price of milk used in the hard manufactured products, increasing their consumption."

Federal budgetary constraints could affect decisions in future farm policy, the report notes, as could the growing importance of international trade policy.

IDFA believes reviewing the report will help members and others understand the importance of more market-oriented dairy policies.

"Reforming federal dairy policy to match the present day dairy market should be the goal of Congress in the 2007 Farm Bill," said IDFA President and CEO Connie Tipton. "In the end, dairy producers and processors will benefit from policies that have minimal interference in the market, both domestically and internationally, while maintaining a safety net for producers."

To read the Dairy Backgrounder, click here. For more information, contact Yonkers at or 202-220-3511.

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Posted August 14, 2006

Dairy Delivers