Risk Management Theme Paper Lays Foundation for Improving Dairy Policies in Next Farm Bill

(Washington, D.C. — May 8, 2006) The International Dairy Foods Association (IDFA) commends the U.S. Department of Agriculture (USDA) for providing a thoughtful analysis that underscores the need for substantial reform of U.S. commodity programs. In the first of a series of "theme" briefing papers, USDA examines several risks facing agricultural producers, reviews federal price and income support programs available to producers today, and offers strategic concepts for consideration in the next Farm Bill.

"We applaud the department for outlining broad policy alternatives that will provide greater market involvement, lower government outlays and more opportunity for trade," said Chip Kunde, IDFA senior vice president. "USDA's analysis acknowledges the flaws in current dairy and sugar programs, including increased costs for both the government and consumers, and serious implications for global trade."

For example, the paper finds, "the sugar and dairy programs provide incentives to produce more than otherwise by maintaining market prices above where they would likely be in the absence of the programs." Similarly, USDA concludes that "the dairy and sugar programs add to consumer costs and can result in stock accumulation by the government which can be difficult to manage. Higher costs are an issue in the current Federal budget environment where deficits are large and persistent and there is pressure to curb spending."

"We share these concerns and believe that working with government, we can help America's farmers manage risk better and more effectively," Kunde said. "Alternative approaches like the ones offered by USDA are what's needed now."

The briefing paper also discusses a variety of private sector options available to producers to manage risk, including the use of futures markets and diversification. The paper points out that not all current risk management options are available to all producers.

"This unfortunate reality is true in the dairy industry," said Kunde. "Since 2004, many dairy farmers have been unable to reduce price volatility and minimize risk by using dairy forward contracts."

A dairy forward contracting program was first introduced in 1999 to allow all dairy buyers and sellers the opportunity to enter into voluntary contracts for their milk supplies. This practice provided the ability for both buyers and sellers to achieve stable, fair and reliable prices at no cost to the government. USDA endorsed forward contracting as a risk management tool for the industry; however, Congress failed to renew the program, which expired in 2004.

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IDFA is the Washington, DC-based organization representing the nation's dairy processing and manufacturing industries and their suppliers. IDFA is composed of three constituent organizations: Milk Industry Foundation (MIF), National Cheese Institute (NCI) and International Ice Cream Association (IICA). Its 500-plus members range from large multinational corporations to single-plant operations, and represent more than 85% of the total volume of milk, cultured products, cheese, and ice cream and frozen desserts produced and marketed in the United States — an estimated $90-billion a year industry. IDFA can be found online at www.idfa.org