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More than a one-horse hitch needed to pull us out of this mess
In fact, if we want to solve our milk price problems, we'll need four horses.

By Peter Hardin

Added November 11, 2009: A recent telephone call from a thoughtful, Pennsylvania gentleman of “plain” persuasion summed up the dilemma facing dairy farmers. He puzzled: “If we put quotas on dairy farmers’ ability to market so much milk, or if we have more cow-killing programs, none of that will do any good to raise our prices unless we somehow limit how many dairy imports can come into this country. What good will it do to limit farm milk production without addressing imports? Our milk price problems need more than a one-horse hitch.”

The array of challenges facing dairy is mind-numbing. Where to start? As that gentleman correctly noted, we need more than a one-horse hitch. In fact, we need at least a four-horse hitch. Those four “horses” include: #1 – farm milk supply management, #2 – import controls, #3 – fair competition, and #4 – a modern milk-pricing system.

I’ll try to make the argument that events are in place which can make part of our task less formidable:

  • Horse #1 (farm supply management) … we can stride purposefully, but need not race to hitch up horse #1. We have at a little breathing room, thanks to disastrous milk prices so far in 2009.
  • Horse #2 (imports of MPCs, etc.) may be a little easier to hitch up, as the U.S. dollar falls into the tank. In this issue, John Bunting’s article (“MPC Imports Vary According to Currency Values,” Oct 09 Milkweed) makes a clear case that a strong U.S. dollar has been the primary magnet attracting dairy imports.
  • Horse #3 (Antitrust and competition issues) is suddenly getting a full helping of oats, thanks to private lawsuits, concerned U.S. Senators, and a newly awakened Antitrust Division at the U.S. Department of Justice. Amazing! Watch this reinvigorated horse bust down a few fences.
  • Horse #4 (modern milk pricing)? That critter has yet to be seen, let alone caught, broken and harnessed.

Farm supply management: Dairy farmers may have some breathing room in the year ahead, but should not allow upcoming, severe farm milk shortages to diminish need for longer-term, reasoned farm milk supply control.

For the next year, maybe, I estimate we’ll see some serious shortages of milk. Bankruptcies and foreclosures will abound in coming months, in many regions of the country. Short-term, there’ll be less milk. Several dozen big dairies in Michigan/Indiana/Ohio have reportedly failed to fill their bunkers and pads with corn silage this fall. Perhaps they have a month or two of carry-over feed left.

In California, perhaps 10 percent of the state’s dairies are on the verge of foreclosure. Those abundant heifers won’t be paired with empty milking facilities until lenders’ confidence is restored. In summary, the high-debt, factory-style, buy-many-inputs model of dairying is failing.

Two respected organizations, the California-based Milk Producers Council and the Holstein Association, USA have worked much of this year, trying to hammer out a fair farm milk quota program. But in September, these groups’ efforts diverged. The Holstein Assn., responding to its members, wants a big assessment ($6 to $9/cwt.) on “new” milk – i.e., milk volumes above a base period. Meanwhile, the Milk Producers Council wants an across-the-board assessment on all milk. MPC would return assessments to producers who did not produce over their base. Each plan would return assessments from “over-base” milk to producers who did not exceed their allocated volumes.
These two groups ought to patch up and compromise. Double the MPC assessment (and return it quarterly), plus cut by one-third to one-half the Holstein Assn. assessment on new milk.

In part, these groups’ divergence results from the different ways that Western dairy families operate.

Out West, owners may move herds around between facilities. That makes it tough to lock in bases to a single site. East of the Rockies, folks’ concept of a “dairy farm” generally stays in one place.
What’s right??? In my opinion, we need a system to define individual dairy farms’ milk sales volumes. Such a system should:

  1. Allow for regional flexibility. Some regions should grow in milk – the Midwest, the Northeast, and the Southeast – to accommodate regional needs and water realities. Western dairy production may have peaked. Climate projections call for much drier future conditions.
  2. Allow for new dairy farmers to start up. We must provide for the future. Locking out, by use of a quota system, that young person with the “I want to be a dairy farmer” dream, would mean creating a system that would have disallowed many of our current dairy farmers from ever starting, if such a system had been in place way back when.
  3. We should not allow overt monetary value to be built into farm quotas. Farmers in Ontario Province (Canada) pay as much, or more, for a piece of paper guaranteeing the right to sell the milk from a good dairy cow as they’d pay for the cow herself. Building a “paper empire” of over-priced, moneta-rized certificates allowing certain folks to milk cows is wrong.

Imports: Two bills in the U.S. Senate readily address the problem of dairy protein powder imports. Senator Russell Feingold (D-Wisconsin) proposes S. 666 (“The Quality Cheese Act of 2009”), which would disallow the federal Food and Drug Administration from changing standards for ingredients allowed in natural cheeses. And Senator Charles Schumer (D-New York) has S. 1542 (“The Milk Import Tariff Equity Act”) in the hopper. That legislation would impose tariffs on imported Milk Protein Concentrates and caseins. Further, we need proper oversight over FDA’s failure to require mandatory human-safety testing of MPCs. In violation of FDA rules, no mandatory safety testing has ever been conducted for MPCs under the “GRAS” (Generally Recognized As Safe) rules. Regardless of safety, do we want to source our dairy products from some of the Third World slop holes (like India) where MPCs come from?

Antitrust: The Obama administration has brought apparent vigor to federal Antitrust oversight for dairy. Key U.S. Senators, including Russell Feingold, Bernie Sanders (I-Vermont), Patrick Leahy (D-Vermont) and Herb Kohl (D-Wisconsin) have all been ringing the Antitrust alarm bell loudly of late. All but Sanders serve on the Senate Judiciary Committee. Where the appointed and elected federal officials don’t range, there’s a growing number of serious private Antitrust lawsuits focused against certain deserving parties. With continued vigor, dairy competition should improve significantly.

Modern milk pricing: This subject merits an entire issue, but not now. Modern milk pricing, in my opinion, needs a pricing formula that includes, but is not limited to, a measure of consumer prices paid for dairy products at retail and a regional farm milk cost- of-production factor. The Chicago Mercantile Exchange, either directly or indirectly, is too thinly traded a basis for use in milk pricing. Processors’ make-allowances should be flexible, based upon monthly or quarterly energy costs. Fluid milk should be priced F.O.B. the farm. Dairy farmers should get a one-farmer, one-vote review referendum on whether or not to continue USDA’s mandatory milk promotion program, every three years. Co-op bloc voting should be prohibited in such referenda.

In conclusion, milk pricing inequities have continued so long because certain leaders and organizations have been swilling the cream. Right now, we are living history. Will dairy pricing and marketing become equitable for the dairy farmer? If not, then this critical industry – to which so many have devoted their lives, intelligence and assets – will meet its demise. Failure to pursue honest competition and intelligent dairy pricing is in danger of killing the critical mass in this industry. All value in dairy starts with the milk in the bulk tank. Do we want to assemble the proper four-horse hitch -- to solve dairy’s serious imbalances in pricing in market power? Failure to put a positive spin on this period of crisis will merely condemn the survivors to more of the same in a couple years. Or do we allow the “Four Horses of the Apocalypse” to continue running wild through dairy ... spreading their diseases of corruption that will leave pestilence in what ought to be a land of milk and honey?

Reprinted with permission from the October issue of The Milkweed. For more information about The Milkweed, visit their website: www.themilkweed.com or call/write: PO Box 10, Brooklyn, WI 53521-0010, Phone: 608-455-2400