From The MPC Newsletter
A Reminder of Just How Shameless the Processor
We’ve all heard the statement before: “Processors need producers and producers need processors.” There’s a fundamental truth behind that statement, but it glosses over some of the fundamental differences between the producer and processor sectors of our industry. Every once in a while, we get a clear reminder of just how fundamentally different our priorities are from the processors, and this week was another one of those reminders.
Earlier this week, the International Dairy Foods Association (IDFA) published and distributed a one-page document entitled: “Dairy Security Act Would Raise Prices on Consumers and Reduce Government Nutrition Program Assistance.” The document is a direct attack on the Dairy Security Act, arguing that the program – which has been included in the 2013 Farm Bills that were approved by the House and Senate Agriculture Committees – would result in milk price increases that “would hurt rather than help middle class Americans when they need it the most.”
IDFA’s shameless propaganda can be found on their website at: http://www.idfa.org/key-issues/category/dairy-policy--economics/farm-bill/details/8229/. According to the document, the Dairy Security Act “would have raised the price of a gallon of milk by over 35 cents at the peak of the 2009 recession, when more than 15 million Americans were unemployed.” IDFA is attempting to convey a message that U.S. dairy farmers – who collectively lost billions of dollars in 2009 due to milk prices that failed to cover the costs of producing that milk – have a responsibility to make sure that dairy products are as cheap as possible for all who buy them, and they are shamelessly pointing to government assistance programs as the folks who would have to pay more for their dairy products.
This line of arguments coming from IDFA should both offend and anger every dairy farmer in the country. Before getting into the specific claims made in the document, let’s get a couple things straight.
1. When milk prices drop, processor margins are protected; producer margins are not.
For a vast majority of the country, the milk produced by dairy farmers is based on the market values for four main dairy products: cheddar cheese, butter, nonfat dry milk and dry whey. When the value of those products drops, as they did in 2009 when we had a significant surplus in dairy products, it obviously impacts the prices a dairy product manufacturer can get for their products in the marketplace. HOWEVER, it also reduces the cost of the milk they must purchase (the price you as a dairyman receives for your milk). The margin in the middle is protected. What a great deal huh? It’s like having your milk price and feed costs connected; how great would it be to have a built in government-supported system that ensured your feed costs would go down whenever your milk prices dropped?
That’s exactly what our nation’s processors benefit from, and the reason that they see no problem with prolonged periods of low milk and dairy product prices, even if that means dairy farmers are losing money. Processors understand this reality, but they are working hard to make sure that the folks in the U.S. Congress don’t realize it.
2. The government buys milk and dairy products just like other private sector customers. It’s not some sort of charitable act by the processors!
IDFA shamelessly tries to paint supporters of the Dairy Security Act as heartless individuals trying to “reduce government nutrition program assistance.” But in 2009, when consumers of dairy products – whether in the private sector or government buyers – were able to buy their dairy products at lower prices, was it because processors decided to take a financial hit and sell their products at a loss for some charitable cause? Of course not! Those lower prices for milk, cheese, butter and other dairy products came at the expense of the roughly 60,000 dairy farmers who were around at the time, to the tune of BILLIONS of dollars! Processors, on the other hand, were able to sell low-cost dairy products to consumers and the government, all the while protecting their margins since they were able to buy their main input – milk – at a price that was costing dairy farmers their hard-earned equity.
So what is it about the Dairy Security Act that has IDFA and the processors they represent so scared?
Had the Dairy Security Act been in place in 2009, the on-the-farm losses experienced that year would have triggered a temporary “market stabilization program,” which would have resulted in the dairies enrolled in the program slightly cutting back milk production by 2-4%. The goal of this cutback? Restore supply/demand balance, thereby restoring cheese, butter, nonfat dry milk and dry whey prices that would support a profitable milk price in the U.S.
We have already explained why IDFA doesn’t worry about low milk and dairy product prices: because their margins are protected. But they do worry about something else: not having enough milk for their manufacturing operation. And the prospects of tens of thousands of dairy farmers around the country being able to collectively (and temporarily) cut back milk production when the milk prices aren’t covering our costs is something they’ve never had to worry about and don’t want to ever worry about. They just want your milk, whether the prices they pay covers your costs or not.
And as if all of this wasn’t offensive enough, IDFA exploits the most vulnerable members of society they can find – women, children, and recipients of government assistance programs – and accuses dairy farmers of trying to take food out of their mouths, all while they are generating a profit on their sales to these programs. Absolutely shameless.
How do we beat this kind of propaganda machine? We need dairy farmers to be ready to call/write into your Congressman’s office, and urge them to support the sensible, market-based reforms in the Dairy Security Act. The House of Representatives will be debating the issue next month, so be ready to do your part to ensure that IDFA’s shameless campaign doesn’t succeed in killing this critical effort.
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