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From The MPC Newsletter
Friday, June 10, 201
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A Couple Thoughts on the Dairy Debate Heating Up In Washington, DC
By Rob Vandenheuvel, General Manager

This past week, news out of Washington, DC indicated that we are getting closer to seeing NMPF’s Foundation for the Future introduced in the U.S. House of Representatives as a legislative proposal.  According to an article published this week on FarmFutures.com, Congressman Collin Peterson (D-MN), the highest ranking Democrat on the House Agriculture Committee, stated that “a just-completed Congressional Budget Office scoring shows the proposal would cost taxpayers less than existing dairy policy and therefore would not add to the budget deficit, thus satisfying a key demand of House Republican leaders.”  Rep. Peterson went on to say that if things continue to progress as planned, “…we [will] introduce the bill here within the next week or two.”

This news comes on the heels of other reports that the International Dairy Foods Association (IDFA) – the main lobbying organization in Washington, DC for the nation’s dairy product processors – is ramping up its efforts to stop progress being made by NMPF.  In addition to meetings with House and Senate staff aimed at attacking Foundation for the Future, IDFA has published several documents and reports outlining all the things they don’t like about the proposal.  In these documents, they point to concerns about how it would work in the global marketplace, how it would “tax” the dairy industry, how it would “jeopardize industry growth” and how it would “create regional disparities.”  Anyone interested in reading their critiques of FFTF can find the information on their website at www.idfa.org.

But if you really want to understand why IDFA is so opposed to NMPF’s proposal, I can save you some time.  The real reason why many of our nation’s processors oppose Foundation for the Future is much simpler than what you’ll read in those documents.  And their real reason will never show up in those documents anyway.  It all boils down to two things in FFTF that scares them:

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The plan would shift more control to the producer side of our industry; and

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The plan would spread our industry’s price risk throughout the industry.

So what do I mean by this? 

Foundation for the Future would shift control to the producer side of our industry:  If you peel away much of the detail in Foundation for the Future, what do you have?  A simple concept: Pay our dairy farmers a profitable price, or we’ll produce less milk.  While this is a concept that exists in most industries today (how long do you think Hewlett-Packard would make computers for a loss?  Or how long would Coca-Cola be willing to make their soft drinks at a loss?), it’s a concept that is completely foreign to the U.S. dairy industry.  Sure, each individual dairy has the ability to expand and shrink their production, but without the ability to collectively act as a nation of roughly 60,000 dairy farmers, we’re left with individual dairy farmers that have little choice but produce as much milk as you can, regardless of what you are paid for it (gotta keep the cash flowing…).  That’s a dynamic that would change under Foundation for the Future.  For most of the time, we would continue to operate as we do now, with every dairy producing as much milk they like.  But when we get into (hopefully seldom) situations when there is more milk on the market than consumers need, and milk prices move below what our dairies need to pay our bills, we’ll have the ability to temporarily cut back milk production to regain the market balance we need to provide a profitable price for dairy farmers.  For a dairy processor community that has gotten very spoiled with a virtually unlimited supply of milk regardless of they pay for it, the idea that producers could unite in this way is terrifying.

Foundation for the Future would spread the price risk throughout the industry.  This is the other area where our nation’s processors have been spoiled.  Whether milk prices are at $20 or $10 per hundredweight, our nation’s processors have the opportunity to profitably operate.  There is very little price risk on their side of the industry.  When the value of dairy products like cheese and butter collapse, it’s the dairy farmers – not the processors – that bear the brunt of that collapse.  Because of make allowances, their direct access to consumers (and the ability to pass their costs on to those consumers), and the ample supply of milk our dairies provide them (regardless of whether the price they pay for that milk is profitable or not), our processors are in an outstanding position to be profitable year-in-year-out.  Life has certainly been good for our processors.  However, if Foundation for the Future were in place, these processors would have to start worrying if the milk price started falling, since that could result in a cut-back in their milk supply.  Very little seems to scare a processor as much as not having enough milk to run through their plant.  By exposing our processors to this kind of risk, suddenly dairy farmers are not alone in worrying about milk price collapses.

So as we move into the coming months and this debate continues to heat up, I challenge dairy farmers to keep an eye on what IDFA is saying.  Take note when they write talking points and reports about how Foundation for the Future would be “bad” for dairy farmers.  And as you read those statements, keep in mind that these same processing companies sat back in 2009 and month-in-month-out, paid your dairy a price for your milk that failed to cover your costs and forced you to sacrifice decades-worth of hard earned equity in your dairy.  That’s the system they like, and that’s the system they’ll spend millions of dollars defending in Washington, DC. 

The million dollar question is whether dairy farmers will unite to oppose them?  They’re betting that we won’t.

 

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