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From The MPC Newsletter
Friday, January 28, 201
1

Sifting Through the Processors' Rhetoric...It's All About Control
By Rob Vandenheuvel, General Manager

As the dairy industry continues to discuss and debate options for fundamental reforms to our dairy policies, the International Dairy Foods Association (IDFA), the primary lobbying organization of the nation’s dairy processors, spent this past week spewing out a healthy amount of rhetoric, specifically aimed at a legislative proposal being developed by the National Milk Producers Federation (NMPF).

First, a little background: NMPF, which is the main lobbying organization representing our nation’s dairy cooperatives, is in the process of putting together a legislative proposal that addresses several areas of our national dairy policy. That proposal is known as “Foundation for the Future,” or FFTF. In crafting FFTF, NMPF is including key legislative priorities from different sectors and regions of the industry, in an effort to make it a package that can garner support from a majority of dairy farmers.

This week, IDFA tried, as they have before, to break up that package and strip out the provisions creating a market management plan for dairy farmers. That specific piece of FFTF, which would temporarily trigger in only when dairy farmer margins are small and a reduction in surplus milk production is needed, is a key priority for many in the industry. Stripping it out would make it highly-unlikely that FFTF could garner a majority support amongst the nation’s dairy farmers, and IDFA knows that.

On January 24th, Connie Tipton, the CEO of IDFA, gave an eloquent speech at their annual Dairy Forum in Miami, FL (the text of the speech is at: http://www.idfa.org/files/IDFA_Tipton_Dairy_Forum_2011_Speech.pdf).  In her speech, which is entitled, “Capturing our Greatest Potential,” Ms. Tipton brought up names like Ronald Reagan, Winston Churchill, Franklin Delano Roosevelt and even Jimmy Carter to emphasize the importance of how today’s decisions affect tomorrow’s results. As dairy farmers, we couldn’t agree with her more.

Where we differ with Ms. Tipton is what we want our industry’s “tomorrow” to look like. In the debate over dairy policy reforms, dairy farmers know that we need to be looking for how to get farmers more control over our industry. In 2009, it became painfully obvious that of all the groups along the dairy supply chain, it was only the dairy farmers that carried real market risk. Processors have successfully insolated themselves from risk, largely through government policies that create great opportunity for profits regardless of how high or low the value of milk is.

When the value of milk dropped to government-support-levels and feed costs remained historically high, it was the dairy farmers – not the processors – that bore the cost of that collapse. Dairy farmers shed billions of dollars in equity during 2009 and 2010, while our dairy policies continued to allow our nation’s processors generate profits. We need to remember that obvious imbalance of market risk as we consider policy reform this year.

For IDFA, this isn’t about sympathy for dairy farmers. That sympathy, even if there were a hint of truth in it, is about two years too late. And this isn’t about following the path of wise men like Ronald Reagan. This is about one thing: control over the dairy industry.

In a report on Ms. Tipton’s comments, Dave Natzke, editor of Dairy Profit Weekly, noted in his weekly newsletter that “[Tipton] said private supply management – through processor/producer contracts based on milk volume – was appropriate.” So to be clear, the concept of better aligning the production of milk with the demand for that milk is a sound economic principle, just as long as it’s the processors that control the process?

We’ve seen what happens once the control over production of a livestock agriculture product moves to the processors. The examples of poultry and pork have been mentioned many times in policy discussions, and the concern over following their example is extremely real. In an Associated Press article published last year on the U.S. Department of Agriculture/Department of Justice joint hearings exploring competition in agriculture (http://abcnews.go.com/Business/wireStory?id=10713632&page=2), a former poultry farmer from North Carolina, Kay Doby, was quoted as saying, “This system takes hardworking farmers and makes them indentured servants on their own land. I can’t tell you how many times I’ve heard that our contract would be canceled if we did such and such.” This is the dangerous path that becomes possible for dairy farmers once we fully hand the control over our milk production to the processing side of our industry.

In the near future, NMPF will be unveiling the detailed legislative text of “Foundation for the Future” that will be introduced in Congress. While MPC and many organizations across the country will reserve final judgment on FFTF until we see those details, we all need to be prepared to quickly and seriously consider whether that package of reforms moves our dairy farmers into a better position of controlling our own destiny. We absolutely must ensure that any policy reform empowers our producers to make the necessary adjustments in periods of surplus production, while at the same time allowing our farmers to meet increasing demand for our products when it’s profitable to do so.

We should all be hoping and praying that our leaders, both in the dairy industry and in Congress, hold to their guns in the face of IDFA pressure and craft policies that ensure that producers will no longer be carrying 100% of the risk in this increasingly volatile industry.

I leave the readers with this ending thought: With our nation’s processors so adamantly opposed to producers having more control over our own production, they must be terrified that it might actually work to the advantage of dairy farmers.

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