Dairy farmers attending a summit to explore dairy policy and marketing options overwhelmingly supported some method of milk supply management, but worried congressional action might take too long for many of them to survive.
The meeting, held Aug. 13, in Albany, New York, was hosted by Bob Wellington, senior vice president of economics, communication and legislative affairs for Agri-Mark Dairy Cooperative. It brought together about 350 participants, about half of who were dairy farmers, and many in search of a national solution to the ongoing dairy economic dilemma.
Due to both domestic and international factors, dairy markets are down for a fourth straight year, instead of turning higher during a normal three-year cycle, Wellington noted. When farm prices fall, cash flow requirements led to increased milk production, aggravating the national situation, he said.
“That leaves farmers at the mercy of prices that are not recovering,” Wellington said. “Things are not fine on the farm. We’re losing farms every day. The only thing that drives milk prices higher is when dairy farmers are forced out of business, reducing supply. How can farmers do the right thing for their farm and the right thing for the industry? The bottom line is the system is broken. Clearly, all dairy farmers have the same issues and need to work together. Severe financial stress is being felt across all size farms, all locations and all types of milk production.”
Government, co-op programs reviewed
Catherine de Ronde, Agri-Mark economist, offered a historical review of government efforts to provide dairy price stabilization and supply management, with varying degrees of success. She noted the latest effort, the Dairy Market Stabilization Program, was ultimately removed before passage of the 2014 Farm Bill.
Ben Laine, senior economist with CoBank, described current approaches, many implemented by individual dairy cooperatives, in attempt to limit member milk supplies. Those steps include reducing premiums and added fees, lowering blend prices to cover costs of hauling, marketing or disposing of excess milk, and establishing base/excess programs or quotas. More recently, private processors have resorted to cancellation of milk contracts and termination of markets.
“There’s no 'one size fits all' for limiting the supply of milk,” Laine said. Cooperative decisions frequently fall in two categories: spreading the economic pain across all members through reduced premiums and using reblended prices, or implementing base plans which place the burden on larger, expansion-minded farms. Regardless, most are designed to manage excess milk to limit costs and match processing capacity, with a secondary goal to stabilize member milk prices.
Cooperative legal experts Marlis Carson, senior vice president and general counsel with the National Council of Farmer Cooperatives (NCFC), and Todd Eskelsen, Eskelsen Law Group, provided an overview of how the Capper-Volstead Act impacts a cooperative’s ability to manage commodity supplies. Adopted by Congress in 1922, the law gave “associations” of persons producing agricultural products certain exemptions from antitrust laws. However, the law did not specifically address supply management, Carson noted.
While Carson and Eskelsen emphasized that Capper-Volstead allows co-ops to manage supplies for processing capacity and cost reasons, they said broader supply management efforts would likely require congressional or regulatory action.
Individual co-op base programs are “private” business actions between co-ops and their members in an attempt to limit costs and match processing capacities and marketing abilities, they said. As such, they are permitted under Capper-Volstead.
“Co-ops are extensions of the farm. They can take actions on a private basis, but there are limitations on what they can do,” Eskelsen said.
“In short, supply management programs that aren’t part of a government-sanctioned program, aren’t part of a marketing order or aren’t based on processing capacity have been shown to be prone to regulatory challenge and extensive and expensive litigation,” Carson said. “There is reason to believe class-action lawyers will look at the dairy industry for other opportunities.”
There’s little case law regarding Capper-Volstead, but Eskelsen and Carson shared cautionary tales of how other commodity groups – including mushroom, potato and egg producers – have run afoul with the Capper-Volstead Act, resulting in U.S. Department of Justice regulation and lengthy and costly litigation.
“Short of voluntary actions, you have to go to the government to get legislative action or regulatory action by USDA. That’s going to take time,” Eskelsen said.
“Co-ops can work together under Capper-Volstead to implement some of these things. The bottom line is that you have to come up with a plan that will pass,” Eskelsen said.
Time running out for farmers
Time is a luxury many dairy farmers attending the summit said they no longer have.
“Farmers are suffering an equity drain, bankers aren’t too impressed in how we’re doing business, and rural America is falling apart,” said Bill Rowell, Vermont dairy farmer. “A lot of good people are getting hurt. Our mentality needs to be a little more anxious.”
He urged lawyers representing dairy co-ops to find a way to make Capper-Volstead and Federal Milk Marketing Orders “a plausible path forward.”
Kara O’Connor, government relations director with the Wisconsin Farmers Union, was among a group of Wisconsin dairy producers who traveled 18 hours by bus to attend the summit. Summarizing a recent dairy producer survey, she said the stress of low and volatile milk prices was affecting dairy farmer mental and physical health and their relationships with family members. She said responses showed farmers felt betrayed by their lawmakers and co-ops.
According to O’Connor, any supply management program will have to answer four questions:
1. How base is calculated?
2. What’s the fee for exceeding the base?
3. Whether the program is temporary or permanent?
4. Can base be transferred?
Mark McAfee, California Dairy Campaign, urged consensus behind efforts to support supply management.
“The price discovery system is broken,” said McAfee. “It’s going to take a fight, it’s going to take working together. We can’t feed everyone else until we can feed ourselves.” He called for a three-legged stool in which farmers control prices and supplies and mandate discipline in imports/exports.
Proposals posted for review, comment
Several proposals were submitted and reviewed at the meeting. To facilitate more input, the proposals (listed below) are available for review, download and comment.
- Dairy Price Stabilization Act
- Dairy Price Stabilization Program
- Direct Base Plan
- Federal Milk Marketing Improvement Act
- Hiring Northeastern Farmer to Grow Deep-Topsoil Watersheds
- Ration-all Milk Pricing
- Stratified Farm Milk Pricing 2018
- Sustainable Milk Inventory System Act
- Whole Milk Act
- A Quick Fix
- Larkin Farm Proposal
- NFFC Proposal
- NYS Quality Milk Premium
Attorney Daniel Smith identified five available pathways to managing milk supplies: 1) enabling legislation from Congress; 2) congressional changes to the Agricultural Marketing Agreement Act that would allow action through the Federal Milk Marketing Order program; 3) individual co-ops can establish base-excess plans with no legislative action; 4) co-ops can take collective action without legislative authority, but are likely vulnerable to legal challenges; and 5) state actions, which may face challenges related to the U.S. Interstate Commerce Clause.
With upcoming elections in November, the chances of a stand-alone bill that addresses dairy’s needs would be unlikely. A House-Senate Conference Committee will iron out differences between 2018 Farm Bill proposals, which currently make some modifications to the Margin Protection Program for Dairy (MPP-Dairy). As we saw in the federal budget bill approved in February 2018, there is some possibility other dairy provisions could be inserted in a compromise 2018 Farm Bill. However, the current farm bill expires Sept. 30, 2018, making the short timetable challenging.
Diversion program possible?
One idea breached near the close of the summit was suggested by John Wilson, senior vice president and chief fluid marketing officer with Dairy Farmers of America (DFA). He said using some of the USDA emergency aid earmarked to offset the negative impacts of trade wars on dairy prices could go toward a short-term diversion program, paying farmers to reduce milk production as a bridge until enabling legislation could develop a long-term supply management program.
Agri-Mark’s Wellington said a 1 to 2 percent reduction in milk production had the potential to raise milk prices 10 to 20 percent.
Wilson noted the DFA board hasn’t yet taken action on endorsing use of the USDA funds to support a diversion program. “We think it’s certainly worth more investigation,” he said.
Chris Galen, senior vice president of communications with the National Milk Producers Federation (NMPF), said the organization is looking at proposals presented at the Agri-Mark meeting, and others, but has not yet taken a position on any specific programs.
“The Albany meeting provided a good opportunity to gather ideas from some of the grassroots dairy producer community on what can help improve the economic situation facing America’s farmers,” Galen said. “There were several concepts raised at the meeting, including a dairy diversion program.
“As a membership organization of farmer-owned cooperatives, our role is to examine proposals from our members and determine how they may fit within the policy framework established by NMPF’s farmers and cooperatives,” he continued. “That is the process we have pursued in the farm bill deliberations and with USDA on the tariff mitigation effort – advancing positions proposed by our members. We do not currently have a position on the concept of a dairy diversion program but will continue discussions with our members about this and other potential actions.”
Two diversion programs were attempted in the 1980s, according to Agri-Mark’s de Ronde.
The Omnibus Budget Reconciliation Act of 1982 created a mechanism that not only assessed dairy farmers to help fund the federal Dairy Price Support Program (DPSP), but also created a second 50-cent assessment, refundable to those producers who did not increase production.
The program ran from October 1983 to September 1984, and while it proved effective in collecting money (about $800 million) from farmers to offset government expenditures, it did little to actually reduce milk production, de Ronde said.
That was followed by the Dairy Production Stabilization Act of 1983, which authorized a voluntary dairy diversion program. Operating between January 1984 and March 1985, producers who elected to participate and reduce milk marketings by between 5 and 30 percent below their base were paid $10 per hundredweight (cwt) for these reductions.
All dairy farmers were assessed 50 cents per cwt on all milk marketed for a 16-month period (Dec. 1, 1983, through March 31, 1985) to help defray the cost of the program. According to de Ronde, about 38,000 dairy farmers – about 20 percent of all dairy farmers at the time – participated in the milk reduction program and received about $955 million in payments.
Initial analysis showed the program reduced milk production by about 9.4 billion pounds of milk over the period, although the time lag between the historical milk production bases (1981-82 or 1982 milk production) used in the calculations showed some of the reduction was “air,” in that farmers were paid for production they had already eliminated. The actual milk production reduction was cut to 7.4 billion pounds.
And, after the program expired, milk production and cow numbers increased almost immediately, and that ultimately led to the whole-herd buyout program, whereby farmers were paid to send their herds to slaughter and get out of dairying for a minimum of five years.
Editor’s note: Look for additional details and dairy farmer reflections of the dairy summit in an upcoming Progressive Dairyman article.
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