NMPF Proposes Changes To U.S. Dairy Support Price Program

Pity the poor guy who once made a living repairing typewriters, mimeographs or
pinball machines. A generation or two ago, people in that line of work had
skills focused on devices that time and technology have rendered quaintly
irrelevant. The world has since moved on. And now were coming to a similar
realization about the venerable dairy product price support program (DPPSP);
its time for it to move on.

In the 12 years Ive been CEO of NMPF, we have vigorously defended the function
and importance of the price support program. Its been as essential a focus for
NMPF as any other single policy item. In the 2008 Farm Bill, we actually worked
to make improvements in it, shifting the focus away from supporting a milk
price, and toward supporting key commodity prices.

But at the end of the day, this question remains: is the dairy product price
support program the best use of federal resources to establish a safety net to
help farmers cope with periods of low prices? Is it effective? I believe, the
answer today on both counts, is no. Here are the major reasons why:

1.It reduces total demand for U.S. dairy products and dampens our ability to
export, while encouraging more foreign imports into the U.S.

The price support program effectively reduces U.S. exports, by diverting some of
our milk flow into government warehouses, rather than to commercial buyers in
other nations. It creates a dynamic where its harder for the U.S. to be a
consistent supplier of many products, since sometimes we have products to
export, and at other times, we just sell to the government.

2.It acts as a disincentive to product innovation.

It distorts what we produce, i.e. too much nonfat dry milk, and not enough
protein-standardized skim milk powder, as well as specialty milk proteins such
as milk protein concentrate, that are in demand both domestically and
internationally. Because the price support program is a blunt instrument that
will buy only nonfat milk and because thats what some plants have been built
to produce, as opposed to other forms of milk powder it puts the U.S. at a
competitive disadvantage to other global dairy vendors.

3.It supports dairy farmers all around the world and disadvantages U.S. dairy
farmers.

Further aggravating measures, the current program helps balance world supplies,
by encouraging the periodic global surplus of milk products to be purchased by
U.S. taxpayers. Dairy farmers in other countries, particularly the Oceania
region, enjoy as much price protection from the DPPSP as our farmers. Without
the USDAs CCC buying up an occasional surplus of dairy proteins, a temporarily
lower world price would affect our competitors all of whom would be forced to
adjust their production downward and ultimately hasten a global recovery in
prices.

4.It isnt effectively managed to fulfill its objectives.

Although the DPPSP has a standing offer to purchase butter, cheese and nonfat
dry milk, during the past 12 years, only the last of that trio has been sold to
the USDA in any significant quantity. In essence, the product that the DPPSP
really supports is nonfat dry milk. Even at times when the cheese price has
sagged well beneath the price support target, cheese makers choose not to sell
to the government for a variety of a variety of logistical and marketing-related
reasons. We have tried to address these problems, but the USDA shows no
inclination toward facilitating greater purchases of product by recognizing the
additional costs required to sell to government specifications. Once purchased,
powder returning back to the market from government storage also presents
challenges, and can dampen the recovery of prices as government stocks are
reduced.

5.The price levels it seeks to achieve arent relevant to farmers in 2010.

Heres where we really have to be honest about how the world has changed. Even
though the $9.90 per hundredweight target was eliminated in the last Farm Bill,
the individual price support targets: $1.13/lb. for block cheese, $0.85 for
powder, and $1.05 for butter essentially will return Class III and IV prices
around $10/cwt. And in an era of higher cost of production, that minimal price
isnt acceptable in any way, shape or form. The government is not at all likely
to raise the support prices (which would have negative consequences both for the
burgeoning federal deficit, as well as our trade treaty limitations), and even
if it did, we would likely will face the situation I described in #4.

For all of these reasons, what NMPF is now focused upon is a transitional
process that shifts the resources previously invested in the dairy product price
support program, to the income protection program that I have discussed
previously.

In summary, discontinuing the DPPSP would eventually result in higher milk
prices for U.S. dairy farmers. By focusing on indemnifying against poor margins,
rather than on a milk price target that is clearly inadequate, we can create a
more relevant safety net that allows for quicker price adjustments, reduced
imports and greater exports. As a result of our DPPSP, the U.S. has become the
worlds balancing plant. As time marches on, so, too, must our approach to
helping farmers.

Source:

National Milk Producers Federation