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Committee targets price volatility

Published on January 7, 2011 3:01AM

Last changed on February 4, 2011 10:19AM

Oregon dairy leader weighs in on latest recommendations


Capital Press

USDA's Dairy Industry Advisory Committee spent a year studying options to reduce milk price volatility and improve producer profitability. The recommendations it will submit to Ag Secretary Tom Vilsack take aim at milk pricing, supply management and risk protection.

"There is no silver bullet, no one thing that's going to increase producer prices," said Jim Krahn, committee member and executive director of Oregon Dairy Farmers Association.

Hitting on some of the weightier proposals, Krahn said the committee is recommending some sort of milk supply management in times of overproduction.

"Growth management has an absolute effect on producers. Supply and demand has an absolute effect on producers. If we didn't have excess milk, we wouldn't have low prices," he said.

The committee has not recommended specifics, and a few proposals already exist, but any program has to allow for new producers and growth for exports, he said. Managing supply would also shorten any downturn due to lost exports.

Other recommendations:

* Eliminate the Dairy Product Price Support system and the Dairy Export Incentive Program.

"We're saying take the money from those programs that have no positive effect for producers and enhance the safety net," he said. The focus is a better safety net, including federal margin insurance for milk price over feed costs.

* Simplify and improve existing risk-protection programs.

"They don't add to income, but they protect producers when prices fall," Krahn said. But they need to be restructured so they're easier to use and more effective.

* Maintain and expand export development.

While exports can be a double-edged sword, as was seen in last year's export crash, if world economies stay healthy, they would become an even more important market for U.S. milk.

* Eliminate ethanol subsidies.

Even though Congress just renewed the subsidies for ethanol, eliminating them is critical to managing feed prices.

"It's probably not something the secretary will jump on, but you can't have these subsidies without upsetting the apple cart, not just feed for cows but food for people," he said.

* Tax-deferred farm savings accounts.

As it stands now, a producer might add cows to gain a deduction in good years. But with the recommended savings account, he could defer taxes to a bad year, where he could write off his losses.

* Risk-management line of credit for first buyers of milk.

Such a program would allow processors to bundle production from smaller producers to trade on the futures market. The credit line would pay for up-front costs required on contracts.

* Review federal marketing orders.

Milk pricing is such a complex issue, it'll take time for any reform, but improvements could be made.

* Eliminate end-product pricing.

Establish a competitive pay price based on mandatory reporting of what processors actually paid for milk.

"It would be good if we could find one thing that would make it better for everybody ... that's just not possible," Krahn said. "As a dairy industry, U.S.-wide, we have to come together with one conceptual approach."


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