Processors object to supply management included in proposal

By CAROL RYAN DUMAS

Capital Press

TWIN FALLS, Idaho -- Leaders of the National Milk Producers Federation are touting the group's policy proposal for the next farm bill, but many questioned the viability of the plan at a recent stop in Idaho.

National Milk's leaders stopped Aug. 11 in Twin Falls to present the program to more than 200 producers, processors and allied industry members.

"We didn't design it so people get a payment from the government; we designed it so you get an insurance indemnity check," said Jerry Kozak, president and CEO of the federation. "We designed something to have it there when you need it. Does that sit well with every producer? No."

The proposed policy would eliminate the Dairy Product Price Support Program and Milk Income Loss Contracts and use federal funding for those programs to create a national margin insurance program. The program would give producers an indemnity payment when margins of milk price over feed cost fall below a certain trigger level. It would also reform federal milk marketing orders to steer away from end-product pricing and be as price neutral to producers as possible.

The change in producer protection will likely be welcomed by larger producers but rejected by smaller producers, who have preferential treatment under MILC because of the roughly 200-cow production cap.

"It would probably be better than anything we've had before," said Harry Hoogland, a Castleford, Idaho, producer. "It's like the government crop-insurance program farmers have had."

He said problems include conflict between small and large dairymen and amendments that weaken the proposal. Also, if producers can insure against margin losses, they might be inclined to aggressively expand. He said limits are needed.

The proposal does include a supply-management plan in its market stabilization program that kicks in when margins fall below a trigger.

That doesn't sit well with some processors. International Dairy Foods Association is opposed to any supply management. As a member of that group, Idaho Milk Processors Association opposes it as well, said Russ DeKruyf, immediate past president.

"I don't think the bankers would (support it) either," he said. "It's going to be a tough sell. It goes against supply and demand and capitalism."

Idaho Milk Processors Association, in concert with IDFA, supports the other components of the proposal, he said.

Mike Brown, Glanbia Foods economist, said he thinks National Milk is on the right track with those other components. But any proposal should be carefully considered and test cases should precede full implementation. He's worried supply management would result in increased imports and lost domestic market.

Patty Stroup, dairy group leader of Nestle USA, said supply management would limit the industry's ability to supply growing markets. It would discriminate against small producers with fixed costs and regions that don't have oversupply and might even have deficits.

"Oversupply is not a national issue," Stroup said. "Can you solve it with a national program?"

She does see value in the other components in the federation's proposal but said Nestle's philosophy on production practices is "enable but don't mandate; get out of the way."

Dairy analyst Jerry Dryer said the proposal has merit, but the industry will need complete consensus.

"My big concern is what happens when it gets in front of Congress. Who knows what these 535 'dairy experts' will do to it," he said.

"The hazards of trying to get it through Congress as intended has everybody nervous," Hoogland said.

Alan Levitt, publisher of CME Daily Dairy Report, said the proposal is problematic in other ways.

"Maybe I just don't understand it. But I don't know what the ultimate goal of it is," he said. "Is it to enhance prices or bring stability to prices?"

The industry needs to decide what it wants to be, he said. Does it want to be regionally diverse, globally competitive, promote growth, have high prices or be all things to all people?

For example, Canada and New Zealand know what they want. Canada doesn't want to grow or be globally competitive; it just wants to maintain high prices. New Zealand, on the other hand, is fully committed to being a competitive global supplier.

Jamie Bledsoe, president of Western United Dairymen, said producers are learning about the plan. The proposals are bold and sweeping and will bring some drastic changes, especially if they go into effect overnight.

"We need to have open discussions; that's how we'll find a solution," he said. "We need to keep an open mind; our world has changed."