Posted: Thursday, July 14, 2011 11:00 AM
By JIM EICHSTADT
For the Capital Press
Anyone considering the Foundation for the Future should be skeptical of this radical new dairy plan. The proposal is the latest scheme being pushed by the National Milk Producers Federation, the big dairy co-op lobbying group responsible for many problems facing the dairy industry.
The proposal continues National Milk's history of working against the best interests of grassroots dairy producers. I know this as a seasoned veteran of many dairy and trade policy battles against National Milk since the early 1980s.
While the proposal has some novel features, it includes many disturbing parallels with National Milk's long trail of dairy fiascos over the past three decades. It would be a mistake to entrust reform to the chief architects of the current dairy policy mess.
Many managers and directors involved in this effort are decent, honest people who mean well. The problem is conflicting interests hidden below the surface. Operating cooperatives want enough cheap milk to keep their plants full. The co-ops' member-owners want high milk prices.
Management tends to prevail because many co-op board members are too busy farming to provide proper oversight. And some dairy leaders are blinded by oversized egos. Private processors are no better, but at least they don't claim to represent farmers.
If insanity can be defined as repeating the same mistakes and expecting a different outcome, National Milk's new plan qualifies. Consider the precedents.
The proposal would replace the existing dairy product price support and Milk Income Loss Contract safety nets with an untested Dairy Producer Margin Protection Program. In the absence of public hearings and debate, dairy farmers are being asked to buy, on faith, a pig in a poke.
This scheme is too similar to proposals to privatize Social Security and convert Medicare to a voucher system, which most Americans oppose. If a margin protection program has merit, it should, at a minimum, be tested as a pilot program, like USDA's Dairy Options Pilot Program, which many producers tried and rejected.
National Milk's plan amounts to an unlimited bailout of the biggest dairy operations in the West and elsewhere in an era of shrinking federal budgets. We should be enforcing strict payment limitations on all farms, not creating costly new programs.
MILC has the virtue of targeting benefits to family farmers on up to 2.985 million pounds of production for all farms.
Instead of helping farmers, the proposed dairy margin insurance program could easily become a new revenue source for big co-ops. In the increasingly anti-government, anti-tax, tea party political climate in Washington, a government-run dairy margin protection program would soon come under heavy pressure to be privatized. Consider federal crop insurance, which many grain farmers view as a high-margin business, based on their crop insurance agents' fancy pickup trucks and posh new houses.
Congressional Republicans -- along with dairy co-ops, the insurance industry and other potential beneficiaries -- would soon be clamoring to privatize the margin protection program. Like federal crop insurance, a privatized program could offer potentially high commissions to sales agents. It could thus provide lucrative new income streams for National Milk's member co-ops -- and farm organizations recruited to help build support for FFTF -- designated as agents to sell the new contracts to dairymen.
National Milk's proposed two classes of milk and other questionable changes would not bring needed simplicity and equity to the federal milk marketing order system. The new plan preserves and extends National Milk's legacy from the 1985 Farm Bill, including legislated Class I differentials, and piles on even more mandatory market-wide service payments.
The legislated Class I differentials were arbitrary increases -- based on politics rather than economics -- that favored regions dominated by the predecessor co-ops of Dairy Farmers of America. National Milk's 1985 plan inequitably deepened regional income disparities while giving the big co-ops a blank check to keep more farmers' money for themselves through the underpayment of federal order minimum blend prices. The legislative abuses of 1985 led to the federal order "reforms" of 2000 and the ensuing turmoil and extreme market volatility.
Like National Milk's whole-herd buyout in the 1985 Farm Bill and its more recent Cooperatives Working Together program, the proposed Dairy Market Stabilization Program is an expensive, poorly designed supply management tool. DMSP's penalties are similar to the $1 per hundredweight "milk tax" of the early 1980s, which was extremely unpopular with dairy farmers of that era.
According to one analysis, if National Milk's plan had been in effect this year, producers whose March production didn't exceed the previous three months' rolling average would have been penalized 4 percent for the month. Just say no to a new milk tax.
It's time to restore sanity to dairy reform -- through a process that involves all grassroots dairy farmers, not just National Milk Producers Federation and the big co-ops.
Jim Eichstadt, a DeForest, Wis.-based dairy consultant, has served in various positions in the dairy industry since the early 1980s, including general manager of Farmers Union Milk Marketing Cooperative (now Family Dairies USA) of Madison, Wis. This was originally published in the Cheese Reporter.