By GARY GENSKE
For the Capital Press
It's time for dairy farmers to help formulate new dairy policy for the next five-year farm bill.
The Dairy Security Act was initially inserted into the 2012 Farm Bill, and many dairy lobbyists and cooperative executives have heavily criticized Congress for not passing the bill this winter. After all, they have collectively contributed $4 million to $6 million a year for the last five years to get the Dairy Security Act passed, so I can understand their frustration.
More details on who got the money in D.C. another time.
Here are some key facts: Our clients produce about 12 percent of the milk in 30 states. Our data is compiled from operating results from our clients, which are mostly larger dairy farms in the West.
The operating results of two decades -- the 1980s and 1990s -- have revealed an overall $0.54 a hundredweight loss for the average farm. The average farm did, however, make an average operating profit of $1.21 a hundredweight during those two decades -- not enough to meet all required principal debt payments, but generally enough to reduce some debt and get refinanced annually.
As the table illustrates, the 2009-12 and 2012 operating results reveal the dairy farmers' "fiscal cliff." During the last four years, the average dairy farmer has increased debt to pay operating expenses. There remains little or no equity to borrow against in the future. There has been very little capital improvement, equipment purchases or modernization on the farm, and about 10,000 dairy farms have been lost during this period.
These trends must change, and since new five-year farm bill discussions are beginning in Washington, producers must demand meaningful change for their sustainability. A new five-year farm bill that can help recapture cost increases through the existing government producer pay price system is essential.
The proposed Dairy Security Act will only, at times, reduce up to one-half of losses in "financially catastrophic" times and cost the government $500 million. This is all the help the dairy farmer is being offered in this five-year farm bill proposal.
We need a price increase, not a small loss reduction.
If there was a $0.70 a gallon retail price increase to help recapture increased farmer costs, the USDA national average whole milk price would increase to $4.19 a gallon, certainly not the $7 to $8 a gallon reported in the national news media on Dec. 31.
Our solution can come from the marketplace, not the government.
Since I am also a dairy producer, I not only live this nightmare with my dairy clients, I live it personally. During my 40 years of experience working for dairy farmers, I have seen dairy farmers chase lost revenue (not profit) in low milk price periods by producing more milk. Most disturbing, they wait for others to be forced out of business, while thinking the surviving producers will prosper.
The number of dairy producers has dropped from 600,000 three decades ago to about 50,000 today. How many will be here when the next five-year farm bill is debated? And how well have these strategies worked for us?
Meaningful dairy reform involves:
* The market, not the CME, pricing milk through the existing federal milk market order system.
* If producers want a responsible price for milk, they have to produce only the milk that can be profitably sold from the producer perspective.
* Tighten milk import restrictions where imports are free to enter this country now.
* Milk export opportunities -- reported at 13 percent of domestic production, should be netted against uncontrolled imports of about 6 percent -- and should not be used as the excuse for continuing uncontrolled domestic production that results in low producer prices.
These four dairy reform issues are necessary farm bill provisions to protect the sustainability of U.S. dairy farms and protect a fresh, safe and locally produced supply of milk.
Gary Genske is a certified public accountant and managing partner of Genske, Mulder & Co. He is also a dairy farmer and board member of the National Dairy Producers Organization, which has a national conference call at 5 p.m. Pacific time each Tuesday. The number is 712-432-0900. The pin number is 782091#