Voluntary program's buyouts could not offset milk's sharp fall during recession

By MITCH LIES

Capital Press

In the mid-2000s, shortly after the National Milk Producers Federation started Cooperatives Working Together, 76 percent of Idaho's dairy producers signed on to the volunteer program.

"Especially in the beginning, people bought into it," said Bob Naerebout, executive director of Idaho Dairymen's Association.

Today, the program is winding down and less than 40 percent of Idaho dairy producers back it. The optimism that surrounded CWT when it was launched in 2003 has subsided.

While program backers hold out hope the program will one day be revived, most believe the program is on its last legs.

"Over time, people questioned the herd buyout and whether it was effective at stabilizing supply," Naerebout said.

In the end, the program may be a casualty of unrealistic expectations.

"It was never intended to be the sole solution," Naerebout said.

CWT was started in 2003 with the intent of increasing milk prices by buying out herds and boosting export demand for dairy products. The program was funded by a voluntary checkoff of 10 cents per hundredweight of milk.

The voluntary nature of the program was necessary to avoid conflicts with World Trade Organization policies.

While some question the program's effectiveness during the recession, few question whether the program impacted milk prices in a positive way during its heyday.

According to studies commissioned by the program, CWT was estimated to increase milk prices between 40 and 60 percent for every dollar spent on the program during the mid-2000s.

"We removed a lot of cows," said Chris Galen, spokesman for CWT and the National Milk Producers Federation.

According to a summary of herd retirements posted on the official CWT website, the total number of cows removed between 2003 and 2010 topped 500,000, dropping the U.S. milk supply by 9.6 billion pounds.

The number of herd retirements increased during the first year of the recession, but the program was unable to turn around depressed milk prices.

Approximately 200,000 cows were removed in 2009 alone, dropping the U.S. milk supply by an additional 3.5 billion pounds.

"Was it large enough to single-handedly counteract depressed dairy prices?" Galen asked. "No.

"Does that mean it had no impact? No.

"It absolutely helped producers' prices," Galen said. "But the depth of the hole was so deep, it wasn't able to single-handedly, in one fell swoop, make things nice again."

"We had such a surplus of product that CWT no longer had the ability with the amount of cows they were taking out to have an impact," said Jim Krahn, executive director of Oregon Dairy Farmers' Association.

"It did some good (during the recession)," Krahn said, "but it didn't have the impact on milk prices it did prior, simply because the job was too big."

The program today is operating on cash reserves and won't start up again until at least 75 percent of dairy producers agree to a reduced assessment of 2 cents per hundredweight.

The last herd retirement occurred in the summer of 2010.

"There was a sense that it was no longer cost-effective to have the herd-retirement program," Galen said. "There was declining interest and the number of people who wanted to liquidate herds was declining."

"Any time that you are struggling on cash flow, you are going to look to cut costs," Naerebout said. "Ten cents a hundredweight is one area people decided they could cut."