Safety net needs closer look
By Michael Marsh, CPA, Chief Executive Officer
June 29, 2012 - - When National Milk Producers Federation (NMPF) unveiled their proposal for dairy policy reform in late 2009, our Board of Directors was intrigued by the changes in the federal safety net being proposed. NMPF suggested eliminating the price support program and the Milk Income Loss Contract (MILC) program. They proposed using the funding from those programs to establish a new safety net proposal for US dairy producers that would allow dairymen to insure a margin.
We agreed with NMPF that the existing safety nets did not work. The Western United board had never supported the discriminatory nature of the MILC program and had argued in the 2007/2008 Farm Bill discussions that both MILC and price support were ineffective at protecting producers in an economic downturn. Consequently, we saw the potential benefits of a margin insurance program and expressed our interest to learn more about the NMPF proposal.
NMPF released data and analysis supporting their proposal. We analyzed it and reviewed it and came across a concern. It appeared that the feed cost used in their proposal would have a discriminatory impact on California dairy families. The feed cost in their proposal used costs where the feed was grown rather than feed costs where the cows were being milked.
We brought this issue to NMPF’s attention and we met with their staff and board chairman in November 2009 to explain our concern. NMPF listened to us and asked for our analysis which we handed to them. They asked if they could review our numbers and we said, of course. NMPF’s economists agreed with our numbers. They said we were correct but NMPF said they did not want to change their proposal to correct this inequity.
NMPF’s economists agreed with our numbers. They said we were correct but NMPF said they did not want to change their proposal to correct this inequity.
We expanded our analysis to ascertain the impact on dairy producers in other parts of the country and we found that most of the dairy families in the rest of the country were in the same position as Californians. If you were a dairy producer in Florida, New York, New Mexico, Idaho, Texas, Oregon, Washington, Pennsylvania or Arizona, or just about any state, the feed cost included in the margin insurance put you at a significant disadvantage to producers located where the feed was grown.
Californians were well aware of what feed costs had done to their bottom line. According to CDFA, feed costs per hundredweight of milk were $7.84 in California in 2007. By 2012 those same feed costs had morphed to $10.81 per cwt. The nearly 40 percent jump in feed costs over that short time period is astonishing! Dairy producers in California clearly recognize that feed costs are a big deal to their bottom line.
We continued to share data and analysis with NMPF and suggested potential fixes to this problem. We met with NMPF staff once again in Visalia in February 2010 and again pressed our case for a less discriminatory feed cost. NMPF staff said they recognized our concern but were not inclined to address it. Western United continued our efforts to find common ground and suggested replacing the feed cost in their calculation with the average feed cost of the country’s top 10 milk producing states. We felt this would not completely fix the problem but at least the proposal would take into account the real costs where milk was actually being produced rather than where it was not.
We were disappointed to see that corrections to the feed cost calculation were not included in the Dairy Security Act introduced by Mr. Peterson (D-MN) in fall 2010. We were confounded further when we saw that the feed cost calculation included in the version of the Farm Bill which recently passed out of the US Senate had been revised in a fashion that exacerbated the feed cost problem we had identified earlier. The Senate changes make it less likely for margin insurance payments to be made to California dairy families when they need it most.
The Food and Agricultural Policy Research Institute at the University of Missouri analyzed this as well and arrived at the same conclusion. Margin insurance payments under the Senate Farm Bill are unlikely ever to be made. The California congressional delegation has indicated their desire for a dairy title that works for California’s dairy families. Western United Dairymen’s Programs Committee will be meeting in the next few weeks to review all aspects of the Senate dairy title of the Farm Bill. Committee recommendations will be forwarded to the board for its consideration.
A dairy safety net that doesn’t protect California dairy families is unacceptable to our board. We saw the lasting impact of ineffective safety nets during 2008-2010. We can little afford to repeat history.