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Proposed relief program would cost dairy farmers millions

International Dairy Foods Association | Updated: 01/25/2011

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A new study by Informa Economics concludes that the Dairy Market Stabilization Program (DMSP) proposed by the National Milk Producers Federation would have withheld an estimated $626 million from dairy farmers during periods when they were already under significant financial pressure. In 2009, the worst financial year on record for dairy farmers, $390 million would have been withheld, with the majority of it, $236 million, coming from just five states: Wisconsin, New York, Minnesota, Pennsylvania and Michigan.

"We support policies that help farmers in difficult times, not those that penalize them," said Connie Tipton, president and CEO of the International Dairy Foods Association, following the report's release at the 2011 Dairy Forum in Miami. "This report shows that the NMPF growth management plan will take money out of dairy farmers' pockets when they need it the most. And the regional differences highlighted by the study show that this policy would impose greater penalties on some regions – for instance, during the period analyzed by the report, the Midwest and the Northeast would have taken the biggest hit."

Compared to those regions, California, the number one dairy-producing state in the country, barely broke the top 10 states in amount withheld over the 10-year span and ranked 23rd as a percent of the withholding compared to total milk production in the state.

Informa conducted a full review of the DMSP, which would withhold payments from farmers who deliver milk in excess of their "base" level when milk prices are low relative to feed costs. Using government statistics, Informa reported the impact this program would have had if it had been in place from 2000 to 2009. The program would have been activated four times between 2000 and 2009, with deductions in effect 18 months during the study period.

Informa's study supports with facts the assumption that milk production does not respond quickly or significantly to lower prices: the U.S. all-milk price fell from $18.40 per hundred weight in August 2008 to $12.10 per hundred weight in August of 2009, a 33.5 percent drop in the price, but milk production was only down 0.1 percent in August 2009 compared to August 2008 (Source: U.S. Department of Agriculture data, Informa calculations).

The study shows that with milk production growing year to year on farms of all sizes, payments could be withheld from farms of all sizes. By reducing revenue during periods of already low margins, the program will hit higher-cost farms harder than lower-cost farms. While there are low-cost farms of all sizes in nearly all states, Informa reported that larger farms with lower costs would have an advantage over smaller farms facing the same percentage withholdings.

"The industry needs to move on legislation that will provide support to dairy farmers," said Tipton. "Margin insurance, and other proposals where processors and producers agree, should be part of that plan. Programs to limit milk supply or impose penalties on producers should not even be on the table in our industry discussion."

Response by the National Milk Producers Federation

NMPF President and CEO Jerry Kozak issued a statement in response to the Informa Economics study sponsored by IDFA.

“Dairy farmers in every state saw their collective milk income drop more than ten billion dollars in 2009, which doesn't even include billions more in lost equity. This catastrophe was the result of current dairy policy that doesn't offer farmers of any size, in any state, the protections they need against catastrophic financial losses. NMPF’s Foundation for the Future has been carefully designed to offer protection for their hard-earned equity."

“While providing all farmers in all regions a better safety net, Foundation for the Future also discourages periodic marketplace imbalances that generate enormous volatility, hurting all dairy producers.”

Kozak's response was made while attending the International Dairy Foods Association 2011 Dairy Forum in Miami.

IDFA-Sponsored Informa Economics Study

The full report is available on the IDFA website and at www.KeepDairyStrong.com, a new effort by IDFA to provide information about government-run milk supply-control programs that would set limits on how much milk a dairy can produce and impose penalties on dairies that produce too much milk.

Estimated Withholdings according to the Informa Econoics Study:

State 2000-2009

Wisconsin $150.0 Million

New York $63.5 Million

Minnesota $51.3 Million

Michigan $36.8 Million

Idaho $34.6 Million

Pennsylvania $33.5 Million

Texas $33.3 Million

New Mexico $30.7 Million

California $28.2 Million

Washington $25.0 Million