Dairy policy briefing

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Several years of high and milk prices have left many dairy farmers in poor financial shape. Producers from across the country of all sizes and shapes have been affected and many are looking for solutions to prevent this from happening again.

“For the first time since I’ve been involved in the dairy industry producers are saying ‘We’re our own worst enemy.  We over produce when we have strong price singles, but then we have a tendency to overshoot what the market needs and we have a collapse in prices afterwards,’” says Mark Stephenson, director of dairy policy analysis in the Department of Agricultural and Applied Economics at the University of Wisconsin-Madison. 

Three leading contenders for dairy price policy reform that are being looked at by the industry are the National Milk Producers Federation Foundation for the Future program, the marginal milk pricing plan crafted by Agri-Mark cooperative and the Costa-Sanders Bill. “All three have elements of product management in them,” notes Stephenson.

The discussion on dairy price policy reform is a fairly emotional one. There are people who feel very strongly on both sides of the argument. “As an economist I can’t be strongly in favor of regulation, unless you have something that looks like market failure. So maybe we need some type of regulation,” says Stephenson.

Foundation for the Future and the Marginal Milk plan both would react to price triggers. Both plans look at margins, the difference between the milk price and the cost of feeding a cow.  If the margin falls below a certain level the program kicks in place. Each farm would have some type of base. Under these programs the dairy farmer would only receive payment for a certain percentage of milk and the other percentage they would receive no payment, says Stephenson.

Under the Costa-Sanders bill the program is in place all the time. Based on triggers of the milk-feed price ratio the program would become more or less active. Each farm would have an allowable level of growth and when the market says it needs more milk the allowable growth would be bigger and tighter when the market says it doesn’t need more milk. To exceed the allowed growth level dairy farms would have to pay a market access fee. Dairy farms who do not over produce during this time period would receive the payments.

There effectively no cost to government involved in this from standpoint, says Stephenson. In the case of the Costa-Sanders bill, one dairy producer paying another would effectively drive a price wedge between dairy farms, notes Stephenson. In the case of the Marginal Milk or NMPF plan, money from the milk sold to processors that dairy farms don’t receive would be used for demand enhancing activities such as dairy products for food programs.

Don’t expect anything to happen until the next farm bill which is slated for 2012. “I’m not sure what will happen, but there is more of a coalition around dairy producers for some type of supply management like I’ve never seen before,” says Stephenson. But it’s not uniform and there are some dairy farmers who feel strongly against it.



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