Major dairy reform proposals offered by the National Milk Producers Federation (NMPF) and the Holstein Association will both reduce price volatility, says Mark Stephenson, director of dairy policy analysis with the University of Wisconsin-Madison.
Stephenson wrapped up yesterday’s day-long session on Dairy Price Reform hosted by the Wisconsin Farm Bureau and the Professional Dairy Producers of Wisconsin held at the Wisconsin Dells.
“Our modeling shows that both programs work. The Foundation For The Future (NMPF’s plan) doesn’t kick in until there is a crisis, but it hits the problem hard and prices could recover quickly,” he says.
“The Costa / Sanders bill (the sponsoring legislation of the Holstein Plan) is in place all the time, and acts more like a governor on an engine,” he says. “It can speed up or slow down as the market conditions change, and it can reward or penalize production decisions.”
Stephenson also acknowledged there are still many unknowns. For example, under the NMPF plan, it’s unknown how quickly money collected from the forfeiture of surplus milk would be spent to bolster demand by buying products off the market.
“It could be a double whammy—decreasing supply and increasing demand—which could send prices up very quickly,” says Stephenson. “[Those administering the program] would have to be very careful they don’t send prices too high and choke off demand.”
Stephenson also urged dairy producers not to make policy decisions based on 2009. “It’s very unlikely to a have a demand shock occur (as did in late 2008) at the same time you’d have a downturn in the normal price cycle that occurred last year,” he says. “Make sure you have a circuit breaker built into the program so that if it doesn’t work, you can get yourself out of it.”
