Capitalizing on a Crisis

Release Date: August 03, 2009


Jim Mulhern,
NMPF President & CEO
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The headlines reporting on the financial calamity in dairy land haven’t been very cheery in the past month. Here’s a recent sample: “Crisis deepens for dairy farmers,” “New figures reveal dairy industry is at crisis point,” “Angry dairy farmers block streets.”

What’s notable about these stories is that they’re all from Europe, as were these: “EU leaders order study of milk market,” “French milk producers block retailers to protest low prices,” and “EU studies supermarkets’ role in dairy farmers' woes.”

The point is that the lamentable economic situation afflicting dairy producers in the U.S. is really no different than the one also distressing their peers in the European Union, the United Kingdom, Australia and New Zealand. The news is all bad, and it’s all over the world. The related point is that, other than government investigations, there doesn’t appear to be much consensus about how to tackle improvements in milk pricing in other parts of the globe.

But there is actually a glimmer of hope here at home, and by that, I’m not even referring to the cheese markets finally showing a few signs of life in the past week or two. What I mean is that NMPF’s new Strategic Planning Task Force is delving further into finding real long-term fixes for the situation.

In so doing, we have to first admit that the biggest problem is also one that no one organization or government can possibly fix, and that is the global recession. A worldwide decline in dairy demand, owing to the worst economic downturn in 75 years, is at the heart of the price crunch on the farm. If it were just America's farms that were suffering, that would be one thing. But when the same dynamic plays out on dairies from Argentina, to Austria, to Australia, there is no swift unilateral, or multilateral action, that can alleviate the problem.

Still, as White House Chief of Staff Rahm Emanuel has noted, one should never let a crisis go to waste. That’s why the domestic U.S. dairy industry, led by NMPF, is using the recession as a catalyst to engage in some thorough soul-searching about how we can improve our own milk pricing system.

NMPF’s Strategic Planning Task Force met recently in Chicago with more than half a dozen other farm organizations to discuss how the current crisis developed, and how we can make positive changes to blunt the impact of a similar situation in the future.

Our Task Force spent much of the time probing the widely-disseminated price stabilization plan, being promoted by the Holstein Association, the Milk Producers Council, and Dairy Farmers Working Together, which would assign production bases to individual farms in order to put some brakes on future milk production. The Task Force is in the process of conducting a more detailed analysis of that plan, and will meet again later in August to review that, as well as other ideas to reform the milk pricing system. These include assessing how
Federal Orders can and should change; reviewing the effectiveness of the current farm safety nets we have in place, the Milk Income Loss Contract program and the Dairy Product Price Support program; and evaluating whether other safety nets, such as a gross margin insurance program, may be more effective.

It’s also worth noting that in addition to discussing systemic changes that likely would need legislative action in order to apply them to all farms, the Task Force, and NMPF overall, is reviewing possible improvements to the
Cooperatives Working Together program, in order to make that self-help initiative as responsive and dynamic as it can possibly be.

Previous farm-level price troughs have typically produced a pattern of calls for major reform, only to see the critical mass calling for big changes evaporate as the inevitable price recovery occurs, and the sense of urgency passes. I believe this time will be different. History has embarrassed many who have made such assertions, only to see that history does tend to repeat itself. But I think the crisis this time won’t be wasted, and that rather than using the recession as a justification for tinkering at the margins, we can use it to really restructure the milk pricing system in ways that sweep away many of the features we all agree need to be changed.