Fighting the Grinch

A year ago, when Congress was in the thick of trying to pass a new Farm Bill, NMPF played the key role in crafting and getting included in the bill a significant revision of the Dairy Product Price Support Program (DPPSP). Yet it was hard to find anyone too interested in that effort. In Congress, it was viewed as little more than a formality, and it wasn’t even the subject of much debate within the dairy industry.

The big revision we achieved was that rather than supporting an overall milk price of $9.90 per hundredweight, the law was changed to have the USDA support specific commodity prices, those used to calculate farmers’ classified prices. The DPPSP purchase prices were the same as they had been previously (80 cents for powder, $1.05 for butter, $1.13 for block cheese and $1.10 for barrels), but by specifying an individual price for each of these products, it removed the ability of the USDA to “tilt” the relative values of butter and powder that it might buy. This was a major victory, given how the USDA had earlier in the 2000s played politics with the butter/powder tilt, and reduced dairy farmers’ incomes.

Another change written into the Farm Bill was that the USDA could not turn around and resell any nonfat milk stocks at less than 110% of the purchase price (which would be 88 cents). This provision was inserted so that the USDA could not undermine farm-level milk prices by selling commodities at reduced levels, cutting farmers’ income.

Part of the reason for the general lack of interest in the price support program during the Farm Bill was where milk prices were at the time. A year ago, the Class I price was still above $20/cwt., where it had been during most of the deliberation over the Farm Bill. Last December, nonfat dry milk powder prices were above $1.70/lb., after reaching more than $2 during much of 2007. The bottom line was that the price support level of 80 cents per pound for nonfat seemed to be of little concern in a world – and it was literally the world market – where prices were more than double the price support minimums.

My, how the world has turned. World and domestic nonfat dry milk prices have collapsed, and millions of pounds of powder have been sold this autumn, at 80 cents/lb., to the USDA. What seemed like an anachronistic program a little more than a year ago is now helping to support dairy farmers’ incomes as the world heads into recession.

Because the DPPSP is still such a critical safety net, defending it is an important part of what NMPF does. That’s why we went to court this month, to stop the USDA from further ignoring the spirit of what Congress wrote into the Farm Bill concerning how the DPPSP is supposed to work.

NMPF filed a Temporary Restraining Order on Dec. 8 with a court in Chicago to prevent the USDA from allowing a private trading company to auction off 20 million pounds of nonfat dry milk. Under this agreement, the USDA gives a third-party the ability to sell surplus commodities back to commercial channels. The third-party company then uses the proceeds from those sales to purchase value-added foods, such as canned goods, to be used in other USDA feeding programs.

The concept is OK, and NMPF strongly supports feeding the hungry, but not at the expense of lowering dairy farmer income. The problem with USDA’s arrangement is that there is no stipulation in the auction process that sales of nonfat milk powder have to be at least 88 cents/lb. If this were Ebay, rather than setting a minimum starting bid, the USDA is allowing buyers to start with no minimum at all, and certainly not an 88 cent minimum.

This flies in the face of what Congress wrote into the brand-new Farm Bill: a clear proviso that the Dairy Product Price Support Program is meant to support dairy farmers’ incomes, and it should be respected, not circumvented. It’s unfortunate that during this Christmas season, the USDA wants to play Grinch and undercut an important safety net, even as farmers (and the rest of the economy, for that matter) are looking at a tough winter ahead.

The good news is that as a result of NMPF’s legal action, the USDA will suspend plans for the milk powder auction until at least Jan. 22, 2009, when the court can delve into the issues involved.

The Dairy Product Price Support Program is a producer safety net that NMPF will continue to vigorously defend, in court if necessary.

National Milk Producers Federation

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