The Need for ChangeJerry Kozak,
President/CEO I was hoping that during this Thanksgiving, dairy farmers would have a great deal to be thankful for, as they reflect on the meaning of the 2010 holiday season. If you look just at milk prices so far this year, they do, but there’s also a great deal of apprehension, given what’s happened recently with both the cash and futures markets. And that bitter taste topping it off is not cranberry sauce, but the surge in input costs this fall, especially corn and soybeans. At this point, anyway, once this year’s holiday glow fades, 2011 is not shaping up to be a great year for farmers. That’s all the more reason why we need a new dairy policy that changes the whole paradigm of how we provide a farm-level safety net. NMPF’s Foundation for the Future, which I’ve talked about previously in this space, is not just about milk prices – it’s about margins, and tools to help farmers protect against the kinds of margin-derived economic losses they suffered last year. Importantly, Foundation for the Future also features a Dairy Market Stabilization program, which is a producer-funded mechanism to help send unmistakable signals that the market needs less milk. The need for this type of a periodic brake on milk production became evident last year. At a time when margins were catastrophically bad for farmers, the growth in milk production slowed, but it didn’t stop. You could certainly argue that if Cooperatives Working Together hadn’t removed nearly 250,000 cows in 2009, milk production wouldn’t have slowed at all, and margin depression would have been an even larger crater. Lately, processors have been criticizing the idea of FFTF’s Market Stabilization plan, calling it a Canadian-style quota system, and warning that it will negatively impact dairy farmers by choking the flow of capital, and retarding investment opportunities. With all due respect to that notion, it’s the volatility in prices – and margins – we have under the current system that has the greatest negative impact on farmers. What financial lender in their right mind would prefer the status quo, with wild swings in both milk prices and feed inputs? Beyond that, you can’t tell me that milk purchasers, either at the processor and/or retail level, don’t get queasy in their stomachs when they experience the type of volatility we’ve seen in the past five or ten years. Consumers don’t like the unpredictability of roller-coaster prices, either. So creating a way to modulate production only in the worst-case scenarios is a benefit to the entire dairy value chain. Critics of the Market Stabilization plan also have asserted that its production bases are a de facto quota, virtually identical to those used in some other countries, especially our neighbors to the north. But Canada’s quota system, with a monetary value assigned to each farm’s quota, has created barriers to entry and restrictions on growth, whether margins are healthy or compressed. That’s not what Foundation for the Future’s Market Stabilization program creates or allows. Anyone comparing the two will easily understand the distinction between limits on growth in all situations, versus our proposal of sending clearer signals only when dire imbalances exist, as they did in 2009. It’s also a mischaracterization to assert that the government will keep the money collected under the program, if and when it is triggered. In fact, that money goes right back out the door to stimulate dairy demand, through the purchase of consumer-ready products for donation to food banks and charitable feeding organizations. Processors of those products should welcome this kind of a new market. Those who are arguing against this concept certainly have a right to their opinion, but misleading assertions are not an appropriate approach to constructive debate. As I said in my October column, if we don’t utilize this type of mechanism that temporarily addresses extreme volatility, then we will witness a huge exodus of farms, of all sizes, from all parts of the country. What financial lender would want to invest in new processing capacity if America’s domestic milk supply is imperiled under the current system we have? Since I started on the subject of Thanksgiving, let’s be thankful the first Pilgrims were smart enough to realize that change was needed, both when they decided to leave Europe in the first place, and later, after arriving in the New World, when they chose to farm differently when their initial methods weren’t working. Clinging to ineffective ways of thinking is a sure recipe for disaster, which is why change must come. *Anyone is welcome to post comments. Comments must be approved before appearing on the page. All effort will be made to publish every comment, provided that each comment is respectful and directly addresses the issues discussed in the column. Readers are encouraged to respond to the comments of others. Comments |
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Jerry Kozak:
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