2009 NMPF Annual Meeting Presentation

Release Date: November 02, 2009

 

Jim Mulhern,
NMPF President & CEO
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For the November CEO's Corner, we are including the joint presentation made November 11, 2009 by Jerry Kozak and NMPF Chairman Randy Mooney at the Annual Meeting in Grapevine, TX:

 

Randy Mooney (RM):

We're going to do things a little differently this year. For the first time, this presentation from NMPF's leadership will be in stereo, not mono. Jerry told me he was tired of going it alone after 12 years of being CEO, and believe it or not, he was running out of things to say. So today, I'm going to help him out.

Jerry Kozak (JK):

Actually, because you're new, I said I would help you out with your first speech as Chairman. Like an interpreter. Or sort of like when you have a learner's permit to drive; someone else is in the front seat helping you steer.

RM:

If you're helping me steer, then I need a GPS giving me the right directions. Because you certainly were a little misleading when I started as chairman 12 months ago. When I was elected Chairman of NMPF last year, they told me it was going to be no big deal. Milk prices were good, the organization was stable. Other than this little thing called the global economic recession, things were looking up.

JK:

And now look at what's happened in the past 12 months since you've been chairman.

RM:

What we wanted to do this afternoon is provide you all with an opportunity to see just what NMPF has been doing, particularly behind the scenes, to help counteract this terrible economic recession that has ravaged the dairy producer community. The actions we've taken in 2009 have actually made improvements in the economic outlook for dairy farmers, and I think we can stand here today and say things are getting better, slowly but surely, and the outlook is for a better year ahead.

JK:

We also want to update you on the many other activities of NMPF, beyond those that have an immediate economic focus. Recession or not, there's a lot of other things happening affecting livestock production and marketing, and it's important not to lose sight of the issues where NMPF is representing your interests.

RM:

One of the first big challenges we had late last year was when we uncovered a more or less secret plan within the outgoing USDA administration to auction off surplus milk powder to the lowest bidder. Stocks of nonfat had begun to build as prices dropped, but USDA's plan last December was essentially to barter it away and then have it auctioned off at the lowest price.

JK:

And the reason why this effort had to be stopped is that the Farm Bill that passed last year specifically said that USDA cannot sell any surplus dairy products it has purchased for less than 110 percent of the purchase price. So, what that means is that when it buys powder at 80 cents a pound, by law, it's not supposed to sell it back at less than 88 cents. But that's indeed what USDA was planning to do, by using a third-party broker to get around the sell-back restriction. And when that powder would be sold below 88 cents, it would further erode farmers' already sinking milk prices. It's possible the powder would have ultimately been unloaded for as low as 60 or 70 cents per pound.

RM:

So what NMPF did was take USDA to court in December. We immediately won a restraining order against USDA, halting any bartering or auctioning of the powder. The USDA later agreed to abandon its approach. So this was a defensive stand against lower milk prices… but it was just a warm-up for all the action in 2009.

JK:

In fact, that action of taking USDA to court was one of several occasions in the past year that we have interacted with the Department on your behalf. Since that court case, it's been very collaborative. But the bottom line is that every time, it's been done with an eye toward what will help farmers the most in the short term. I want to thank Secretary Vilsack and his staff for their responsiveness and support during this difficult period. Randy can tell you we've spent a lot of time this year talking with USDA.

RM:

In January, we wrote a letter to outgoing Agriculture Secretary Ed Schafer, with a laundry list of actions that we felt needed to be taken to help address the looming dairy crisis. Since he was a lame duck and left office just a few weeks after that, we sent basically the same letter to his successor, Tom Vilsack.

Here's a partial list of what we asked the USDA to do:

  • Liquidate 200 million pounds of surplus nonfat powder so it doesn't hang over the market and further hinder a price recovery;
  • Reactivate the DEIP program so we can sell more products overseas;
  • Raise the price support levels temporarily to give prices a boost;
  • Buying cheese products and donate them to feeding programs.

Keep all these things in mind as Jerry and I continue.

JK:

As it turns out, one of the first official meetings Secretary Vilsack had with anyone in Washington was with NMPF staff. He had just been approved by the Senate, and had only hired a few key staff. But we wanted to make certain that the dairy crisis was something with which he was familiar. We wanted our industry's concerns to be at the top of his agenda.

RM:

And I think that initial lobbying helped out in the months since January. The NMPF Board of Directors will recall that Secretary Vilsack came to our March meeting in Washington, where he pledged to work with us to do what he could to help the dairy producer community.

JK:
Two months after that initial meeting with the Secretary, and just a couple weeks after he met with our Board, the USDA made a formal announcement that it was implementing a plan to help eliminate the surplus buildup of nonfat milk powder. I was invited to participate in a press conference with Vilsack to talk about how important this action was, to donate the product to charitable feeding programs. Because if the powder stocks had continue to grow, and overhang the market, they could have further hindered what has already been a slow recovery in the price of milk.

RM:

So that was the first response to our list of requests of USDA. Two months after that announcement, came the next bit of good news. Right before Memorial Day, the USDA announced it would reactivate the Dairy Export Incentive Program. It had been dormant for five years, but after years of NMPF pushing to restart it, the Department finally agreed with us.

JK:

The great news about getting the DEIP program going again is that it has the potential to help sell billions of pounds of products through export markets, the loss of which in the past year is the principal cause of our price decline. Already, bonuses have been issued for more than 930 million pounds of product through the DEIP. So the surplus that was created by the loss of export markets has been addressed, at least partially, with the DEIP program.

RM:

The third item on our laundry list at the beginning this year was doing more with the Dairy Product Price Support Program. We had asked the Department to make it easier to sell cheese to the USDA's Commodity Credit Corporation. We had also asked the USDA to raise the purchase price levels for cheese, in particular, because of the hassle factor in selling product to the government.

JK:

And so two months after the DEIP announcement, in July, the USDA agreed to raise the levels under the price support program. Actually, they raised the purchase prices even higher than what we had requested, to $1.31 for blocks, $1.28 for barrels, and to $0.92 for powder. And if you look at what happened to commodity prices since that time, they've been higher still. Certainly, some of that price response has been due to market conditions, including a slowing of milk production and a return of demand. But part of the price response is due to USDA's action, at our request.

RM:

The last item from our January list was a request for USDA to purchase consumer cheese products, and then donate those products through charitable organizations to the needy. We felt this would be a win-win, both politically and economically, because a significant purchase of cheese would help farm-level prices, while also helping feed Americans who are also suffering because of the recession.

JK:

The challenge with this request is that the USDA didn't really have any extra money sitting around for additional product purchases. And then Congress stepped in, and decided to appropriate $350 million in a one-time, new earmark for dairy farmers.

RM:

At first, it looked like the dairy aid package was going to be used somehow to augment the price support program. But we at NMPF didn't feel like that would help much, so we wrote a letter at the end of the summer to House and Senate leaders, urging them to spend the money on cheese purchases. Such an action would represent a win-win scenario, and provide an immediate boost to prices. It would also address the fact that using it as direct payments is not the most economically efficient, or politically correct, way to help farmers.

JK:

In the end, congressional appropriators decided to split the baby. $60 million of the $350 million is going for cheese purchases, and the remainder for direct payments. NMPF has pushed the USDA to allocate those payments in the most equitable, size-neutral way possible. It's too bad that something positive designed to help farmers became so fraught with controversy. I wish they would have just listened to us in the first place and spent it all on cheese.

RM:

But Jerry, you raise a good point, which is that the dairy appropriations, and all the other things in our list, were the result of the attention brought by NMPF to the dairy crisis. These actions by USDA, and Congress, didn't just happen. They were the result of a concerted and consistent effort to publicize the extent of the dairy crisis.

JK:

That's right. NMPF conducted literally hundreds of interviews with the media throughout 2009, making the case that dairy farmers were among the businesses that have suffered the most from the recession… and needed help. Our messages about the loss of income, and the severe financial crush on farmers, helped educate lawmakers and the public about the need to act on farmers' behalf. Lots of people have been hurt in the recession, including other livestock producers. But the attention we've gotten to the dairy crisis has been due in no small part because of a strong public relations effort from coast to coast. Lawmakers have seen that coverage, have heard their dairy constituents' pain, and they have responded.

RM:

We've also taken other steps in Washington this year to help producers with important goals. NMPF is again supporting the long-standing effort to establish tariffs on imports of Milk Protein Concentrate and casein. This is legislation we first helped write back in 2001, and we remain committed to closing loopholes that allow these products into our market.

JK:

We've also been urging the USDA to finally impose the checkoff on all dairy imports. You know, it's been over a year since the Farm Bill was finally approved, but foreign dairy products still aren't paying their fair share of the promotion tab. That needs to end, and USDA needs to take action on this.

RM:

One of the other key economic steps NMPF took this year was to push for restrictions on the growth of large producer-handlers, so they can't disrupt fluid milk markets and cut the blend price for other farmers.

JK:

Yes, we made a clear case that the Federal Order regulations need to be updated nationwide so that large farmer-owned bottlers can't exploit the producer-handler loophole in a way that reduces revenue for every other producer in their region. We were delighted to see our efforts pay off a few weeks ago when USDA issued its proposed final rule to cap the producer-handler exemption to three million pounds per month.

RM:

Another big focus for NMPF going back more than a year is immigration reform. Farmers have enough problems with high input costs and low milk prices; not having help milking the cows is adding insult to injury.

JK:

We've continued to make the case on Capitol Hill that Congress needs to take up immigration reform in a way that addresses the workforce needs of dairy farmers. Earlier this year, we released a comprehensive labor practices survey that NMPF commissioned in 2008. It got good pickup, including this article in the Wall Street Journal. This survey will help us continue to prod our lawmakers on the immigration issue.

RM:

This has been a great summary of all of the efforts that NMPF has undertaken to help improve the economic situation for its membership. But all the while all these things were underway, there was plenty of other activity going on. In fact, one of the biggest issues of the year on Capitol Hill was climate change, and what to do about it. And National Milk was right in the middle of that battle.

JK:

We knew Congress was poised to take some sort of action to limit greenhouse gases, and what they've settled on for now is creating a new cap and trade system. Such an approach may have a negative impact on farming, but it also presents some opportunities as well, particularly for dairy farmers who can reduce carbon, and sell those carbon credits under the trade part of cap and trade. And not just through using digesters, which are a high-end approach, but also through sequestering carbon in soil, and reducing enteric methane production.

RM:

Rather than walking away from the table as the cap and trade legislation was negotiated in the House, NMPF was part of the discussion, trying to make the resulting bill as appealing as possible for our farmers. In the end, the Senate may not act on this. And even if they do, NMPF may not approve of the final version. But our approach has always been one to proactively engage on key issues, rather than disengage. If you're not at the table, it's much harder to help shape the outcome.

JK:

Another key focus for us this year has been animal care, where we've also needed to be proactive. That's why just last month, NMPF and DMI rolled out the specifics of the new National Dairy FARM program. Owing in part to last year's Hallmark meatpacking plant video, and Proposition 2's passage in California, animal care is under the microscope like never before.

RM:

In my state of Missouri, there's talk that the Humane Society may be looking at bringing a ballot initiative to a vote like the one that passed in CA. And they've also targeted Michigan and Ohio, where the industry has been battling to counter those efforts. We've been playing a whole lot of defense on the issue, all across the country. I want to thank the DMI Board for the financial support of this extremely important program that deals directly with consumer expectations about dairy foods and how they're produced.

JK:

And we know that apart from what happens legislatively, marketers are asking more questions about animal care. There are growing expectations that food marketing companies will ask their suppliers to address animal care, in the same way they do quality assurance and food safety. That's why we are offering the FARM program to the dairy industry. It's the answer to a question that more and more companies, and consumers, are asking. It's a chance to play offense.

RM:

And the thing about this program is that by offering a single national animal care initiative, hopefully we can avoid having a bunch of company-specific programs in lieu of just one. It is also part of our ongoing effort to publically demonstrate the commitment that farmers have to animal care.

JK:

As you can see, it's been a busy 2009. And Randy and I want to close with two things you've already heard about today at the earlier town hall meeting: CWT, and the Strategic Planning process. First, CWT has had its busiest-ever year. We're in the middle of removing cows from the third herd retirement of 2009, and the fifth since the summer of 2008. When the history of this price plunge is written - and it will be history soon - that history will show that CWT did most of the heavy lifting to help reduce the surplus of milk production, and better align supply and demand.

RM:

And as Chairman of NMPF, I want to publicly thank those coops that gave their two-year commitment to CWT, which includes coops not part of NMPF… as well as individual dairy farmers. Your commitment in January to a two-year program gave CWT the wherewithal to do the most aggressive herd reductions since the government termination program more than 20 years ago. Dairy farmers should feel proud that in a time of crisis, you have stepped up to the plate to help make things better. I want to thank CoBank for their support of CWT, by providing us with a substantial line of credit to allow us to front-load our herd reduction activities at a time when they were most needed.

JK:

And CWT is one of the reasons why I think we've been so successful in getting help from USDA and Congress. They know full well that we have done a great deal to help ourselves, through CWT. So getting government assistance is easier because we can first demonstrate the commitment to self-help embodied by CWT. I also want to remind everyone that our original business plan for CWT was to accelerate by six months the realignment of milk supply and demand. We predicted that CWT would bring about equilibrium in production and consumption by October 2009… which is where we are now. Without CWT, it would have taken another six months of 10 dollar milk prices to bring that about.

RM:

And let me highlight one of the other key initiatives of NMPF in 2009. As the dairy crisis deepened, it became apparent that we needed to use the crisis as a catalyst to make some needed changes in the economic structure of our industry. That's why I appointed a special new task force to examine the appropriate long-term response to this situation.

JK:

NMPF's Strategic Task Force has provided leadership in focusing on the steps we can take, and the consensus we need, to help avert a similar crisis in the future. It's still a work in progress. Let's not kid ourselves that consensus will come cheaply or easily.

RM:

But where we are right now is that the Foundation for the Future represents a great deal of thoughtful input about where our industry needs to go in the future. In addition to considering how to make CWT even more effective, including the need to bolster its participation level, the other elements of the Foundation represent nothing more than common sense about changes that we need.

JK:

For instance, while after this year, no one can deny that the MILC and price support programs played an important role, we need to ask whether the amount of money they represent couldn't be better spent on other ways to assist farmers. In particular, we have outlined what we call a producer income protection program, that would serve as a true safety net when times like 2009 present themselves again.

RM:

And the other thing we can recognize is that this crisis can be the catalyst to alter the Federal Order system. It's not the cause of these low prices, but it would be short-sighted of us not to try hard to adjust Federal Orders to make them more effective and less problematic than they are.

JK:

Our goal is to maintain the Federal Order system, but modify it to be relevant in this new environment. We want to avoid the winners versus losers scenario created by the present make allowance structure.

RM:

So you can see from what Jerry and I have been describing that there is no other farm organization that has worked as hard as NMPF in helping bolster producer income. I thank everyone who helped in those efforts this year. In particular, I want to thank the NMPF Board of Directors, our group of hard-working officers, and the terrific staff team that Jerry has in place.

JK:

We do have a great team, and they are relentlessly results-oriented. While others spent their time searching for new ways to address the issues, NMPF produced actual results using sound solutions that could be readily implemented.

RM:

And now we are focusing our efforts to develop consensus around a solid new framework… one that would help avoid the poor economic conditions suffered by farmers in 2009.

JK:

In my remarks last year, I challenged our membership to address the changes that are necessary to build a better and more profitable future for those who farm today, and want to tomorrow. To those who advocate the status quo, we say that it is not sustainable. And to those who advocate a single solution to our problems, hoping for a magic wand or a silver bullet, we say that such expectations are neither realistic nor acceptable.

RM:

That is why our package of interlinked proposals entitled "Foundation for the Future" is critical to the vitality and prosperity of our industry. To all of you, we say: Welcome to the Future.