Foundation for the Future

The American organizational psychologist Kurt Lewin once advised that “If you want to truly understand something, try to change it." By that measure, the National Milk Producers Federation will have a truly granular understanding of milk pricing by the time we conclude our efforts to revamp America’s system of regulating farm-level dairy prices.

The easy consensus across the industry is that change is needed, even if there’s also shared understanding that nothing could have been done to completely insulate farmers from the daunting effects of the Great Recession. My last column in Cheese Market News in July talked about how the low milk price situation is a truly global phenomenon afflicting farmers everywhere.

The harder challenge, at this point, is developing a critical mass of support behind something new and different. Many ideas have been circulated, but the one – actually a package of several ideas – which we at NMPF are now focused upon is a foundation of four concepts that, together, would introduce ways to protect producer income, reduce price volatility, and ensure the U.S. remains a player in the global dairy business.

The four features of NMPF’s plan include: revising the safety nets of the Dairy Product Price Support and Milk Income Loss Contract programs, leading to the creation of a new Dairy Producer Income Insurance Program; addressing the need to improve participation in the producer self-help program, Cooperatives Working Together, while allowing it to better address periodic imbalances in the milk supply; and reforming the Federal Milk Marketing Order program.

The industry has grown up around the price support program, and there’s no denying it has played an important role in backstopping farm-level prices, even during the current price trough. Similarly, while the MILC payment system is not universally loved, it does provide revenue to every producer who signs up for it. But overall, both programs offer only limited assistance during times like these, when input costs are high and milk prices are low. That’s why we are looking at whether an insurance program, that would allow farmers to indemnify against not low milk prices but poor profit margins, would be a preferable option.

We’re also going to be looking again at Cooperatives Working Together. The program has been nimble and flexible as it has evolved since 2003, but we remain concerned that its effectiveness is hampered by the free riders who received the program’s benefits, but don’t share in its funding. So expanding both the membership of CWT, and its portfolio of milk reduction activities, remains a key consideration for the future.

Lastly, the fourth element of the foundation calls for examining what can and should be done with Federal Milk Marketing Orders. Federal Orders have their advantages, but they often are not the best mechanism for price discovery, and are imperfect transmitters of real-time economic signals to producers. The institution of end-product pricing, with the guarantee of one make allowances for each dairy manufacturing plant, regardless of its relative efficiencies, is also widely unpopular and divisive. So we’re going to see if we can construct a better mousetrap to help price milk across the industry.

None of these proposed foundational elements should be considered low-hanging fruit. Each potential change is fraught with controversy. But each is part of a larger whole, and they need to be viewed holistically as critical components of the bigger picture.

Martin Luther King Jr. said that the “ultimate measure of a man is not where he stands in moments of comfort and convenience, but where he stands at times of challenge and controversy.” Our NMPF Strategic Planning Task Force is taking a stand and building a foundation for the future of the dairy business.

National Milk Producers Federation

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