A Cooperative SpiritJerry Kozak,
President/CEO Calamitous events often prove to be the start of something new and better, once the dust settles, and the survivors band together to rebuild. This is my expectation – and my hope - for what will happen in the dairy industry in the aftermath of the Great Dairy Depression of 2009.
By now, many in the industry are aware that NMPF has developed a comprehensive package of new policy ideas we call Foundation for the Future (FFTF). Of all the various ideas floated in the past 18 months about what to do to improve U.S. dairy policy, the Foundation for the Future is the only one that together offers farmers protection, stability and growth – and it’s the one with the best chance to succeed. It will help indemnify against destructively-low margins, protecting farmers against the type of catastrophic equity loss they experienced last year; it will help bring a much-needed measure of stability to both production and prices, by reforming the Federal Milk Marketing Order system and by trimming excessive milk production during times when margins are too tight; and lastly, it offers farmers, and the overall industry, the opportunity to grow, not just in terms of future milk output, but also by growing export markets and expanding the scale of the U.S. dairy sector. This new foundation acknowledges that current farmer-focused safety nets have outgrown their usefulness. In particular, it recognizes that the Dairy Product Price Support Program hinders the ability of the domestic industry to compete internationally, even while it encourages the production of products that don’t reflect the realities of a new century. FFTF weans us from government direct payments, which in an era of diminished federal resources, has strong bipartisan appeal. Most of all, replacing a price-centered safety net with one focused on margins (the difference between the all-milk price and feed costs) gets at the heart of the problem farmers have faced recently, and will continue to face, as the cost of production rises. Other farm groups have examined the same set of challenges that NMPF has, and arrived at somewhat different conclusions. That’s to be expected. But we’re now at a time when we need to set aside differences, and work together on this package approach, not just because it’s the most economically viable, but because it’s the most politically acceptable. Only by joining together with a united front will we be able to get what we want in the next Farm Bill. I also understand that processors have concerns about Foundation for the Future’s Dairy Market Stabilization Program, perhaps in fear that their milk supply will be compromised. Foundation for the Future recognizes that apprehension, and that’s why it doesn’t implement any type of production quota, or attempt to forecast future market needs and regulate the milk supply. The stabilization simply acknowledges that when farm-level margins are severely compressed – as they were a year ago at this time – aggressive action, in the form of a dramatic, negative pricing signal, needs to be taken to right that imbalance. If we don’t utilize this type of mechanism that temporarily addresses market imbalances, then we will witness a huge exodus of farms, of all sizes, from all parts of the country. And, ultimately, that type of seismic shakeup of milk production will negatively affect processors to a much greater extent than any short-term concerns resulting from a more balanced milk supply. To make the changes that our industry needs, what we need now is a truly cooperative spirit. By that, I am not talking about cooperatives in a technical or legal sense. What we need is a shared sense of cooperation, which inevitability entails compromise, and which affirms our shared relationship. Farmers and processors have worked well together in recent years on a host of shared concerns, from nutrition policy, to food safety, to trade. My great hope is that this effort to reshape federal dairy policy represents a unique opportunity to work for the common good of everyone who depends on a healthy U.S. dairy sector. Far from being a threat, this foundation builds something new and valuable that serves the entire industry. I am reminded of what Colin Powell observed about the Founding Fathers: “Just as they did in Philadelphia when they were writing the constitution, sooner or later, you've got to compromise. You've got to start making the compromises that arrive at a consensus and move the country forward.” It’s time for all of us to move dairy policy forward through the Foundation for the Future. *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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Terry & Jill Hauser:
Jerry Kozak:
David – Again, I believe you are misunderstanding how the Dairy Market Stabilization Program will work. There is no penalty for growth, for your farm or any farm, under normal market conditions, when margins fall within a wide range. The only time the negative pricing signal is activated is during times of extreme margin compression, when no one is making money, even the effective managers. Our modeling indicates that if this program would have been in place during the past decade, the only time it would have been activated is in 2009, a period I hope you will agree was unusual and also economically devastating for all dairy farmers. Under this program, you can grow your herds and your production; but when catastrophic conditions necessitate it, a clear signal will be sent that less milk is needed. We believe this will correct situations such as last year’s, if they arise again, more quickly than what happened in 2008-09. For your information, you may also want to review the modeling of Foundation for the Future done by economists in California and Wisconsin. Their results are being discussed today at the World Dairy Expo, and indicate that FFTF is an effective way to reduce volatility and stabilize prices. http://www.futurefordairy.com/pdfs/Nicholson-and-Stephenson-Analysis.pdf
David Brand - Indiana:
I believe your FAQ's prove my point. Your program fines those that go over their "milk base". Sorry, you renamed the milk production allotment or quota the "milk base". So if a person improves their herd just the slightest amount they will be fined essentially by not getting fully paid for the milk they freely produced on their dairy. And so by not paying them that's where the fine comes in. So thank you for pointing me in the directions of your FAQ's because that just proved my point. People just need to read between the lines because it's very easy to see that if we're effective producers we won't get paid because other people aren't managing their margins correctly. No matter how you slice the program, any dairy that effectively manages their margins and produces more milk in America will not get paid for it just so everyone else can still make it. No matter what, the progressive producers of this land will get fined, or I mean, just wont get paid like true Americans should be paid.
Jerry Kozak:
Dave – Thank you for your perspective. I am afraid you may be confusing the way other “growth management” plans are designed to affect milk production, with how the Market Stabilization plan contained in Foundation for the Future would operate. FFTF does not establish a quota or production allotment that limits a farm’s production, or impose a penalty if that limit is exceeded. Nor does it assess a monetary fee that is shared with other farmers that don’t exceed their production quota. What the Market Stabilization plan DOES do during times of extraordinary imbalances in supply and demand – when farm-level margins are severely compressed – is send a pricing signal to farms that a temporary adjustment is needed in their milk production to raise their margins and protect their equity. This type of negative situation, such as last year’s crisis, happens to good managers as well as bad, and FFTF is meant to help provide a safety net for the entire industry. If such a situation occurs, the money that is withheld is used to build demand for the entire industry; it is not shared with a select segment of dairy producers. If you haven’t done so, please read pages 7-10 of our Frequently Asked Questions that addresses your concerns in greater detail: http://www.futurefordairy.com/pdfs/NMPF-FFTF-FAQs.pdf.
David Brand -Indiana:
I'll be surprised if this passes inspection and gets posted since I'm pointing out the terrible aspects of this program, but I thought I'd try anyway. If by "Cooperative Spirit" you mean socialistically redistributing the wealth, then yes, I believe the Foundation for the Future program is on the right track. I've looked through the program outline and what it essentially says is that everyone will have production limits, or a quota, that they cannot go over. Now I know people are scared of a quote "quota system" so that's why the wording was changed even though that's exactly what would be implemented. So essentially, if you're a good manager and take care of your cows well and the cows repay you by producing well then you're going to be fined, or as you put it sent a "negative pricing signal". I can tell Mr. Kozak that you have been in Washington too long. All you are trying to do is trick us by changing the wording. So, to sum up so far, we would be fined for going over our quota even though this only happened because we are good managers and caretakers of our cows. And where does the money go? Well to the people that aren't doing a good job of course! This way, people can continue to be poor mismanagers of their dairy operation but still have cows. Another fun aspect of your quota system that will really, really hurt the "little family farm we're trying to protect" is this scenario: what if they get lucky this year and in their 40 cow herd they have 25 heifers born instead of 20? Well in 2 years 5 more cows milking will be way, way over their quota, or I mean, production allotment. What's needed to fix this mess is a free market. Free for the mismanagers to go broke if they need to. Free for good managers to produce as much milk as they may. Most of all, freedom from more government regulation and wealth redistribution. Thank you.