A Drought of Leadership

October 01,2012
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In a year when the country has suffered the worst drought in decades, you would think the added public attention to the importance of securing our nation’s food production would make it easier to adopt a Farm Bill. Of course, you’d be wrong.

As September ended, Congress failed to build on the legislative momentum from the spring and summer, when the 2012 Farm Bill passed the Senate Agriculture Committee, then the full Senate, then the House Agriculture Committee….and then, stalled out.

Even in the face of additional pressure from farm groups, food groups, and key Republicans in the House and Senate, the House leadership finally acknowledged late last month that it didn’t have any intention of bringing the House farm bill to a vote. This, despite the fact that it passed the Ag Committee by a three-to-one margin last month, and that many current programs expired Sept. 30th.

Any major piece of legislation will have its critics as well as supporters, and the Farm Bill is no exception. But the response to any concerns should have been to bring it to a vote before the full House of Representatives, so amendments could be debated and the bill could progress. That’s what happened in the Senate, which is usually the chamber in Congress noted for a tortuously slow deliberative process. This time, though, it’s the House that has failed to lead. Doing nothing aptly illustrates the reason why many voters hold Congress in such low esteem.

So where does that leave dairy policy? In uncharted waters, at best. The MILC program expired Sept. 30. Even though some lawmakers wanted to help dairy farmers by passing a short-term extension of the program, our concern at NMPF is that any extension, even if only for a few months, takes the pressure off of Congress to act on a new bill. The risk of delaying a day of reckoning simply isn’t worth the modest reward of one more MILC payment.

The other safety net programs intended to help farmers – the Dairy Product Price Support and Dairy Export Incentive programs – don’t expire till the end of December. And here’s where it gets interesting. While neither has been active since 2009, the wrinkle concerning the price support program is that come January 1st, 2013, the support level reverts back to parity pricing. Specifically, under permanent law governing USDA, the minimum price of milk becomes 75% of whatever the parity level is come January. We calculate that 75% of August’s parity price is $39 per hundredweight. This would result in support prices of $3.65/lb. for butter, $2.79/lb. for powder, and $4/lb. for cheese.

Those who believe Agriculture Secretary Tom Vilsack would never permit the Commodity Credit Corporation to purchase products at these levels shouldn’t pin their hopes on his failure to act. First, he’s bound by law to do so. Second, he believes a new farm bill is a necessity – and if the possibility of dramatic price spikes are a short-term incentive to getting the job done, then so be it. As we’ve found in recent years, it takes a crisis in order for policy makers to act. A near-quadrupling of cheese support prices may be the crisis we shouldn’t let go to waste.

While some may believe that the dairy title of the Farm Bill remains a sticking point, I also want to point to why the latest report from the Congressional Research Service – a non-partisan “think-tank” office providing detailed analysis to Congress of various policy options – affirms that the Dairy Security Act is the best choice for farm policy.

In a report released September 18, the CRS’s review of dairy policy noted that the DSA’s combination of margin insurance and market stabilization “appears to substantially mitigate the dairy operating margin volatility”; provides “a stronger safety net in extremely low margin events”; and may help “net milk exports actually expand.”

In a crucial rebuke to those who continue to cry that market stabilization is some Canadian-style quota system, the CRS report said that the market stabilization program, while “referred to as a supply management program, is perhaps more accurately described as a production disincentive program, since there are no production limits or quotas, and the dairy operator may continue to run his operation at any production level.”

The report also reiterates a key fact about the effort to strip out the market stabilization program, as Agriculture Committee members Reps. Bob Goodlatte and David Scott attempted to do this summer. CRS noted that under the Goodlatte-Scott method, “no production growth is permitted,” and insurance coverage is limited to only 80% of a farm’s production – compared to 90% under the Dairy Security Act.

It’s a point worth repeating: this alternative guts the insurance protection of the dairy title by putting more risk and cost onto the backs of farmers. It reduces the amount of historic production they can insure, and eliminates the ability to insure new milk production during the lifespan of the farm bill. Since those who support this alternative share my concern about the growth of the U.S. dairy sector, let’s be frank that it’s a real, de facto quota system that would severely hamper the ability of our industry to be the healthy, growing, future-oriented business that we want.

We expect Congress to address the farm bill in a lame duck session after the November elections. The drought of leadership, and action, must end.