Release Date: October 2006
Word Version
Time to Step Up to the Plate
Jerry Kozak
President/CEO
October marks the culmination of the major league baseball season, when the world gets to see which players can truly deliver for their teams by stepping up to the plate and getting more hits, and scoring more runs, than their opponents.
This month also marks the release of a new report on Cooperatives Working Together that clearly demonstrates how the dairy industry’s three year-old self-help program has been scoring runs for dairy farmers. In response to that report, I truly hope farmers and their cooperatives respond by going to bat for CWT.
First, the report. When CWT was formed in 2003, we did some internal calculations about how much the program was expected to return for the five cent investment that cooperatives and farmers were making in the program. Milk prices shot to record levels in the spring of 2004 (about six months after our first herd retirement program was conducted), and stayed above average price levels throughout 2005. Since the beginning of this year, of course, prices have been below average, although they are turning around. October’s all-milk price should be at least $1 per cwt. higher than last month.
Those operating and supporting CWT intuitively understood that this new program was helping to increase farmers’ prices through its herd retirement and export assistance programs. Still, there were skeptics who claimed that CWT was merely a lucky bystander as prices rose. The doubters asserted that 2004’s record price run-up was due only to the lack of Canadian dairy heifers, or the shortage of Posilac, or high feed costs. Lately, they’ve been asking what good CWT has done.
In order to answer the critics – and more importantly, to provide a solid accounting of the return on investment that farmers have received to date for CWT – we asked one of the nation’s leading agricultural economists to look at the program. So, earlier this year, we invited Dr. Scott Brown, who runs the University of Missouri’s Food and Agricultural Policy Research Institute, to provide an independent assessment of CWT’s effect in the market. Dr. Brown is often called on by the U.S. Congress to review various farm policy programs, and we knew that his research methodology is widely respected. If anyone could provide an honest appraisal of CWT, it was going to be him.
We asked Brown to review the same data we have made publicly available concerning CWT’s cow removals and dairy product exports, and told him to provide us with his frank assessment of the CWT price impact. Importantly, he was able to isolate just the impact that CWT has had on dairy supply, apart from all the other factors affecting production and demand in the 2004-2006 time period.
What did he find? That CWT has raised the all-milk price an average of 40 cents per hundredweight since the beginning of 2004. The impact has been growing each year since 2003, as the result of the cumulative impact of CWT’s three herd retirements. That’s because our removal of 147,000 cows has also removed future milk production, and future heifers, from the nation’s herd. Even this year, with prices down, CWT has provided a 60 cent return, through the value of those cows removed, and because we have exported more than half a billion pounds, milk equivalent, of cheese, powder and butter products.
Dr. Brown found that the total dollar value of CWT will reach nearly $2 billion by the end of this year. That means every farmer in this country – regardless of whether they are paying into the program – has benefited from the rising tide that CWT has produced. CWT has generated for an average-size U.S. dairy farm a total of $33,000 since 2004, with an average investment of just $4,000. You can read a brochure summarizing the analysis at the CWT website.
So that’s great news about the value of CWT, as it moves into its fourth year. Finally, dairy farmers have a proven program that, for a modest investment on their part, returns an attractive result. No, forty cents a hundred is not a windfall, but clearly farmers are better off with the program than without.
Now, however, we need the rest of the industry to move up to the big leagues and join the CWT team.
Current participation in the CWT program is about 67% at the 10 cent per cwt. membership level (there is additional membership volume still at the 5 cent/cwt. level). That means for every two hundredweights of milk that is paying into the program, there’s an additional hundredweight that is getting a free ride. CWT is a voluntary program, of course, but the evidence is now irrefutable that an investment in CWT means more money in farmers’ checks. We are missing out on some run-scoring opportunities by not having additional revenue from more cooperatives and farmers for this program.
To work the baseball analogy a little further, CWT needs some sluggers to produce on its behalf. It’s the season when champions need to stand and deliver.
