Wednesday, November 30, 2005

Good afternoon, and on behalf of the National Milk Producers Federation, welcome to our 2005 annual meeting. Giving a speech like this is always easier at the end of a good year, and that’s exactly what we at National Milk have had, in just about every respect, in 2005.

Maybe the best news to start off with is that this is the 90th year of operations for NMPF, which was first formed in 1916. NMPF was created years ago in order to help dairy farmers and their cooperatives navigate the national political scene in Washington, and give producers a clear, effective voice in the policy arena. And that mission is as relevant today, as it was at the start of the 20th century.

I want to thank the officers and the Board of Directors of NMPF for their support this past year. We have a lot of firepower in our organization, and it starts with our 45 board representatives and their years of experience in helping lead the dairy industry. I also want to thank Jerry Kozak and his staff at NMPF. The successes of the past year wouldn’t be possible if not for their expertise, effort and execution in helping get the job done.

Jerry is starting his 9th year as President and CEO of National Milk and I am pleased to tell you today that the board has offered and Jerry has agreed to a new four-year contract with us. The expertise, business attitude and countless contacts, in congress, government and industry that Jerry and his staff bring to our organization are invaluable assets that work to make National Milk even stronger. Thanks to all of you for your hard work.

This afternoon, I’ll briefly cover some of the successes that NMPF has achieved since our last meeting in Reno in 2004.

On Capitol Hill, the agenda has been driven by a few big ticket items in the past year. At first, it was the President’s proposal to reform Social Security, along with funding and oversight of the war in Iraq, that got the major focus in Congress. After August 30th, the Social Security proposal got blown away by the need to focus on the aftermath of Hurricane Katrina, the rapid rise in energy costs, the selection of two new Supreme Court judges and the selection of Ben Bernanke to succeed Alan Greenspan at the Federal Reserve.

But all the while, NMPF has been active on a number of legislative items that are important to dairy farmers. The one receiving most attention is passage of the Central American Free Trade Agreement. It seems like every year there’s a big trade vote in Congress. A few years ago, it was passage of Trade Promotion Authority. Last year, it was the vote on the Free Trade Agreement with Australia, which we opposed.

This year, Congress had to decide whether to create a free trade relationship with five Central American countries, along with the Dominican Republic. This became one of the biggest partisan controversies of the year in Congress, particularly in the House, where the vote was split almost evenly along party lines.

We didn’t view the CAFTA agreement in partisan terms, or as part of a larger philosophical debate over the merits of free trade. Our simple calculation was whether expanding trade to Central America is going to be good for our industry. And at the end of the day, our answer was, yes. The additional opportunity for dairy product sales in Central America is modest, but it’s greater with CAFTA than without. Our support of this treaty also helps us reinforce to Congress and the White House that we’ll look at each trade deal on its own merits.

We opposed the Australia deal because it meant increased Australian dairy sales in our market, and we oppose any potential FTA with New Zealand for the same reason. But we can point to our support for CAFTA as evidence that every trade deal deserves individual consideration. We’re neither free traders, nor protectionists; we have to be pragmatic and realistic about trade.

Here are a few other things we worked on successfully in Washington in 2005:

We were able to convince Congress to tweak the National Dairy Promotion Act to allow the National Dairy Board to consider a one-time use of national checkoff dollars, to pay for research into air emissions from dairy farms. It should come as no surprise that farms of all sizes are facing increased attention from their neighbors – and from regulators – where air quality issues are concerned.

Jim Dickrell, in his November editorial for Dairy Today magazine, points out that nitrogen excretion on U.S. dairy farms in 1944 was two and a half times greater than today. Comparing the 25 million cows on dairy farms in 1944 to the 9 million cows today, on aggregate, the U.S. dairy industry is emitting four billion pounds less nitrogen than it did 60 years ago.

That’s an example of the type of better date we need to have that reflects just what kind of impact dairy farms do have. The EPA has given us the opportunity to help find that data, but we have to pay for it somehow, and congress has agreed to let us use our own dollars for that research. I’d like to thank my fellow DMI Board members for seeing the wisdom in allowing the Dairy Board to consider using a small amount of checkoff money to help dairy farms wherever they are.

The research this money will pay for is being overseen by NMPF’s Environmental Task Force, a group comprised of producers and environmental scientists from universities around the country. The Task Force was created in the past year to help our industry do a more proactive job of managing air and water quality issues. This is an issue that needs our attention and our resources, and the Task Force’s involvement, plus the checkoff funding, are crucial investments in the future of everyone’s business.

Another accomplishment for us in Washington this year was building a solid relationship with the new Secretary of Agriculture, Mike Johanns. Increased world trade is a major priority for Secretary Johanns, so it’s been important for the USDA to know that NMPF is willing and able to work with the Secretary’s office on issues of mutual interest, like CAFTA. We may not agree with everything the USDA wants to do, but it’s important for them to know that we can work together on some common issues.

As most of us know, Secretary Johanns grew up on a dairy farm in Iowa, and has a unique empathy for those of us who are still on dairy farms. We were fortunate to have the Secretary speak to our June Board meeting in Washington. More recently, in October, Jerry Kozak and I visited with Secretary Johanns at his USDA office.

We talked to him about the importance of helping ourselves, through the CWT program, and also about the importance of maintaining a government safety net for dairy farmers. Secretary Johanns talked about the need to “be creative” in thinking about the future of all farm programs, including dairy, especially in light of the twin pressures of federal budget deficits, and the negotiations in the World Trade Organization.

Speaking of trade negotiations, and the WTO, I’m reminded of a story President Lincoln once told “My neighbor saw me carrying my two sons, one under each arm. The boys were both crying. He asked me what was wrong and I replied, “Just what’s the matter with the whole world. I’ve got three walnuts, and each wants two.” Now, it’s no secret that dairy markets around the world are often heavily protected, with little exposure to global competition. However, today’s dairy producers and dairy companies face increasing competition from outside our borders. Globalization of the dairy industry is exerting pressures on the U.S. dairy sector to adapt to changing market relationships. Competition worldwide has increased dairy consumption, trade, and foreign investment in our domestic dairy industry. Trade barriers in developed and developing countries do not appear to be hindering globalization of the dairy sector.

Richard W. Fisher, the president of the Dallas Federal Reserve Bank says the “United States is still the elephant in the room. While media stories about China and India make us sound like the proverbial 98-pound weakling, our $12 trillion gross domestic product—what we produce in materials, goods and services—far surpasses any other nation.” Mr. Fisher points out that the state of California alone produces more than China and that Texas alone produces 21 percent more than India.

Experts say that trade liberalization would generate relatively modest impacts on the U.S. dairy sector because of the mere size of our market, and the high level of efficiency of America’s dairy farmers. Those same experts also conclude that the rapid changes due to globalization, technological change and shifts in consumer demand, are far more likely to affect the future of the U.S. dairy industry than changes in dairy or trade policies that come from Capitol Hill.

With that in mind, NMPF was afforded the opportunity just last month to meet with Trade Representative Rob Portman, just prior to his heading to Geneva to present a new trade offer at the WTO. Our message to Ambassador Portman was clear and precise: If you’re going to offer up our domestic supports as a bargaining chip in Geneva, you must understand that the dairy price support program is the bedrock of our producer safeguards, and we have to get something in order to give something away. We simply must have complete and open access to all markets, total elimination of export subsidies, and there can be no special deals cut with individual countries in dairy negotiations.

The Ambassador understood the conditions of our support for the WTO process. He was clear that he has a good understanding of the concerns that agriculture has, including ours. NMPF must remain active and vigilant in all matters of world trade, so that we can be assured of a level playing field in the world marketplace.

Our market in 2005 was another good one, thanks in part to Cooperatives Working Together. I would be remiss in reviewing highlights of the past year if I didn’t spend some time talking about CWT.

I want to start my summary of CWT’s activities by posting an illustration of the monthly all-milk price. ( A picture is worth a thousand words.) I think this slide does a terrific job of talking about how CWT has helped us. The blue line is the average all milk price during the past 25 years. The green line is the price in 2004. The red line is what the price has been so far this year. I’ll be the first to admit that CWT is not the only reason we’ve seen above-average milk checks during the past two years. But it’s certainly been a big reason, and in terms of a return on investment, there’s no denying that it’s been the best nickel any of us could be spending.

So, what has the nickel returned for you in the past year? When we met last year in Reno, we were in the middle of the second CWT herd retirement round. When that was complete, at the end of '04, we had removed 51,000 cows from 363 farms, representing just over 900 million pounds of milk, or almost one half of one percent of the nation’s annual milk output. That has had a measurable impact on our milk prices.

Of course, CWT is also involved in helping to export cheese as a way of firming up prices.

I have another chart that helps tell the story about the effectiveness of our export target price levels. You can see that whether it’s the $1.30 per pound initial target for cheese, or the $1.40 per pound level that we bumped it to last year, the cash price for cheese at the CME has never stayed below those levels since CWT was created. We exported about 8 million pounds of cheese in 2004, and another 1 and a half million pounds so far this year.

The combination of the herd retirement and export programs has provided a tailwind behind milk prices this past year, and all the way back to 2003. CWT engaged in a strategic planning process this past winter, with the goal of listening to cooperative leaders as well as independent farmers paying that nickel. We received lots of detailed feedback about the way the CWT operates, and the way people want it run in the future. The main take-away from the planning process was that the program needs to remain simple, flexible, accountable and affordable. CWT also needs to be responsive to the market. Tomorrow, Jerry will talk more about changes to the export leg of CWT that will insure its effectiveness.

CWT’s members agreed to renew the program in July for an 18 month period, to better align with the NMPF calendar year budget. What’s more, we had new cooperatives join the program in our third year; we’re now up to 45 cooperatives participating. Those co-op members, coupled with individual farmers, mean that 74 percent of the nation’s milk supply is now paying into the program.

Tomorrow, Jerry will talk some about the 07’ farm bill and the regional conclaves National Milk will conduct early next year. The conclaves will be our grassroots effort to identify the Farm Bill issues that are important to dairy and to our industry. When debate of the Farm Bill finally begins, it will be vitally important for dairy farmers to be involved with their representatives and senators, early and often, and hopefully with a unified voice. Here’s where I want to ask for your help. “Dairy Great” can be accessed from the NMPF website and is linked to many of your co-op’s websites. It’s a fast, simple, effective way to contact Congress and send a prepared message or to send your own. If you’ve not used “Dairy Great,” try it and get familiar with how it works. Thomas Paine, in 1776 wrote “It is not in numbers but in unity that our great strength lies." We can be a powerful force in Washington by working together for our dairy industry, and your help is so very important.

Let me finish by making reference to something I mentioned earlier. You don’t have to live along the Gulf Coast to know that the landscape of that region has been changed forever by Hurricane Katrina. The political landscape in Washington shifts from time to time, from crisis to crisis, and then it’s on to something else. Memories can be short. However, for people, including dairy farmers, who live in Mississippi, Alabama and Louisiana, Katrina was a crisis that will not be forgotten – ever.

That’s why it was heartening to see that our dairy industry reached into its pockets and donated money to the special Dairy Relief fund that was established in September to assist the victims of Katrina. Last December, Dairy Relief raised $140,000 for victims of the tsunami in South Asia. This fall, we raised $40,000 to help people in the Gulf region that were affected by our own natural disaster. That money will now be presented to the American Red Cross, which knows best how to most effectively distribute the financial resources our farmers and co-ops have contributed. I want to thank everyone who contributed to Dairy Relief’s “Hurricane Katrina” fund.

You may be interested to know that someone else noticed our relief efforts. We received a letter just last week from the White House, which read, “I learned about your contributions to help the victims of Hurricanes Katrina and Rita.  Our Nation is grateful to all those who are helping their fellow citizens in need. The good works of the National Milk Producers Federation demonstrate the character and great strength of our Nation.” Sincerely, George W. Bush.

Well, that’s quite a way to close our busy list of activities for NMPF in 2005, and we still have the month of December ahead of us. The successes of this organization are a reflection of the commitment of its members, and the hard work by its employees. We have a great team whose commitment to getting the job done is never in doubt, and I’m so very proud of them all. Thanks to all of you for your commitment, and for your attention here today. On a personal note, I’d like to thank the NMPF board for allowing me to serve as your Chairmen for '05. I bid you good day, and may God continue to bless us all.