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CWT Is The Right Tool

May 8, 2015

In my column last month on the importance of federal milk marketing orders, I wrote about the value of maximizing the effectiveness of the tools at our disposal. That type of appraisal is particularly important this spring, as dairy farmers and cooperatives assess the value of one of our most important tools, Cooperatives Working Together.

Since its founding in the spring of 2003, CWT has become one of the most valuable programs in all of agriculture. In fact, it’s unique to dairy farming because of the hugely important role that cooperatives play in marketing the collective output of dairy producers. As a farmer-run and farmer-funded self-help initiative, CWT has evolved in the past 12 years into an irreplaceable means of allowing America’s dairy farmers to build and develop a foothold in global markets.

It’s not a stretch to say that the rise in U.S. dairy exports in the past decade, from 8% of our production in 2004, to 15% last year, is directly related to the ability of CWT’s member cooperatives to effectively harness the resources that CWT provides. Indeed, the record milk prices enjoyed last year by all the nation’s dairy farmers happened because dairy exports kept domestic markets tight – and CWT helped moved millions of pounds of cheese, butter and whole milk powder in to those export markets.

The program’s export bonuses can mean the difference between making a sale to a foreign dairy buyer, or losing that sale to a foreign company competing with us in the international marketplace. Because the U.S. milk industry is a relative global newcomer compared to our major competitors in Europe and Oceania, CWT is an important tool to help augment the other selling points that U.S.-made dairy products have to offer.

CWT has been honed to specialize in boosting exports of those products that most directly impact farm milk prices. While whey, lactose and skim milk powder are major components of the overall stream of dairy products sold in international commerce, the U.S. is already a major player in those markets – and domestic and world prices are generally in much closer alignment. But products such as cheese, butter and whole milk powder are both more influential on domestic milk prices and they are the products where we greatly lag our major competitors in terms of world market share. So that’s where CWT focuses its resources.

As a result, 60% of American-type cheese exports in 2014, and 44% of total butter exports, were made through CWT. The trends are the same so far in 2015.

But CWT is also at an inflection point, and along with it, the fortunes of America’s dairy farmers. World dairy markets have softened considerably in the past year. Major markets such as China and Russia are not importing as much dairy, creating an imbalance between global supply and demand. At the same time, milk production continues to rise in the U.S. and New Zealand, and this spring, Europe is removing the decades-old production quotas it once used to keep a lid on output. The headwinds our dairy exporters are facing are more daunting than at any point since 2009, when the Great Recession caused enormous economic turmoil.

CWT’s current authorization expires at the end of this year. Its members are currently assessing next steps. At a minimum, the program needs to be extended until 2018 – which is also the lifespan of the current Farm Bill, and within that, the new Margin Protection Program for dairy. CWT as a private safety net dovetails well with the federal MPP insurance program. Both are needed to help America’s dairy farmers over the next three years.

But an even greater opportunity exists for the program – and for the nation’s dairy farmers – if its funding level can grow from the current four cents per hundredweight, to six cents. The added resources can help boost CWT from being active in world export markets, to being an aggressive, even dominant, player in key categories. Cheese is a particularly attractive market for the U.S. industry because it plays a crucial role in domestic milk pricing. While the U.S. is a major exporter of cheese, our export volume is half that of the Europeans. Aggressive action by the U.S. to boost cheese exports can win important market share and also serve as a deterrent to increased cheese exports from New Zealand.

Milk production globally is going to continue growing between now and 2018, keeping pressure on world milk prices. A two-cent increase to six cents would allow CWT to expand on its capacity to help U.S. dairy farmers through the next few years, better positioning the U.S. industry toward a more favorable strategic position in world dairy trade.

As U.S. milk production grows –and it is growing at a rate higher than the growth of domestic consumption – we are increasingly dependent on exports to help that growth continue at profitable levels. CWT is an integral part of that process, and like no other tool available to America’s farmers, has the opportunity to do even more in the future.