Alan Bjerga: Hello and welcome to the Dairy Defined podcast. The USDA’s Federal Milk Marketing Order hearing is heading into its final stretch. Meanwhile, America is officially living without a Farm Bill, which is less disruptive than living without the entire federal government, but still farmers are wondering what agricultural policy is going to look like for the next five years.
Joining us to discuss the former is Peter Vitaliano, vice president for Economic Policy and Market Research at NMPF. He’s joining us from Carmel, Indiana where as we’re taping this, he literally just got off the stand speaking at the hearing. Focusing on the latter, coming to us from Washington DC is executive vice president for government relations, Paul Bleiberg. Thank you both for joining us.
Peter Vitaliano: Certainly.
Alan Bjerga: Peter, let’s lead off with you since you’ve been leading off NMPF’s testimony on his proposals now for six weeks, you’ve testified on our plan for increasing the skim milk component factors on the make allowance on the Class I mover and now you’ve started our discussion of the Class I price service, which is the final major issue of the hearing. What do dairy farmers need to understand about what’s been going on?
Peter Vitaliano: It’s almost two years now since National Milk began crafting a very carefully balanced proposal that is in the interest of dairy farmers and their marketing cooperatives. I think we’re doing a great job of presenting our case at this hearing. That’s the whole purpose of the hearing to make in great detail based on factual evidence for our proposal, which our board of directors approved unanimously, we are encountering stiff opposition primarily from the processor groups. We anticipated that despite the fact that the Secretary Vilsack requested the parties to all come together in agreement, we tried that, it was not really possible and we’re seeing that play out here at the hearing.
We’re finding basically the processor group is arguing one way or another that anything that would improve producer prices and by extension, the effective operation of the federal order system. We have a more balanced proposal where some prices would go up, some would go down, but all in the best interest on balance positive for US dairy farmers, because remind you, the federal order pricing provisions are long overdue for an update. Their outdated-ness is now starting to cause significant problems and it is very important that we make these changes and basically enable the program to operate much more effectively than it’s now.
Alan Bjerga: Have you found the hearing to be useful in helping to understand the order system in the industry? I know there’s been a lot of discussion also of risk management proposals and some of them quite long-winded, your thoughts just in general as far as has this been a useful exercise for dairy?
Peter Vitaliano: The people who’ve been participating generally know a lot about the system. We’ve had a number of dairy producers that have cycled through and given testimony, they’ve been lightly treated in terms of cross-examination. Those of us who are not dairy farmers have not been so gently treated, but that’s our job and I confess to guilty pleasure and actually enjoying stiff cross-examination because our proposals are eminently defensible. Two things, first of all, it has been a great education for all of us, including those of us who know a fair amount of the system to be reacquainted with the fundamental purpose of the order program and what is needed to basically modernize it in the face of the very, very significant changes the industry has gone through structurally since basically the current provisions which were set in place in the year 2000 and have not been changed very much since then.
The issue of risk management is a new one. The department initially came into this process skeptical that risk management is something that was important to, let’s call it bend the system to accommodate. But they are learning, they’re listening very carefully. They’re realizing that risk management is an important part of the modern dairy industry and that it doesn’t always reside comfortably together with the fundamental purposes of the federal order program. We’re seeing a lot of testimony that the program needs to basically be fully accommodated to the needs of risk management. That’s the argument over the Class I mover.
In other cases, we are saying that system needs to reasonably accommodate risk management procedures such as phasing in our changes on the component composition factors for class three and class four skim milk. But it is something that is not particularly in violation or in conflict with the fundamental provision of the federal orders. So we’re saying it is appropriate for the system to accommodate risk management where that is appropriate, but it is not necessarily appropriate for the entire system to be primarily driven by risk management considerations when the cost of doing so does not outweighs the benefit of sacrificing or compromising the fundamental principles of the order program.
Alan Bjerga: Glad that you mentioned you enjoy being cross-examined for hours because it’s certainly been happening, Peter. How do you prepare for this? And give us an example of when you feel like proper preparation really paid off?
Peter Vitaliano: Well, it’s good to read the testimony of the parties who are opposing you on a particular issue, but I depend a lot on just knowing, having a lot of experience. I’ve been working for National Milk for a long time and I’m comfortable with the issues. I’m comfortable with my ability to be up on the stand and get hostile questions thrown at me and know how to answer them, when to answer them short and sweet, when to sometimes reframe the question and throw it back at the questioner. It’s just experience. There’s no magic book.
I participated in a session yesterday when attorney for one of our members gave some advice to a bunch of people who are due to testify on this last issue on Class I differentials from our member cooperatives, but a lot of whom had not very much experience of testifying at federal orders. And he just had really just two principles. And the main one is to stick to your statement, get your main three or five or whatever number is appropriate, the points that you want to emphasize and do not let hostile cross-examination lead you down rabbit holes that is not productive of federal order hearing time or productive to supporting our case.
Alan Bjerga: It’s clear even though farmers and farm organizations seem solidly behind NMPF’s proposal, the industry as a whole has a lot of disagreement.
Peter Vitaliano: It would be nice if it was not happening, but it is not surprising that it is. There are a number of different parties besides National Milk and the processor groups which are formally two separate organizations, although they work together closely. There are other parties like Edge Dairy Farmer Cooperative National or American Farm Bureau Federation that is generally supportive. Farm Bureau is broadly supportive of our positions and I’ll remind you that again, National Milk’s board of directors unanimously supported our position. So we are unified. We are united. Farm Bureau has some provisions that we cannot support and we’ve testified to that effect, but we generally look at Farm Bureau as supportive.
Several other players have been supportive of different degrees and it’s really only the main processor groups that have been almost in direct opposition for everything. But even the issue of the make allowances, which is something that is important to those who own dairy product processing assets, as do many of our members, we are on the same page on the general problem, on the general issue that make allowances need to be increased, but we differ on the pace and the underlying data that is necessary to make the full adjustments that seem to be called for.
We are advocating a more go-slow effort because the adjustments will be initially negative for dairy farmers and even the processor groups recognize that and they have scaled back their initial request for increasing the make allowances to a staged approach. Their initial level is very close to what we’re proposing as a starting point, but we disagree on whether or not to make further increases from there until we have the authority for USDA to finally conduct the kinds of cost studies that are really needed for us to be able to go back and say to our members, yes, these are real numbers. The adjustment may be a little tough, but in the interest of the dairy industry, long-term, it is important that our member cooperatives processing assets are properly accommodated in the product price formulas.
Alan Bjerga: So where do we go from here, both in the hearing as it moves toward its conclusion and then beyond the hearing?
Peter Vitaliano: The hearing will recess this Wednesday because USDA does not have the facility where we’re meeting, which is a very good facility in Carmel, Indiana. And it will recess until 1:00 PM on Monday, November the 27th after Thanksgiving. There’ll be a long break before they can get this facility back and they’ll have another four and a half days at this facility. They are definitely going to reconvene because there’s no way that the hearing will conclude by this Wednesday. It’s not even certain that we’ll conclude by Friday after the 27th. There is a chance, but it may not, in which case they’ll have to recess it again and find another time probably next year, early next year, there may have be another government shutdown at that time for all we know when the current continuing resolution expires on believe November 17th.
So there are a number of unknowns. We’re getting through the agenda, we’re in the final issue, but there are a lot of witnesses on that issue and there’s going to be a lot of cross-examination, we’re already seeing it. So the timeline is still other than those formal hearing dates, the timeline is still rather murky.
Alan Bjerga: Well, for everyone’s sake, Peter, we hope you will be home for Christmas this year.
Peter Vitaliano: I plan to be home this coming Friday.
Alan Bjerga: Despite the murkiness, there is more progress than we thought there would be just at the beginning of the month when we were talking about a government shutdown, that would’ve frozen the hearing in its tracks. That got averted, but something else expired at midnight on September 30th and that was the Farm Bill. In a typical year, we’d be talking a lot about the Farm Bill. The federal order hearing has sort of overshadowed it, but Paul, that does not end the fact that we don’t have a Farm Bill right now. Where is that leaving us?
Paul Bleiberg: Well, it leaves us in a place where Congress really needs to either pass a new Farm Bill or extend the current Farm Bill by the end of the calendar year in order to avoid major lapses in programs at that time like the Dairy Margin coverage program. DMC is of course the Farm Bill safety net for dairy farmers that was created in the last Farm Bill and fortunately that runs on a calendar year basis. So DMC is still in operation through the fourth quarter of this year, but if the Farm Bill is not either reauthorized or extended at the end of the calendar year, we’d have a problem as that program would go away.
That’s of course to say nothing of what everybody knows as the dairy cliff from about a decade ago when the 2008 Farm Bill was on the verge of expiration and we were running the risk of 1940s era policy coming back into place, that would’ve had major impacts on milk pricing. So not only do we want to maintain DMC, but we want to avoid that dairy cliff from hitting. So that’s going to mean Congress needs to pass something, hopefully a new Farm Bill by the end of the calendar year, but certainly at a bare minimum at extension.
Alan Bjerga: I got to admit, Paul, I was there for the dairy cliff and I think looking at the last calculation, if the base law reverted back to 1949, I think the parity price of milk would be something like $67, 100 weight. I don’t know, if I were a dairy farmer, I’d be like, bring on the dairy cliff.
Paul Bleiberg: I know. I think that’s the reaction that a lot of producers have at first, and then when you walk through the whole situation, they realize, oh, that’s probably not sustainable unfortunately for more than a very short amount of time. So we’ve never actually triggered the dairy cliff. We came very close at the end of 2012 there, but it was averted on New Year’s Day 2013 with an extension.
Alan Bjerga: I see Peter shaking his head, you can jump in anytime you want to talk about this stuff, Peter, what would life be like with $67, 100 weight milk?
Peter Vitaliano: My opinion is that the dairy cliff basically is a hammer to compel some kind of action when the Title I programs expire. The chance that it will actually have the dairy cliff trigger I think is small, but Paul may disagree.
Paul Bleiberg: No, I would agree. I think it’s very unlikely that that will happen. I think a bill or an extension will happen.
Alan Bjerga: So as you’re looking at the Farm Bill, obviously work is continuing, Paul, what are you working on? Where are dairy’s priorities?
Paul Bleiberg: Well, a few areas. The DMC is working well for the most part. It’s not like the last Farm Bill or the Farm Bill before where we were saying we needed to rewrite the dairy safety net or reform dairy policy. We’re in a much better place, so we’d like to continue the program and make really minor adjustments like the program’s production history calculation. It’s a little bit out of date. We’d like to see that updated, certainly at a minimum carrying forward the supplemental DMC that was created back in 2020 to make sure that producers at least have that 2019 update and then seeing if we can go further in that direction outside of the safety net. Couple of issues on the federal order space. Obviously most of that work is being done at USDA, but we are seeking language in the Farm Bill that would require USDA to do mandatory plant cost studies every two years.
So the dairy industry has better data regarding the cost of manufacturing dairy products to help inform debate in conversation around make allowances in the future. And we’re also, of course, seeking a return to the higher of Class I mover formula in the most expeditious manner possible. Obviously, that’s part of our hearing proposal as well, but that formula really has hurt dairy farmers in a variety of economic circumstances, not just 2020. And it’s done so once again this year. Outside the dairy title, we’re looking at continuing support for conservation programs, market access, trade programs, nutrition. We’ve got a bill on protection of common food names, so a number of different priorities, much different than the last two Farm Bills where we had a single-minded focus on redoing the dairy safety net.
Alan Bjerga: Appreciate your mention of the interaction between the federal milk marketing order system and the Farm Bill. Could you delve into that a little bit further because people are paying a lot of attention to what’s going on in Carmel, Indiana, but there are aspects of this discussion that are very relevant in Washington DC as well.
Paul Bleiberg: Yeah, so obviously on that first item I mentioned on the plant cost study issue, that’s something that USDA can’t do on its own, so Congress really needs to provide that requirement. Now, to be clear, that requirement is not meant to impact the current deliberations going on at USDA. I think as Peter can attest, National Milk has a near term proposal to update, make allowances and other stakeholders obviously have opinions on that as well. But I think we’re talking about going forward, making sure that in the future we have better data and more comprehensive data. We want to have that authority and that requirement set in place. On the Class I mover issue, again, unlike some of the other issues that are in our hearing proposal that require different numbers and adjustments, this is a more straightforward formula change proposal that was changed in the last Farm Bill, and many farmers have in all parts of the country have come to see the impact that this had on their own bottom lines.
Alan Bjerga: It seems in general, for policy to truly work you need at least, even if they’re not singing in unison a common hymn book and some harmony here, you need to see USDA in Congress coordinated and efforts complimenting one another to get the best result for dairy. Paul, do you see signs of this happening at any level right now?
Paul Bleiberg: I do. I do. I see actually a fair amount of discussion between the legislative branch and the executive branch on different areas here. Just from a public perspective, a few weeks ago, secretary Vilsack and Chairman Thompson did a joint round table of sorts at my alma mater and Secretary Vilsack’s alma mater Hamilton College, and it was about bipartisanship and it was about a little bit working together in agriculture, and I thought that was a great way to sort of kick off the fall as we head into the work on the Farm Bill process in these next several months to show that those discussions are going on. Obviously that was a public facing dialogue at a high level, but I think it was very good.
I do think the Senate Ag Committee is also working very hard on their version of the Farm Bill across the aisle. I know both the House and Senate Ag committees have been seeking technical assistance from USDA on the different proposals for the Farm Bill because while Congress obviously writes the law, they do want to have that understanding on the front end for how different programs and policies will be implemented, and also to get feedback from the department on guardrails they might want to add to language or perfecting changes they may want to make so that the legislative language achieves exactly what Congress intends.
Alan Bjerga: And putting this all in perspective, Peter, you have a long career in dairy and you’ve been part of this many times over on the comparative chaos scale in dairy policy. How does some of the contention we see now compare historically with some of the challenges we have faced as an industry in the past?
Peter Vitaliano: There’s always been contention in this industry, and as an economist, I can appreciate that because there are genuine economic interests at stake. Unfortunately, not everything in dairy policy is a non-zero sum game as the term goes. And so certain conflicts are inevitable and they tend to come out in an issue such as federal orders. Many, many things we work together with all segments of the industry harmoniously and that’s good, but it is a large dynamic industry with some diverse interests that occasionally diverge and that should be expected. And how they were accommodated? Again, Secretary Vilsack urged, of course, they would urge the industry to come together, but my guess is objectively they’re not going to do so to the extent that USDA would like, it’s still going to be their decision to come up with a proposal that will accommodate everybody.
USDA knows that it is dairy farmers who vote on the federal orders. They’re the only ones who vote to impose an order, and they’re the only ones who can vote to remove an order, and so dairy farmers and you just watch the USDA treatment of the dairy farmers. Dairy farmers, whenever they testify, are given very deferential treatment. They’re very important and they’ve been the farmers that have testified in support of National Milk proposals, have been very, very helpful to the process.
Alan Bjerga: And we would certainly like to thank all of them for their participation. It’s been critical throughout the process. We’ve been speaking with Peter Vitaliano. He’s the vice president for Economic Policy and Market Research at NMPF. And NMPF executive vice president for government relations, Paul Bleiberg. Paul, Peter, before we let you go, any parting thoughts that our listeners should hear?
Peter Vitaliano: Well, eventually this procedure will come to an end and it’s going to be slow. It’s going to be well into next year before we start seeing any indication, any formal indication of where USDA is going to come out on the decision, but they will make a decision and we will keep our membership informed and the industry informed of all of that progress. I would not expect any sure signs of where things are going for several more months, even when the hearing ends, which could be sometime early next year, there’ll be a number of procedural steps that will delay any, here’s what it looks like kind of thing. We will be continuing to work on the process, doing our parts of the procedure where there’s several different feedback steps to the department, and we will do our due diligence and keep our membership and the industry informed as to the state of play.
Paul Bleiberg: And I’ll just add that we will continue to be optimistic about completing work on a Farm Bill, but obviously before we get to a Farm Bill, we have to get a speaker. We are hopeful that next time I’m on this podcast, we have a new speaker of the house and we are moving forward.
Alan Bjerga: To learn more about our Federal Milk Marketing Order efforts, go to nmpf.org. There’s a blue bar in the middle of our homepage and just give it a click. Also note that farmers interested in participating are encouraged to testify virtually at the hearing. You can find out more on that through our FMMO webpage or contact us at infoatnmpf.org for more information. For more of the Dairy Defined podcast, you can find and subscribe to us on Apple Podcast, Spotify, Google Podcast, and Amazon Music under the podcast name Dairy Defined. Thank you for joining us.