New draft Act does not meet this requirement to the benefit of many producers

Since 2007 individual farmers’ organisations in the USA have repeatedly proposed that volumes in the milk market be subject to a public supply management system. In view of the considerable price fluctuations in the American dairy market and the resultant income problems for the milk producers, producer co-operatives and traditional farmers’ unions are now calling for supply management as well. Randy Mooney, a milk producer from Missouri and President of the marketing co-operative Dairy Farmers of America: “We can carry on growing and supplying the world with our milk for as long as the US dairy industry wants us to, but we need a system that adjusts supply to demand and enables the producers to still make a profit.”

New draft Act being debated

Since summer 2010 several proposals, including a form of milk volume management that can incorporate the future US American agricultural policy, have been debated in the House of Representatives and the Senate. On 13 July 2011, Collin C. Peterson, Member of the House of Representatives’ Committee on Agriculture, tabled the draft House Dairy Security Act of 2011 (HR 3062) for debate. It is based on the “Foundation for the Future (FFTF)” concept of the National Milk Producers Federation (NMPF), the co-operatives’ umbrella organisation for marketing milk. They have been lobbying intensively for their concept, and the FFTF and HR2062 are now known in the dairy sector and are the subject of widespread discussion. Reactions vary enormously. Whereas some influential politicians, NMPF members and some of the traditional farmers’ unions back the proposed reform, many farmers’ organisations are more sceptical, and the dairy industry seems to reject the concept as well in its existing form.

State and private margin insurance

The Dairy Security Act aims at creating a better safety net and reforming the existing milk price system, which differentiates between various types of milk processing. The new safety net is to comprise a Dairy Producer Margin Protection Program (DPMPP) and a Dairy Market Stabilization Program (DMSP). The Margin Protection Program is a type of state-aided risk insurance. Based on his/her highest annual supply volume within the last three years, each producer is allocated a base milk volume that applies for the five years of the programme. Growth is possible. If the average margin between the national average milk price and the average feed costs for 80% of a producer’s production volume falls below the 4-dollar mark (at present about € 2.85) for 45 kg milk, the milk producer in the programme receives a payment from the disaster fund. S/he is also to have the opportunity to top up this state insurance benefit with private contributions, and will presumably have to do so.

Less money due to less demand

Producers in the DPMPP are also automatically in the Dairy Market Stabilization Program (DMSP). The aim of this programme is to react very quickly and on the spot to an oversupply of milk and cut production by means of sanctions in the form of lower prices. Here, too, the development of the margin between the milk price and feed costs is to be the yardstick for the development of demand. For instance, if the margin over two consecutive months is lower than $6 (€ 4.30), the producers receive a payment at least for the following two months only for 98% of their base milk volume; the reduction in income must not exceed 6% in relation to their ongoing supply volumes. Another component of the programme is to be a “Producer Board” to open up new markets in the USA and abroad and to boost demand. In addition the current milk price system, which differentiates between several categories of milk depending on its end-use, is to be replaced by free competition in raw milk prices. Existing dairy market programmes are to be scrapped and superseded by those described above.

Milk producer tax instead of control by producers

These mechanisms seem very complicated at first. So I’ll try and approach them with a certain naivety before I go into the differing comments from the producer organisations. My income as a milk producer decreases either because feed costs have risen and the farm-gate price has remained the same; or because the farm-gate price has gone down. This can be due to a change in the demand situation or to my position of weakness vis-à-vis the dairy. The new law is no use against the last cause. The aim in future is to react to falling demand with a lower farm-gate price in the hope that balance will be restored between supply and demand. Every producer is then paid less money by the dairy after having already earned less money for two months owing to the poor margins. If s/he cuts production, s/he loses slightly less. As s/he has also put money into risk insurance s/he can reduce the entire loss slightly. The draft Act contains nothing about the milk price covering costs. And the regulation of volumes does not “kick in” until it is already almost too late; it does not enable the producers to plan in advance. The milk producers along with the taxpayers thus finance the costs of the risks of overproduction from which the dairy industry profits, without having any real influence as producers on volume or price.

Producers no stronger in the market

Here, too, there is criticism of the Dairy Security Act. What the NFFC (National Family Farm Coalition), the umbrella organisation for family farms, finds fault with is that under the draft Act the dairies continue to control prices and the producers’ situation would become even worse because of the new dependence on the “margin insurance”. “As a milk producers association we regard a state-funded but ultimately private insurance scheme as a totally wrong way to go about paying dairy producers for their milk.” In a press release the NFFC goes on to say: “What is more, in the FFTF proposal the milk value is to be determined through a “competition price system”, whereby the prices the dairies pay their suppliers for processed milk are pooled. There is no reason whatsoever to assume that this system will result in higher farm-gate prices, let alone the profit from the sale of the end-products by the dairies being passed on to the dairy producers. We want genuine competition based on fair farm-gate prices and an end to the monopolistic control of the co-operatives, which act neither in the interest of their members nor in the interest of consumers.”

Banks might insist in future that the producer take out margin insurance before granting loans.  This would call into question the voluntary nature of the programme. Small farms that so far have received direct payments from the Milk Income Loss Contract (MILC) scheme when market milk prices have been very low will be worse off with margin insurance than they were before and may well see their livelihood threatened.

On 10.11.2011 the American journal Dairy Week published the results of a study that analysed the potential impact of the Dairy Security Act: “The reforms could result in the US milk price falling by 92 cents a cwt, the volume control programs could be initiated in 40-45% of the periods of a year, and the net farm income would fall by 32-48%.” The study was drawn up by scientists from the University of Wisconsin. In the impact on income it differentiates between four farm sizes: farms with fewer than 250 cows would expect a loss of 24%, farms with up to 500 cows a loss of 61%, those with up to 2,000 cows 44%, and farms with more than 2,000 cows a loss of 34%. This study has given the NFFC and other critics of the Dairy Security Act’s reform proposals a boost for alternative proposals to stabilise farm-gate prices and the entire sector.

The member organisations of the NFFC advocate the reintroduction of the "Federal Milk Marketing Improvement Act”, which enables dairy producers to control the volume of milk independently on a self-financed basis and thus achieve cost-covering farm-gate prices. The situation in the USA clearly shows that where there is debate on volume management there is not automatically an agricultural policy for sustainable, widespread agriculture. The crucial factor is the detail of the system. The producers must have influence on controlling the volume and must be not the ones to just carry it out. However, the draft Act described offers potential for considerable savings in the dairy policy. Given the strained financial situation and the planned reduction of debt, that is a strong argument in the debate on the re-organisation of the Farm Bill in 2012 (the equivalent of the EU Common Agricultural Policy).

Sonja Korspeter

The dairy sector is extremely important to the European Union (EU) for a number of reasons. What is most striking is that without exception every EU Member State produces milk. In many regions of the EU that are frequently of special agricultural worth or worth for the environment (such as mountain regions), the dairy industry is the most important sector. Dairy farming has shaped these landscapes. The dairies therefore have an importance that goes way beyond the statistics. It is dairy farming that imbues many rural areas with their special character, and a flourishing dairy sector is important for the economy and employment.

Directorate General for Agriculture and Rural Development, European Commission, Milk and Milk Products in the European Union, The EU Dairy Sector in Figures, about 52 pages, EUR 29-34, Dictus Publishing (26 May 2011), available in German and English.

Milch und Milcherzeugnisse in der Europäischen Union, ISBN-13: 978-3844369229 (DE)

Milk and Milk Products: Summary Report, ISBN-13: 978-3843335737 (EN)

The eponymous cows and their colleagues on the twelve pages, one for each month, all have names, lending the vivid photos their own witty character. The calendar is also available in “Geese and Ducks”, “Sheep”, “Donkeys” and “Classic Tractors” editions.

“Cows 2012“, four-colour art print, 475*330mm, € 14.99 each plus p+p, ISBN-13: 978-3868524017.