By SUSAN MYKRANTZ
Ohio Correspondent WOOSTER, Ohio — Between 2004 and 2008, dairy producers across the country brought 349,000 dairy cows into production, spurred on by record milk prices and higher income over feed costs.
But when the global economic downturn hit in December 2008, dairy producers had too many cows in production. Low milk prices, coupled with high input costs sent the dairy industry frantically scrambling for a solution to increasingly volatile milk prices.
“Dairy farms are in jeopardy,” said Doug Maddox, of Riverdale Calif., and past president of Holstein Assoc. USA, who was in Wooster, Ohio to address Holstein breeders prior to the annual Fall Production Sale at the Wayne County Fairgrounds.
“The U.S. dairy industry is losing $1 billion per month. Producers are exiting the industry either by force or by choice.”
Maddox told the group that up until October 1989, market prices mirrored support prices, but then the support price fell below the market price. After that, the market price began to influence supply and demand. Volatility in the dairy industry is not new, but since 2000, there have been four sharp downturns in milk prices and each cycle gets progressively worse, according to Maddox.
“We are dealing with a change in the range of 3.5 to -2.5 percent in production,” he said. “When you have a supply/demand imbalance greater than 1 percent magnitude, it creates as much as a 50 to 60 percent increase or decrease in the milk price. There are many factors that influence the demand supply balance; however, they are all related to the supply/demand balance.”
Maddox said that in January 2009, the Holstein Assoc. USA’s legislative affairs committee recommended the association’s board of directors propose a plan for milk price stability.
“The program would address the cyclical volatility in the dairy industry,” he said. “It will change the incentive for the producers from maximum production to managed production, but there will be no quota or cap for the producers to stay under.”
Maddox said the program is not a government supply program, nor is it a barrier to growth. Instead, it changes the incentive for farmers to grow strategically, and creates financial incentives for producers to pay attention to the amount of milk they produce.
Goals The goals of the proposed plan would be to prevent severely depressed producer prices, reduce the volatility of dairy product prices and producer milk prices, reduce the price risk for producers, processors and consumers of milk and dairy products, provide flexibility for dairy producers to expand their operations and provide a means for new producers who want to enter dairying.
It would also complement existing dairy programs, provide a long-term dairy program and offer the opportunity to review the program in five years to determine whether it should be continued.
Under the plan, an advisory board, consisting of 12 producers from each of the six regions in the country, would be appointed by the USDA secretary.
The board would also include a consumer representative, a representative from a dairy products firm, a fluid bottler and a dairy economist to serve as an advisor to the board.
Maddox explained if the program were implemented, two numbers would be announced each quarter. The first would be the producers’ allowable milk marketing growth, which would be based on growth during the same quarter the previous year, and the national market access fee, which would be a deduction from the milk check of producers who want to expand beyond the milk they are allowed to market.
This would be applied to all-milk or new-milk only, whichever the producer chooses. Maddox said the Holstein plan favors the fee being applied to new-milk only.
When a dairy decides to expand its milk production, they would pay the market access fee, but only when milk production exceeds the allowable milk marketed for the same quarter of the previous year on all milk. A dairy going through expansion would be assessed for 10-12 months and after their expansion, would earn the higher base.
Dairies that decide not to go through expansion would receive a proportional amount based of the collected fees, based on the milk they produced.
“Producers will be assigned an initial base of milk marketed based on the calendar year 2007, 2008 or 2009 of their choice,” said Maddox. The Holstein Assoc. plan favors using an average of the last three calendar years.
These bases would be assigned to both the producer and the facility, according to Maddox. If a producer owns several farms, they can combine the bases. The base will be transferable if the farm is sold to a new owner or transferred to the next generation of the operator’s family. However, if the dairy goes out of the dairy business, the base associated with that facility would cease to exist.
Maddox said the benefit is the fact it enhances programs that are already in place and works the same for all regions and sizes of farm. An additional advantage is the plan relies on market signals for expanding and reducing the milk supply, doesn’t interfere with World Trade Organization obligations, is not funded by taxpayers, does not force the producers to do anything and, importantly, it could become active at any moment.
“We can’t just maintain the status quo, otherwise it will result in a weakened dairy industry in the short-term, and in the long-term, it means that high volatility will persist and impact market growth and stability,” he said. “If the United States lacks the ability to meet emerging demands for milk, it will increase the entry of low-cost competition, and we will see a flat or even declining domestic market and diminished international trade.”
Adjust SCC guidelines Maddox said proponents of the Dairy Price Stabilization Program are open to changes that will improve the dairy industry, such as milk price discovery, enforcement of the pasteurized milk ordinance and lowering the somatic cell count (SCC) to 400,000, import guidelines on casein and milk protein concentrate, and a surplus of heifers.
Other changes include the USDA emergency order on tying milk prices to the costs of production, producing products that meet the demand of the world’s export market, continuation of the CWT program and setting fluid milk standards at 3.5 percent fat and 8.7 percent solids not fat, which would improve the taste of fluid milk for consumers.
“It is time for dairymen to start producing for the market, rather than trying to process and market all of the milk we produce,” said Maddox. |
