Idaho’s Simpson sponsors dairy reform bill

Mike Roth, president of the Idaho Dairymen’s Association, says that without reform the Idaho dairy industry is headed “for a serious wreck.”

That’s why Roth, also a dairy producer in Jerome, personally- and speaking on behalf of the IDA- supports the Dairy Security Act of 2011. The bill was introduced in the House of Representatives Sept. 23 by the House Agriculture Committee’s ranking member, Rep. Collin Peterson, D-Minn., and Idaho Republican Rep. Mike Simpson, co-chair of the Congressional Dairy Caucus.

Roth said Simpson’s support of the bill was not surprising, given that he represents the third-largest dairy producing state in the nation. He added that dairy producers are working now under outdated policies, some drafted in the 1930s.

“Rep. Simpson has been a longtime advocate for business growth and Idaho’s livestock agriculture. He knows a new dairy policy is needed to address price volatility, create safety nets and to help move the industry future,” Roth said.

Idaho dairy producers have been working to change federal dairy policy for some time. Last March, producers voted to recommend the Foundation for the Future reform package, which served as the model for the Dairy Security Act of 2011.

Roth said that with increasing costs, producer’s margins continue to be squeezed and often producers operate at a loss.

The industry still hasn’t recovered from a dismal 2009 and lackluster 2010 and 2011, Roth said. Had reform been in place years ago, producers may be in a better situation now, he said.

“In 2007 and 2008 we saw very good margins but 2009 had generational losses and haven’t recovered yet. It’s going to take more than a couple of months of decent-priced milk for us, as an industry, to recover and many producers likely won’t as they are teetering on economic collapse,” Roth said.

The slow years left many producers operating paycheck-to-paycheck, and some are on the brink of failure, Roth said.

“The bank won’t extend a feed loan because they don’t know if milk is going to go up and they know the producer hasn’t recovered yet from poor milk prices years ago… lenders are worried about getting repaid,” Roth said. “So a lot of guys don’t have feed for the winter. They’re buying it as they go.”

If enacted into law, the Dairy Security Act would give producers an opportunity to lock into guaranteed margins and help resolve cash flow issues, an insurance program of sorts protecting producers against market volatility once prices dip well below break-even. 

Under the voluntary Dairy Producer Margin Protection Program, a direct-payment program administered by the USDA, producers would have the option of signing up for a basic program, at no cost. The free program would kick in when national margins between milk prices and feed costs drops below $4 cwt, based on a formula including feed costs and other expenses. Producers could also sign up for a supplemental program, at a cost, which would protect up to 90 percent of a dairy’s annual milk production.

While milk processors support margin insurance programs they do not support a feature connected to it: The Dairy Market Stabilization Program. They are fighting the Act because of its inclusion, among other reasons.

In order for producers to get margin protection they have to participate in market stabilization, or supply management, which mandates lower milk production during periods of low margins.

The International Dairy Foods Association, representing the Milk Industry Foundation, National Cheese Institute and International Ice Cream Association, opposes the Act.

Glanbia Cheese Dairy Economist Mike Brown said imposing supply management could hamper industry export efforts and raise consumer prices.

“We’re hopeful that discussions will continue and that the bill passed won’t be this bill because we can’t support this bill, although there are parts to it we do support….like margin insurance,” Brown said.

IDA Executive Director Bob Naerebout said the stabilization program is designed to swiftly address brief market imbalances.

“When you deal with and correct the infrequent market imbalances than you alleviate chronic market problems along the way,” Naerebout said. “This Act is a step in the right direction.”

Dairy Security Act

Three main components of the “Dairy Security Act of 2011,” or H.R. 3062, introduced by Congressmen Collin Peterson, D-Minn. and Mike Simpson, R-ID on September 23 are:

The Dairy Producer Margin Protection Program (DPMPP) Under DPMPP a producer chooses to enroll in a direct-payment program run by the U.S. Department of Agriculture. The basic program, at no cost to individual dairies, provides direct cash payments to producers when the national margin between milk prices and feed costs drops below $4.00 per hundredweight, based on a feed cost calculation incorporating the national costs for corn, soybean meal, alfalfa and more. A supplemental program would be available for producers to purchase additional levels of margin protection, customizable up to 90 percent of a dairy’s annual production.

Dairy Market Stabilization Program (DMSP) or “market management” part of the bill only applies to dairies voluntarily enrolling in DPMPP. Once enrolled in DPMPP they would automatically be subject to calls made to adjust milk production. Under DMSP, when the margin price falls below $6 cwt for two consecutive months USDA would notify DMSP enrolled facility they will only be paid for 98 percent of their base production. This provision is included to systematically divert supply out of the market and correct price; however, processors are against supply management.

Federal Milk Marketing Order (FMMO) Reform – Unlike the previous “draft” version of this legislation, the Dairy Security Act does not directly make changes to the structure of FMMOs. Instead, the bill instructs USDA to consider changes to FMMOs through its hearing process. Included in the legislation is specific language mandating that USDA craft FMMO changes that would eliminate end-product pricing (which includes the use of make allowances) for milk sold to Class III (cheese) manufacturers. Also included in the legislation is an opportunity for dairies to vote after USDA comes out with their proposed changes – a “yes” vote would implement the new reforms and a “no” vote would maintain the current structure.