Controversial proposals to reform the US dairy market have gained the backing of leading dairy marketing cooperative, Dairy Farmers of America (DFA).
The proposals - backed by Democratic representative Collin Peterson and Republican senator Mike Simpson – are designed to keep supply and demand in balance.
However, reaction from industry has been mixed, with some producers claiming they will eliminate damaging price swings and others arguing the answer to the sector’s problems is not more government intervention, but less.
Dairy policy reform is essential
In a statement welcoming the proposals, DFA senior vice president John Wilson said a re-write of federal dairy policy was long overdue, adding: “We look forward to the bill’s introduction when Congress reconvenes in September.
“Working toward federal dairy policy reform is essential to ensure producers have the tools they need to remain competitive in the world market and facilitate the industry’s growth and long-term sustainability.”
A more effective economic safety net
Peterson’s proposal - which has not yet been introduced to Congress as a Bill - includes a dairy market stabilization program (DMSP) along the lines of that recently proposed by the National Milk Producers Federation (NMPF).
This would impose limits on US milk production during low margin periods (producers would not receive payment for milk delivered above agreed levels) and is designed to alert producers to market imbalances that dent margins and prompt them to adjust milk production accordingly.
He also proposes a margin protection scheme whereby federal support would kick in when a national margin tied to average US feed costs and all-milk prices dropped below a predetermined level.
Finally, he calls for a simplification of the current system in which milk is classified into one of four price categories depending on where it ends up (1: bottled milk; 2: ice cream, 3: yogurt, cottage cheese and cheese; and 4: butter and nonfat dry milk powder).
Instead, he proposes two categories: bottled milk and everything else.
IFDA: This would take industry in the wrong direction
However, the International Dairy Foods Association – which represents dairy processors - said the proposals would "take the dairy industry in the wrong direction” and damage US exports.
In a paper published in late May examining the dairy market stabilization scheme, IDFA vice president and chief economist Bob Yonkers said: “Policies that attempt to manage volatility would limit industry growth and reduce US dairy exports at a cost of thousands of US jobs.”
Peterson: Reforms would create stability
Currently, the Dairy Price Support Program (DPPSP) allows the government to buy dairy products and store them for future sale, while the Milk Income Loss Contract Program (MILC) compensates producers when domestic milk prices fall below a specified level.
However, these schemes had failed to provide the safety net producers needed, argued Peterson. “As witnessed in 2009, when prices are high but margins are low MILC does not provide an adequate safety net to producers.
“These reforms would provide a safety net based on margin protection, rather than price… save taxpayer dollars, offer producers protection, create stability and inspire growth.”