WASHINGTON, April 26, 2012 - A “market stabilization” plan designed to tame milk price volatility and reduce dairy program costs has become the most contentious feature of dairy reforms in a new farm bill. Members of a House Agriculture subcommittee showed divisions at a hearing Thursday afternoon that mirrored the different opposing views of dairy cooperatives and milk processors over the bill.

First introduced by Rep. Collin C. Peterson, D-Minn., the bill would create a voluntary margin insurance program that protects farmers from low milk prices or high feed costs. Farmers who sign up for margin insurance would be subject to a “market stabilization” mechanism designed to discourage excessive production. It also would repeal the existing dairy product price support system, the Milk Income Loss Contract program and the Dairy Export Incentive Program. Similar language is in the bill approved Thursday by the Senate Agriculture Committee.

The provision that attempts to moderate production “will harm a growing dairy export business and will discourage investment into more domestic processing facilities,” said CEO Jon Davis of Minnesota-based cheese maker Davisco Foods International, who testified for the International Dairy Foods Association. “It will decrease domestic demand for milk and ultimately harm dairy farmers as much as it does dairy food companies.” IDFA supports margin insurance “without imposing a supply management program on the dairy industry,” Davis said. “It could easily be offered within the limits of the dairy baseline.”

His family's business has put expansion plans on hold until the “supply management” issue is resolved, he said. “While supply management legislation is being debated, most if not all of the next wave of dairy processing investment is on hold. We simply can't afford to commit capital when we don't know if we will have the milk supply to operate those potential new investments.”

National Milk Producers Federation CEO Jerry Kozak disputed IDFA’s contention. “Using the term ‘supply management’ is a total misnomer,” he said. “This is a market stabilization program. It’s not a supply management program. It sends timely signals so that farmers have almost 90 days to take behavioral action on the farm. It triggers in and out quite easily. . . . This is not a Canadian-style quota system. It does not insulate our farmers from the world.”

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Peterson argued that the mechanism was essential to meet budget-cutting goals. “I think it would cost us $250 million if we didn’t have market stabilization,” he said. “If you take stabilization out, you’re not going to have a bill.” He also challenged assertions that the bill would harm exports. “What mystifies me about IDFA is that we have made this more market-oriented, more export-oriented; 75 80 percent of what they have been asking for is in this bill.”

Scott Brown, a University of Missouri agricultural economist who regularly advises Congress from his post at the Food and Agricultural Policy Research Institute, gave the subcommittee an analysis that seemed to back up Kozak and Peterson. The production limiting feature “certainly helps from a government outlay standpoint,” he told Rep. Kurt Schrader, D-Ore. “That's the important feature that’s brought market stabilization.” Without the mechanism, “you can imagine very low margin outcomes creating very large outlays,” he said. Brown predicted that the stabilization penalties would not be used often. “We don’t expect margin protection to trigger very often, so the effect on prices would be very small,” he said.

 

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