By Stewart Doan

© Copyright Agri-Pulse Communications, Inc.

WASHINGTON, Feb. 13 – Connie Tipton, president and CEO of the International Dairy Foods Association (IDFA), is our guest this week on Open Mic. IDFA, which represents the nation’s dairy manufacturing and marketing industries and their suppliers, has got issues with the National Milk Producer’s Federation “Foundation for the Future” proposal for dairy policy reform. Tipton agrees that reform is needed but thinks it would be unwise to ask Congress for changes until there’s broad agreement within the dairy community on what changes are needed. She explains why IDFA supports the passage of bilateral trade deals with South Korea, Colombia and Panama and the controversial Trans-Pacific Partnership Agreement that includes dairy exporting powerhouse New Zealand. Tipton also comments on revised federal school meal and dietary guidelines and expresses some reservations about their potential impact on milk consumption.

SD: Connie, welcome to Agri-Pulse Open Mic.

CT: Thank you very much Stewart. Happy to be with you.

SD: Dairy policy reform – a lot of chatter in Washington about doing it early on in the 2012 Farm Bill debate, in fact, Chairman Lucas might be inclined to get the dairy portion of the Farm Bill debate out of the way yet in 2011. What are you all hearing?

CT: Well, there’s no question that we’ve had probably the best discussion ever across the industry in the last two years, talking about how we need to reform our programs. We have a lot of opportunity in dairy in moving into global export markets, and it’s clear to all of us, I think, that we need to streamline some of our policies and get some of the policies we’ve got on the books out of the way so that we can take full advantage of that. But I think until and unless we’ve got agreement on what ought to move, we shouldn’t just battle it out in Congress, so we’re not all on board on all of the same things. We’re on board on some of the same things. That having been said, I think if something moves through the House this year, it’s probably pretty unlikely it’s going to be through the Senate. I’ve never seen a Farm Bill move piecemeal with components separately so I think that’s kind of tough to do, but clearly it’s only doable in my view if we’ve got broad agreement across the industry and if we pick up the pieces that we all agree on. And I will say there’s a package that the National Milk Producers has that they call Foundation for the Future. We’re on board with some of those components but not all of them, and the pieces that we’re not on board with would actually add more regulation and taxes on our industry and I’d be really surprised to see the new members of the House jumping on board with that. So, I think there’s a lot more to be talked about before this goes anywhere.

SD: What is it specifically that the International Dairy Foods Association wants to see in terms of dairy policy reform?

CT: Well, we’d like to see some of the policies that as I mentioned are in the way of us going to market and taking full advantage of our market opportunities get out of the way and we certainly don’t want new programs that create new impediments. So first and foremost probably, is the Federal Milk Marketing Order Program which is our pricing program. That badly needs to be streamlined and moved much more toward the market. That having been said, I wouldn’t want to and I don’t think any of our members would want to tee that up for discussion on the Hill unless we have industry agreement on where we’re going, because it’s very complicated and it’s fundamental to how we price our product, so lots of decisions in the industry have been made around that - where we have our plants located, what facilities people have. So that’s a really complex piece of it and there would have to be really tight agreement on that. The pieces we do agree on I believe are getting rid of the Dairy Price Support Program, which has long guaranteed people a market for certain products versus encouraging them to make products that the market wants, and getting rid of direct payments and putting in place instead a margin insurance program that could do a better job of helping our farmers regardless of where price goes. Right now with crop prices going so high, feed is obviously one of the biggest input costs for farmers, if they can’t have some sort of buffer on those margins, that’s really where the rubber meets the roads. So, I think those are the critical points that we’d really like to see focused on, and I think as I said, we have agreement on some of those.

SD: One of the big sticking points that IDFA has with Milk Producer Federation’s Foundation for the Future program is this Dairy Market Stabilization Program, and as I understand it, once that ratio or margin rather, falls under a set level, producers would be paid for a base level of milk and if they sold more than that, that money would go to the government to try to figure out a way to stimulate demand. Is that your all’s biggest disagreement with this proposal as it is currently written?

CT: Well it’s certainly fundamentally going in the wrong direction from our standpoint. I would say we have equal and big concern about what would be in the federal order piece of this package. Just talking on the stabilization program, you’re right basically on how that works, but the problem with it is it kicks in before any buffer or help kicks in for the farmer, so I just don’t think it’s politically viable to think that politicians will want to support a program that has as it’s first action taking deductions from farmers’ paychecks when their margins are squeezed, and I’ll just give you an example. We had an economic study done and we said, “Well, if this program had been in place over the last ten years, what are the kinds of times this would have kicked in?” Well, 2009 everybody knows was one of the toughest years for dairy farmers, and their margins were just in the tank, and a lot of people went out of business even. At that time, the Congress actually stepped in and dished out three hundred and fifty million new dollars to help dairy farmers, and under this program it would have docked their paychecks by $390 million before they ever got any help. So, I think the politicians better watch out what they’re doing here because that’s not going to be very popular with farmers, I don’t think, when they’re really squeezed on their margins and you start withholding their paychecks. But I suppose our biggest long term concern is to put in place a new government program that automatically acts to limit supply. We have a growing and dynamic U.S. dairy industry. We have companies, U.S. companies as well as companies from other countries, coming into the U.S. and building facilities, helping finance and putting in new farms to provide a supply for those facilities, new growing global markets for our products. Why on Earth, at a time where we have that kind of investment going in and new jobs going in, would you want to support a program that is going to give the government the brakes to limit that? And that’s really our longest term concern. We think businesses would make different decisions if they thought there was a program, if there was a program on the books, where government could limit supply. Why on Earth would you make your investment here in the U.S.? You’d make it somewhere else. Why on Earth would you source your milk here in the U.S.? You’d source it somewhere else where it’s more reliable. So those are really our biggest concerns about that. Everybody says, “No, it’s not that big a deal. It’s not like Canada.” Well, maybe not, but once you have a government program that kicks in, and it’s mandatory it kicks in, and you can change those trigger levels however you want, it’s in the hands of the politicians. Huh uh. We don’t want any part of it.

SD: What happens if dairy policy reform does not happen in this Farm Bill cycle?

CT: Well I think the industry has a lot to lose. We have a lot of opportunity and some of that opportunity won’t be fulfilled. I mean, we’ll fulfill what we can, but you know, opportunity is something you’ve got to jump on and I think we would lose a big opportunity if we can’t get our policies streamlined. I think, frankly, if we can’t get all of it, we ought to go with the things we can agree on, at least getting rid of the price support program and the payment program, and putting in place the margin insurance instead would take us a long way in the right direction. So, we ought to not let perfect be the enemy of the good. We ought to move on whatever we can.

SD: The Obama Administration issued revisions to the school lunch and breakfast programs. Also new dietary guidelines have come out in the past few weeks. How do all of these things when you roll them together, do they have the potential to increase demand for dairy products?

CT: Well, I think the good part, you know there’s sort of the good part and then the I don’t know part. The good part is the guidelines recognize the importance of dairy and call it out as something that needs to be part of the diet. In fact, they’ve increased their recommendations for intakes of dairy for certain age groups and we think that’s great and we think it’s appropriate. They’ve also identified nutrients that should be encouraged and we have a lot of them. We have potassium, we have vitamin D, and we have calcium. So I think those are all really positive. Where there’s some concern obviously are limitations on what we can serve in terms of will kids like it. In particular, as I’m sure you’re aware in the proposals on school meals, they’ve said, “Okay, you can have fat free and low-fat plain white milk, but you can only have fat free chocolate milk.” We’ve done some research on what happens if you take away flavored milks all together and if you do that, consumption drops dramatically. It’s like thirty percent across all geographies and all demographies. We haven’t done specific research to look at what happens if you limit the flavored milk only to fat free, but I can tell you that in schools today, we’ve really moved down the fat ladder. On white milk, nearly seventy percent of what we serve is fat free and the rest is in that low-fat category, most of that is one percent. In the flavored milks, thirty-seven percent is fat free in the ’09-’10 school year and almost fifty-seven percent was one percent, so only a little bit is above one percent milk fat now. So we’re doing pretty good and I’m not sure that there’s really a need to crank it back that far. I’m afraid that it works against actually trying to get those nutrients into the kids, and when you look at what you have to put into their diet to replace it, it’s like kidney beans and broccoli and salmon. And I don’t know. I’ve got grandkids at this point, and they never eat those things, but they like a good glass of chocolate milk, I can tell you that. The focus should be on getting nutritious things into these kids. A little fat is not going to hurt a kid; in fact, they need it. So, I think some of this maybe goes a little too far but frankly if it goes into place as regulations, processors will work to formulate their products to meet that market because it’s an important market for us and it’s really important that kids continue to have dairy in their diets.

SD: Let’s talk foreign trade now. Is the dairy industry, both the producer community and the processing side, are you all on the same page with regard to pushing for the approval of the three pending Free Trade Agreements as well as the Trans-Pacific Partnership?

CT: We are absolutely on board in expanding trade, and I don’t want to speak for others, but I think we’re all completely one hundred percent both feet in on the three pending bilaterals, particularly Korea is a huge market opportunity for the U.S. and uh-

SD: How big Connie?

CT: It’s in the order of over $300 million increase in exports from our 2008 base. That’s a lot and it’s certainly significant. And you get that kind of uptick in exports, we’re talking about building new jobs here as I was talking about before. You know, if we can expand our markets, we can expand our capacity of production here in the U.S., we can expand our facilities. That’s new jobs, new farms, you know that’s a success story that we ought to all be reaching for. So, we’re just totally on board. On the Trans-Pacific Partnership, there have been some who have had concerns about New Zealand being included. It’s been clear from the trade ambassador that nobody is going to be excluded and certainly as more and more countries are joining in, Vietnam has joined in – that’s an important emerging market – I think Japan is taking a look at it, so it’s a huge part of the world that we definitely want to be out there trading in. So, it’s more important that we be on board and be part of it than worry about competition with somebody and frankly if we get our policies in the right place, we can compete with anybody.

SD: Connie Tipton is President and Chief Executive Officer of the International Dairy Foods Association. Connie, thank you so much for joining us on Agri-Pulse Open Mic.

CT: You’re very welcome.

To listen to the audio of Stewart Doan's interview with Connie Tipton, click here.

To return to the News Index page, click: