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From The MPC Newsletter
Friday, June 18, 2010

Why the Dairy Product Processors are Opposed to H.R. 5288
By Rob Vandenheuvel, General Manager

Over the past month, this newsletter has taken a look at various aspects of H.R. 5288, the “Dairy Price Stabilization Act of 2010.”  If you missed any of those articles, you can find them on www.milkproducers.org.  Today that series continues with a closer look at the politics of H.R. 5288 – specifically, why are the processors so opposed to the bill?

This past week, the CEO of the International Dairy Foods Association (IDFA), Connie Tipton, spoke at a Washington, DC conference and blasted those who are supporting H.R. 5288.  In her speech, she painted the bill as a “supply management” proposal where “every dairy farmer would be given a quota and would pay extra taxes if they produced more than the government dictates.”

Regular readers of this newsletter can see the political propaganda dripping from Ms. Tipton’s remarks.  For those who have read and understood the bill, there is no government mandate on dairy farmers and no production “quota.”  Every dairy has the opportunity to produce as much milk as he or she sees fit.  What H.R. 5288 does is allow producers to work together to more rationally grow our production to meet the ever-increasing demand for our dairy products.  The bill aims to allow our nation’s producers to provide all the milk needed for our markets, while using financial incentives to help avoid having all 65,000 dairies expand production at the same time, which has created the chronic surpluses of milk that have become commonplace in our industry.

So after reading Ms. Tipton’s comments (which can be found in full at http://www.idfa.org/news--views/details/4848), the obvious question is this: what is it about H.R. 5288 that inspires the main lobbying arm of our nation’s processors to resort to harshly attacking efforts to promote this well-thought-out and common sense proposal?  Well it’s simple: it appears the processors want to enhance their control over the supply of milk.

A major theme is many of the processors priorities when it comes to dairy policy is a systematic reduction of the government’s role in milk pricing.  While there are certainly some in the producer sector that make this case as well, it is an overwhelming priority of IDFA and many of our nation’s processors.  Why is that?  What is it about the government’s role in milk pricing that many of our dairy product processors find so objectionable?

To answer that question, we need to establish why the government is involved in the dairy industry in the first place.  While the world has changed over the years, one thing that has remained constant is the highly-perishable nature of milk.  As a dairy farmer, you have to sell your milk virtually every day, to a group of buyers that don’t have to buy every day (and they don’t have to necessarily buy their milk supply from you, as milk is largely uniform from dairy-to-dairy).  That fact, in-and-of-itself, puts you as a dairy farmer in an immediate disadvantage at the negotiating table. California dairy farmers need to look no further than pre-1969 (the introduction of milk “pooling” in California) to remember what negotiations were like in this type of unregulated environment.

That unequal balance of power is precisely why the government plays a role as a “referee.”  There is no argument that the government has overstepped its role in American agriculture.  But its basic function as a “referee” in the negotiation between farmer and processor remains a valid role.  That involvement as a referee is what separates the U.S. dairy industry from other agricultural industries that have gone down the “unregulated” route, such as the U.S. poultry industry.

Last month, an article was written by Christopher Leonard of the Associated Press entitled, “Farmers tell feds poultry companies control them.”  The article is based on testimony from current and past poultry farmers at a U.S. Department of Justice hearing held last month at Alabama A&M University.  Included in the article are the following excerpts:

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[Alabama chicken farmer Garry Staples] raises birds for Pilgrim’s Pride, one of the nation’s biggest poultry companies. But like other farmers who raise most of the chickens Americans eat, he doesn’t own the birds he raises, nor does he determine what food they eat or medicine they get. Pilgrim’s Pride controls that.

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Although they raise birds for different companies, the farmers said they have little power to negotiate with the businesses that control an increasingly consolidated industry.

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“The chicken companies know they don’t have to treat you fairly,” Staples said.

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Companies lure farmers into borrowing money to build chicken houses, then threaten to cancel their contracts if farmers complain about pay or refuse to invest more money to upgrade the buildings, [Kay Doby, a former chicken farmer from North Carolina] said.

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“This system takes hardworking farmers and makes them indentured servants on their own land,” Doby said. “I can’t tell you how many times I’ve heard that our contract would be canceled if we did such and such.”

The full article can be read at: http://news.yahoo.com/s/ap/20100521/ap_on_bi_ge/us_antitrust_agricultureI strongly encourage every dairy farmer to read this article very closely.  That testimony offers a sobering glimpse into what happens when an industry ignores the unequal balance of power between producer and processor, and attempts to operate without using the government as a “referee.”

Look at the recent NBA championship that ended yesterday.  Did the referees in those games make some mistakes?  Video replays sure indicate they did.  But does that mean we should eliminate the referees from the game of basketball?  What would happen if the referee’s were no longer there?  That’s simple: the strongest would dominate.  And in the dairy industry, the strongest are primarily the processors, given their advantageous position at the negotiating table.

Over the years, the dairy farming community has gone to great lengths to help provide our dairy product processors with the best opportunity to profitably operate.  Through the use of “make allowances,” processors are virtually guaranteed an opportunity for a profit margin.  Further, our industry has supported a government price support program that guarantees a willing buyer of some of their basic products when the milk market collapses.  Our processor sector has largely been insulated from much of the market risk. 

Dairy farmers don’t have that luxury.  As farmers, you bear virtually all the price risk when dairy markets collapse.  That enhanced risk is why dairy farmers and producer organizations across the country are seeking long-term solutions that will better equip our industry to maintain a reasonable balance in supply and demand.  H.R. 5288 has been and continues to be a big part of that discussion.  And yet, the leadership in the processor sector seems not only unwilling to be a productive part of that debate, but IDFA has gone so far as to blast the efforts of dairymen across the country engaging in that debate.  That is truly unfortunate.

So as a dairy farmer, what does this tell you?  The clearest message it should send is that if you want to empower yourselves as dairy farmers to control your own destiny, you’ll have to send that message loud and clear.  The processor groups that are working against H.R. 5288 aren’t just opposing it because they don’t like the specifics of the bill – they’re opposing it because they want to control your milk supply.

Earlier today, MPC published a press release entitled, “Milk Producers Council Responds to Outrageous Comments by IDFA’s CEO.”  If you did not receive this press release, you can find it on our website at: http://www.milkproducerscouncil.org/061810_idfarelease.htm.

 

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