From The MPC Newsletter
More Than Two Weeks In...The
Naysayers Are Certainly Yelling the Loudest
It has been 16 days since Congressman Collin Peterson (D-Minnesota) unveiled legislative language outlining significant dairy policy reform that he intends to introduce in the U.S. House of Representatives in the near future. The legislation largely mirrors “Foundation for the Future,” the dairy policy reform proposal developed over the past two years by the National Milk Producers Federation (NMPF). Since Rep. Peterson unveiled the “discussion draft” of his bill, individual dairy farmers, producer organizations and cooperatives from around the country have been formally staking their positions on the proposed legislation. MPC has been part of that effort, as our board last week formally endorsed the legislation.
Having legislation written in the U.S. House of Representatives is an essential step in the process of making fundamental changes to our national dairy policies. Ultimately, any change to our Federal safety net programs will require an act of Congress. While the last few years have been a time of great debate among dairy farmers and our organizations over the best policy reform ideas to pursue, we are now at the next step of that process – evaluating what Congress is willing/able to approve. In essence, this debate has shifted from an ideological discussion among the dairy industry to a very real debate among the 535 members of the U.S. House and Senate – the only people in the country who actually have the ability to implement such change.
While this key shift represents a positive step forward for those supporting the legislation, it also motivates those who oppose the legislation to become more active and vocal. That has certainly been seen over the past two weeks. Even MPC has been the target of such vocal opposition. In the hours and days after announcing our board of directors had endorsed Rep. Peterson’s legislation, we received emails with messages such as, “Good luck with your hanging,” and “Your dairy farmer members might just as well throw in the towel now while they’ve got something left.” We’ve also seen general opposition from groups like the National Farmers Union, the Dairy Policy Action Coalition and Minnesota Milk Producers. Their opposition ranges from claims that Rep. Peterson’s proposal is not strong enough to claims that it is too strong (this may be the best evidence we have that Rep. Peterson has struck a pretty good balance in his legislation).
In any debate over fundamental policy changes – not just in the dairy industry – the loudest voices early on will be from those who oppose the change. That’s certainly the case here. But fortunately or unfortunately (depending on which side of this issue you fall on), this debate in Congress will be decided on the facts, not who screams the loudest. So in that light, let’s take a look at some of the facts.
First of all, there is one overriding fact that trumps all others: unless Congress passes a reform package, the MILC and Price Support programs will continue to be our main “safety net” programs (comforting, huh?). In other words, we know exactly what we’ll get if Congress does nothing. And because of budget constraints, starting in September 2012, even under current law, the MILC program will experience cuts: (1) the amount of milk that can be covered by the MILC program will be reduced from 2.985 million pounds to 2.4 million pounds (a 20% reduction); (2) the actual cash payment on your covered milk when the program triggers in will be reduced by 24%; and (3) the “feed cost adjuster” that was added in 2008 that increases both the frequency and amount of the MILC payouts when dairy feed costs increase would be scaled back dramatically (by about 29%). In short, starting in September 2012 – even if Congress does nothing – the biggest safety net program we have, the MILC program, will trigger in less frequently and will provide significantly fewer dollars.
With that backdrop – knowing what the status quo will look like if nothing is passed – let’s briefly take a look at one of the pieces of the proposed legislation that has been garnering some of the loudest objection.
Dairy Market Stabilization Program.
This is the part of Rep. Peterson’s proposed legislation that would allow all dairies across the country to unify and temporarily cut back milk production when dairy farmers are suffering from milk prices that won’t cover their costs. It is designed to be inactive for a vast majority of the time, and only activate on a temporary basis when we need quick cut-back in national milk production in order to bring supply and demand back into balance.
Of course, when reading the criticism of this particular piece of Rep. Peterson’s legislative draft, we get a very different picture of this program. Some have gone as far as to say that it would restrict dairies’ ability to grow their businesses. My question is, “How?” Most of the time, this program would have ABSOLUTELY NO IMPACT on your dairy. It would simply be on the shelf, inactive. Just as we have now, dairies could continue to grow if they choose. And even if it did in fact activate for a limited period of time (when we have more milk production than we can profitably market), the program would only create incentives to slightly cut back milk production (2, 3 or 4%) for a limited time period until we re-achieve balance in supply and demand.
In any industry, we know that a slight over-supply of product devalues not just those last few units, but the entire production. Dairy is no different. When we have even 1% more milk than markets can profitably absorb, our entire milk production is devalued. So why is the idea of implementing a program to quickly and temporarily address that financially devastating market imbalance so objectionable? I would argue that the objection we are hearing is much more philosophical than factual.
The other two pieces of Rep. Peterson’s proposed legislation have not been immune to criticism either. In future issues of this newsletter, we’ll take a closer look at these programs, and how the facts about how these pieces work stack up to the criticisms that are levied against them. So stay tuned…
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