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Dairy Industry Faces Unsure Future

posted on August 26, 2005


The Agriculture Department also is weighing-in on America's battle of the bulge. Last April, USDA released a new food pyramid, which includes an exercise component, and a customizable web site. The Agriculture Department claims the new food pyramid is relatively easy to understand. But most USDA-administered programs are anything but simple. And it's doubtful any of the regulations are more complex -- or more misunderstood -- than USDA's dairy programs. For decades, USDA has relied on a complex system of formulas in determining geographical marketing orders. But some dairy producers claim those programs put them at a disadvantage because of their geographical location. And the adoption of another USDA dairy initiative called "Milk Income Loss Contracts" - or M-I-L-C - some producers say, discriminates against them because of their size. Art Hackett explains.
Dairy Industry Faces Unsure Future IF YOU'VE SHOPPED THE DAIRY CASE RECENTLY, YOU KNOW PRICES ARE UP. TODAY, A HUNDRED POUNDS OF MILK EARNS A FARMER IN THE UPPER MIDWEST ABOUT FIFTEEN DOLLARS AND FIFTY CENTS. BUT THREE YEARS AGO, WHEN THE CURRENT FARM BILL WAS ENACTED, LACROSSE COUNTY DAIRY FARMER SUE BEITLICH SAYS PRICES WERE NO WHERE NEAR FIFTEEN FIFTY.

Sue Beitlich, Stoddard Wisconsin: "Nine to ten dollars a hundred weight....it costs at least 14 dollars a hundred weight to produce milk, at a break even point. So, we were borrowing more money, taking money out of savings, to make the farm operate."

FOR DECADES, THE FEDERAL GOVERNMENT HAS TRIED TO KEEP PRICES FROM DROPPING TOO FAR BY BUYING UP SURPLUS NON- FAT DRY MILK, BUTTER, AND CHEDDAR CHEESE AT A FIXED PRICE. BUT IN THE 2002 FARM BILL, CONGRESS CREATED A NEW PROGRAM: MILK INCOME LOSS CONTRACTS.

Art Hackett, Wisconsin Public TV-Madison: "The dairy industry's always had to struggle with geographic oddities. First, there was the milk market order system that set prices based on how far away you were from Eau Claire, Wisconsin. Now, there's the MILC program that sets dairy subsidies based on what milk is going for, in Boston."

WHY BOSTON? U-W MADISON DAIRY ECONOMIST ED JESSE SAYS THE BOSTON PRICE IS USED TO SET PAYMENTS UNDER THE NORTHEAST DAIRY COMPACT WHICH COVERS SIX NEW ENGLAND STATES.

Ed Jesse, Dairy Economist, University of Wisconsin-Madison: "And that program was very popular in the Northeast. We have some very powerful northeastern congressmen, notably from Vermont, who wanted to extend that program exclusively for the northeast, but as part of the debate on the dairy program of the farm bill, that particular program or a close varient of it became nationwide."

WHILE THE REST OF THE 2002 FEDERAL FARM PROGRAM RUNS UNTIL 2007, THE MILC PROGRAM, BECAUSE IT WAS NEGOTIATED AT THE LAST MINUTE, WILL EXPIRE AT THE END OF SEPTEMBER. SUE BEITLICH WORRIES THAT IF IT'S NOT EXTENDED, SHE'LL BE FARMING WITHOUT A NET IF PRICES DROP AGAIN.

Sue Beitlich, Stoddard, WI: "It kept us in production. We wouldn't be farming if we didn't have MILC."

DURING 2003 AND 2004, SUE BEITLICH AND HER HUSBAND, WILL EARNED ABOUT 94 HUNDRED DOLLARS IN CASH PAYMENTS THROUGH THE MILC PROGRAM.

Sue Beitlich, Stoddard, WI: "So that's not a lot of money but when you put groceries on the table or pay doctor bills, it all helps."

BUT DAIRY ECONOMIST ED JESSE SAYS MULTIPLIED BY ALL OF THE NATION'S DAIRY FARMS, IT ALL ADDS UP.

Ed Jesse, University of Wisconsin: "The MILC program was made retroacitve to December of 2001; The same time that milk prices went into the tank big time and stayed there for almost a year and a half."

WHEN MILK PRICES GO DOWN, SUBSIDIES GO UP. THE CONGRESSIONAL BUDGET OFFICE FOUND WHAT WAS SUPPOSED TO BE A ONE BILLION DOLLAR PROGRAM COST TWO BILLION.

BUT JESSE SAYS THE ISSUE ISN'T ONLY THE PROGRAM'S PRICE.

Ed Jesse, U of WI: "The biggest criticism of the MILC program is the production cap prevents larger diary farmers from benefiting."

THE BEITLICH'S FIFTY COW HERD IS SLIGHTLY SMALLER THAN AVERAGE FOR WISCONSIN. THE 25 HUNDRED COWS AT EMERALD DAIRY NEAR BALDWIN ARE AN UNUSUALLY LARGE HERD FOR THE UPPER MIDWEST.

Ed Jesse, U of WI: "The payments under the MILC program are limited to the first two-point-four-million pounds of milk annually and for a very large herd. They'll hit that cap very quickly."

THAT CAP IS BASED ON PRODUCTION OF ABOUT 135 COWS. SO, A SMALL FARM LIKE THE BEITLICH'S WOULD BE ELIGIBLE FOR A PAYMENT BASED ON THE PRODUCTION OF ALL THEIR COWS.

JOHN VRIEZE, WHO OWNS EMERALD DAIRY, WOULD BE ELIGIBLE FOR PAYMENTS FOR ONLY A SMALL FRACTION OF HIS HERD'S PRODUCTION.

John Vrieze, Baldwin, WI: "So I received, even though I have more cows than that, I received as much as someone who would have 125 cows."

Sue Beitlich, Stoddard, WI: "The larger farms get it just like the smaller farms. It's just that they get it in a shorter period of time depending on the size of their herd."

AND THEREIN LIES ANOTHER PROBLEM --THE PRODUCTION CAP IS CALCULATED ON A CALENDAR YEAR BASIS, BUT THE PER HUNDREDWEIGHT SUBSIDIES ARE CALCULATED MONTHLY. SO, IF VRIEZE'S COWS HIT THE PRODUCTION CAP DURING A MONTH EARLY IN THE YEAR WHEN THE PER UNIT SUBSIDY IS LOW, HIS LARGE FARM COULD BE SHORTCHANGED.

John Vrieze, Baldwin, WI: "MILC has offended some of the producers that milk more than 125 cows, especially in in the west and the south."

THIS LETTER SIGNED BY U-S SENATORS FROM TEXAS, NEW MEXICO, CALIFORNIA, AND OREGON RECENTLY CIRCULATED ON CAPITOL HILL. IT CRITICIZES THE MILC PROGRAM AS UNFAIR TO LARGE PRODUCERS AND ARGUES THAT A PLAN TO DOUBLE THE AMOUNT OF MILK ELIGIBLE FOR SUBSIDY WILL DRIVE UP THE PROGRAM'S COST. IT URGES LETTING THE PROGRAM EXPIRE AT THE END OF SEPTEMBER. SUE BEITLICH, AND THE WISCONSIN FARMER'S UNION OF WHICH SHE IS PRESIDENT, HOPE THAT DOESN'T HAPPEN.

Sue Beitlich, Stoddard, WI: "We want some safety net in place whether it's MILC or some other type of program."

VRIEZE SAYS THE ORGANIZATION HE HEADS...THE DAIRY BUSINESS ASSOCIATION OF WISCONSIN...DOESN'T OPPOSE THE MILC PROGRAM PER SE. BUT, THEY'RE WORRIED ABOUT THE POLITICAL SIDE EFFECTS OF EXTENDING IT.

John Vrieze, Baldwin, WI: "So, because it looks as if it's being viewed out there on the west coast as an unfair program, the senators and congressmen from the states you mentioned are getting letters from the dairymen saying let's scrap the MILC program altogether."

AT THIS POINT, IT'S HARD TO COME UP WITH A REPLACEMENT DAIRY SUPPORT PROGRAM. THE NEXT FARM BILL WILL HAVE TO COMPLY WITH INTERNATIONAL TRADE AGREEMENTS. THOSE HAVEN'T BEEN NEGOTIATED WITH THE WORLD TRADE ORGANIZATION. AND, THEY MAY NOT BE DONE IN TIME EVEN IF THE MILC PROGRAM IS EXTENDED TO 2007.


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