TWIN FALLS • Whether a provision included in the U.S. Senate’s draft farm policy tastes like sweet cream or curdled milk depends largely on whether you’re producing milk or processing it.
The Senate Ag Committee approved its version of the 2012 Farm Bill Thursday on an 11-6 vote. As expected, the bill moves agriculture away from a system of direct payments while increasing a focus on risk management.
But the bill also includes the Dairy Security Act, which milk producers largely support and dairy processors oppose.
Jon Davis, president and CEO of Davisco Foods, the parent company of Jerome Cheese, testified Thursday in front of the House Ag Subcommittee on Livestock, Dairy and Poultry, speaking on behalf of the International Dairy Foods Association.
Davis and other dairy processes believe the attempt to control milk prices by regulating supplies will hurt dairy exports and artificially limit industry growth.
During his testimony, he recounted conversations he’s had with international buyers who warned him that a U.S. move toward supply management will affect their view of the U.S. as a dairy supplier. If the U.S. shuts down supply, Davis said, competitors including Australia, New Zealand and European countries will quickly move to fill the void in Southeast Asia and Indonesia.
“That’s where the people are,” he said. “That’s where the growth is.”
According to the U.S. Dairy Exports Council, exports accounted for 13.3 percent of total U.S. Milk production in 2011.
“The marketplace is a pretty effective mechanism if we let it work,” Davis said.
Davis said he supports a supplemental margin insurance program, but not if it’s tied to supply management. Idaho dairies are allowed to hedge both their input costs and milk production using the futures market since Idaho isn’t covered by a federal marketing order.
Davis would like to see all U.S. dairies have the same opportunity to use those risk management tools.
Bob Naerebout, executive director of the Idaho Dairymen’s Association, agrees with Davis that eliminating government programs and policies that impact agriculture and letting the free market work would be best. But since that’s not a likely outcome, he said the next best option is to make sure the Farm Bill provides avenues for dairy producers to address the impact other policies have on their business.
The nation’s ethanol mandate, which has essentially created a second large market for corn, pushed corn prices higher and contributed to the negative profit margins dairies experienced in recent years. The National Milk Producers Federation estimates dairy farmers lost $20 billion in net worth between 2007 and 2009.
That’s why dairy producers support the Dairy Security Act and the Dairy Market Stabilization program. The stabilization program includes program that essentially sets a floor for producer margins. The voluntary program intends to help offset low margins caused by either low milk prices or high input costs when certain conditions are met.
As much as he dislikes government programs, Naerebout thinks it’s better to have a stabilizing program in place than to rely on a system forces producers to leave the business.
“We need the Dairy Security Act to be a balance on how other programs impact dairy profitability,” Naerebout said.
United Dairymen members overwhelmingly approved a proposal that formed the basis of the market stabilization program last summer. That proposal included mandatory supply management. Naerebout said he has never seen a proposal garner such majority approval.
Producers will choose whether to participate in the margin insurance program. If they opt in, they will automatically participate in market stabilization and be asked to reduce milk production when margins are poor.
While dairymen see market stabilization as their best option within the context of the Farm Bill; attracting more high-value processing to the state their best bet for long-term profitability. Since Chobani announced it was coming to Idaho, the two largest commodity cheese plants in the Magic Valley have increased their price paid to producers.
“Changing the product mix to bring more higher-valued products and manufacturing into Idaho will help us more than anything in the Farm Bill,” Naerebout said.