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So which hand is pulling what out of the hat?

Special for Farmshine

WASHINGTON, D.C. – When watching a magic trick, it’s important to focus on what both hands are doing, and still a move may elude perception. What does this have to do with the farm bill? It’s literally the 11th hour, and negotiators, politicians and lobbyists continue to jostle their positions.

That is, except for Speaker of the House John Boehner (R-Ohio), who has maintained his strong stand supporting the previous House vote of 291 to 135 (including 95 Democrats) in favor of a dairy margin safety net that does not include supply management. He has said the farm bill conference report will not see a vote in the House if it includes what he calls a “Soviet-style dairy program.”

National Milk Producers Federation (NMPF) – the chief architect of the Dairy Market Stabilization Program as part of the Dairy Security Act in the Senate version of the Farm Bill – released a statement last Thursday, January 16, acknowledging Speaker Boehner’s position.

NMPF President and CEO Jim Mulhern said that the Federation worked for four years to revise federal dairy policy, evaluating proposals against two criteria: 1) Does it provide an effective safety net for all of the nation’s dairy farmers? And 2) Does it protect taxpayers from the possibility of excessive program costs through the use of suitable incentives for those enrolled in the program?

Mulhern said they put their confidence in the Dairy Security Act, first proposed by House Ag Committee Ranking Member Collin Peterson (D-Minn.). It passed the Senate but was rejected by the House last summer.

The 2008 Farm Bill was extended last month until the end of January 2014, and as of this writing Wednesday afternoon, January 22, there is no conference report on a new 5-year Farm Bill, just reports of the committee “getting close” as it weeds through the differences between the House and Senate versions of the legislation.

“We were initially heartened that the four bi-partisan leaders of the House-Senate farm bill conference committee included the DSA language in the package that they were planning to present to the full conference,” said Mulhern in the NMPF statement. “Despite the long-standing opposition to this plan from House Speaker John Boehner, we were confident we had the votes in the conference committee to defeat any amendment to strike the market stabilization program. Unfortunately, the Speaker’s threat that he would not allow a vote on a farm bill containing the market stabilization program has effectively served to kill our proposal within the committee.

“We are now engaged in discussions with agriculture committee staff on an alternative approach to creating a dairy safety net that would contain inducements to help achieve a supply-demand balance and prevent catastrophic milk price collapses like we experienced in 2009,” said Mulhern.

The NMPF statement quoted Mulhern as believing it “conceivable that an alternative mechanism could be developed, relying upon adjustments to the program’s margin insurance payout structure and participant premium rates, among other options. Any such approach must still offer an effective risk management tool to farmers, while containing suitable incentives to program enrollees to achieve cost controls,” said Mulhern in the NMPF statement.

In its Market Monday report, Dairylea also shared the news that it did not look good for the Dairy Market Stabilization Program (supply management) to be kept intact in the farm bill conference report.

Meanwhile, Senator Patrick Leahy (D-Vt.) – longtime dairy icon in the Senate – has bolstered House Ag Ranking Member Collin Peterson’s position of not wanting to relinquish the supply management program. And, NMPF’s Mulhern wrote an op-ed response in the Wall Street Journal still touting why their program really was “market oriented.”

So which hand is pulling what out of the hat?

Grassroots farm groups in the Northeast, Southeast, and upper Midwest have worked for four years to move dairy policy forward to look at marketing and pricing and away from the idea of supply management due to the export potential and the issue of fairness to small and mid-sized farms in those regions.

Some were contacted for comments this week, but all appear to be “holding their breath” not wanting to exhale or get out in front of the conference committee and its farm bill report.

In the Southeast, however, the Kentucky Dairy Development Council did not waste time this week contacting their delegation in the House and Senate – asking them to stand with Speaker Boehner against supply management as a part of the dairy safety net in the farm bill.

According to an e-mail reply from KDDC Executive Director Maury Cox, “the KDDC does not support supply management, which is believed would negatively impact dairy producers on a national scale and even more for local Southeastern producers for additional reasons.”

A KDDC statement explains the following about their local and regional impact:

a. The present FMMO rules dictate that $0.15/cwt. and $0.30/cwt. in Federal Order 5 and 7 respectively is deducted from the price all Class I milk and used in a Transportation Credit fund by processors and cooperatives to supplement the haul cost of milk into the area. This skims the cream off of local milk prices and sends it to outside the region milk haulers for transportation. It also allows processors to seek milk outside the Order in lower price zones while disregarding local milk supplies. This puts local Southeast farmers at a competitive disadvantage.

b. Milk is priced differently across the nation. In the Southeast, the price is calculated on skim milk and butterfat. Although the price discovery begins with Class III and Class IV, the Class I differentials place higher value on fluid milk. Southeast producers will lose more value as compared to component-priced milk in other regions when forced to cut production with the DSA.

Nationally, this observation was made: “The Dairy Market Stabilization Program is proposed as a voluntary program. However, it is mandatory if dairy farmers sign up for the margin insurance program. It is believed this will result in two possible scenarios for producers and affect the market by manipulation.”

The first scenario is that of a financially leveraged producer -- required (or ‘urged’) by the lender to sign up in the margin insurance program, which requires one to participate in the supply management program. This cuts the revenue stream to already financially challenged producers when they need it the most.

The second scenario is that more than 50% of the nation’s milk supply is produced by less than 3% of the nation’s dairy producers. This is well documented.

“Many of these large mega-dairies are self-insured through contractual agreements with milk processing plants, forward contracting or other hedging options,” Cox points out in the KDDC reply. “The results would leave the balancing of the milk price on the backs of smaller producers, which were either forced to cut production due to required margin insurance or those that had neither the means nor inclination to increase production in the first place. The results will be a prolonged low margin trough precipitated by a required government regulated program. This would consolidate the industry even more quickly than present policy.”

Another observation of concern and fairness is that, “The Dairy Stabilization Program could be triggered by the increase in input feed cost while there is a strong export market. It is a risky policy to attempt to manipulate a market from such a limited perspective. The unintended consequences may be worse than the prescribed medicine.”

In short, dairy producers at the grassroots levels through state and regional affiliations such as the Dairy Policy Action Coalition, Southeast Dairy Coalition, Kentucky Dairy Development Council, Northeast Dairy Producers Association, Wisconsin Dairy Business Association, Minnesota Milk Producers Association and 95 farm and non-farm organizations have actively educated their Senators and Representatives on what is at stake for family dairy farms if supply management as the prerequisite for “margin insurance” is part of the farm bill conference report. They have reminded Congress that other commodities do not have this government intrusion as a prerequisite for insurance or a safety net. They also note that true price reform will be harder to achieve if the supply management component becomes part of the dairy title.

Until the conference report is issued, a call to Congress with your views as a dairy farmer are never too late. Speaker Boehner is speaking FOR the House by drawing a line in the sand against supply management.

The House spoke last summer with its vote 291 to 135 vote against supply management.