The 2013 farm bill inched forward in September and seemed headed for a House-Senate conference committee until the Congressional agenda was hijacked by fights over the budget, threats to defund the Affordable Care Act known as Obamacare and raising the national debt ceiling. Little more is likely to happen until those issues are resolved at some point in the near future. At the time this magazine was going to press on Oct. 15, there was no resolution.
Before the government shutdown took center stage and sucked up all of the oxygen on Capitol Hill, the House rejoined the separate measures reauthorizing farm and nutrition programs into one large bill, similar in scope to the bill passed by the Senate in June. That prompted the Senate to reappoint its agriculture conference committee members in preparation for negotiations with the House over a final compromise farm bill.
What's at stake?
Among the major issues to be worked out in conference are a funding level for the food stamp program, somewhere between the House's $40 billion in cuts over the next 10 years and the Senate's $4 billion in cuts, and reform of the dairy program.
In terms of dairy policy, the Senate bill includes the Dairy Security Act, a voluntary program offering producers margin insurance. Those enrolling in the program also will be subject to a market stabilization program asking them to trim production if milk supplies outstrip demand, prices fall and margins shrink below $6 per hundredweight. Wisconsin native Jim Mulhern, COO of the National Milk Producers Federation, says according to an analysis by the University of Missouri, the Senate bill would have increased net farm revenue by 55 cents per hundredweight from 2009 through 2012 had it been in place during that time.
The House, meanwhile, passed a weaker insurance program that does not include the market stabilization element. This plan is favored by members of the Dairy Business Association, a state group made up primarily of producers from large dairies.
Most national and state dairy organizations, including National Milk Producers Federation, favor the Senate provisions because the House bill will not rectify low-margin conditions meaning that dairy farmers could face long periods of severely depressed prices like they did in 2009.
The argument among supporters of the House version of the bill is how can the milk supply be cut when the dairy plants are not operating at full capacity and they still need more milk?
Mulhern, who spoke to members of the media at World Dairy Expo in Madison on Oct. 2, had an answer to that.
"There's a time-tested formula to keep milk plants filled with milk – it's called paying farmers a good price for their milk," he said. "We all want there to be an ample supply of milk, but not at the expense of our dairy farmers. They should be paid a fair price for their milk."
I couldn't agree more. It should not be the farmers' responsibility to keep the dairy plants full of milk when they can't make a decent living on what they are getting paid for their milk. The dairy plants need to pay farmers to keep their milk plants full. For that to happen on a steady basis, the milk supply needs to be controlled when prices are dropping. The dairy industry historically has been a very productive industry. Despite fewer dairy farms and fewer cows, milk production continues to go up.
How it works
Mulhern pointed out that there is a good argument for both margin protection insurance and market stabilization.
"Let's say the milk price drops to $14," he explained. "We've seen that happen several times in the past 15 years. If you have margin protection insurance, it still gives you $20 milk. Nobody is going to cut back if they're getting $20 for their milk. Taxpayers aren't going to fund that program. But, market stabilization (supply control) kicks in when the margin is under $6."
Mulhern noted that market stabilization would have kicked in in 2003, 2009 and in the summer of 2012 when feed prices were high due to the drought.
Meanwhile, some farm programs, including MILC payments, expired with the end of the fiscal year Sept. 30. That will have little effect on dairy producers since MILC payments are not expected between now and the end of the year. Other programs, including the dairy price support program, are authorized through the end of the calendar year.
Should Congress be unable to reach agreement on a new long-term farm bill by then, another one-year or two-year extension of current programs is possible. In the absence of either another extension or passage of a farm bill, farm policy would revert back to the permanent law of 1949 which would increase the pay price to dairy farmers to between $30 and $40 per hundredweight and the price of a gallon of milk in the stores to $6. However, the House has already introduced a bill that would remove the default to the 1949 Farm Bill which would take away "the hammer" over Congress to get something done.
Make the call
Opponents of market stabilization scoff at the idea of milk supply management. But the dairy industry currently has a milk supply management plan in place and has had for years – it is called survival of the fittest. The milk supply increases, then the milk price drops and more dairy farmers go out of business.
I urge you to call your U.S. representative, Sen. Ron Johnson, R-Wis., and Sen. Tammy Baldwin, D-Wis., and tell them to pass a farm bill that includes the Senate dairy policy reforms. Your future in the dairy business depends on it.