Updated 9:26 a.m. CST April 8, 2020
In light of news of milk being dumped in several of the nation's top dairy states, including Wisconsin and California, the International Dairy Foods Association and the National Milk Producers Federation have collaborated to develop a Milk Crisis Plan for USDA.
The plan outlines how the COVID-19 pandemic is affecting U.S. dairy from farm to fork. IDFA estimates the nation's dairy supply exceeds demand by at least 10% as schools and restaurants have shuttered and Americans shelter in place.
Objectives of the plan include:
- Provide aid to dairy producers
- Alleviate systemic financial/liquidity risks across the supply chain
- Stabilize commodity markets
- Fill U.S. food banks with dairy products for distribution to the growing number of people in economic distress
- Immediately address food insecurity by removing restrictions that limit availability of nutritious dairy products across USDA food and feeding programs
Producer initiatives include:
- Pay producers $3 per hundredweight on 90% of their production if they cut production by 10% from March 2020 baseline with the program runs for six months – April through September.
- Payments during any one of the months would be suspended if the average of the Class III and Class IV prices for that month exceeds $16 per hundredweight
- There is a goal of compensating all producers and handlers for milk that must be disposed of because of supply chain disruptions resulting from COVID-19 pandemic. The program would be administered through the Agricultural Marketing Service's Federal Milk Marketing Order audit function and provide coverage of milk at the USDA Class IV (or lowest value Class) price.
Processor initiatives include:
- Expanding availability of working capital for processors, allowing firms to carry heavier-than-normal inventories and reduce systemic financial/liquidity risk.
- The program would cover as many products as possible.
- Loans would cover FMMO component ingredient costs.
The plan also calls for product purchases for food banks, modifying all federal feeding programs to eliminate restrictions that limit consumer choice, reopening the Dairy Margin Coverage program signup and improving existing nutrition programs to address food security.
Ultimately, the goal is twofold, said Michael Dykes, IDFA president and CEO. First, ensure USDA and the Trump administration use every strategic tool in its arsenal to bring balance to the dairy industry as quickly as possible, and second, harness the productive capacity of U.S. dairy to address the growing and widening food insecurity facing many Americans and others around the world.
The American Dairy Coalition applauded the efforts of NMPF and IDFA in pulling together the Milk Crisis Plan, while offering ideas to improve the proposal.
Specifically, the ADA says the proposal to pay dairy farmers $3 per hundredweight on 90% of their production, if they cut production by 10% from March 2020 baseline is fatally flawed.
"Unfortunately, the arbitrary March benchmark will not work," ADA says. "For the dairy industry to have a meaningful and market-effective impact, production needs a different baseline — it must be seasonally adjusted and region specific."
The ADA says dairy production traditionally drops during summer months, so supply numbers are already sloping downward and trimming 10% from March production would essentially mean little to no change in the nation's milk product inventory. Also, the one-size-fits-all approach fails to account for geographic differences.
"In rapidly launching their Crisis Plan, the NMPF-IDFA warn 'we cannot let the perfect be the enemy of the good.' Dairy farmers and processors don’t expect perfection, but we desperately need a program which will reduce the rising milk supply to prevent additional dumping of milk," ADA says.
Milk futures prices have fallen sharply since the beginning of the year, with the price for milk used to make cheese down 28% and the price for milk used to make nonfat dry milk falling by 34%, according to the American Farm Bureau Federation.