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IDFA's DAIRY POLICY PROPOSALS
Executive Summary
The Stage
Is Set for Reform of U.S. Dairy Policies
Federal dairy policy is at a promising crossroads.
Domestic and world market prices are strong and production
is at an all time high. Domestic consumption of innovative,
value-added products, such as high-protein ingredients,
is increasing. Opportunities for specialization in regional,
organic, and niche products continue to grow. U.S. dairy
exports have doubled and global dairy product demand
is growing faster than supply. The U.S. industry is
poised for leadership in those markets.
The timing, therefore, could not be better for the introduction
of dairy policies that complement, rather than hinder,
these opportunities for prosperity. But outdated federal
programs threaten that progress and fail to adequately
address the real life challenges faced by dairy farmers,
cooperatives, and processors. Now, the foremost challenges
are improving environmental performance, rising feed
and energy costs, and succeeding in an increasingly
competitive food and beverage marketplace here and abroad.
Current Federal Dairy Policies Don't Meet the Dairy
Industry's Needs
The U.S. dairy industry is the most heavily regulated
industry in U.S. agriculture. The federal government
intervenes in the marketplace by: setting farm milk
prices; paying farms to produce milk; buying, storing,
and disposing of surplus milk products; subsidizing
exports; and restricting dairy imports. Recent case
studies and government reports document the failure
of those policies, indicating that:
- The combination of the Milk Income Loss Contract
income subsidy program (MILC) and the Dairy Price
Support Program (DPSP) works at cross purposes, provides
limited benefits to dairy farms, and generates divisiveness
among dairy regions.
- The DPSP accounts for the largest share of trade
distorting agricultural supports.
- Government purchases of milk powder under the DPSP
have discouraged production of higher valued milk
protein products that are in high demand.
- Acquisition and inventory accumulation of dairy
products under the DPSP have resulted in costly government
stockpiles and damaging dumping of these stocks into
the marketplace.
- Federal restrictions on the use of forward contracting
prevent thousands of dairy farmers from using this
proven tool for coping with future price volatility.
- An overly complicated and cumbersome, seven-decades-old
Federal Milk Marketing Order (FMMO) pricing system
undermines the industry’s ability to respond
to market signals, and pits milk production regions
of the county against each other.
A Blueprint for Dairy Policy Reform: The Right Time
for the Right Policies
The adoption of smart, forward-looking dairy policies
in the 2007 Farm Bill will enable the dairy farming
and processing industries to achieve their economic
potential; translate domestic and international dairy
market opportunities into longterm industry prosperity;
and address dairy farming’s environmental challenges.
Four basic principles should guide the development
of dairy policies:
- impacts on market prices and production must be
minimized
- programs must be equitable across all segments of
the industry regardless of size or region
- national interests must be served
- policies must be consistent with the nation’s
global trading obligations.
The following five 2007 Farm Bill dairy policy recommendations
adhere to these principles and would transition current
programs to a new generation of prosperity oriented
policies.
- A new payment program for dairy farms that is not
based on price or production, but provides farmers
with reliable income enhancements and incentives to
improve environmental stewardship while improving
U.S. compliance with its global trade obligations.
- Programs that support farmers without distorting
markets or international trade, including: a) establishment
of a revenue-insurance-based safety net for dairy
farms to help protect them against severe economic
downturns; and b) elimination of the current dairy
product import assessment to remove an import barrier
that provides no meaningful benefits, is inconsistent
with our global trade obligations, and invites retaliation
by our trading partners.
- Elimination of restrictions on farmers’ use
of forward contracting of milk sales to enable thousands
of additional dairy farmers to better manage price
volatility.
- A transition out of the contradictory DPSP and MILC
Program to end artificially induced overproduction,
get the government out of the dairy purchasing and
storage business, reduce unnecessary regional divisiveness,
eliminate trade distortions, and increase incentives
to produce for a dynamic marketplace rather than a
government check.
- A blue ribbon commission for reform of the archaic
federal milk pricing system, comprised of industry
stakeholders and experts, to identify and recommend
long-overdue measures for addressing the fundamental
flaws of the FMMOs.
These five key recommendations chart the course for
a new, market-driven approach to dairy policy in the
2007 Farm Bill that would benefit dairy farmers, cooperatives
and processors; consumers and taxpayers; the environment;
and the national economy.
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