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IDFA's DAIRY POLICY PROPOSALS
Chapter 1:
The Stage Is Set for Reform of
U.S. Dairy Policies
"Today's dairy leaders have great opportunities
to bring the U.S. industry to a new level of cooperation
and success. We're in a time where we have very exciting
choices we can make for our growth – as never
before. We are truly in a global marketplace and need
to position ourselves right to take advantage of markets
here in the U.S. and around the world.”
Introduction
The 2007 Farm Bill offers an unprecedented opportunity
to usher in an era of modern dairy policies that meet
the needs of today’s dynamic dairy industry and
provide the nation with real economic and environmental
benefits.
Today’s dairy industry is a vital component of
the U.S. economy. The nation’s dairy production
and marketing system – dairy farms, dairy processors,
supermarkets, grocery stores, other retail food outlets
and exporters – generates hundreds of thousands
of domestic jobs and provides U.S. and international
consumers with a dependable stream of nutritious, high
quality milk and dairy products. Americans spend about
11% of their food dollar on dairy products, resulting
in over $90 billion in annual retail sales.
The industry’s prospects for a prosperous future
have never been more favorable. It is among the world’s
leaders in production and processing and has exceptional
potential for future growth. At current market prices
and without government subsidies, global demand for
our milk powder products, wheys, and lactose is growing.
Domestic consumption of innovative, value-added dairy
products that meet the needs of the modern American
consumer is also increasing. Dairy farmers, cooperatives,
and dairy processors all stand to gain from the unlimited
possibilities in meeting the growing demand for American
milk and dairy products.
The timing could not be better for the introduction
of dairy policies that support this drive for prosperity.
The robust domestic marketplace and growing international
demand for U.S. dairy products provide an unprecedented
opening for a long-overdue shift in the direction of
federal dairy programs. By adopting innovative, market-compatible
public policies at a time when dairy markets are strong,
policy makers can ensure that the industry will be able
to capitalize on these opportunities, and lay the groundwork
for industry success for generations to come.
This report provides a common-sense blueprint of the
forward-looking policies that will help the industry
reach its market potential, while contributing to the
nation’s economic and environmental well-being,
providing a sustainable financial safety net for dairy
farms, and generating widespread public support.
An Industry on the Threshold
of New Accomplishments
1. The Growing Demand for Specialized
Dairy Products
The U.S. dairy industry competes in a thoroughly modern
marketplace, where the success of an industry depends,
in large measure, on its ability to keep up with the
times and provide consumers with the kinds of food products
that reflect their changing lifestyles, nutritional
needs, and purchasing power. Today’s consumers
are accustomed to a never- ending stream of new products,
new store formats, more meals eaten on the run, and
powerful marketing messages. Competition for the consumer
dollar among increasingly overlapping food industries
has greatly intensified.
 Dairy
industry prosperity will be determined largely by the
industry’s capacity to compete by responding quickly
to these dynamic market forces. Success will no longer
be defined solely in terms of producing more and cheaper
commodities, such as milk, cheese, butter, and nonfat
dry milk powder. The future of the U.S. dairy industry
will depend increasingly on its ability to be a leader
in product innovation and successful marketing of a
multitude of attractive, nutritious retail dairy foods
and beverages.
Specifically, there is robust demand for new, competitive
products that cater to the consumer’s demand for
flexibility, convenience, health benefits, and new flavor
experiences. Examples include single-serve milk in new
flavors and re-sealable packages, customized cheeses
for a wide variety of prepared food and foodservice
applications, and a colorful array of new yogurt varieties.
While some of these items are produced on a large scale
by multi-national companies, specialty niche products
produced by smaller businesses also are demonstrating
impressive growth. Examples include some organic dairy
products, as well as a growing array of specialty cheeses.
In these areas, even small entrepreneurial companies
can achieve impressive success due to growing consumer
demand.
Still more opportunities are seen in traditional milk-producing
regions where producers and processors have specialized
in locally produced products. These opportunities present
profitable market niches for big and small producers
and processors alike.
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Regional
Dairy Success Stories
Triple cream cheese
and chunky cottage cheese from Northern California
are sold in a boutique cheese shop in Washington,
D.C.; locally produced yogurt and butter from
the Oklahoma panhandle sells at the Dallas Farmers
Market; three new-aged chevres in the French style
were just developed in Vermont; cherry cola fizz
is the latest ice cream flavor from an innovative
family-owned dairy and processing plant native
to the Ohio Valley. Entrepreneurial dairy farms
and plants across the country are finding success
in locally procured and produced specialty and
value-added products. |
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While innovation is one of the keys to continued growth
of the U.S. dairy industry, our progress in this area
is mixed. New dairy product introductions more than
doubled in the United States between 1995 and 2004,
but the U.S. has not kept pace with other countries
– particularly Asia and Europe – in such
introductions.
Two areas that need particular attention for product
innovation are fluid milk products and the concentrated
milk proteins used in many new food and beverage products
both here and abroad. Supportive federal policies –
policies that don't create a negative pressure on these
segments – could go a long way toward helping
the U.S. dairy industry better compete and capitalize
on new opportunities in the marketplace.
2. Export Market Expansion
Although the United States is the world's largest milk-producing
country and has been plagued with chronic surpluses
– only the combined European Union countries produce
more – the U.S. has historically not been a major
exporter of dairy products. That has been changing in
the past few years and recently U.S. exports of dairy
products have grown. This is due to increased demand
from developed countries for high-quality, specialty
products and food processing ingredients. In addition,
the growing populations in developing countries are
demanding more dairy products as their incomes increase.
U.S. exports have also increased as world market prices
have risen above the U.S. dairy price support levels.
In 2005, U.S. dairy exports more than doubled, to 8%
of domestic production. The U.S. Dairy Export Council
estimates that global demand for dairy products will
increase by more than 20% in the next few years and
that the U.S. dairy industry could be in an excellent
position to help fill this growing global demand.
These recent favorable developments have critical implications
for U.S. dairy policy. If the next round of federal
dairy policies is market-oriented, non-trade-distorting,
and supportive of the development of innovative dairy
products, then the prospects for export market expansion
will be greatly enhanced. Such changes would help pave
the way for a successful Doha Round global trade agreement
that could increase global market access by reducing
trade barriers. With world market prices for dairy products
at their highest levels in recent memory, the time could
not be better for reducing farmers’ dependency
on market-distorting federal programs, such as milk
price supports, and eliminating needless trade barriers
such as the dairy-product import promotion assessment
authorized in the 2002 Farm Bill.
3. Environmental Challenges
and Opportunities
When early federal dairy policies were put in place
about 70 years ago, the primary challenge for the young
dairy industry was maintaining a production base and
marketing channels to ensure an adequate supply of fresh
milk. The industry long ago successfully addressed that
need after decades of efficiency gains, and milk handling
and transportation advances. In fact, the milk supply
has grown so much that producers today voluntarily pay
to reduce the U.S. dairy herd size. The two foremost
challenges to the dairy industry in the 21st century
are improving its environmental performance and succeeding
in an increasingly competitive domestic and international
marketplace.
Back in the 1930s, each dairy cow produced only about
4,500 pounds of milk per year. Decades of productivity
increases and larger, more efficient dairy farms have
increased productivity to an annual average of about
20,000 pounds of milk per cow. More intensive dairy
farming operations have, in turn, generated a need for
improved, but more costly, waste management practices
that can better protect our air and water quality. At
the same time, domestic and international consumer demand
for food produced in an environmentally sustainable
manner has been steadily growing. Environmental improvements
on the nation’s dairy farms could therefore be
translated into both a great challenge and a great economic
opportunity for the industry.
With the appropriate public policy incentives, the
industry’s ability to meet the dual challenge
of protecting air and water quality and providing products
that reflect environmentally oriented consumer preferences
can be greatly improved. Current federal dairy policies
– which focus on outdated supply concerns –
have largely ignored the industry’s environmental
challenges. The 2007 Farm Bill offers policy makers
an overdue opportunity to craft environmentally friendly
dairy policies that will help the industry improve its
environmental performance while enhancing its long-term
competitiveness.
Industry Diversity and Cooperation:
A Formula for Success
The nation’s more than 60,000 licensed dairy
farms are linked with processing plants in a highly
developed production and marketing network that provides
U.S. and international consumers with nutritious, high
quality milk and dairy products. These farms provide
raw milk to private and cooperatively owned bottling
and dairy processing plants under numerous contractual,
cooperative and partnership arrangements. The processing
plants, in turn, send finished products to the nation’s
grocery retailers and food service outlets.
Before World War II, the dairy industry was dominated
by many small, widely scattered farms and processing
plants and farmer owned cooperatives. Like the rest
of the U.S. agricultural sector, the dairy industry
now has far fewer, but more productive dairy farms and
processing plants than it had when the federal government
began to intervene in the country’s dairy markets.
Nonetheless, the structure of the industry remains quite
diverse. Although more than half of the nation’s
milk is produced by just 4% of farms with 500 or more
cows, virtually every state is home to more than 100
dairy farms.
Dairy farms, through ownership of 196 dairy cooperatives,
now control the distribution of as much as 86% of the
milk supply, up from under 50% in the 1940s. In 2002,
according to USDA, the four largest dairy co-ops handled
41% of the nation’s milk supply. Cooperatives
account for most of the country’s butter and milk
powder production as well as more than 40% of cheese
production. Complementing the growing influence of the
farmer cooperative infrastructure are more than 1,000
privately owned dairy processing plants scattered throughout
every region of the country. Through partnerships and
supply relationships with both cooperative and independent
dairy farms, they acquire their raw materials and convert
them into cutting-edge consumer products in high demand
in domestic and international markets. Successfully
maintaining milk's share of a very competitive domestic
food and beverage market, and capitalizing on the growing
international demand for dairy products, will require
the continued cooperation of this diverse farm and plant
system.
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Year |
Number
of Farms with Cows |
Number
of Cows |
Output
(lbs. of milk) |
Number
of Co-ops |
Co-ops
Share of Milk Handled |
Number
of Processing Plants |
1940 |
4,663,431 |
22
mln. |
120
bln. |
2,270 |
48% |
22,000 |
2006 |
78,000 |
9
mln. |
180
bln. |
196 |
86% |
1,247 |
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The success of this vibrant, multi-enterprise supply
chain will be strongly affected by the federal dairies
policies written in the 2007 Farm Bill. The dairy supply
network will reach its economic potential only if federal
dairy policies complement it and support a wide-range
of marketplace opportunities for all industry stakeholders
alike, including independent dairy farms, farmer cooperatives,
and privately owned processing operations.
The variety of the industry’s stakeholders and
supply arrangements is matched by the industry’s
geographic diversity. Dairy farming and processing have
evolved geographically since the 1930s to take advantage
of regional and global marketing opportunities, growth
in demand for value-added products, and increased demand
for "locally produced" food. The largest dairy
farming operations, primarily in the western, southwestern,
and inter-mountain states, are driving the high-capacity
growth that will continue to fill the expanding large-scale
demands of national retail chains and emerging export
market opportunities. At the same time, however, the
continued growth in specialized dairy products and demand
for locally produced products offers enhanced market
opportunities for smaller farms and processing operations
in all dairy producing regions across the country.
Federal dairy policies have the potential to help the
industry continue to successfully harness this evolving,
geographically diverse production structure. This will
happen, however, only if current policies are changed
to complement the consumer-driven marketplace rather
than determining winners and losers by favoring one
type of farming or processing operation over another.
Guiding Principles for Dairy
Policy Reform in the 2007 Farm Bill
Federal dairy policy is at a promising crossroads.
Market opportunities for both small farms and plants
and large capacity operations are growing, and supply
capacity is more than adequate to meet future needs.
The industry is poised to capture new domestic market
opportunities and a larger share of the growing global
market and, with federal help, environmental challenges
can be met in ways that improve stewardship of natural
resources and enhance industry competitiveness.
To capitalize on these opportunities and lay the groundwork
for long-term success, the adoption of smart, forward-looking
dairy policies in the 2007 Farm Bill is essential. The
four fundamental principles for success that will promote
future prosperity and increase the ability of all in
the industry to reach their economic potential are highlighted
in the box below.
New farm bill policies that follow the guiding principles
described below will be consistent with the needs of
all sectors of today’s modern dairy industry.
These principles provide criteria for assessing the
value and effectiveness of current dairy policies in
Chapter 2 and for developing the blueprint for dairy
policy reform in Chapter 3.
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Four Principles for Dairy Policy Reform in the
2007 Farm Bill
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Federal dairy policy should minimize government
interference in dairy market prices
and production decisions. |
• Government spending on dairy programs
must be designed to benefit all segments
of the industry
and
maximize benefits to the rest of the nation. |
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Federal dairy policy should treat all dairy
farmers and processors fairly in every part
of the country. |
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Federal dairy policy must be consistent
with the nation's global trading obligations. |
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