THE House is scheduled to mark up its farm bill May 15, and an important point of debate in the dairy title will be whether or not to include a market stabilization component.
After unprecedented volatility for dairy producers, the consensus seems to be to move to a program that better protects income-over-feed-cost margins.
Last year's markup used a proposal by House Agriculture Committee ranking member Collin Peterson (D., Minn.) and the National Milk Producers Federation called the Dairy Security Act (DSA), which included a Dairy Producer Margin Protection Program and a coupled Dairy Market Stabilization Program (DMSP).
This market stabilization program, however, has caused some concern.
Reps. Bob Goodlatte (R., Va.) and David Scott (D., Ga.) reintroduced a bill April 25 — that likely will also be proposed as an amendment during the farm bill markup — that removes the supply management component of DSA. The Goodlatte-Scott approach is favored by the International Dairy Foods Assn. and other processors.
Goodlatte explained that "supply management is contrary to the goals of limited government, economic growth and free markets. A supply control program puts federal government bureaucrats in the middle of market decisions by manipulating dairy prices, instituting dairy production quotas and penalizing consumers. "
Peterson countered that DMSP is designed to act as a "safety valve in case we made the program too good." He added that the Goodlatte-Scott proposal actually has "harsher supply management" than his proposal.
Ohio State University agricultural economist Cameron Thraen and his doctorate student John Newton released a report that provides an in-depth look at the two proposals, evaluating factors like a dairy farm's anticipated growth pattern and expected market prices for milk and feed. It then evaluates each program regarding which would be best for different dairy operations. (Read the full report at http://aede.osu.edu/dairybriefing).
Their report is titled "Shared Potential, Shared Concerns & Open Questions," implying that there is no clear-cut winner between the two programs. Thraen said both will do a good job of providing adequate catastrophic coverage and buy-up insurance level options.
Thraen said one of the big wild cards will be the participation level and who participates. If only small producers or those who have little influence on milk production sign up, then the stabilization component may have a very minimal impact on the actual milk supply and wouldn't move milk prices substantially. If more larger producers sign up, they could control more of the milk supply.
Thraen noted that the system does tend to favor larger producers more.
No evidence was found that DMSP would present a long-term obstacle to farm growth, even for operations with a very aggressive farm growth plan, the report notes.
You can guarantee that when the dairy title comes up May 15, passionate speeches will be made on how to adjust dairy policy to better reflect today's market. As Peterson said, however, something needs to change to dairy policy, because if the industry faces another year like 2009, many won't survive.