Dairy groups differ on how to best address supply and demand imbalance.

Jacqui Fatka, Policy editor

April 8, 2020

6 Min Read
Secretary Perdue Ag Outlook 2020.jpg
USDA photo by Lance Cheung

Agriculture Secretary Sonny Perdue said his staff at the U.S. Department of Agriculture is meeting daily, collecting data, listening to all stakeholders and holding discussions with members on Capitol Hill as the agency attempts to craft its response to the COVID-19 pandemic. Congress allocated $9.5 billion for livestock and specialty crop producers, as well as a $14 billion replenishment of the Commodity Credit Corp. (CCC) account.

“Our goal is to get it out sooner rather than later,” Perdue said in a media call on Wednesday afternoon. “We’re in the process of collecting proposals and ideas from every sector affected so we can be as balanced and fair in the allocation of the $9.5 billion.”

Perdue noted that the CCC fund, which normally contains $30 billion, is down to just $6 billion in funds, and the $14 billion replenishment “won’t come until later.” He said he is looking forward to getting that out as soon as possible but noted that a rule would be required. The trade war-related Market Facilitation Program allocations, for example, first had to be published before checks could be issued.

Meanwhile, agricultural groups continue to make their requests known regarding their priorities.

In what appeared to be a united set of recommendations from the National Milk Producers Federation (NMPF) and the International Dairy Food Assn. (IDFA), the dairy groups called for swift, comprehensive action to support the U.S. dairy industry through the current crisis as oversupply remains the main challenge facing the U.S. dairy industry today. Supply exceeds demand by at least 10% – a gap that could widen as supplies increase to a seasonal peak and as “shelter in place” conditions endure.

The organizations asked that USDA harness the productive capacity of U.S. dairy to address the growing and widening food insecurity many Americans are facing by redirecting wholesome, nutritious dairy foods to food banks and national nutrition programs. However, in the same press call on Wednesday, Perdue noted the logistical challenges in diverting large amounts of fluid milk to food banks, as some have limited cold storage capacity.

Perdue said as part of its trade mitigation efforts, USDA purchased 50 million gal. of fluid milk, but that took USDA all year long to distribute. “The challenge is the scale and scope,” he said, explaining that the amount of oversupply in the dairy industry due to schools and restaurants being shut down is significant.

The IDFA-NMPF plan calls for USDA and the Administration to bring those resources offered under the Coronavirus Aid, Relief & Economic Security Act to bear as quickly as possible. “The dairy industry requires a response that is robust, broad and strategic enough to lift all boats in a way that prevents long-term market impacts, preserves the supply chain so the industry remains intact once the COVID-19 crisis passes and ensures dairy remains a vital part of feeding a growing number of food insecure Americans,” IDFA president and chief executive officer Dr. Michael Dykes said.

Although the American Dairy Coalition (ADC) applauded the hard work by NMPF and IDFA on developing the plan, it said among its “producer initiatives” is a fatal flaw that could spur more market disruptions than it resolves: the proposal to pay dairy producers $3/cwt. on 90% of their production — if they cut production by 10% from a March 2020 baseline.

Unfortunately, the arbitrary March benchmark will not work, ADC said, adding, “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.”

Dairy production traditionally drops during the warm weather months, so supply numbers are already sloping downward and are baked into production estimates. Asking producers to trim 10% from their March numbers would essentially mean little to no change in the nation’s milk product inventory, since that amount already is built in.

“In addition, a one-size-fits-all proposal fails to account for the geographic differences built into the industry. For example, an Arizona [dairy producer] already produces 10.1% less during the proposed subsidizing period. As such, the current proposal merely subsidizes the normal curve,” ADC said.

In a notice to its members, ADC said it strongly supports the Minnesota Milk Producers Assn.’s proposed Dairy CORE Program, which “emerges as a clear-headed and effective response that could provide the foundation for a strong federal stimulus.”

The Dairy CORE Program's proposals include:

  • Instruct USDA to pay U.S. dairy producers $3/cwt. for 100% of their March 2020 baseline for each of the months in the second quarter of the year, irrespective of market prices. The payment would be done as a single lumpsum payment in April. For instance, a producer who shipped 1 million lb. (10,000 cwt.) would receive one payment of 3 x $3/cwt. for $90,000, authorized directly by the secretary of agriculture and disbursed with minimum delay.

  • Assess the situation again in June to evaluate if another round is needed for July through September.

  • Do not condition direct payments on arbitrary, top-down, one-size-fits-all production cutbacks. Instead, encourage producer-owned cooperatives and private milk buyers to develop supply adjustment incentive programs that are most appropriate for their supply/demand situation.

  • Assure creameries that their producers will receive a large, one-off, direct payment so they will be more empowered to implement effective, situation-adjusted, marginal incentives to right-size their milk supply. Instead of reopening the 2020 signup for Dairy Margin Coverage or compensating processors for dumped milk, concentrate stimulus funds to a single, large, lumpsum payment made directly to each U.S. dairy producer.

“The goal is to sustain as many of our nation’s dairy farms as possible, even as we work toward returning the industry to its supply equilibrium as quickly and with as little disruption as possible," ADC said, adding that the "Dairy Core Program offers a roadmap to recovery that is flexible, measurable and achievable.”

In response to ADC's objections, IDFA spokesman Andrew Jerome said, “The IDFA-NMPF plan submitted to USDA and Congress was developed over several weeks of close coordination. While no plan can wholly remedy the losses that are occurring, we responded quickly with a comprehensive, united plan that can help preserve the dairy supply chain, which includes the farmer and the dairy processors, during the COVID-19 pandemic. Now, it is with USDA to take a comprehensive view of the impacts and implement actions with urgency.”

In a statement emailed to Feedstuffs, NMPF president and CEO Jim Mulhern stated, “The house is on fire. Let’s make sure we get the fire trucks here first. We need Secretary Perdue to understand and help address the dire needs of our industry as a result of this pandemic. Once we have that, the specifics of any approach will evolve, as they always do.”

About the Author(s)

Jacqui Fatka

Policy editor, Farm Futures

Jacqui Fatka grew up on a diversified livestock and grain farm in southwest Iowa and graduated from Iowa State University with a bachelor’s degree in journalism and mass communications, with a minor in agriculture education, in 2003. She’s been writing for agricultural audiences ever since. In college, she interned with Wallaces Farmer and cultivated her love of ag policy during an internship with the Iowa Pork Producers Association, working in Sen. Chuck Grassley’s Capitol Hill press office. In 2003, she started full time for Farm Progress companies’ state and regional publications as the e-content editor, and became Farm Futures’ policy editor in 2004. A few years later, she began covering grain and biofuels markets for the weekly newspaper Feedstuffs. As the current policy editor for Farm Progress, she covers the ongoing developments in ag policy, trade, regulations and court rulings. Fatka also serves as the interim executive secretary-treasurer for the North American Agricultural Journalists. She lives on a small acreage in central Ohio with her husband and three children.

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