The Dairy Policy Action Coalition (DPAC), concerned the National Milk Producers Federation’s Foundation for the Future (FFTF) plan was “on a fast-track” while dairy organizations across the United States were waiting on more details, voted instead to move forward with an alternative plan. Called the “Cornerstone for Change,” it identifies what DPAC sees as problems in current federal dairy policy, and outlines suggested solutions.
PROBLEM: The farm-gate milk price is indirectly set by less than 1% of cheddar cheese trade and less than 2% of butter trade on the Chicago Mercantile Exchange (CME). The USDA NASS Survey captures these prices and introduces a 4- to 6-week time lag. The NASS Survey no longer reflects broad supply and demand factors, covering only 20% to 40% of the cheese.
1) Improve market transparency and dilute CME influence by implementing mandatory daily electronic reporting of product prices/volumes; audit price reporting on a quarterly basis; and establish mandatory inventory reporting, with auditing.
2) Expand price discovery to reflect broad supply/demand factors by expanding the list of plants required to do mandatory price reporting; and adding more dairy products to the list of products reported.
PROBLEM: The federal milk pricing system is broken. Dairy markets today are three-pronged:
1) global, 2) national, and 3) regional. The complex and cumbersome federal milk pricing system is failing both producers and consumers because it: 1) inhibits free enterprise and innovation to be a consistent supplier in the world market; 2) facilitates the concentration of market power; 3) creates complicated order hearing processes that have created such regional issues, as the example of Southeastern producers who are, “in effect,” subsidizing the cost to transport supplemental milk from other regions to their deficit market. The current pricing system was developed before global marketing was an issue.
Simplify the milk pricing system by:
• reducing four milk classes to two;
• establishing competitive pay pricing and move away from end-product-pricing formulas that “pigeon-hole” the milk;
• adopting a federal pricing system that encourages movement of milk to its highest value use; and
• adopting federal dairy policies that encourage competition, product innovation and market development.
PROBLEM: The federal milk pricing system places all the price risk on producers, and yet producers have no say in how those prices are fixed nor any redress for mistakes.
Redistribute price risk by:
• eliminating the Dairy Product Price Support Program and guaranteed processor “make allowances”;
• adopting federal pricing policies that encourage competitive, market-based manufacturing decisions and market development to be a consistent supplier of dairy products in world markets;
• rejecting the continual process of patching and re-patching the pricing system;
• moving federal milk pricing methods in a direction that reflects the global realities of the 21st century and passes more value from the marketplace back to producers;
• promoting development of marketing models around the concept of “producing for a market” as a means of sharing price risk, achieving a price into the future, and managing milk production; and
• continuing risk management tools, like a voluntary LGM-Dairy margin insurance tool.
• DPAC is a coalition of grassroots dairy producers actively participating in the policies and issues affecting milk pricing. The board is made up of active dairy producers – operating dairy farms ranging from 30 to 2,000 cows – from Pennsylvania, Ohio, New York, North Carolina, Tennessee, Indiana and Wisconsin, along with ad hoc members from additional states. For more information, visit www.dpac.net or phone: 800-422-8335.