National Perspectives: Reconcilable differences

‘Supply management’ another regional fight?

By Dave Natzke

I make no apologies for bearing the pride and prejudices of being a Midwesterner, and specifically, a Cheesehead. All of life is subject to our interpretation – colored by the perspective from which we view it. Other than the Minnesota Vikings and Brett Favre in a purple uniform, I am tolerant of just about anything here in the Midwest.

But one thing that isn’t getting much tolerance in these parts is any discussion regarding supply management. At many of the dairy meetings I’ve attended this year, the potential of production controls casts a dark cloud on an industry’s new dawn.

The resurgence and growth of Midwest milk production is being celebrated as a resurrection story. What’s not to celebrate?

Beginning in the 1990s (maybe earlier), the message was that the sun had set on the region’s dairy industry. Producer and milk production attrition had turned the mood decidedly negative. Dairy growth and investment slowed. Citing fears of milk shortfalls, some major processing players put their money elsewhere. Between 1990 and 2008, Wisconsin dairy herd numbers declined by more than half, down 20,000. We had supply management, not necessarily by choice.

At the same time, milk production grew nearly unabated in other parts of the country. We watched, at times envious of their progress; at other times resentful of our losses. Flaunting “happy cow” ads didn’t improve our moods, serving as a light-hearted reminder of our impending destiny. The message: Even the cows wanted out.

The United States is littered with areas that lost industries – never to return. Thus, the Midwest resurgence bucks that trend. The recovery has little, if anything, to do with government intervention. It is largely due to dairy producers, working with industry and state governments, taking charge to change their economic, environmental and psychological climate.

Midwesterners can thank the West for some of that resurgence, too. Producers visited World Ag Expo and a few dairies on the way, and picked up ideas and systems for improving production efficiencies. Recent milk production growth shows we obviously learned some things well.

But now, in some circles, dairy’s Midwest  resurrection is looked upon with disdain.

Here in Wisconsin – as in many other states – we have lots of small resort towns located around lakes. In the past, people from big cities moved north in search of their own little pieces of heaven. Then, they tore down the cottages and built million-dollar homes. After they were done building, they feared encroachment by other folks looking for their own pieces of heaven, and began rezoning property to prevent development around them.

What’s my point? The same regions with decades of unabated dairy growth are now the birthplace of “rezoning” in the form of supply management. The concept is not being well received by all Midwest neighbors. From what I’ve been hearing, the general mood here was somewhat humourously paraphrased by Phil Plourd, of Blimling Associates, at the recent International Dairy Foods Association 2010 Dairy Forum: “Beware of Californians bearing ‘supply management’ gifts.” A couple of decades of economically imposed supply management have made Midwesterners a little surly and suspicious. Costly, often painstaking work to reverse trends has lessened our tolerance for such talk.

A teachable moment?

All that being said, there are undoubtedly some “teachable moments” as a national dairy industry moves out of a three-year period alternatively devastating to processors and then producers.

One lesson is to focus production goals on marketing capacity, not processing capacity or the size of the government’s stomach. There are some policy problems to address, but it starts with local co-op leaders being held accountable for their own co-op’s supply/demand balance, before pursuing a one-size-fits-all national supply management plan. Some co-ops already do this well.

Another lesson is to work together. Author and speaker Dr. Wayne Dyer, who frequently appears on public television, says there’s no such thing as “justified resentment.” (I agree, unless it has to do with Brett Favre in a purple uniform.) Resentment can be like taking poison, and hoping the other guy dies.

I’ve expressed skepticism of anything politically positive coming out of USDA’s new Dairy Industry Advisory Committee. So where do we look for solutions?

Although not perfect, Wisconsin’s model is that producers and processors – along with bankers, economic development wings of government, marketers and others – can find some common ground. There are several national forums which can facilitate such cooperation.

The International Dairy Foods Association (IDFA) puts on an excellent Dairy Forum. More dairy producers should attend (although IDFA should create a special producer registration fee to offset the high costs).

The National Milk Producers Federation, National Dairy Board and United Dairy Industry Association put on a great joint annual meeting. I came out of the 2009 session more optimistic then ever that the future is bright for those who survive to live it. More processors should attend, and the organizers should create opportunities for greater dialogue.

One format, used by Alltech at its Global Dairy 500 meeting in Kentucky each year, would be a good model. In addition to speakers and panels, attendees representing every corner of the industry and globe are assigned to participate in roundtable discussions with people from different aspects of the industry and globe. The fruits of these discussions remain to be harvested, but the sprouts can help crowd out the seeds of resentment.

A history lesson

I read an article many years ago, written shortly after the turn of the century. (I regret I put the article “in a safe place” and can no longer find it, so I can’t give adequate credit to the author.) The article was about a traditional dairy area bemoaning the fact some “upstarts” were increasing milk production. The article was written in early 1900, by someone in New York. The “upstarts” were in Wisconsin. It was a cycle repeated nearly a century later; only the names of the states changed.

With change happening much quicker, the U.S. dairy industry must get its house in order, or new “upstarts” will appear – and they could very well be in the Ukraine, Brazil or China. According to a study conducted by the Innovation Center for U.S. Dairy, with support from Bain & Co., an internationally recognized management consulting firm, the window of opportunity is small. And while the report, “The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities and Implications,” deals primarily with global markets, 2009 showed how undeniably linked the strength of our domestic industry is tied to the rest of world.

Hopefully, differences can be reconciled.

FYI

• To offer your own opinion or response, e-mail Dave Natzke, national editorial director, DairyBusiness Communications, e-mail: dnatzke@dairybusiness.com.

* The GLASS …

… is half full

• Preliminary 2009 U.S. milk production is estimated at 189.3 billion lbs., 0.4% less than 2008.

U.S. cow numbers averaged 9.2 million head in 2009, 115,000 fewer than 2008. January 2010 cow numbers were estimated at 9.01 million head, down 252,000 from January 2009.

• 2009 U.S. cull cow slaughter totaled about 2.815 million head, 224,000 head more than 2008.

Dairy exports as a percent of total U.S. milk production represented 11.2% of U.S. milk production in October and November 2009 (total solids basis), the highest percentage since the summer of 2008. Year-to-date (Y-T-D), exports represented 9.3% of production (total solids basis).

Imports as a percent of production are running at 3.3% (total solids basis) in 2009, the lowest percentage since 1997.

• The January 2010 milk-feed price ratio – an indicator of milk income relative to feed costs – is 2.45, up from December’s 2.42, and the highest month ratio since January 2008.

… is half empty

Dairy replacement heifers (>500 lbs.) were estimated at 4.52 million head on Jan. 1, 2010, up 106,000 from a year ago and 16,000 more than July 1, 2009. Of the total, about 2.94 million are expected to calve in the next year, up about 32,000 from Jan. 1, 2009.

• On a value basis through October 2009, Y-T-D 2009 exports totaled $1.856 billion, down 45% from the same period in 2008. Y-T-D imports total $2.060 billion, down 18% from 2008. The Y-T-D trade deficit for FY ’09 is estimated at $204 million. That compared with a trade surplus of $682 million in 2008 and $156 million in 2007.

Price recovery took a step back. California’s January 2010 Class 4a price is $13.75/cwt., down $1.10 from December 2009; the 4b price is $12.72/cwt. down $2.32 from December.

American cheese commercial disappearance in the September-November 2009 period dropped 1.2%, after posting gains of more than 4% through August.

* Depending on your point of view



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