Letter: Goodlatte-Scott seems most reasonable
Editor’s note: The following letter was posted on Dairy-L and reprinted by permission from the author.
I am a dairy producer from Ohio, a Dairy Farmers of America (DFA) member, have been actively involved in the federal dairy policy discussions (not as a DFA member), and have used Livestock Gross Margin-Dairy (LGM-Dairy).
My two cents
The combination of Milk Income Loss Contract (MILC) and the Dairy Product Price Support Program was a poor one. In 2009 producers were being subsidized for producing milk that was then processed and placed in storage. U.S. prices were supported above the world price. Exports tanked and imports rose compounding the supply demand imbalance. The world dairy market recovered much faster than the US because we were sitting on a burdensome inventory of government spec product that needed help from Cooperatives Working together (CWT) to move to the world market.
The proposed and widely supported elimination of the Dairy Price Support Program (at today’s dairy product prices the program is irrelevant) will allow markets to clear and allow prices to recover sooner from future downturns.
Not much can be done to provide a meaningful safety net for dairy producers with the approximately $5 a cow that is budgeted for that purpose without producers picking up some of the expense ... actually most of the expense.
There are two proposals on the table to shift the burden of a dairy safety net from the taxpayers to the producers.
The Dairy Security Act (DSA) has producers paying for the safety net with up-front fees, by paying for additional coverage and by reducing production when the margin between feed and milk reach a predetermined level. No supply management: no safety net.
The Goodlatte-Scott proposal has producers paying for margin protection with premiums only. It provides free coverage on the first 4 million pounds at the lowest margin and the option to purchase additional coverage at very reasonable (subsidized) rates.
There are some easy-to-read comparisons of these two proposals at the University of Wisconsin website.
According to the analysis of even those that are promoting the DSA, participation would have to reach 65% for the supply management provision to be effective. I just don't think this level of participation would occur even if the DSA became law. Once those that think they want supply management read the fine print and realize that unless two-thirds of the milk production signs on to the program they could be part of a small group of producers trying to balance not only the U.S. milk supply but the worlds they will choose not to participate.
Points to ponder
How many of the 3% that produce 50% of the US milk will sign on to the DSA if it is available?
Ohio is a milk deficit state. How might a processor treat an Ohio producer who signs up for the DSA compared to one that does not? How much would a milk buyer have to pay in a premium to discourage a producer from participating in the provisions of the DSA?
It seems to me that the system would be easy to game, especially by producers with multiple facilities. A producer can choose to enroll some sites and not others. Policing producers would be troublesome especially those that haul their own milk.
The Goodlatte-Scott proposal seems like the most reasonable choice for producers. If it becomes burdensome to the taxpayers, premiums could be adjusted to keep the program budget friendly.
LGM-Dairy allows a producer to purchase insurance against declining milk to feed margins. It continues to be tweaked and improved including now having premiums subsidized. Shortcomings include having future margins tied to the thinly-traded CME, limited availability due to funding, a once monthly sign-up period, and a high premium-to-indemnity ratio to date. I use LGM as one of several tools to manage risk for our operation. I hope that it continues to be available and improved.
10061 TR 301
Millersburg, Ohio 44654