Dairy and the farm bill

by Jay Sjerven
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An overhaul of U.S. dairy programs was never seriously considered by Congress in crafting the Food, Conservation and Energy Act of 2008, but the dairy industry fought for and achieved some successes, first and foremost the resurrection and expansion of the dairy forward pricing program. The dairy industry also was encouraged by a provision in the farm act authorizing a "blue ribbon commission" to study how the cumbersome federal milk marketing order system might be updated or reformed. At the same time, the industry was disappointed Congress again authorized the imposition of an assessment on imported dairy products that dairy manufacturers feared may make U.S. exports vulnerable to retaliation.

Forward contracting helps farmers as well as food processors buying farm products manage market risk. From 1999 to 2004, the U.S. Department of Agriculture implemented a pilot program permitting individual dairy farmers and cooperative associations to enter into contracts with private milk handlers and processors under which the portion of a farmer’s future milk production not destined for fluid use could be sold at a negotiated price rather than at the minimum federal milk marketing order price that ordinarily would apply.

Before the implementation of the pilot program and after its demise in 2004, only dairy cooperatives that manage and process milk were able to forward contract freely with their farmer members. One-third of all dairy farmers were denied the option of forward contracting a portion of their production.

Under the new farm act, Congress directed the Secretary of Agriculture to reestablish the dairy forward pricing program. As in the pilot program, milk eligible to be sold by means of forward contracts will be limited to milk not classified Class I or otherwise intended for fluid use under the relevant federal milk marketing order.

The act explained milk handlers would not be required to segregate or track the source and disposition of milk delivered under contract. Instead, the milk handler may allocate milk receipts from producers, cooperatives and other sources that are not subject to a forward contract to satisfy the obligations of the handler with regard to Class I milk usage.

The act stated a milk handler may not require participation in a forward pricing contract as a condition of the handler receiving milk from a producer or cooperative association of producers. A producer or cooperative association may continue to have its milk priced in accordance with the minimum payment provision of the federal milk marketing order.

The dairy forward pricing program will be sunset on Sept. 30, 2012, unless extended by the next farm bill.

The farm act directs the Secretary of Agriculture, subject to the availability of appropriations, to establish a commission to review the federal milk marketing order system. The commission would consider legislative and regulatory options relating to several ends including ensuring the competitiveness of dairy processors and producers.

The commission would have 14 members among which would be representatives of land grant universities (four individuals), a national consumer organization (one), the food and beverage retail sector (one), dairy producers (four) and dairy processors (four). The commission would be directed to report to Congress its recommendations no later than two years after its first meeting.

In an address before the Dairy Forum in La Quinta, Calif., in January, Connie Tipton, president and chief executive officer, International Dairy Foods Association (I.D.F.A.), explained her association’s support for such a commission.

"During previous attempts to legislate federal order details, Congress has often made matters worse," Ms. Tipton said. "The commission provides the framework we need to prioritize and strategize, to get reform off the drawing board and into a more public forum. Commission recommendations can then be a road map for real lasting ‘dollars and cents’ change."

The I.D.F.A. lamented the inclusion in the farm act of a provision directing the Secretary of Agriculture to impose an assessment of 7.5c-percwt of milk equivalent on imported dairy products. Dairy importers would have to pay the assessment into the domestic producer check-off program that provides funds to promote consumption of domestically produced milk and dairy products.

The 2002 farm bill included a similar assessment on imported dairy products, but it was never implemented because the U.S. Trade Representative determined it violated U.S. obligations under World Trade Organization rules. That may be the fate with the new directive from Congress.

John Bruton, head of the European Commission delegation to the United States, asserted imposing the assessment would be in violation of W.T.O. rules relating to equal treatment of agricultural products.

"Since its inception in 1983, the ‘check-off’ program has always been intended to support the marketing of American milk and dairy products," Mr. Bruton said. "The U.S. cannot just turn around now and ask European and other non-American dairy producers to support America’s domestic industry when there is very limited access to the U.S. domestic market or, as with milk, effectively no access at all."

Ruth Saunders, senior director of policy communications, I.D.F.A., said the assessment on imports could invite customers from around the world to retaliate and stop buying U.S. dairy products. She pointed out U.S. dairy exports totaled about $2 billion annually, and U.S. products are sold to more than 100 countries.

This article can also be found in the digital edition of Dairy Business News June 24, 2008, starting on Page 8. Click here to search that archive.

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