Tuesday, January 8, 2013

The “Dairy Fiscal Cliff” Crisis Averted

There have been many stories about the “Dairy Fiscal Cliff” over the last month. These stories claimed the price of milk would increase to $7 or $8 per gallon if Congress didn’t act before the end of 2012. In the final hours, Congress extended the 2008 Farm Bill through September 2013 as part of its fiscal cliff negotiations. It was highly unlikely that milk prices were going to surge either way. All the recent news coverage was primarily hype and federal government scare tactics. Congress will now have until the next fiscal year, which begins Oct. 1, to pass a new 5-year Farm Bill.

Contrary to popular belief, a very small percent of Farm Bill funds go directly to farmers. According to the Congressional Budget Office, the proposed 2012 Farm Bill allocates over 80% of funding to food and nutrition programs. Only 4% is for commodity programs and of that less than 1% is allocated to the dairy program.

I’ve seen recent reports that claim the dairy subsidy program “keeps milk prices stable” or “ensures dairy producer profits”. These statements are not true. The price of milk in our Federal Order here in Ohio was as low as $10.73/cwt (100 pounds) and as high as $22.29/cwt over the last four years. (See my blog Milk Price – How Dairy Farmers Are Paid For Milk). These drastic price swings are not stable and many times not profitable.

Regardless, why does the federal government have the power to control the price of milk? My guess is the intention of federal policy makers is to make sure food production is stable because it’s an essential part of a viable country. But are Farm Bill programs outdated? Are they necessary for production agriculture to thrive in this country? What should the federal government’s roll be when it comes to agriculture?

I believe the role of the federal government in agriculture should be limited to; 1) Disaster relief
programs that provide a safety net to farmers in the case of a natural disaster, 2) Regulatory
oversight for food safety, quality and labeling standards, and 3) Research and development via the USDA and the University system.

The federal government should not provide subsidies or direct payments to farmers. They should
not create policy that mandates the demand of a specific commodity i.e. corn ethanol (see my
blog Ending the Ethanol Debacle). When the federal government sets these types of policies, they pick winners and losers. This is not fair to farmers or consumers.

Think about all the time and effort made by legislators, their staff, the House and Senate agriculture committees, agriculture lobby organizations, farmers, and others over the last two years to draft the 2012 Farm Bill. What became of all this work? The 2012 Farm Bill was not even taken to the House of Representatives to be voted on.
We dairy farmers, and companies that make dairy products, would be better served by focusing
on increasing dairy product sales instead of on how much money we can get from the federal
government. We need to work on updating the milk pricing structure so farmers receive their fair share of the retail milk dollar. If dairy processors are making products consumers want, there should be enough money paid for these products to provide a profit for everyone in the food chain from dairy farmers to processors to distributors and retail outlets.

What would happen without these subsidies? Agriculture would be forced to operate in a free market system. This might result in fewer farmers or higher food prices in the grocery store.

Let me tell you about my experience with the current federal dairy subsidy program. The dairy
program in the last two Farm Bill policies was the Milk Income Loss Contract (MILC) program. This program was extended to 2013. Our farm participates in the MILC program. Due to low milk prices and/or high feed costs, MILC payments were available during select months in six out of the last eight years. During this eight year period, MILC payments equaled .07% of our total farm income. As you can see, this income has very little impact on the financial success of our farm.

Agriculture organizations, commodity lobby groups and farmers should have a voice in federal
agriculture policy. We should focus on productive policy discussions that have a positive impact on everyone such as developing free trade agreements, eliminating estate taxes, maintaining clean
waterways or making sure food safety programs are in place.

For more information about how the Farm Bill and federal government programs impact dairy
farmers, check out these blogs I’ve written:
How will the 2012 Farm Bill Impact Dairy Farmers
Government Subsidized Ethanol Leads to Government Subsidized Milk
The Majority of the U.S. Farm Bill Funds Food & Nutrition Programs

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