Is the U.S. Moving Towards Supply Management in Dairy?

Utter the words “supply management” and those involved in the agriculture industry are likely to have strong opinions for and against. The same can be said for the U.S., where an expired Farm Bill and recent run-ups in feed costs have converged to make a whole lot of farmers and industry folk nervous about the future of the dairy sector. At this year’s World Dairy Expo, forthcoming changes to the new Farm Bill were hotly debated as, yes indeed, there is a “supply management” aspect included in the new bill.

U.S. dairy producers are losing their MILC program (the milk income loss contract). In its stead is a proposed Dairy Production Margin Protection Program. It functions essentially like crop insurance — there is no-cost “catastrophic” margin coverage, and farmers can pay a premium for increasing levels of coverage. The controversy isn’t about that, it’s about a second, mandatory program called the Dairy Market Stabilization Program (DMSP). Proponents of the program say what’s proposed is not supply management, it’s production disincentive or growth management.

Andy Novakovic, professor of agriculture economics at Cornell University, explains that under this program, low or negative dairy margins would trigger requirements that milk buyers withhold payment on a small percentage of milk delivered by any farmer who exceeds a certain “base” or historical amount of milk delivered. “Farmers could withhold production or delivery on milk for which they know they wouldn’t get paid. If they delivered it, for whatever reason, processors would be required to make payment to USDA. USDA in turn would be required to use this money for dairy food donations or some similar program that would stimulate demand. The intent of the DMSP is to tighten milk supply and demand and thereby create some lift on national milk prices,” he says.

It’s that lift on national milk prices that has opponents of the DMSP up in arms. Jerry Slominski, senior vice president of legislative and economic affairs for the International Dairy Foods Association, says that these increased milk prices will be passed on to consumers, will accelerate the move to very large dairy farms and will hamstring the U.S. export dairy industry. Slominski says that the U.S. export industry has gone from non-existent six to eight years ago, to 14% of current U.S. milk production. From his view, the DMSP will create higher costs for processors and add price volatility and uncertainty to the market. His group and other opponents want the DMSP scrapped from the Farm Bill.

RealAgriculture.com’s editor, Lyndsey Smith, spoke with Farm Futures/Feedstuffs magazine policy editor, Jacqui Fatka, for more on what the proposed U.S. Farm Bill includes by way of supposed dairy supply management, who is for it, who is against it and why.

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