Drought Stirs More "Supply Management" Controversy

IDFA says proposed dairy legislation would have been exacerbated by drought

Published on: Jul 24, 2012

The International Dairy Foods Association says a proposed government program to alter milk supply, were it in effect now, would further limit short milk supplies in the face of this summer's drought.

The proposed program, which is included in the 2012 Farm Bill, is called the Dairy Market Stabilization Program or "supply management." If the Farm Bill were in effect, the program would have required participating farmers to periodically limit their milk output when poor conditions arise to allow for price recovery.

However, DMSP and its partner legislation, a subsidized revenue insurance program, is currently just legislation waiting to be passed.

IDFA says proposed dairy legislation would have been exacerbated by drought
IDFA says proposed dairy legislation would have been exacerbated by drought

Regardless of its status, Connie Tipton, IDFA president and CEO, says the drought serves as an excellent example for why the program wouldn't work.

"Not only will consumers be facing higher prices in the near future, because cows produce less milk during high heat conditions, and the cost of feed will be higher, but this new program would have already dug the hole deeper," she said.

IDFA Senior Vice President Jerry Slominski backed up Tipton's statements. "This is an excellent example of why it doesn't make any sense for Congress to attempt to manage the supply of milk," he said. "The weather changes faster than government can change its rules and regulations, and this will cause prices to swing more wildly once the impacts of the drought are felt by the industry."

But Jerry Kozak, president and CEO of the National Milk Producers Federation, a supporter of the DMSP, says the drought is having little effect on milk production.

"Summer heat always leads to a slowdown in milk output – this year will be no different – but the USDA reported last week that milk production in the second quarter of 2012 was up 2.0% compared to 2012, while the first quarter was up a whopping 5.3%. The U.S. is well on track to produce a record volume of milk this year, a hot summer notwithstanding," Kozak said.

Kozak explained that the provisions in the Farm Bill are tied to the difference between the farmer's milk price and the cost of feed. He said those farmers that choose to participate in the proposed program would be insured against low margins, but would be expected to lower their output level to return milk price to "healthy levels."

Kozak said the drought isn't a reason to avoid the DMSP, but instead a reason why it is needed.

"These summer temperatures, and the possibility of a poor crop harvest, are exactly why we need a dairy farm safety net that takes into account higher feed prices, and also gives us a tool to better align supply and demand. Relying on the weather to perform this process is foolish," he said.

During House Agriculture Committee discussion on the Farm Bill, an amendment proposed by Representatives Bob Goodlatte, R-Va., and David Scott, D-Ga. to eliminate the DMSP was defeated with a vote of 29-17. Now, the DSMP legislation will continue to the full House of Representatives for final vote.