A3O-Lancasttr Faming, Saturday, February 28,1998
(Continued from Pago A 1)
marketing reform (it’s on the U.S.
Department of Agriculture Inter
net homepage), as well as the
expansion of the Northeast Dairy
Compact, and hearings are yet to
be held on die proposal for estab
lishing an emergency, temporary
$13.50 basic formula pice for
Class I and Class II uses.
But changing alliances and mer
gers continue to create Interest and
concern.
The Jan. 1 creation of the
nation’s largest dairy
cooperative Dairy Farmers erf
America (DFA), which controls
about 21 percent of the nation’s
milt supply has generated
some of that interest and concern,
from among non-member and
member farmers alike, as well as
businesses relying on dairy
products.
The four cooperatives that
merged on Jan. 1 to form DFA
were the Southern Region of Asso
ciated Milk Producers Inc., Mid-
America Dairymen Inc., Milk
Marketing Inc. and Western
Dairymen Cooperative Inc.
DFA last week announced a
joint business venture with the
New Zealand Daily Board through
its United States subsidary Milk
Product Holdings (North America)
Inc., to make cheese together in a
Midwestern facility.
The announcement of that pact
with New Zealand, one of the
world’s largest exporters of dairy
product and a leader in least-cost
milk production, comes less than
two months after the DFA milk
marketing cooperative officially
formed.
According to a DFA news
releases, the cooperative has
22,000 members in 42 states and
markets more than 38 billion
pounds of milk.
The partnership with the New
Zealand subsidary. Milk Products
Holdings (North America) Inc.,
involves a large Italian cheese
(Romano and Parmesian) produc
tion operation in Wisconsin.
In the limited explanation of the
venture in a cooperative news
release, the possibility remained
that DFA was entering into a part
nership that could threaten to dis
place domestic dairy production
and therefore help to reduce all
milk prices.
This week, spokespeople for
DFA said that simply is not true.
They said the cooperative has
entered into a joint venture agree
ment with Milk Products Holdings
(North America) Inc. to produce
the Italian cheeses together.
They will be importing New
Zealand dairy product, but the
DFA-imported product will not
displace domestic product, accord
ing to Lewis Gardner, chairman of
DFA Northeast Council (there are
six sub-councils which address
regional needs).
Gardner said that the imported
product from New Zealand will be
used to make the Italian cheeses.
He said that, for some time, DFA
(through a previous member co
op) has been importing the cheese
product through several other non
domestic sources.
For strategic and financial rea
sons, Gardner said the DFA corpo
rate board of directors decided to
pursue an exclusive, and restricted,
relationship with the New Zealand
company.
New Zealand is widely known
for having the lowest production
cost per hundredweight of milk.
American dairy producers have
been studying their grazing prac
tices and low overhead milking
Dairy Industry Inundated With Issues
and production techniques in order
to achieve lower production costs
here.
While United States dairy pro
duction is' greater. New Zealand is
known for being aggressive in cap
turing world markets, by using the
New'Zealand Daily Board as a
promotional and political tool in
nations whose markets it seeks to
penetrate.
It also has a reputation for doing
common-sense marketing
finding out what the market wants
and making It for die market, and
being a safe, dependable and low
cost supplier.
According to DFA spokesman
Dan Reuwce, the pact with the
New Zealand Dairy Board is con
sidered a strategic move in partner
ing the cooperative with one of the
most respected global marketers in
the dairy industry, in’order to posi
tion itself better to export United
States dairy products.
He said that DFA also has inter
national dealings with Avonmore,
an Irish dairy concern. That inter
national venture involves pizza
cheeses.
According to Reuwee, pica: to
the multi-cooperative merger that
formed DFA, Mid-American
Dairymen Inc. had operated the
Italian cheese plant, manufactur
ing cheeses for numerous labels
and in containers to serve a range
of customers, from independent
retailers to restaurants to
institutions.
“We’ve been working to build
exports for United States daily
products and, in the process, look
ing for partners,” Reuwee said.
“Trade is a two-way street,” he
said, explaining that importing
New Zealand dairy product goes
hand-in-hand with exporting
United States dairy product
According to Reuwee, it is anti
cipated that DFA will benefit in
getting established internationally
a lot faster by tapping into the
marketing expertise established by
New Zealand.
He said New Zealand has been
looking for a United States group
with which to link.
However, at the same time DFA
has announced the joint venture
with the Milk Product Holdings
Inc., it also announced it is seeking
to open up the Northeast Interstate
Dairy Compact, and is also seek
ing a national floor price of $ 13.50
basic formula price for Class I and
Class U milk.
Combined, the policy requests
by DFA seem at odds:
• It could be argued that import
ing daily product from New Zea
land is an false open market trade
deal that just decreases the odds
that dairy producers will get paid
properly for their milk, given the
production conditions the consum
ing public demands of United
States producers and not of the
producers of the imported product.
Gardner and others have shown
that even though GATT and NAF
TA have opened the doors for
additional agricultural product to
enter the United States, that United
States* agriculture trade balance is
growing and healthy.
“It’s going to come in anyway,
and it makes sense financially," he
said.
• The DFA wants to expand the
Northeast Dairy Compact to
include Pennsylvania, New York
and Maryland, but at the same time
some predict it could serve no pur
pose at best, or, at worst, further
distort and retard the industry’s
recovery from the changes that are
imincnt as far as the government’s
involvement in dairy pricing, as
well as distract people from learn
ing more about the USDA propos
als for change in the federal milk
marketing order system before the
end of the comment period, March
31.
DFA’s position is that daily far
mer need money now to pay bills
and debt, and that their lenders
can't be put on hold until the indus
try adopts a new dairy pricing
system.
Gardner said the cooperative's
position is that ensuring a cost-of
production price for milk for die
limited time that such an expanded
Compact would be in effect would
not allow for enough time for daily
operations to grow production
significantly.
He said that, in theory, if pro
ducers would increase milk pro
duction enough under Compact
pricing to drive the overall price of
milk down, there are procedures
detailed in the regulations that can
be used to curb increased
production if the increase in
production in the Compact were to
go above the national average.
Compact producers could be
assessed for the increased produc
tion, and/or a quota system could
be implemented.
The Northeast Compact current
ly provides dairy farmers in six
New England states with a higher
price for their drinking milk and
was authorized in the Farm Bill as
a transitional program due to end
with the adoption of reform of the
federal milk marketing order sys
tem, which has an official target of
April 1999, .
A Cornell University Extension
dairy economist said the six New
England states now included in the
Northeast Dairy Compact are fair
ly awash with milk and there were
reports of dumping milk at some
dairy product manufacturing
plants because the flow of milk
exceeded plants storage capacity.
Expanding the Northeast Com
Dairy Industry Is A Complex Beast
VERNON ACHENBACH JR.
Lancaster Fanning Staff
HARRISBURG (Dauphin
Co.) To be able to follow along
with the potential affects and
effects of the issues currently
before the United States dairy
industry, especially in the North
east, at least a cursory understand
ing of the system of milk produc
tion, processing and delivery to the
customer is needed.
Few in the dairy industry,
including those who deal with it
daily, claim a thorough under
standing of the system.
Ironically, more claim to know
how to make the situation better.
For those completely unfamiliar
with the system, very simply, dairy
farmers receive payment for their
milk after it is used, and they have
very little say in bow it gets used,
even in cooperatives.
Dairy fanners pay for their own
entire milk production setup
land, taxes, buildings, cows,
labor, consultants and professional
services, animal feeds and health
products, fencing, milking sys
tems, milk cooling and storage
equipment and facilities, all farm
maintenance, for the milk to be
hauled to a “milk handler” who
cither resells or uses the milk for a
variety of purposes, for breeding
animals, and for generic promo
tion efforts to encourage consum
ers to buy more milk and dairy
products.
Depending upon the operation,
the costs also include such things
pact to high production states such
as New York and/or Pennsylvania,
or nationally as another coopera
tive would have it, could lead to
excessive production of non
drinking milk supplies and further
drive down the price paid to far
mers nationally.
Gardner said that if the Compact
is expanded to additional states,
then if a new federal order system
isn’t adopted fay April 1999, then
the Compact would still be in
place. ,
• A $1330 basic formula price
floor for Class I and Class II uses
could further add to lower-paying
uses of milk. Cornell University
daily economist Mark Stevenson
said that, without question, higher
retail prices for drinking milk ate
related to a decrease in purchases
of drinking milk, and nunc diver
sion of milk into the lower-paying
uses, further driving down the
overall farmer pay for milk.
The $1330 floor price would be
instituted using emergency powers
by the U.S. Secretary of Agricul
ture Dan Glickman and be limited
to a year.
Again, even though elimination
of government price controls has
been the expressed goal of the
dairy industry, until the transition
to an acceptable substitute system
is adopted, dairy producers are at
risk of failing.
Of the two proposals for reform
of the federal milk marketing
orders, DFA has announced it is in
favor of option IA, as it is referred
to. The 1A proposal retains a pay
ment structure similar to what cur
rently exists, although allowing for
some changes to reflect cost of
production differences.
f Secretary Glickman is in favor
of the option 18, which places
much more pricing on market
conditions.
The DFA is apparently tight in
line with other farmer group
as employee housing, cooperative
dues, milk production record keep
ing services, registered breed orga
nization dues and associated costs,
specialty publications and
advertising.
The farmer’s pay comes out of
what the consumer pays for milk
and dairy products and from buy
ing products that use dairy-derived
ingredients. *
However, dairy farmers ate the
last to receive a cut
The dairy farmer’s portion is
what is left over after the govern
ment, retailers, marketers, whole
salers, processors, haulers, and
many others take out their portion.
The price of milk itself is a func
tion of both supply-and-demand
balances, and government
influenced limits.
Since the post-Great Depression
New Deal food assurance prog
ram, the federal government and
some states have maintained a
minimum amount that has to be
paid to farmers for their milk.
This was done so the many peo
ple who were out of work and had
little to spend could afford some
basic foods. Nutritional require
ments were not being met for many
children, and dairy products, espe
cially whole milk, can provide
many components necessary for a
basic, nutritionally sound diet.
Compared to then, determining
the minimum price to be paid to
farmers has become extremely
complicated, both because of
political motivations and actions,
positions.
For example, Pennsylvania
Farm Bureau and most fanner
groups have recently announced
their support for expansion of the
Compact.
According to Joel Rotz, dairy
policy specialist for the PFB, if the
Northeast Compact were in place
currently for Pennsylvania, all it
would do is act as a floor price,
because the price currently
received through the effect of the
Pennsylvania Milk Marketing
Board over-order premium is high
er th«n currently received by in the
Compact.
Such an expansion may help sta
bilize the price in the New England
states, since it would removed
incentive to ship milk produced in
Pennsylvania and New York into
those states.
Expanding the Compact would
expand the better pay price across
the slate. He said that roughly, pro
ducers would receive about 70 to
80 cents more form Class I milk
under the Compact, were it to be in
effect.
At the same time, the retail price
would not be moved.
The increased price to the far
mer would come from the milk
handlers and processors.
Rotz said that while the whole
effort to get the Compact expanded
may be wasted if it does indeed
stop in April 1999.
However, he noted that no mat
ter what final proposal results from
the comments received from this
federal order reform proposal, and
what rule eventually is adopted,
that someone is not going to be
satisfied and could easily chal
lenge it in court
Therefore, having a Compact in
place, and having Congress
authorize such a structure would
provide a safety net for producers.
Overall, through, Rotz said the
dairy situation does seem
“chaotic.”
and also because the industry is
nothing as it had been when milk
pricing started.
The dairy industry has changed
unrecognizably from what it was
during the 19405. The federal
programs changed too. Though
while farmers were becoming
more efficient, federal government
was not.
Federal “farm bills" over the
years have added to and altered the
authority of the U.S. Secretary of
Agriculture to set prices, and
USDA regulations control price
setting, such as through establish
ing formulas for determining fair
milk prices.
Likewise, the uses of dairy pro
ducts has been expanded far bey
ond the staples of butter, cream,
cheese and milk.
Farmer and industry supported
research, and private research have
expanded the uses of dairy
components.
In the meantime, using
research-based information,
American dairy farmers have been
able to increase milk production
per cow many fold.
Again using research-based
information from both private and
public sectors, farmers have been
able to increase the sizes of their
herds tremendously. In Pennsylva
nia, the largest herds are under
2,000 milking cows. In stales such
as Florida and California, herd size
far exceeds that
Further aggravating dairy pro
(Tum ta Paga All)