Production controls for milk divide nation's dairy farmers

WASHINGTON - Dairy farmer Dave Buck feeds his calves at 6:30 in the morning and 6:30 in the evening. He wants them to grow healthy on his land in Goodhue, Minn., so they produce as much milk as possible.

Now, Buck and thousands of other Minnesota dairy farmers and dairy food processors may have to choose between getting the most milk from cows or participating in a voluntary government system that ties insurance protection to accepting occasional production limits.

"A quota system is basically what it is," Buck said. "It isn't as good for Minnesota if we want to grow our industry."

The goal of the proposed program is to protect farmers against losses and to eliminate big price swings, like the ones that drove a significant number of dairy farmers out of business in 2009. Whether that's a good idea has fractured agriculture communities across the country, including Minnesota, the nation's seventh-largest dairy state.

The Minnesota Milk Producers Association, of which Buck serves as vice president, came out against production limits. But many national and regional dairy farm trade groups support the measure, which was introduced in Congress by a longtime farmer ally, Seventh District Democratic Rep. Collin Peterson.

Some of the state's biggest dairy processors are also divided. Jon Davis, whose family-owned Davisco International Foods processes 4 billion pounds of milk annually, traveled from Minnesota to Washington last week to testify against quotas at a House Agriculture subcommittee hearing. He called the program an "unnecessary and costly intrusion in my business."

Meanwhile, the state's dairy foods behemoth, Land O'Lakes, issued a statement in favor of the law containing production restrictions, calling it a "model for policy reform across agriculture."

The Dairy Security Act, as the new system is called, was incorporated into the five-year farm bill that the Senate Agriculture Committee passed last week. The House Agriculture Committee must still weigh in on the bill and the House and Senate must vote on it.

Some of the tension stems from farmers' wariness of government dictates. Much of it comes from the tension between reforming federal supports for the dairy industry while simultaneously cutting the federal budget deficit.

The new protections would be voluntary. They would provide government payments to dairy farmers if the margin between the cost of animal feed and the selling price of milk gets too close.

But to collect those taxpayer subsidies, dairy farmers would have to agree to production limits when milk prices dip below a certain point. Those who produce more than their quotas do not get paid for their excess.

Agricultural research specialist Scott Brown of the University of Missouri predicted that quotas would cause "small increases" in the amount consumers pay for milk and dairy products.

Export concerns

The United States currently sells more milk to foreign countries than it imports, and that's good news in a country with an overall trade deficit. But Davisco's Davis says talk of production limits has foreign buyers worried.

"We sell a lot of cheese in South Korea, and when I was there in the fall, they were asking if I would be able to get them all that they needed because of the quotas," he said in an interview. "When you shrink someone's ability to increase sales, I don't know what good that does anyone."

Peterson says milk exports will not decrease because his proposal suspends quotas if they drive up U.S. milk prices to the point where they aren't competitive in the world market.

"The charge that [price] stabilization will have an impact on the export market is spurious at best," Peterson said in an interview. "There has been extreme volatility in the dairy market. We're trying to get rid of that."

Bob Lefebvre, executive director of the Minnesota Milk Producers Association, said the 1,500 dairy farmers he represents consider Peterson "a friend of farmers." But Lefebvre said those same farmers produce so much milk that implementing Peterson's plan could cost them up to 6 percent of their revenue.

"This is about protecting our local milk producers so they can supply milk to local dairy processors," Lefebvre said. "We're focusing on what's good for Minnesota."

Land O'Lakes leaders believe the ability of dairy farmers to opt out of the quota program answers dairy farmers' and processors' concerns.

"Those who do not want to participate can opt out, giving dairy producers the choice between a completely free-market approach or one in which the government provides a basic safety net," Land O'Lakes CEO Chris Policinski and board chairman Pete Kappelman wrote in the trade publication Agri Pulse.

In his congressional testimony Davis said processors like Davisco must collect money and keep records from any customer who opts into the new insurance/quota program. "Nothing about this is voluntary to me," he said.

Peterson said potential production restrictions will be rare and are a carefully constructed compromise necessary to cut the federal farm budget. The Congressional Budget Office has projected savings of $160 million over five years. The savings come from reducing a roller coaster of unregulated milk prices that on the downside could trigger taxpayer subsidies to dairy farmers.

The U's Lazarus says production rules might help with severe price swings. But they could also hurt exports and discourage growth.

It is a tough call, Buck said. Farmers who don't want the government telling them how much milk to produce must find their own insurance against natural disasters and other market catastrophes. Those who feel they cannot do without government guarantees must accept quotas.

In a country with a market-based economy, those options seem destined to be divisive, Lazarus said.

At last week's House hearing, Jerry Kozak of the National Milk Producers Federation touted the support of his organization and dozens of national and state dairy associations for the Dairy Security Act.

Jim Spencer • 202-408-2752