Holstein Association's price stabilization program gains support

By Janet Kubat Willette
jkubat@agrinews.com

Date Modified: 03/25/2010 9:18 AM

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LAFAYETTE, Minn. — The odds are against passage of a Holstein Association USA plan to stabilize milk prices, but if something isn't done Lucas Sjostrom says the dairy industry could come to look like the pork or poultry industries.

Sjostrom, a Lafayette native, is government relations specialist and communications assistant for Holstein Association USA. The organization developed its dairy price stabilization plan last spring after hearing from Bob Cropp, professor emeritus from the University of Wisconsin.

Cropp doesn't endorse the Holstein plan, nor any other plan to stabilize milk prices.

"As a university educator we help people to develop their proposals and to develop the strengths and weaknesses and play an educational role," Cropp said. "I have worked with them closely on the plan as they developed their ideas."

Holstein Association USA developed its dairy price stabilization program after its legislative affairs committee asked the board of directors to find a plan to stabilize milk prices. The goal is to put the plan in place before the 2012 farm bill.

The Holstein USA plan works around the current milk price system, Sjostrom said. It does not change the Class formulas, price support program or the Milk Income Loss Contract program.

However, if the plan works as supporters expect, MILC shouldn't be needed, Sjostrom said.

Holstein USA is working to gather grassroots support for its proposal from across the nation from producers and cooperatives, the dairy industry's major political voice in Washington.

Thus far, state Holstein associations in Vermont, Pennsylvania, Indiana, South Carolina, Iowa, Wisconsin and Tennessee have endorsed the plan. The Washington State Dairy Federation, Oregon Milk Producers Association, Lanco-Pennland Cooperative, Farmers Union Producers Association, Dairy Farmers Working Together, California Dairy Campaign, Addison County Young Farmers and Hoard's Dairyman magazine support the plan.

The AMPI board of directors is considering the Holstein Association USA price stabilization proposal, said Sheryl Meshke, AMPI vice president of public affairs.

AMPI members have long been in support of some type of price stabilization plan, Meshke said. The cooperative's members have three priorities when considering price stabilization plans: Does it reduce milk price volatility, does it manage U.S. milk supply growth and does it support efforts to establish tariff rate quotas on milk protein concentrates.

DFA is working with the Holstein Association and other industry groups to develop a price stabilization plan for the dairy industry, said Jackie Klippenstein, DFA vice president of industry and legislative affairs.

"We must find solutions that minimize the extreme peaks and valleys of volatility that

dairy farmers are experiencing," Klippenstein said.

DFA is now conducting an economic analysis of all the price stabilization proposals that have been developed.

Of all the price stabilization programs offered, the Holstein USA plan has garnered the most attention and support from across the nation, Cropp said.

The Holstein USA plan would be nationwide and thus would require congressional action to be enacted. Sjostrom said there are many congresspeople who would consider carrying the legislation, but Holstein USA needs to get national grassroots support before introducing a bill.

Further, the dairy price stabilization plan would need to be tacked onto some other piece of legislation, Sjostrom said. The last time there was an agriculture-only bill, aside from the farm bill which is mostly food assistance, was 1983, he said.

There are 54,000 dairy farms in the United States, making dairy farmers only a small sliver of the population.

"We're a strong group, but we're not a very populous group," Sjostrom said. Twenty years ago, there were more than 100,000 dairy farms in the nation.

"It's an uphill battle" to pass the legislation, he admitted, giving the plan a 40 percent to 44 percent chance of winning congressional passage.

That's up from two months ago when he gave the plan a 10 percent shot at passage.

"I'm very, very hopeful we can at least get the ball rolling," Sjostrom said. He has some idea of what it takes to pass a bill from interning with the House Agriculture Committee in 2007.

The Holstein USA plan continues to gain support from dairy farmers reeling from record low milk prices last year.

Prices recovered slightly in January and February, but March prices are expected to be lower, Cropp said. Futures are lower, too, but Cropp is optimistic actual prices will be higher than today's futures.

"I can't believe the market won't recover some as we move … to April," he said.

Low milk prices are helping to convince dairy farmers they need to do something to help themselves, Sjostrom said. Farmers are asking themselves what they want the dairy industry to look like. Do they want their friends and neighbors to stay in the business or do they want production isolated on only a few farms?

The Holstein Association price stabilization plan has changed since it was rolled out last spring with the most significant change coming in September, when the "market access fee" changed from an assessment on all milk to an assessment on new milk only.

With this change, every hundredweight expansion is treated the same, Sjostrom said. A producer who adds a few cows in Minnesota would pay the market access fee on the new milk that is over "allowable milk marketings." A producer who puts up a new 1,000 cow dairy in New Mexico would pay the market access fee on all new milk.

The fee would be accessed for a year and redistributed back to dairy producers who held their milk marketings within allowable levels, which are determined by market conditions.

The change does not penalize a producer who slowly grows his herd more than someone who expands at once, which was a criticism of the earlier plan. The change better reflects Holstein USA membership and what consumers would like, Sjostrom said.

In the United States, 85 percent of dairy farms have 150 cows or less and they typically grow a few cows at a time, he said. Larger dairies grow farm by farm, he added.

There is always a lot of debate about new dairy farmers when the stabilization plan is discussed, but in reality there are few new dairy farmers, Sjostrom said. The average age of U.S. dairy farmers is in the mid 50s.

Each time there is a crisis fewer farm children decide to pursue dairy farming as a career.

"Honestly, I never thought about being a farmer," said Sjostrom, the son of a dairy farmer. He saw opportunity in agriculture, but not in dairy farming.

Cooperatives Working Together gives producers a way to exit dairying gracefully, he said, but Holstein USA is trying to devise a plan to keep dairy farmers in business.

"We haven't seen a better plan come out yet," Sjostrom said.

There is also discussion about imports and exports when the price stabilization plan is discussed, he said. Sjostrom says that if the price of U.S. dairy products was more stable, the export demand for dairy may increase.

The stabilization plan could also benefit consumers. Dairy prices are volatile in the grocery store, too, and the stabilization plan could ease some of that volatility. A stabilization plan with a less volatile price doesn't mean that grocery store prices have to rise either, Sjostrom said, adding that he thinks there is room to shrink margins for those in the middle.

Dairy farmers, he said, need to do a better job of calling their cooperatives, their representatives and their senators and telling them what they think of price stabilization plans and how they are doing. Dairy farmers, as an industry, need to do a better job of speaking for themselves.

National trade groups and cooperative executives fill the void when dairy farmers don't communicate, Sjostrom said, and their opinions may not be the same as those of actual farmers.