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Marin Bozic talks dairy policy at dairy leaders roundtable

By Janet Kubat Willette

Date Modified: 07/02/2013 11:03 AM

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ARDEN HILLS, Minn. – Marin Bozic outlined the dairy policy in the federal farm bill at the Dairy Leaders Roundtable meeting.

The meeting was held June 3 at Land O'Lakes in Arden Hills. Bozic is an assistant professor in dairy foods marketing economics in the University of Minnesota Department of Applied Economics.

Bozic said a movement is trying to change federal dairy policy because the existing policy doesn't work anymore. That's mainly because the cost of feed has increased from when the policy was written. New dairy policy needs to focus on the milk-feed ratio, he said.

The dairy policy in both the House and Senate versions of the farm bill has two pillars: Dairy Margin Protection and Dairy Market Stabilization. The proposal was developed by Rep. Collin Peterson, who shepherded the measure through a contentious House hearing last month.

The new programs are radically new, Bozic said.

The Milk Income Loss Contract and the $9.90 price floor both end with the proposed legislation.

The stabilization program contains a temporary, occasional disincentive for dairy producers to produce more milk when they are in a pickle, Bozic said. The idea is that if producers reduce production, the price will recover. Program participation is voluntary.

Will it work? That's unknown, he said. The most favorable model assumes demand is highly inelastic and participation is high.

There are two ways to choose the stabilization base, either last year the same month or a three-month base method.

Nothing in the language prevents farms that want to grow aggressively from doing so. That is both good and bad, Bozic said.

The program may be a good idea because it could reduce government costs, it could accelerate margin recovery in low-margin periods, and it doesn't present long-term obstacles for production growth.

The program may not be such a good idea because creative private contracts could reduce program effectiveness, there may be interference with spatial structural changes and then there's the slippery slope argument of what will happen in 2018 if this language is adopted in 2013.

Bozic said exports have become an increasingly important market for U.S. dairy products. Over the last 10 years, more than half of the growth in U.S. milk production was exported. Over the last five years, more than two-thirds of the growth in U.S. milk production was exported.

The milk yield per cow in New Zealand, a major world dairy export country, is highly volatile due to its pasture-based dairy system. That means U.S. dairy producers should anticipate large swings in mailbox prices in the coming decade.

Dairy Margin Protection is an insurance program to protect against low milk prices.

Bozic recommends the program be changed to allow producers to pay after the time has passed and in six bimonthly increments rather than two payments per year for six months at a time. He said this would make a big difference in participation.

The stabilization program will only work if larger dairies sign up and don't try to game the system.