1996 Federal Agriculture Improvement

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1996 Federal Agriculture Improvement Reform
Act Federal Order Reform 2000 Budget
Appropriations

• THE DAIRY INDUSTRY VIEW

Mike Brown National All-Jersey Inc.
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First Thought Hire a Polling Firm...
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A Review of the 1996 Federal Agriculture
Improvement Reform (FAIR) Act

• Reference
• Dairy Title The Federal Agriculture Improvement
  Reform Act of 1996, Ed Jesse Bob Cropp, Ag
  Marketing Policy Paper No. 55, April 1996.
• Web Site
• www.aae.wisc.edu

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1995 Farm Bill Was Arduous Process for the Dairy
Industry

• Status Quo is not an option
• - Congressman Steve Gunderson, Chair of
• Dairy Livestock, Dairy and Poultry
• Subcommittee to NMPF, November, 1994
• Regionalism is everything
• - Everyone by the time the thing was over,
• March, 1996.

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Dairy Program Changes Took Several Forms in
Initial Stages

• Gunderson I 21st Century Dairy
  Transition Reform Act
• NMPF I Springfield Plan
• Gunderson II Freedom to Milk
• NMPF II Springfield Lite
• By November, 1995, no dairy title was included in
  the 1996 Budget bill, or any other legislation.

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95-96 Farm Bill Dairy Program -Act II

• NMPF III Tennessee Compromise
• Repeal Government Assessments
• Terminate Butter/Powder Supports
• National Pooling of 80 cents per cwt. of Class I
  
• Receipts, including California
• CA Fluid Milk Standards for SNF
• Consolidation to 8-13 Federal Milk Orders.
• Class IV Pooling

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95-96 Farm Bill Dairy ProgramAct II

• NMPF III Tennessee Compromise
• Passed by House Ag Committee in February 96
• IDFA Reaction Additives in Milk
• Spelled doom for higher solids standards
• Northeast Reaction (Solomon)
• No significant changes to FMMOs

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95-96 Farm Bill Dairy ProgramHouse Action

• Solomon-Dooley Amendment
• Maintain Support Program for Five Years
• Consolidate Federal Orders to No More than 14 by
  December 31, 2000
• Repeal Section 102 (CA Make Allowances)
• The amendment passed the House. The majority of
• opposition was in the the Upper Midwest.

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95-96 Farm Bill Dairy ProgramThe Final FAIR
Dairy Title

• Conference Committee Results
• Adopt Solomon-Dooley with some minor changes.
• FMMO Consolidation by 01/2000
• Authorize (but not require) USDA to
• consider multiple basing points, Class I
  utilization rates in setting Class I prices.
• Consider uniform multiple component pricing in
  setting prices for manufacturing milk.
• NE Dairy Compact authorized (Lugars Deal)

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96 FAIR Support Program

• Ended producer budget assessments (CCC
  assessments, or Milk Tax).
• Continued purchase program for butter, nonfat dry
  milk, and cheddar cheese at declining purchase
  prices.
• Support program to be terminated at the end of
  1999 and replaced with a recourse loan program in
  2000.
• Repealed Section 102 of the 1990 Farm Act and
  substitutes a ceiling on state make allowances.

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96 FAIR Support Program

• Industry was behind ending price support program
• Producers saw end of supports as an appropriate
  tradeoff for ending assessments
• Processing Industry was pleased to see price
  supports ending, Section 102 removed.

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96 FAIR Federal Orders

• Required USDA to consolidate to no more than 14
  and no less than 10 orders within three years.
• Authorized USDA to consider using multiple basing
  points and fluid milk utilization rates in
  setting Class I prices in the consolidated
  orders.
• Authorized USDA to consider using uniform
  multiple component pricing in designing a new
  Basic Formula Price.

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96 FAIR Federal Orders

• Producer opinion on Federal Order Consolidation
  was mixed.
• Upper Midwest viewed exercise as an opportunity
  to reform pricing.
• Most US producer groups wanted to keep FMMO
  pricing changes to a minimum.
• Main producer group focus was on Class I price
  levels, not Class II, III, or IV.

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96 FAIR Federal Orders

• Processor opinion on Federal Order Consolidation
  was also mixed.
• Large Fluid Processors most interested in lower
  Class I prices.
• Cheese Companies are interested in lower Class
  III prices, but are also supportive of component-
  based pricing.
• Processors generally interested in more
  market-oriented pricing.

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96 FAIR Dairy Exports

• Extended and fully funded Dairy Export Incentive
  Program (DEIP) through 2002.
• Authorized USDA to assist in forming export
  trading companies.
• Required USDA to study impact of expanded cheese
  import access.
• Authorized the National Dairy Board to use funds
  for export market development.

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96 FAIR Dairy Exports

• Producer, Processor groups generally supportive
  of dairy export programs.
• Interest in joint efforts to export between
  producers and processors addressed to some
  degree.
• Producer, processors sides more aligned on dairy
  export policy than dairy import policy.

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96 FAIR Other Provisions

• Exempted California from federal standards of
  identity for fluid milk.
• No higher solids standards for US
• Authorized the Northeast Interstate Dairy Compact
  for a limited time.

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96 FAIR Other Provisions

• Producers generally were supportive of nationally
  higher solids, but not a key issue.
• Generally, Southern milk producers less
  supportive of higher fluid solids standards.
• NE Dairy Compact was a polarizing issue
• Processors Upper MW Producers
• vs.
• Nearly Everyone Else!
• Class I issues remain the most controversial.

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96 FAIR The Process

• Very Divided, Regional on Producer Side
• Upper Midwest - Class I Differentials
• Northeast - Dairy Compacts
• California - Section 102, Allow Independence
• Proprietary Processors more united.
• Less regulation, the better
• NRA Approach to higher solids standards
• Result Mixed bag of moderate changes.

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FMMO Reform - Before Congress (BC)...

• Milk Pricing - More Market Oriented
• Four Classes of Milk
• Generally, lower Class III Prices, little Change
  in Class IV vs. III-A
• Fat Price Higher
• Class II Price Higher SO FAR
• Class I Price
• Modified I-B lowered Class I Price Differential
  levels in some markets
• Price Effect less due to change in mover

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BC FMMO Reform - Industry View

• Process was viewed as reasoned and fair by most
  participants
• Some Disagreement on Class III price Levels
• Controversy over Class I Differentials continued
• Processors, UMW 1B
• Everyone Else 1A
• So, Lets go Back to Congress to Fix it!
• Extend Compact, Delay Implementation

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FMMO Reform - After Congress (AC)...

• Milk Pricing
• Class I Price
• Modified I-A Class I Price Differential levels
  were adopted in 2000 Omnibus Budget Act.
• Price Effect less due to change in mover
• NE Compact Still Stands, but no expansion
• Mandated Hearing on Class III/IV Prices
• Forward Contracting Pilot Program
• Class II, III, IV Milk
• Federal Order Milk Only

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AC FMMO Reform - Industry View

• Class I Pricing
• Processors Mixed on Change from 1B to 1A
• Looking Back Bigger Issue is Price Mover
• Producer Groups Enjoy Price Enhancement
• Looking Back, Price Mover is Great
• More Liberal Pooling Causing Some Problems
• FMMO Problem, or
• Butter/Powder Tilt Problem?
• Class III/IV Pricing
• Do We Really Need A Hearing Already?

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AC FMMO Reform - Industry View

• Forward Contracting in FMMOs
• Pilot Program expires in 2004
• Proprietary manufacturers love it!
• Class I exemption is big problem for proprietary
  plants.
• Some Cooperatives do not support Forward
  Contracting
• Will erode the pool
• Competitive Issue?
• What do Producers Think?
• Based on rhetoric, mixed bag
• Based on participation, they like the opportunity.

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Other Budget 2000 Dairy Issues

• Price Support Program Extension (Also 2001)
• Processors did not support
• Producers generally support
• Butter/Powder Tilt is really the bigger issue.
• Dairy Compacts
• Processors love them, find them to be a good
  social remedy for the problems of capitalism
• JUST KIDDING!
• Created a real have/have not mentality between
  regions.
• Efforts to expand and extend compacts will
  continue.

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Looking Ahead

• Processors concerned about move to keep or expand
  dairy regulation
• Producers usually win in Congress
• Freedom to Farm is no longer in fashion.
• Producers want to keep or expand regulation
• For the Most Part, FMMO reform is OK
• Price Supports are now welcomed by most
• Protein Imports, price stability are issues again.

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Looking Ahead

• So this time, will we
• Work to develop positions of mutual benefit to
  all participants?
• Support Trade Association Policies up front, but
  be less supportive or destructive behind the
  scenes?
• Quit using dairy policy as a competitive tool -
  or sledge hammer?
• Consider Market realities of policy implications
• More Money Moves Means More Milk
• Apologies to Don Kuhlman, Prairie Farms Dairies.