Working Together
Editor's note: Guest commentary is provided by Jerry
Kozak, CEO of the National Milk Producers
Federation (NMPF). The views expressed do not
necessarily reflect those of USDA or its employees.
For more on NMPF.
Those involved in agricultural production are
accustomed to being buffeted by the ups and
downs of the commodity pricing cycle.
Farmers, who are at the tail end of the production chain,
often feel this price volatility the most,
making it hard for them to plan for the future.
Three years ago, at a time when milk prices were at a particularly
painful low point, the nation's dairy cooperatives
pooled their resources toward an industy-funded self-help
program to help strengthen and stabilize farm-level milk
prices. This initiative, Cooperatives Working Together
(CWT), was unprecedented in several respects.
First, a farmer-led program to reduce supply had never
been tried by a major commodity sector. Dairy, which is the
second-highest-valued farm product (behind beef), is a
diverse, $25 billion industry, and has tens of thousands of
producers. Like many agricultural products, dairy has a
mandatory USDA-managed checkoff to fund demand-building
programs. But supply-focused efforts to improve prices
had never been orgainzed voluntarily by farmers across the
country.
Second, the collection and management of funds for
CWT had to be undertaken through the Capper-Volstead
protections afforded to farmers and their marketing cooperatives.
A supply-reducing initiative such as this could only be
operated under a cooperative legal structure.
Perhaps the biggest challenge, given the unprecedented
nature of this program, was wether co-ops as well as individual
farmers would pay money to start up an untested, unproven
venture. It is difficult to ask farmers suffering from the lowest
prices in a generaton to kick in money on a novel, untested
program.
In the summer of 2003, however, a critical mass of co-ops,
handling more than two-thirds of the the nation's milk supply,
banded together to collect five cents per hundredweight from
their members' milk output. These co-ops were jointed by
several hundred farmers who independently signed up for
CWT. Together, the five cent membership fee raised more
than $50 million in the program's first 12 months.
That money was used on three supply-reducing programs:
a reduced production program, wherein interested farmers
could bid to be paid for reducing their milk output for a year;
a herd retirement program, where farmers again could submit
bids to sell out their entire milking herds; and an export
assistance program, where member co-ops could submit bids
to CWT asking for bonuses to facilitate the overseas sales of
cheese and butter.
Milk prices rallied in the latter half of 2003, thanks in part
to CWT's supply-reduction activities. The program was
renewed in 2004, and the membership dues were agian used
on a herd retirement program and export assistance. Milk
prices throughout 2004 stayed above historical averages,
thanks once more to CWT's efforts to keep a lid on the
growth in supplies through herd retirements and cheese
exports (see chart).
In 2005, the program was renewed a second time, with
nearly 75 percent of the nation's milk supply paying the nickel-per-hundredweight
assesment. Nearly 45 cooperatives
now are participating in the program, along with hundreds of
individual farmers.
CWT recently completed its third herd retirement program,
removing 64,000 cows, or the milk equivalent or nealy
1.2 billion pounds, which is 0.7 percent of the nation's annual
milk output. By comparison, the two previous herd retirements,
in 2003 and 2004, removed 83,000 cows.
The U.S. marketplace will be challenged by more milk
output in 2006, as two years of above-average prices have
helped to stimulate additional production. CWT has budgeted
significant sums to help keep commodity cheese and
butter prices above crisis levels by using its export assistance
program to help clear the market.
Cheese prices have not lingered below
CWT's target level of $1.40 per pound
since the program began. As 2006
begins, and butter prices begin to sag,
CWT has also facilitated the sale of
butter for the first time.
Apart from helping to imporve the
economic situation for every dairy
farmer in the country, CWT has helped
to counter nay-sayers who said farmers
wouldn't be willing to work collectively
on such a program. As traditional government-run
farm programs face the
twin pressures of federal budget limitations
and potential World Trade
Organization restrictions, self-help programs such as this will be an important
tool for dairy farmers in the future.
Jerry Kozak, CEO
National Milk Producers Federation
