PRICE VOLATILITY: Federal supply-side control narrowly urged
By MARC HELLER
TIMES WASHINGTON CORRESPONDENT

WASHINGTON — An advisory committee on national dairy policy offers this prescription for ailing farmers: quit making so much milk.

The committee, which the U.S. Department of Agriculture created at the direction of Congress, made final recommendations Friday, including in its report comments on how to dampen farmers' natural tendency to make more milk when prices are high. Growing milk production contributes to big plunges in prices paid to farmers and also makes business harder for the companies that make dairy products.

The 17-member panel was divided on the question of a government-run growth management plan, voting 9-8 in favor of making such a recommendation, according to the final report.

Because of its divisions, the panel did not specify how the USDA might craft such a system — which would likely require congressional approval — and said only that a growth management system should allow for new producers as well as expanded production by those already farming.

Growth management, sometimes called supply management, is one of the more controversial aspects of dairy policy because depending how it is crafted, farmers can be penalized for adding cows and boosting production, a practice they have generally been able to carry on without any sort of government direction.

"We agree that a primary challenge in taming milk price volatility is to better coordinate milk marketing with milk usage over time. We do not agree on whether this should be a public or a private endeavor," the panel wrote it its final report.

"For some, it is simply the case that a federally mandated effort to intervene in the individual production decisions of a farm business is unappealing or unacceptable in any case," the committee reported.

Indeed, some of the nation's biggest farmer-owned cooperatives have encouraged growth by paying bonuses to bigger farms. And much of dairy science and management, including cow growth hormones and thrice-a-day milking, has been aimed at boosting production.

Economists blamed the 2009 milk price crash — the deepest in years — in large part on falling demand for dairy products during the recession, especially from foreign countries. But farmers have limited ability to respond by cutting production, for instance, because ups and downs are determined by cows' lactation cycles, the season and other factors beyond human control.

Supporters of growth management say the government can force the issue, however, through quotas, herd buyouts and lowered federal prices on milk produced in excess of a farm's prior production, for instance.

Opponents say the notion of government-ordered supply management goes against American business principles. And they point to past disasters, such as the herd buyout program under President Ronald Reagan that created a surplus of beef and led to a crash in meat prices; milk prices climbed but production fell only temporarily.

Others complained to the committee that supply controls would kick in when milk prices are heading back down or already low, a time when the United States would otherwise be positioned to export dairy products.

Some supply management measures are already in place, including a program run by farmer-owned bargaining cooperatives that pays farmers to slaughter their herds.

Whether government-sponsored growth management stands a chance in this Congress is an open question. Some economists told the advisory committee that such a system might cost much less than current dairy programs, which include subsidies paid to farmers when prices fall below a federal target.

Where the government saves, though, consumers would lose through higher prices for dairy products, said Jerry Slominski, senior vice president for legislative affairs at the International Dairy Foods Association, representing makers of cheese and other dairy products.

Government-run supply management is the antithesis of free market principles the new Republican majority in the House embraces, Mr. Slominski said.

"I would think there would be more opposition and it would be a harder sell, particularly on the House side," he said.

The panel, mandated by the 2007 farm bill, made a series of other recommendations, including making risk-management tools such as forward pricing easier for farmers to use; creating a margin insurance program geared at protecting farmers' bottom lines instead of simply boosting milk prices; and allowing for tax-deferred savings accounts for farmers.

Sen. Kirsten E. Gillibrand, D-N.Y., a member of the Senate Agriculture Committee, was generally pleased with the recommendations, said her spokeswoman, Bethany Lesser. Mrs. Gillibrand has supported several of the concepts in the report, such as improving an optional margin insurance program and maintaining the subsidy paid to farmers during low-price cycles.