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30–429 PDF 2006

S. HRG. 109–662

TO REVIEW USDA DAIRY PROGRAMS

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 20, 2006

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry

(

Available via the World Wide Web: http://www.agriculture.senate.gov 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY

SAXBY CHAMBLISS, Georgia, Chairman 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

JAMES M. TALENT, Missouri 

CRAIG THOMAS, Wyoming 

RICK SANTORUM, Pennsylvania 

NORM COLEMAN, Minnesota 

MICHEAL D. CRAPO, Idaho 

CHARLES E. GRASSLEY, Iowa 

TOM HARKIN, Iowa 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

MARK DAYTON, Minnesota 

KEN SALAZAR, Colorado

MARTHA SCOTT POINDEXTER, Majority Staff Director 

DAVID L. JOHNSON, Majority Chief Counsel 

VERNIE HUBERT, Majority Deputy Chief Counsel 

ROBERT E. STURM, Chief Clerk 

MARK HALVERSON, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page

HEARING(S):

To Review USDA Dairy Programs ......................................................................... 1

Thursday, July 20, 2006

STATEMENTS PRESENTED BY SENATORS 

Chambliss, Hon. Saxby, Chairman, Committee on Agriculture, Nutrition, and 

Forestry ................................................................................................................. 1

Crapo, Hon. Micheal D ............................................................................................ 3

Leahy, Hon. Patrick J ............................................................................................. 11

Panel I 

Glauber, Joseph PhD., Deputy Chief Economist, United States Department 

of Agriculture, Washington, DC (substituting for USDA Chief Economist, 

Keith Collins): Accompanied by Lloyd Day, Administrator Agriculture Marketing Service and Teresa Lasseter, Administrator Farm Service Agency ..... 4

Panel II 

Beckendorf, Charles, National Milk Producers Federation, Tomball, Texas ...... 16

Berthiaume, Leon, St. Albans Cooperative Creamery, Inc., Swanton, Vermont 23

Green, Jim, Kemps LLC/HP Hood LLC on Behalf of International Dairy 

Foods Association, St. Paul, Minnesota ............................................................. 19

Hall, Ken, Dairy Producer, Terreton, Idaho .......................................................... 21

APPENDIX 

PREPARED STATEMENTS: 

Chambliss, Hon. Saxby .................................................................................... 34

Beckendorf, Charles ......................................................................................... 62

Berthiaume, Leon ............................................................................................. 89

Glauber, Joseph ................................................................................................ 35

Green, Jim ......................................................................................................... 70

Hall, Ken ........................................................................................................... 85

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

National Family Farm Coalition ..................................................................... 103

Progressive Agriculture Organization (With attachments) ........................... 97

(1)

TO REVIEW USDA DAIRY PROGRAMS 

THURSDAY, JULY 20, 2006

U.S. SENATE, COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, Washington DC 

The committee met, pursuant to notice, at 10:05 a.m. in room 

328–A at the Russell Building, Washington, DC Hon. Saxby 

Chambliss, chairman of the committee, presiding. 

Present: Senators Chambliss, Coleman, Crapo, and Leahy. 

OPENING STATEMENT OF HON. SAXBY CHAMBLISS, A U.S.

SENATOR FROM GEORGIA, CHAIRMAN, COMMITTEE ON

AGRICULTURE, NUTRITION, AND FORESTRY 

THE CHAIRMAN. This hearing will now come to order and good 

morning. I want to welcome you all to this hearing here this morning, on the Department of Agriculture Dairy Programs and let me 

tell you a little about what our scenario is going to be. Senator 

Crapo and I are obviously the only one’s here. All members are 

going to have the opportunity to make a five minute opening statement. We’ve been notified that other members are going to be here 

a little bit later on. So, as they come, we’ll either let them make 

their statement as part of their questioning period and not charge 

that time to them, or we’ll allow them to make a statement as they 

come in. So, if we have to interrupt the panel, know that’s the reason for that interruption. 

We’re fortunate to have the Deputy Chief Economist of the Department of Agriculture Dr. Joseph Glauber, with us today. I’m certain that Dr. Glauber can help us make sense of the various dairy 

programs our government administers. I’d like to note that USDA 

Chief Economist, Dr. Keith Collins, was scheduled to be with us 

here today, but unfortunately, is not feeling well. 

Dr. Collins recently celebrated his 30th year of service to the 

Federal Government, 29 of which have been at USDA. We appreciate Dr. Collins’ long record of hard work and dedication to this 

country, and wish him a speedy recovery. And I would note, that 

having visited with the Secretary this morning and with Dr. Glauber here a little earlier, that I understand Keith is doing well and 

is going to be out of the hospital in the next day, or so. And we’ll 

keep him in our prayers and certainly hope for that speedy recovery. 

In addition to Dr. Glauber, we have with us today dairy industry 

leaders from both the private industry and producers who work 

with dairy cattle each and every day. We appreciate you all taking 

the time to be with us, and we look forward to hearing from each 

2

of you in regard to how USDA dairy programs impact your businesses. I also welcome those listening today via our website. 

The United States dairy industry is constantly undergoing 

change. During the Great Depression of the 1930’s, Congress enacted the Federal Milk Marketing Orders in an attempt to ensure 

a stable supply of milk and provide for the orderly marketing of 

milk. These orders have experienced great change over the years 

as we continually attempt to make them more responsive to market 

forces. From these noble intentions, we have progressed into a network of dairy programs intended to assist the producer when prices 

are low, ensure a supply of milk for American consumers, assist industry in exporting product, and ensure a uniform price for our 

producers. This network of programs is complex and often can have 

different effects on different regions of the country. Over the years, 

dairy policy has included dairy compacts, base-excess plans, state 

regulations, voluntary supply controls, the Milk Production Termination Program, and the list goes on and on. 

Understanding the complexity of the dairy issue, the Committee 

on Agriculture has attempted to assemble a group of witnesses 

today that represent various parts of the country and whose views 

may differ from program to program. Despite our best attempts, we 

are mindful that the witness list does not necessarily accommodate 

all of the regional interests in dairy policy. As such, the Committee 

is also conducting farm bill field hearings throughout the country. 

Each of these hearings will provide dairy producers an opportunity 

to relate to the Committee their unique positions on dairy policy. 

We are confident that this hearing today, supplemented by the testimony of producers throughout the country, will provide the Committee with a comprehensive view of dairy programs and their effects on all of the Nation’s dairy producers. This record will provide 

us with valuable information as we look to writing a farm bill in 

2007. 

Many of the issues of concern in the dairy industry are seen 

through a regional lens. For example, as I have traveled the country and discussed dairy programs such as the MILC income loss 

program, I know that no matter what my position on this issue 

may have been -at least half the room would agree with me. This 

is often the case with many dairy programs, as their intended consequences can often affect producers based on where the producers 

operation is located or how large or small their operation may be. 

As we continue to tweak dairy programs to ensure that all stakeholders are able to participate, we must be mindful of the potential 

impacts on the entire marketplace so that we do not unintentionally stagnate growth, innovation, or negatively affect the competitiveness of the U.S. dairy industry in the international marketplace. 

As we meet here today, we are all aware of the cyclical nature 

of milk production in the United States. The summer months create a tremendous challenge to millions of dairy farmers as they attempt to keep dairy cattle cool and happy. Technological advancements have provided producers with increasing opportunities to 

meet the demands for milk during these warm months and the 

steady increase in cow numbers and milk output per cow, particularly in the Western United States, has continually increased naVerDate 0ct 09 2002 14:36 Nov 16, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 C:\DOCS\30429.TXT TOSHD PsN: LAVERN
3

tional milk production volumes. According to USDA, current 2006 

milk production continues to outpace demand resulting in higher 

stock levels of dairy products and lower prices for milk and dairy 

products. In addition, high energy costs have affected the dairy industry as they have every other participant in agriculture. It is in 

this climate of falling milk prices and rising production costs that 

we conduct this hearing, but again, we must all be mindful of the 

cyclical nature of milk production and prices. 

Today’s hearing will provide Members of this Committee with 

valuable information on how the current dairy programs at the 

USDA have affected processors, producers, and other dairy industry participants. Later this year, this Committee will conduct another hearing on dairy that will focus on how we should approach 

this critical segment of the agricultural complex in the 2007 farm 

bill. It is our hope that this oversight hearing today, coupled with 

the more forward-looking hearing on dairy later this year and the 

direct regional producer input we are receiving at the field hearings, will provide the Members of this Committee with the tools 

and information needed to provide an ample safety net for dairy 

producers in the next farm bill, while minimizing any potential disruptions in the marketplace. 

I, again, want to thank all of our witnesses for being here today. 

We look forward to your testimony and at this time, I’ll turn to 

Senator Crapo for any statement he wishes to make. 

[The prepared statement of Hon. Saxby Chambliss can be found 

in the appendix on page 34.] 

STATEMENT OF HON. MICHAEL D. CRAPO, A U.S. SENATOR 

FROM IDAHO 

Senator CRAPO. Well, thank you very much, Senator Chambliss. 

And first, I want to thank you for holding this hearing and second, 

I appreciate and share the perspective that you have given us in 

your opening comments. I’m not going to take my full 5 minutes, 

but I do want to thank our witnesses for taking the time to come 

and attend with us here today, and to participate in this hearing. 

I especially want to thank Ken Hall from Idaho, who has traveled out here to share his views on Federal Dairy Policy. And as 

we take stock of current dairy programs, I think that witnesses like 

Ken Hall, are going to have a very valuable perspective to provide 

to this discussion. 

You mentioned there were some regional differences and different perspectives on dairy programs, which is to put it mildly, 

Mr. Chairman, and I think that the perspective you will get from 

those of us in Idaho is increasingly becoming a very strong concern. 

The Idaho dairy industry has been growing at a very rapid pace. 

In fact, in 2005 Idaho became the fourth largest milk producing 

state in the Nation with more than 700 dairy operations and over 

400,000 dairy cows. The dairy industry in now Idaho’s leading agriculture sector, contributing more than $800 million dollars of personal income from activity on dairies in Idaho. So, that’s how significant this issue is and it’s growing in Idaho. 

And what I’m hearing from Idaho dairymen and what you’re 

going to hear later this morning, I think from Ken Hall, is that the 

Federal dairy support programs are not working. The number of 

4

dairies has been decreasing despite Federal dairy programs. And 

specifically, Idaho dairy producers have concerns with the MILC 

Income Loss Program—or contract program, or MILC, depresses 

the price of milk and distorts markets. Further, they want to ensure access to valuable risk management tools such as forward contracting that provide them the means necessary to protect against 

volatile price differences in the market. 

And as this committee begins the process of writing the next 

farm bill, it’s essential to do a thorough review of these programs, 

and analyze effectively their impact on the industry. I look forward 

to the discussion this morning, and I again, appreciate the opportunity to share these concerns with you, Mr. Chairman. And I also 

wanted to say, in conclusion, I appreciate working with you. You’re 

an outstanding Chairman of the Agricultural Committee and you 

take these issues on head-on and help the rest of us on the committee grapple with them in ways that I think are going to generate much better policy for the country, so thank you very much. 

Thank you. 

The CHAIRMAN. Thanks, Senator Crapo and we’re going to start 

this morning, as I said, with Dr. Joseph Glauber, the Deputy Chief 

of Economist, United States Department of Agriculture. He is accompanied by Mr. Lloyd Day, the Administrator of the Agriculture 

Marketing Service, and Ms. Teresa Lasseter, Administer of the 

Farm Service Agency. So, welcome to all of you and Dr. Glauber, 

we look forward to your testimony. 

STATEMENT OF JOSEPH GLAUBER, PhD., DEPUTY CHIEF 

ECONOMIST, UNITED STATES DEPARTMENT OF AGRICULTURE, WASHINGTON, DC (substituting for USDA Chief 

Economist, Keith Collins): ACCOMPANIED BY LLOYD DAY, ADMINISTRATOR AGRICULTURE MARKETING SERVICE AND TERESA LASSETER, ADMINISTRATOR FARM SERVICE AGENCY 

Dr. GLAUBER. Well, thanks very much. First, thanks for the kind 

words about Dr. Collins. He—I did speak with him last night. He 

should be out of the hospital today and I think he’s—hopefully, will 

be back in the saddle on Monday. I know he regretted missing this 

hearing. He was talking about it a lot over the last week. 

Mr. Chairman and Members of the Committee, Administrator 

Lasseter, Administrator Day, I thank you for the opportunity to 

discuss this situation in the U.S. Dairy Industry and the performance to the Federal dairy program as the committees prepare for 

the 2007 Farm Bill. 

U.S. dairy farming has changed dramatically in the last two decades with improvements in transportation and processing, fluid 

milk markets have expanded from local to regional, and manufactured diary product markets are international in scope. Consumption of dairy products have increased lead by cheese, which has 

seen per capita consumption rise by over 75 percent since 1980. 

Today, cheese production accounts for 40 percent of milk use. Per 

capita consumption of fluid milk consumption continues to decline 

and now, only accounts for a little over a third of milk production. 

The structure of milk production is still changing rapidly as increased productivity, and economies, and size continue to reduce 

the number of dairy farms and increase average farm size. Since 

5

1980, milk output per cow is up 50 percent and production is increased by nearly one-third, while the number of dairy cows has 

declined. Today, fewer than 4 percent of U.S. dairy farms have 

more than 500 cows, but these farms account for nearly 50 percent 

of milk production. 

Milk production continues to expand in the West with California 

the nation’s leading milk producing state and second largest producer of cheese. Western farms tend to be larger and have lower 

average production costs than farms in other regions. This year, 

dairy markets are adjusting to 2004’s record high milk prices and 

the near record high prices in 2005. Reflecting these prices, U.S. 

milk production, the first quarter of 2006 was up 5 percent over the 

previous quarter—a year over a year quarter. 

For all of 2006, we’re projecting production to be up more than 

2.8 percent, more than twice the trend rate of increase. Consequently, the all-milk price is forecast to average between $12 dollars and 60 cents per hundredweight in 2006, down 17 percent 

from 2005. This year’s lower milk prices, and higher feed, and fuel 

expenses, as you mentioned earlier, are expected to trim growth in 

milk production in 2007 to less than 1 percent. With continued 

strong demand, the 2007 all-milk price is forecast to increase of 

$13 dollars and 35 cents per hundredweight, up 6 percent from this 

year. Now, the MILC price support program, Commodity Credit 

Corporation purchases butter, cheese, and nonfat dry milk at price 

levels intended to support the price of milk at no less than $9 dollars and 90 cents per hundredweight. 

Starting into the late 1990’s, CCC began purchasing large 

amounts of nonfat dry milk, with inventory peaking at 1.4 billion 

pounds in 2003. Since then, a change in the relative purchase price 

of nonfat dry milk and butter by the Secretary—excuse me, a 

change in the relative purchase price of nonfat dry milk and butter, 

stronger global dairy markets, and donations under domestic and 

foreign food assistance programs, implementation of livestock feed 

assistance programs, and CCC sales reduced the nonfat dry milk 

stocks, held by the CCC, to under 12 million pounds in June. For 

all of 2006, CCC purchases of nonfat dry milk are projected to 

reach 105 million pounds, while little to no purchases of butter and 

cheese are expected. 

In addition to the Price Support Program, dairy producers have 

received more than $2 billion dollars in direct payments under the 

MILC Income Loss Contract Program—or MILC, for sales during 

fiscal years 2002 through 2005. As of July 10th, 2006, more than 

$150 million dollars has been received by dairy producers since 

payments began in April 2006 following the program extension 

signed by the President in February 2006. We expect that $1.2 billion dollars in payments will be made during Fiscal Years 2006 and 

2007. 

The Dairy Export Incentive Program—or DEIP, provides payments to exporters of nonfat dry milk, cheese, and butter to increase their competitiveness in world markets. DEIP exports are 

limited by quantity and dollar value under the Uruguay Round 

Agreement. DEIP has not been activated during the past 2 years, 

however, due to higher world prices, which have enabled dairy exports to be—U.S. dairy exports to be competitive without DEIP asVerDate 0ct 09 2002 14:36 Nov 16, 2006 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\30429.TXT TOSHD PsN: LAVERN
6

sistance. Strong global demand reduced MILC production in Australia and New Zealand, and lower EU dairy export subsidies contribute to the stronger global markets. 

In 2005, U.S. dairy exports hit a record $1.7 billion dollars as 

U.S. MILC producers benefited from tight world dairy product supplies in a weakening U.S. dollar. Trade conditions are similar for 

2006. Global demand for dairy products remains firm. The U.S. dollar remains favorable to exports, and U.S. nonfat dry milk prices 

are expected to remain competitive without export subsidies. Dairy 

product imports were up in 2005, including MILC protein concentrates, but MPC’s remain well below levels reached earlier in 

the decade. 

Last, I want to mention the Federal MILC marketing orders, 

which established minimum price—minimum MILC prices, handlers must pay based on use. Minimum prices under MILC orders 

are based on the market prices of dairy products, so orders are not 

priced in income support programs, nor do they regulate production 

or the volume of marketings. MILC orders help assure adequate 

supplies of fresh fluid milk and enable producers to share in the 

revenues for all milk sold under an order. 

Today, 80 percent of the nation’s dairy herd sell 65 percent of 

total MILC marketings under 10 active orders. USDA is in the 

process of addressing a number of issues through the Federal 

Order Hearing Process, including redefinition of milk—fluid milk 

products, and the level of manufacturing, or make allowances used 

to calculate the value of milk used in cheese, butter, and milk powder products. USDA has also requested proposals on the entire 

Federal Order Class III and Class IV Price Formula. Other USDA 

programs that assisted dairy industry are addressed in our written 

testimony. 

As the Committee reviews the dairy situation, several issues that 

merit consideration. while price and income support programs and 

direct payments help producers during periods of low prices, programs issues include budget deficit concerns and the tax payer cost 

of the programs, eligibility criteria used under the MILC Program, 

the affects of the price support programs and MILC programs on 

market prices, and the ability of dairy markets to adjust when 

prices are low. And finally, the consistency to these programs with 

current and perspective WTO obligations. 

Mr. Chairman, we look forward to working with you and your 

committee members in the months ahead. Thank you. 

[The prepared statement of Dr. Glauber can be found in the appendix on page 35.] 

The CHAIRMAN. Thank you very much. Some dairy industry participants have complained that the current safety net for dairy producers, which includes both the dairy price support program and 

the Milk Income Loss Contract program, often disrupts the marketplace by encouraging over production when prices are low. Some 

also argue that the Dairy Price Support Program inhibits the development of products such as milk protein concentrates and 

caseinates because it is more profitable to sell nonfat dry milk to 

the government, than to invest in the manufacturing of these types 

of products. 

7

Do the Dairy Price Support Program and the MILC Program 

work in concert to provide a safety net to producers, or do these 

programs, at times, work at cross-purposes to one another? In your 

opinion, are these programs working effectively? 

Dr. GLAUBER. I guess the answer, at least, is whether or not 

they’re working together or at cross purposes, is probably both yes, 

at times at least. If we think about how the Price Support Program 

works, it’s a very indirect program. We support prices by purchasing of products. The 2002 Farm Bill has given the Department 

flexibility to change that relationship, so-called tilt arrangement 

between the various products. And so, the Department has some 

flexibility to adjust the relative prices between products, but understand, that it’s done indirectly. And in that way, the price of milk 

is supported to the $9.90 per hundredweight. 

The problems, I would say, with the program, is that obviously 

because it’s raising prices, there is a consumer aspect to that of 

raising consumer prices, but the other thing is the potential product imbalance. Again, the 2002 Farm Bill helped with that, but we 

have seen certainly periods where we have acquired a lot of stocks 

of one particular product like nonfat dry milk. And because of that, 

stockpiles can—when world prices are low, stockpiles can end up 

growing quite large. 

It also can distort markets in the sense of what we saw with—

at least back in the late 1990’s, or early 2000, with the import of 

milk protein concentrates. I think that has—we’ve made some 

changes where—which I think have mitigated that a great deal 

since then. But those are some of the cause of the program. 

The flip side, of course, is the MILC Program. And there, the 

MILC Program operates as a direct income program, a counter-cyclical program much akin to some of the programs we run for 

grains. Their producers receive a price difference based on Boston 

Class I—the Boston Federal Market Order Class I price and six—

administer price of $16 dollars and 94 cents per hundred. That is, 

they’re factored by a—in current legislation by 30—you just get 34 

percent of that, but then, that’s multiplied times your monthly 

marketings. Now, those are restricted to 2.4 million pounds per 

dairy operation, per year. Because of that, that roughly translates 

to about 120 cows. So, there are a lot of producers—larger producers, of course, who, as we—you had said earlier, produced the 

bulk of the milk supply, who receive only partial benefits in that 

case. About 50 percent of the milk produce of the U.S. is covered, 

more or less, by MILC. 

And—but, it does have some potential production impact and in 

that sense, it’s a—it may be cross-purposes with a underlying market price support program. If you’re creating incentives to produce 

more milk, well then, that can potentially cause a price decline and 

at which point, we—if it gets below $9.90, or the—well, I should 

say at the product level, then the U.S. Government steps in and 

we purchase product. 

We did do a study of this at Congress’s request, and I think 

about a year and a half ago, or so, and the findings in that study 

suggest that the production impact of the program actually, was 

quite small. I think the findings were less than .2 percent. However, there is that and I think that that potential, particularly 

8

when prices are extremely low. So, in that sense, I think that there 

is some potential cross-purposes. 

The CHAIRMAN. It’s my understanding that last year, a group of 

dairy cooperatives and private companies came together to petition 

USDA for an emergency hearing to update the cost data used to 

calculate make allowances. The USDA responded to this request 

and held hearings on this issue in January of this year. Many industry participants were disappointed when USDA announced that 

they would forego a decision on this issue in lieu of an additional 

emergency hearing in September of this year. 

Some industry participants have claimed that this delay costs 

the dairy industry, particularly dairy product manufacturers, approximately $26 million dollars per month, and could jeopardize 

the viability of several plants. Can you explain to the Committee 

the reason for this delay, and has USDA taken into consideration 

the potential impacts on the dairy industry that this delay could 

cause, and do you feel it is in the best interest of the dairy industry 

to delay this decision until further data can be obtained, or should 

an interim decision be made as several Members of Congress have 

requested? 

Dr. GLAUBER. Well, thanks. I’m going to let Lloyd Day answer 

some of the questions about the hearing process itself. But first, let 

me just say that obviously, this is a very important issue, because 

make allowances ultimately determine purchase prices, so it affects 

product, the product producers. It also affects dairy producers, ultimately in the forms of the blend prices they receive. It also can ultimately affect price support operations, and also MILC contract 

payments, potentially. So, it is a very important issue. Let me 

talk—let Administrator Day take care of the hearing aspects of it. 

Mr. DAY. Thank you, Dr. Glauber. Mr. Chairman, thank you for 

the opportunity to give the Agency’s perspective on this, indeed, 

very important issue. It’s an important issue, as Dr. Glauber mentioned, because it affects the price that, not only dairy producers 

or processors pay dairy farmers, but the operations of naturally 

those that use dairy for manufacturing processes such as cheese, 

butter, et cetera. 

When we convened this hearing on an emergency basis, the hearing process in the Federal MILC marketing order as allowed for 

the opportunity for all sides to come in and to present evidence, 

that eventually is how we base a decision on whether there should 

be an increase in the make allowance, or in other parts of the price 

III and IV pricing formulas. 

Looking at the data that we received, it boiled down to really two 

sets of data. One set was from the California Department of Food 

and Agriculture, which isn’t reflective of the rest of the nation, but 

just the State of California. And the other set, was from the Rural 

Business Cooperative Service. The problem with the two sets of 

data, is that they’re different sets. One is from California. It looks 

at large, small proprietary firms. The other, looks at only a survey 

of cooperatives and doesn’t get a broad national scope of all sizes, 

and proprietary versus cooperative dairies. 

We also, during the hearing process, we—even proponents of 

changing the—using this data, found problems with the data. And 

thus, we had—prior to even having an emergency hearing, we had 

9

contracted with Cornell University to look at the whole national 

scope, all sizes of the plants, proprietary cooperative, large, small, 

different types of dairy manufacturing, so that we have a broader 

national data set to make this important designation. 

Now, as we speak, Cornell University is actually meeting with 

the dairy programs at USDA. I don’t know how long it’s going to 

be until they finalize that data. Hopefully, it’s going to be very 

soon. Once we get that data, we’re going to make that data public, 

so all participants, again, have the opportunity to view it. And 

then, we can move to—toward that interim decision, in order to 

help those that are coping, as you mentioned, with the rising prices 

for many, many factors, as well as falling dairy prices. 

The CHAIRMAN. Last, Dr. Glauber, the reported aggregate measure of support for dairy totals $4.5 billion. If the WTO negotiations 

are successful, the United States will be restricted to $7.6 billion 

in the amber box. It’s my understanding, that expenditures for the 

MILC Program are not included in the $4.5 billion amber box 

amount, since the program was created after our latest amber box 

notification in 2001. As a matter of clarification, does the $4.5 billion total for dairy include MILC Program payments? If not, do you 

anticipate that report aggregate measure support for dairy will increase, once MILC payments are included? 

Dr. GLAUBER. In fact, it does not. The aggregate measure of support, the $4.5 billion dollars, that you’ve sited, does not include 

MILC. The measure itself is calculated by convention that all countries who have price support programs and for us, it’s essentially 

the Dairy Program and the Sugar Program that fall under this particular methodology. But the amount is calculated on the basis of 

the difference between the administered price—the $9.90 and a 

world price, which is an average world price of 1986 to 1988 for 

fluid milk. That price difference, times the fluid milk production in 

the U.S. So, that gives you the $4.5 billion. That is trended up, because milk production has been moving up by one to 2 percent per 

year. 

Now, what is added to that is any other dairy program or income 

transfer, like MILC. So, for example, this year, if—for 1906, we’re 

projecting at roughly $.5 billion dollars in MILC payments, that 

would be added to the roughly $4.5 billion dollars, giving you $5 

billion dollars. So, you—you’re absolutely right, when we’re looking 

at a proposal of reducing our AMS by six—60 percent to the $7.6 

billion dollars. It would imply, at least, if nothing were done with 

the Dairy Program under the current 2002 legislation, that the 

1906 number, at least, would be roughly 60 to 65 percent of that 

total. 

The CHAIRMAN. OK. Senator Crapo? 

Senator CRAPO. Thank you very much, Mr. Chairman. And Dr. 

Glauber, I want to talk, first, with you about forward contracting. 

As you probably know, I’m a very strong proponent of forward contracting as a risk management tool that frankly, is frequently used 

by farmers outside the dairy sector. The majority of the farmers 

that use forward contracting to lock in prices they can receive for 

cotton, corn, and wheat. And dairy farmers actually, often utilize 

forward contracts to lock in feed, fuel, and other input costs. But 

10

unfortunately, as we tried to make this program permanent last 

year, we were unsuccessful in doing so. 

At that time, the Department told Congress that the USDA supported making this program permanent, and we’re going to be looking at it again, as I’m sure you’re aware. And I just wanted to 

check with you, because I want to make sure that the Department 

continues to take this position. I know that there was recently was 

a Farm Bill theme paper that endorsed risk management tools, and 

I wanted to assure, once again, that the USDA does support making the forward contracting programs permanent. 

Dr. GLAUBER. Yes, yes, we do. And we believe that forward contracting provides a good mechanism for producers to share risks. 

I know there’s a lot of criticism of that program, I think some unfounded. The—if you remember the pilot, it applied only to Class 

III and Class IV uses and so, in the sense that—of undercutting 

the program, or anything like that of the Federal Milk Marketing 

Order, because the MILC for manufacturing purpose is not required to be pooled in the Federal Order, regardless of whether or 

not there’s a forward marketing contract, we believe this did not 

have an adverse affect on that. 

Senator CRAPO. Well, thank you very much. I just wanted to be 

sure to get that on the record, as we continue to deliberate regarding these kinds of matters. And I want to go back now, to the—

frankly, the first question that was asked by the Chairman, with 

regard to MILC, and I know that you’ve answered that, but I wanted to get into it in a little more detail. 

In a report issued by the USDA in October of 2004 on the dairy 

programs, the USDA reported that the MILC conflicts with Dairy 

Price Support Program, it actually decreases milk prices paid to 

producers. According to this report, without the MILC Program, 

the remaining dairy programs raise the all-milk price by 4 percent, 

compared to about 1 percent with MILC on an average over 5 

years. And in the same report, it was found that when the market 

prices fall toward the price support safety net and thus, is calling 

for an adjustment in supply, the results are partially muted by the 

MILC Program, which by providing production linked funds to producers, may encourage production and retard the supply adjustment. The result being, that milk stays lower—prices stay lower 

longer than they otherwise would, increasing the likelihood of larger CCC purchases, and raising costs for both programs. 

It appears to me, that there’s an inherent conflict between the 

MILC Program and the Dairy Price Support Programs, and do 

these programs continued existence make economic sense? 

Dr. GLAUBER. I think the problem that you’ve raised, is a legitimate one. That is, the having both in unison, and we—you can 

make analogous issues about programs in grains or anything else, 

where we have both price support features and direct payment features. The difference here is that, again, the real difficulty is when 

prices are extremely low, because it does mute the otherwise price 

response that producers would have of cutting back production. 

Now, again, this is—the MILC Program is limited to a degree, because of the $2.4 billion dollar—million pound limit on how much 

is eligible for production—or eligible for support. Now, let me just 

add, as an economist, I might add, if you look at these programs 

11

separately, I can see a lot of nice things about a MILC Program, 

in the sense that it provides an income support, which is—it 

doesn’t distort product—underlying product markets. That it provides some safety net, but doesn’t distort the underlying product 

markets. The—but if you add on top of that a price support program, that is, trying to do the both and I think there are potential 

problems. Now, again, I would argue that it’s minimal in the 

sense—or it’s smaller than many might believe, because of the relative price levels, where we have been. But the danger is exactly 

at the point when, you mentioned, when prices are extremely low, 

when they’re near support already, and that producers aren’t getting the signal to adjust. 

Senator CRAPO. Well, I understand that through September 

2005, the USDA reported over $2 billion dollars in MILC payments. 

Dr. GLAUBER. That’s correct. 

Senator CRAPO. And I haven’t been a proponent of this program, 

as you know, and many Idaho dairy producers aren’t in favor of it 

either, but the program was considered—or continued in the last 

reconciliation bill. And I’m concerned that the ongoing cost of this 

program that depletes funding that could be used elsewhere, is not 

warranted. And while considerable resources are spent on this program, I understand that dairy farmers are continuing to leave the 

business at the same rate, as before MILC existed. So, the question 

I have there, first of all, is that your understanding as well? And 

also, is this current system the most fiscally sound way to try to 

provide an adequate safety net for dairy farmers? 

Dr. GLAUBER. Yeah, the—I would say that the overall structural 

changes that are going on in the dairy industry are more being directed by productivity gains and things like that, which are far outstripping—you know, traditionally, or at least historically, over the 

last 20 years, and I’d say even over the last 10 years if you’re looking at outstripping demand. And so, that’s a structural imbalance. 

Senator CRAPO. But one of—I’m not saying that MILC is causing 

that, but——

Dr. GLAUBER. Right. 

Senator CRAPO. —but I’m saying, it’s not stopping it at all. 

Dr. GLAUBER. Right. No, that’s certainly true. I’m not sure the 

price support program, either, would necessarily do that, would 

have much affect either, but your point is very well taken about 

the compatibility about these programs, necessarily, that one has 

to consider that. 

Senator CRAPO. All right. Thank you. I see my time’s expired. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I commented on that earlier. Mr. Leahy, we realized you couldn’t be here to start with, any opening statements you 

wish to make, please feel free to do so. 

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR 

FROM VERMONT 

Senator LEAHY. Thank you, Mr. Chairman. I’ll make a brief one, 

if I might and we had the voting rights extension bill, one of the 

most important bills we’ll take up this year on the floor. And Senator Specter and I are managing that bill on the floor, so I’ll be in 

12

and out as a result. I did want to thank you for holding this important hearing on the dairy programs that are in the 2002 Farm Bill. 

We’re going to have Mr. Leon Berthiaume, who is the General 

Manager and CEO of St. Albans Co-op. I see Leon back there. Leon 

has provided a tremendous leadership of Vermont’s largest cooperative for many years. I think his wisdom on dairy issues is only exceeded by his practical experience in dealing with them in the real 

world, so I look forward to his testimony. 

We actually had an historic accomplishment—the 2002 Bill that 

unified national dairy policy that’s worked for all dairy farmers 

from Wisconsin to Vermont to the State of Washington. At the 

same time, we know the dairy matters are often contentious. But 

this one, this program brought about tremendous unity in dairy 

farmers. The MILC Program—and I was glad to hear Mr. Glauber 

speak about that—or Dr. Glauber speak about that, because that’s 

the vital lifeline of 1,000’s of small and medium sized dairy operations. 

In my State of Vermont, we depend on the—and in Vermont, agriculture dairy is by far, the most important part. MILC has provided more than $47 million dollars in support that’s helped 100’s 

of dairy producers, where the severe market fluctuations. Actually, 

the law allowed them to stay in business and stay on the farm. 

And in 2004, the Government Accountability Office agreed. They 

found that quote, payments introduced through the MILC Program 

have kept small dairy farms in business, close quote. I agree, it 

takes some pride knowing MILC is the best-targeted program that 

USDA operates. It’s counter-cyclical; payments are made only when 

the market price is low. When the prices are good, as they were 

throughout most of 2005, the program doesn’t operate. There’s even 

a firm payment limitation to 125 cows. 

Now, under your leadership, Mr. Chairman and under the help 

of many others, we were able to extend MILC for an additional 2 

years. We have overwhelming bipartisan support in this committee 

and on the floor. The 2002 Farm Bill, we extended the Dairy Price 

Support Program. That’s an effective means of providing a minimal 

safety net. We also made a historic commitment to working lands 

conservation programs. That’s proven valuable to our dairy producers and others. 

The regional equity requirement of the 2002 Farm Bill also guaranteed traditionally under served states of per share in USDA conservation programs. So, we made progress and I appreciate the 

chance to be here. I would ask, if I might, in my questions of the 

witnesses, we’ve had a—probably the worst triple whammy I can 

ever remember in Vermont’s history, this year. We had low milk 

prices, the highest fuel cost we’ve ever seen, and then on top of 

that, we had devastating floods in Vermont in the late spring and 

early summer. Any one of those would create difficulty. Put together, it’s been horrendous. 

In fact, the whole State of Vermont has been declared an agriculture disaster by USDA. Now, the Senate has responded to this 

and other disasters around the country, we added a $4 billion dollar agriculture disaster program to the fiscal year 2007 Agriculture 

Appropriations Bill. I know the Administration threatened to veto 

13

a similar package on the Supplemental Appropriations Bill earlier 

this year. And so, the House had to remove it during conference. 

Has—so, I’d ask the witnesses—let you pick whoever you want—

has the Administration’s position changed? If so, what’s your current position? 

Dr. GLAUBER. Certainly, either of my colleagues will respond as 

well, but as far as I know, it has not changed. And in largely, because in looking at the overall picture in U.S. agriculture in for 

particularly for 2005, that there were—it’s certainly true that we 

saw some low prices in certain—for certain commodities, we also 

saw record yields for a number of commodities. And in terms of 

revenue for a number of commodities, those tended to be up of—

just for example, corn was second highest production in yield on 

record. Soybeans, record yield, second highest production on record. 

Cotton, record production, second highest yield on record. 

Senator LEAHY. So, your answer would be that although there’s 

$4 billion dollars, you’d still be in the same position, the veto would 

be threatened for that? 

Dr. GLAUBER. Well, I—I’m not a Policy Official, Senator, and so 

I will defer to my two colleagues here, but——

Senator LEAHY. Well, would you say that——

Dr. GLAUBER. I can tell you——

Senator LEAHY. Would it be safe to say that you would not support it? 

Dr. GLAUBER. I would not support it. 

Senator LEAHY. Thank you. I do thank you for—I disagree with 

you on that, but I do thank you for extending the MILC Program 

during the budget reconciliation process last year. I know President 

Bush endorsed an extension of the MILC Program when he was 

campaigning in Wisconsin during the Presidential Campaign and 

your department played a supportive role in our efforts on Capitol 

Hill to extend the program for two additional years. I look forward 

to working with Secretary Johanns and Deputy Secretary Conner, 

of course he’s well known to members of this committee on the 

dairy provision. 

I was also pleased to note that you say this—the MILC Program 

is not expected to have any significant impact on total milk production. I think that was important, because there were many who 

thought that it would increase production and lower the market 

price. So, I’m glad to see you disagree, as I do. 

On a percentage basis, can you tell us how many U.S. dairy 

farms are fully covered under MILC with a 2.4 million pound limit? 

Dr. GLAUBER. You know, I don’t have those numbers right with 

me. I do know in the aggregate, about 50 percent of milk production is covered, but—but my guess is the number of dairy farms 

covered would be quite—would be much higher than that, because 

of the structural things. And—but we certainly can get these numbers. 

Senator LEAHY. I’m told it’s about 80 percent, and I wondered if 

you could just submit that? 

Dr. GLAUBER. Yeah, my colleagues say that, that is correct. 

Senator LEAHY. OK. And would you agree that the MILC Program is highly targeted to small and medium sized dairy farms? 

Dr. GLAUBER. Absolutely. 

14

Senator LEAHY. OK. Mr. Chairman, as you know, I’ve spent 

years on this committee. I’ve been very supportive of agriculture 

around the country. I think that probably by National Security is 

the ability to have agriculture around the country, but also, have 

it diversified around the country, so no one part of the country can 

be wiped out when it has. I know that’s your view, too, and I look 

forward to working with you on this bill. If I have other questions, 

I’ll submit them for the record. Just tell the witnesses, be cautious 

who’s watching you from the wall behind, when you’re talking. It’ll 

probably be Senator Lugar, of course. Thank you. 

The CHAIRMAN. Well, thank you and you’re absolutely correct. 

You have been a strong advocate for agriculture, period, and you 

and I went through—have been through two Farm Bills together, 

as well as a difficult reconciliation process, and I will have to say, 

you have been a champion for agriculture, period. In particular, obviously, you’re parochial interest. But you’ve always been very kind 

to my peanut and cotton growers, and you support eating Georgia 

peanuts, which I noticed you’re doing now and we appreciate that. 

Dr. Glauber, many dairy industry stakeholders are concerned 

with the time it takes to amend Federal Orders administratively. 

Many are concerned that USDA has no incentive to make timely 

decisions, and that often, difficult decisions are delayed or buried 

in procedure. I was heartend to hear in your testimony that USDA 

has developed several new rulemaking initiatives that would address this issue. In fact, your testimony states that the time to 

complete regulatory action could be reduced by over one-third. 

What’s the current status of these rulemaking policy initiatives, 

and when might they be released to the public? 

Dr. GLAUBER. I’m going to let our AMS Administrator, Lloyd 

Day, answer that question. 

Mr. DAY. Well, thank you, Mr. Chairman, for the question. We’ve 

actually begun the new and revised processes to decrease time requirements and we’re estimating that we’re going to be able to decrease time requirements by about 9 months. Currently, using the 

Federal Order Rule Making Process, this could be anywhere from 

18 to 24 months in order to get the input from everyone, and have 

these public hearings, and briefs, and then you know—and then finally move on to a final rule. 

What we’ve been doing is pre-hearing meetings to discuss with 

interested parties before the ex parte restrictions apply to be piloted to improve rulemaking time lines. We’ve developed supplemental rules of practice to define the public input time lines, once 

formal rulemaking processes begin and we’re also procuring services for court reporters in terms of best value, instead of lowest 

cost, so we can get better speed in terms of getting a transcript of 

these meetings back to the hearing. So, these changes are underway right now, sir. 

The CHAIRMAN. OK. All right. Well, thank you very much. Senator Crapo, do you have anything else? 

Senator CRAPO. I think I have one follow up question. 

The CHAIRMAN. Sure. 

Senator CRAPO. Back to forward contracting. I just wanted to try 

to get on the record, a little bit more discussion of that. When we 

debated this last year, there were supporters of making forward 

15

contracting program permanent, but there were also critics whose 

objections were based on some—what I consider to be some misconceptions of the program. Some of them have argued that if the 

Forward Contracting Program is made permanent, that it’s going 

to cause the Federal Milk Marketing Orders to collapse, and they 

argue that processors who forward contracted were not required to 

participate in the Federal Order Pooling Requirements. I—my 

question is, is that true, and do you think that the pilot program 

undercut the Federal Milk Marketing Order system, or exempted 

participating processors from their obligations to pay into the Producer Fund or the Pool? 

Dr. GLAUBER. I—let me answer the last question first, no, I don’t 

think they undercut it. Again, MILC use for manufacturing purposes does not require it to be pooled on any Federal Order regardless of whether or not there’s a Forward Contracting Program. 

Manufacturing processes—processors elect whether or not they 

wish to have the milk they use pooled based on a comparison of 

the revenues that will be received from participating versus the 

costs incurred to participate. 

Under the Pilot Program, if manufacture met the Forward Contract Pilot Program requirements, they were allowed to have the 

milk pooled on an order, but were able to pay less than the Federal 

Order minimum blend price. I, again, I stress here that the Forward Contracts only apply to the amount of milk in the Class III 

and Class IV uses. So, since proprietary handles—handlers accounted to the Federal Order Pool, for all the milk they use at 

Class prices, the full—the pool itself, was unaffected. Consequently, 

we believe that the program did not undercut—repeat, did not undercut Class V pricing within the Federal Order system. 

Senator CRAPO. All right. Thank you. And then, I guess this is 

just sort of a followup; did the Dairy Forward Contracting Program 

cost the government anything? 

Dr. GLAUBER. I hear no’s. 

Senator CRAPO. All right. I’ll take that as a no from the support 

staff there. 

Dr. GLAUBER. Yeah. 

Senator CRAPO. Thank you. 

The CHAIRMAN. All right. Thank you very much. We appreciate 

your being here. We look forward to staying in touch as we get 

ready to write the farm bill next year, and I’m sure we’ll have you 

back again sometime. 

Dr. GLAUBER. Thanks very much. 

The CHAIRMAN. And tell Keith, again, we’re thinking about him 

and certainly hope he’s back to work soon. 

Dr. GLAUBER. Will do. Thank you very much. 

Senator CRAPO. That’s all? 

Dr. GLAUBER. Yes. 

The CHAIRMAN. Our next panel that we’re going to ask to come 

forward consists of Mr. Charles Beckendorf from the National Milk 

Producers Federation, Tomball, Texas; Mr. Jim Green, Kemps LLC/

HP Hood LLC on behalf of International Dairy Foods Association, 

St. Paul, Minnesota; Mr. Ken Hall, a Dairy Producer from 

Terreton, Idaho; and Mr. Leon Berthiaume, St. Albans Cooperative 

Creamery, Inc., Swanton, Vermont. 

16

Gentlemen, welcome to each of you and I can’t tell you how much 

we appreciate you taking time out of what I know is a busy schedule for each one of you, to come to Washington, and to share some 

thoughts with us as we conduct some oversight of the 2002 Farm 

Bill. We look forward to your testimony. Mr. Beckendorf, we’ll start 

with you, and we’ll come right down the row for any opening comments you wish to make. So, welcome and thank you for being 

here. 

STATEMENT OF CHARLES BECKENDORF, NATIONAL MILK 

PRODUCERS FEDERATION, TOMBALL, TEXAS 

Mr. BECKENDORF. Thank you, Mr. Chairman and to you, and the 

Ranking Member Harkin, and the other Committee Members. I appreciate the opportunity to be here and good morning to you. My 

name is Charles Beckendorf. I currently serve as Chairman of the 

National Milk Producers Federation in Arlington, Virginia. I’m a 

fourth generation dairy farmer in Tomball, Texas and currently 

dealing with the heat and cows, doesn’t work very well down there. 

On behalf of the Nation’s 60,000 dairy producers, I appreciate 

the opportunity to review the current status of National Farm Policy in how the 2002 Farm Bill has worked to benefit America’s 

dairy producers and their cooperatives. My testimony will focus on 

economic policy issues, as well as on other topics impacting dairy 

farmers profitability. 

In 2000 National Milk Producers Federation prepared for the 

Farm Bill by obtaining grassroots input through our Dairy Producer Conclave process. The results of the Conclave meetings were 

reflected in many of the positions that we took back in 2001. 

To begin with on Economic Policy, the National Milk Producers 

Federation recommended the enactment of the dairy safety net program, which included several features. Number 1, extending the 

dairy price support purchase program at $9.90 per hundredweight. 

Numbers 2, maintaining the CCC purchase price for nonfat dry 

milk at $1 dollar a pound. Extending the Dairy Export Incentive 

Program; and establishing a supplemental direct farmer payment 

program. The 2002 Bill authorized the Dairy Price Support Program from June 1st of 1902 through December 31st of 1907, just 

as we have requested. 

If the Diary Price Support Program had not been in effect during 

2002 and 2003, farm milk prices would have been 29 percent below 

the average level for the previous 5 years. Without the Price Support Program, income received by dairy farmers would have been 

reduced by an additional $2.4 billion dollars. From June 1902 

through June 1906, we estimate that the Price Support Program 

has prevented a $3.5 billion dollar loss to dairy farmer income, at 

a cost of $1.1 billion dollars. 

The Price Support Program has incurred almost no purchases or 

costs during the fiscal year of 2005 and the first half of fiscal year 

2006, proving that the program is truly a standby state—safety 

net. The Price Support Program is an effective, efficient, and equitable safety net program and continues to benefit all dairy producers. 

There were some goals that NMPF outlined in the 1902 Farm 

Bill that were not implemented and I’d like to address two of those 

17

now. The National Milk which supported the creation of a Class III 

and Class IV Supplemental Payment Program. Enacting this program would have increased dairy producer income by $5.4 billion 

dollars between 2002 and 2008. We believe that this supplemental 

program, coupled with the Price Support Program, could provide a 

broader safety net for dairy producers. Congress didn’t enact our 

recommendations for the supplemental program, but instead, created a new Direct Payment Program, which came to be know as 

MILC, or the MILC Income Loss Contract. The National MILC, at 

this time, still remains neutral on the MILC Program. 

The second issue is the ability to assist imported dairy products, 

the same 15 cents per hundredweight, that American dairy farmers 

pay for promotion. For 22 years, America’s dairy producers have 

spent billions of dollars on research, advertising, and promotion. 

Since importers of foreign diary products also benefit from selling 

in our market, they should also be subject to an equivalent assessment. The imported check off was included in the 1902 Farm Bill 

and however, due to an implementation concerning the legality of 

this measure, USDA is determined it cannot implement the import 

check off without further legislation from Congress. We urge the 

Senate to work with USDA to address the concerns that have been 

identified with this provision. This is a measure that Congress 

should take up well before the next Farm Bill. 

On the issue of animal health, notable progress has been made 

to address a number of animal health related issues that were 

dealt with in the 1902 Farm Bill. Of greatest significance, is the 

$464 million dollars in funding that USDA has received for completion of the National Animal Health Research and Laboratory Complex in Ames, Iowa. APHIS and ARS will share this facility, and 

this will provide the U.S. with a state-of-the-art animal health research and diagnostic laboratory facility. 

The National Johne’s Disease Control Program was authorized 

under the 1902 Farm Bill, but not adequately funded. While the 

Farm Bill contains authorization language, we annually have to 

fight to obtain funds for the Johne’s program. Congressional appropriations have provided USDA with basic funding to administer a 

voluntary control program for, but more needs to be done with the 

Johne’s program. 

On the environmental compliance front, dairy producers have a 

vested interest in acting as good stewards to—of the environment. 

Because of this, dairy farmers support environmental regulations 

based on sound science and uniformed implementation. The most 

effective way to encourage compliance with regulation is to assist 

farmers in helping meet complex requirements. 

USDA has done a good job of managing the Environmental Quality Incentives Program—or the EQIP Program, which Congress authorized as part of the 1902 Farm Bill. Some of the things farmers 

are most pleased about with respect to EQIP include the local control over the approval of the cost-share contracts, the increased 

funding in the 1902 Farm Bill and the increase in the allowable 

cost-share percentage. Dairy farmers realize this program needs to 

be further streamlined, and more funding from Congress would 

also help. Throughout this process, however, it should continue to 

be a very locally, rather than nationally, driven program. 

18

Trade policy plays a significant role in impacting the direction 

and effectiveness of government dairy programs. It’s likely that 

trade policy will continue to play a critical role in determining 

American dairy farmers’ profitability. Congress should be involved 

in carefully reviewing future trade agreements, as well as providing our negotiators with the necessary resources to negotiate 

and monitor trade agreements. 

A key point is ensuring that our rights and responsibilities under 

current trade agreements are pursued. The Dairy Export Incentive 

Program is a good case in point. 

In 2001, we asked that the DEIP be reauthorized at the maximum levels permitted by the WTO, and Congress did that in the 

1902 Farm Bill. Since then, USDA has done a good job of making 

use of the non-fat dry milk portion of DEIP. However, there have 

been times when National Milk wanted the USDA make more aggressive use of the program, particularly for butter and, most recently, for cheese. 

NMPF remains a strong supporter of the Federal Milk Marketing 

Orders. Just last month, USDA issued a recommended decision in 

response to a new milk-based drinks that compete with fluid milk, 

but do not pay the Class I price. USDA’s decision will close a technical loophole and restore equity to fluid milk pricing and we applaud their decision. 

Additionally, this spring, USDA stopped large bottling plants in 

two markets from using an exemption originally intended for small 

farmers to use. This decision complements the MILC Regulatory 

Equity Act, which Congress passed earlier this year, and ensures 

that these plants will compete in those markets on an equal basis 

with the other plants and producers. 

In 2003, dairy producers started a program called Cooperatives 

Working Together to help strengthen and stabilize farm-level 

prices. We created a new marketing cooperative to voluntarily pool 

financial resources to pay for programs that reduce dairy supplies. 

Our supply reduction activities have helped farmers income and 

their livelihoods. 

However, CWT is not a replacement for government safety net 

programs. It operates as a complement to—not a replacement of, 

Federal farm program. It’s a unique program in agriculture. We’re 

very proud that farmers of all sizes, in all regions, have come together to cooperate and to help each other economically. 

In summary, NMPF believes that the Farm Bill signed by the 

President in 1902 was a reasonable, rational, and fair approach to 

farm policy. Most of the items we asked the Senate and House Ag 

Committees to include found their way into it. 

Our message to the Senate is that dairy farmers are not looking 

for a handout. We’re not looking for a hand up; what farmers are 

looking for from government is a handshake. Dairy farmers want 

a sign of commitment such as a handshake indicating, when times 

are tough, there will be a modest safety net in place to help catch 

those who are vulnerable. National Milk Producers Federation 

takes comfort in knowing that members of this Committee realize 

that tremendous impact of the Farm Bill has on U.S. agriculture 

and look forward to working with Congress and this committee 

19

when it’s time to collaborate on the next Farm Bill. Thank you for 

your attention. 

[The prepared statement of Mr. Beckendorf can be found in the 

appendix on page 62.] 

The CHAIRMAN. Thank you. Mr. Green. 

STATEMENT OF JIM GREEN, KEMPS LLC/HP HOOD LLC ON BEHALF OF INTERNATIONAL DAIRY FOODS ASSOCIATION, ST. 

PAUL, MINNESOTA 

Mr. GREEN. Thank you, Mr. Chairman, members of the Committee. My name is Jim Green, President and CEO of Kemps, a 

Saint-Paul, Minnesota based dairy company that makes a—makes 

and markets a wide variety of dairy products including fluid milk, 

ice cream, sour cream, cottage cheese, dips and yogurt. Kemps is 

a wholly owned subsidiary of H.P. Hood Company, which is one of 

the larger dairy companies in America. 

I have been in the dairy industry all my life, starting with a family owned business, a family owned dairy in South Central Pennsylvania. And today, I have the privilege of serving with Kemps, 

as well as serving as the Chairman of the International Dairy 

Foods Association. Thank you for the opportunity today, to offer my 

perspective about our National Dairy Policy. 

Most of our dairy policies were enacted in the 30’s and 40’s, although Congress has layered on new programs in recent years. All 

of this has lead to a current set of programs that’s failing our industry, and it’s failing the consumer, as well. 

And let me explain. Under Federal Milk Marketing Orders created in 1937, USDA requires regulated milk processors to pay minimum prices for milk through a complicated classified pricing, 

and—and pooling scheme. As a result, many companies are forced 

to make business decisions around bureaucratic rules, as opposed 

to making decisions around the marketplace. 

No agriculture commodity has a classified pricing system other 

than dairy. We have heard today about the failure of USDA to update much needed make allowances. In every month that goes by, 

it’s costing the dairy processors around $26 million dollars and it’s 

becoming potentially crippling to our industry. 

As long as the Federal order system exists, USDA needs a clearly 

defined decisionmaking process and firm deadlines. On top of the 

Federal orders, USDA administers two conflicting dairy subsidy 

programs, the Dairy Price Support Program and the MILC Income 

Loss Contract Program. Judging their past performance, I would 

suggest that reconciling these two counter veiling programs and 

creating a single program that works, will be one of the greatest 

challenges as you craft the next Farm Bill. And here’s some points 

to consider as you do that. Through the Dairy Support Program, 

which dates back to 1949, USDA buys nonfat dry milk, butter, and 

powder at government mandated prices to support the prices that 

are paid to dairy farmers. While conceived as a safety net, the program now essentially encourages production of certain products, 

mainly nonfat dry milk, and discourages production of other products. This program makes it more profitable to sell nonfat dry milk 

to the government, rather than invest in technology to make milk 

20

proteins, which is a product that being increasingly demanded by 

the marketplace. 

The Bush Administration is taking the first step in recognizing 

they need to change the Dairy Price Support Program by sending 

Congress legislative language to minimize its negative impacts. We 

support this goal in ensuring at a minimum this program is managed with greater fiscal responsibility. But frankly, the past performance to the program does not validate its continued existence. 

The other subsidy program, MILC, pays dairy producers when 

milk prices fall below a specific target price. It was put in place as 

a transition from the failed Northeast Interstate Dairy Compact. It 

was never intended to be a permanent government program. Since 

its creation in 2000, we’ve learned that the MILC Program creates 

costly government outlays and fans regional divisions among dairy 

producers. The biggest problem being that MILC conflicts with the 

Dairy Price Support Program. USDA, through MILC, pays some 

dairy farmers to over produce. And the USDA through the Dairy 

Price Support Program buys that excess, buys that surplus in the 

form of powder, butter, and cheese, and essentially paying twice for 

the same milk. And needlessly, interfering with commercial marketplace. 

The next Farm Bill should reconcile these two conflicting programs and create a single program that really does work. The 

Dairy Forward Contracting Pilot Program that existed between 

2000 and 2004 was a success and we believe it should be reinstated 

on a permanent basis. 

Currently, only diary cooperatives can offer producers this type 

of price stability. This fair risk management tool creates a level 

playing field, so all producers—all producers can control their own 

future and not rely on government expenditures and this program 

costs the government not a single cent. 

The next Farm Bill provides an opportunity for Congress to transition away from ineffective dairy policies of the past, and from our 

perspective this can be best accomplished by three initiatives. 

Number 1, initiating a transition from the two current conflicting 

support programs to a single national dairy farmers safety net that 

minimizes government interference and provides critical assistance, 

when it is needed. Second, by leveling the playing field by making 

the Dairy Forward Contracting Pilot Program a permanent government program. And third, streamlining the Federal Milk Marketing Order decisionmaking process. 

Mr. Chairman and members of the committee, the diary processing industry has committed to working with you and the dairy 

producers to achieve policies that allow producers and processors to 

prosper and to be more competitive. Thank you very much for this 

honor. 

[The prepared statement of Mr. Green can be found in the appendix on page 70.] 

The CHAIRMAN. Thank you very much, Mr. Green. And it was not 

by accident that we timed Senator Coleman’s entrance just as you 

began. Mr. Green, I want you to notice that. 

Mr. GREEN. I appreciate that. 

The CHAIRMAN. Mr. Hall 

21

STATEMENT OF KEN HALL, DAIRY PRODUCER, TERRETON, 

IDAHO 

Mr. HALL. Thank you, Mr. Chairman and members of the Committee, my name is Ken Hall. I am a dairy producer from Terreton, 

Idaho. That’s in the Eastern part of the state, and I am before you 

today representing myself and also the Idaho Dairymen’s Association. The Idaho Dairy Association was formed as a dairy producer 

advocacy group in 1944 and has a dairy producer board of directors 

that is elected by their peers. All dairy producers in Idaho are 

members of IDA and pay a one-cent per hundredweight assessment 

to cover the cost of the organization. 

I began working in the dairy industry in 1979 and managed absentee owner farms for roughly 15 years. In 1993, my wife and myself started Hall Dairy, LLC and we started our own operation in 

Terreton with 100 cows. Today we are milking 2,000 head. 

The upcoming farm bill debate should be utilized as a time to review, to determine the long-term effectiveness of agricultural programs. Since the 1930’s the government has attempted to assist agricultural producers by replacing the signals of the market that 

would impact price by keeping supply and demand in check with 

government signals. 

If the intent of the government support programs is to provide 

an adequate return on time and investment, then the outcomes 

shows that the programs have failed. In 1981 the Class III price, 

which is the basis for all milk pricing, averaged $12.57. In 2000 it 

averaged $9.74. For the 48 months representing 2000 to 2003 40 

percent of the time the monthly Class III price was below the $9.90 

support price, and with November of 2000 dipping all the way 

down to $8.57. This extreme volatility and pricing that is lower 

than prices producers received over 30 years ago, it is a direct result of failed government programs that do not allow the market 

system to work. The same results can be seen in the corn market. 

The average price per bushel in 1981 was $2.92 and today it’s 

roughly $2.40. 

So, how do agriculturalists survive? They expand by planting 

more acres or milk more cows, and adapt technology that increases 

yields. Those who can’t adjust leave the business. Since 1981, commercial dairies have been reduced from 225,000 to 64,000, a 72 percent reduction. This begs the question, are the government program—dairy support programs working? The short answer is no. 

An example of such a program is the MILC. I believe that it 

interferes with the free market system by sending false market signals. It also interferes with other government price—dairy price 

support programs, and discriminates against producers and their 

operations based on size. In the 2004 USDA Economic Effects Of 

US Dairy Policy and Alternative Approaches To Milk Pricing Report to Congress stated that there is a basic incompatibility between MILC and other pre-existing dairy support programs. 

The Agriculture Department found that MILC does in fact artificially depress the price of milk by—it does, in fact, artificially depress the price of milk by encouraging overproduction. The price 

support program and the Milk Income Loss Contract program provide an example of problems that can be caused by conflicting policy outcomes. In reality, MILC distorts the market and conflicts diVerDate 0ct 09 2002 14:36 Nov 16, 2006 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\30429.TXT TOSHD PsN: LAVERN
22

rectly with other pre-existing subsidy programs all at a cost to—

of $2 billion since its inception, nearly twice the $1 billion originally budgeted for it. 

The milk price-support program, which dates to the Depressionera Agricultural Adjustment Act, should also be reviewed to determine if it is fulfilling its purpose as intended or inhibiting the market system to function. Under that program, the government steps 

in and buys dairy products when the price falls below a certain 

level. If the support price is set low, it provides some income security to farmers while allowing the market to slowly clear and production to fall to the point where prices can rise again. It is our 

belief that the program no longer serves its stated purpose and allows the price of milk to stay low for an extended period of time, 

longer than if the market system was allowed to function without 

government interference. As I have stated above many times since 

2000 the Class III price dropped below the support price. 

Idaho is viewed as a large dairy producer state, yet 50 percent 

of our producers milk 200 cows or less and receive full benefit of 

the Milk Income Loss Contract program. Due to that fact, we studied the Milk Income Loss Contract program thoroughly before coming to a position of opposition. Utilizing the factual data presented 

by USDA and agricultural economist we struggle to understand 

why those who have the best interest of dairy producers in mind, 

including members of this esteemed committee and farm organizations, would continue to support dairy programs that have failed 

the industry. 

One tool that I would encourage including in the 2007 Farm Bill 

is the permanent authority for all dairy producers to use forward 

contracting. Simply put dairy forward contracting provides price 

stability by allowing dairy producers to manage risk. USDA 

tracked performance during the 2000–2004 pilot program and 

found that forward contracts were effective in achieving stable 

prices. 

Utilizing forward contracts, dairy producers can service debt 

more easily, obtain more favorable financing, expand their operations, and guarantee a margin above the cost of production. Dairy 

producers deserve to have a tool that provides them with the freedom to price every pound of milk they sell before it is produced. 

Forward contracting is extensively utilized by other commodities, 

even those with government support programs, because it allows 

the buyer and seller to mutually agree on an advance price and 

they can more predictably basis—and be a more predictable basis 

for planning their investments and financing needs. 

Congress provided the necessary tools for agriculturalist to control their destiny in February 1922 with the adoption of the Capper-Volstead Act. The Act also—the Act, as you’re aware allows 

producers the freedom to work together. National Milk Producers 

Federation has taken the lead in the formation of Cooperatives 

Working Together. The program, which is funded—is producer 

funded, is an example of the Capper-Volstead functioning as intended. Although approximately 50 percent of the milk produced in 

Idaho is marketed directly to processors and not through cooperatives 84 percent of the milk produced in the state is participating 

in the self help program. 

23

It is our estimation that the elimination of government-sponsored 

agriculture programs would allow the free market system to work 

with producers being protected through the ability to work together 

under the protection of the Capper-Volstead Act. 

Mr. Chairman, I greatly appreciate this opportunity to testify 

today. Thank you. 

[The prepared statement of Mr. Hall can be found in the appendix on page 85.] 

The CHAIRMAN. Thank you very much, Mr. Hall. Mr. 

Berthiaume. 

STATEMENT OF LEON BERTHIAUME, ST. ALBANS 

COOPERATIVE CREAMERY, INC., SWANTON, VERMONT 

Mr. Berthiaume. Good morning, Chairman Chambliss and members of the Senate Act Committee. Again, my name is Leon 

Berthiaume and I’m the General Manager of the St. Albans Cooperative Creamery. I joined the Cooperative in 1984 and had the 

privilege of becoming the General Manager in 1991. 

We are a member of Governed Dairy Cooperative, representing 

500 dairy farmer operations and their farm families. Primarily, 

these farms are located in the state of Vermont, but we do have 

some in New York, as well as in New Hampshire. We market approximately 1.3 billion pounds of milk on an annualized basis. 

Today, as we talk about dairy programs, I feel very strongly that 

they are vital components to our agriculture industry and I commend the Senate Act Committee in reviewing and assessing the effectiveness of these dairy programs. 

When I took this opportunity today, I’m here really as a voice for 

our dairy farmers and obviously, we’ve talked a little bit in this 

opening remarks today about the economic situation that our dairy 

farmers are facing. Again, we are experiencing again, depressed 

milk prices, some that bring us back to 2002, 2003, but it can also 

bring us back to 1979. But at the same time, we are experiencing, 

as Senator Leahy indicated in his opening remarks, about escalating operating costs, as well as adverse weather conditions. And 

I can’t imagine what crisis we would be in without our dairy programs. 

I am in full support that, as USDA, we should have an OR arcing 

policy to support regional production of milk. Agriculture is an essential part of our rural communities and our economy. The 

Vermont dairy industry, alone, generates approximately $1 billion 

dollars in direct economic activity for our state. When we look at 

the 2002 Farm Bill, there are several dairy programs directly impact dairy producers, their income, and their operations. I’ll just 

touch up on three this morning. 

One, has been the economic safety net for dairy farmers. The 

other, Federal Orders and the third, is conservation programs. I 

definitely am a proponent for economic safety net policy, which is 

needed to operate when producer prices could force too many producers out of business and damage our Nation’s milk producing infrastructure. 

I favor the continued operation of the Dairy Price Support Program and we need to know that there is a floor for manufactured 

products. It is time to evaluate though, the current targeted $9.90 

24

for the U.S. average manufacturing milk price. We also need to ensure that the mechanism is in place, that prices do not fall below 

the established targeted level. 

The other safety net has been the MILC Income Loss Contract 

Program and its extension. This has provided much needed economic assistance to our farms in Vermont, when prices have become so depressed. In 2002 and 2003, Vermont dairy farmers received over $45 million dollars in MILC payments. The MILC extension also has been essential in 2006, and our work to date, paying over $2 million dollars to our dairy farmers. 

I believe we need to understand the MILC is not a cost, but it 

is actually investment in dairy farms, in Ag businesses, and processors, and our rural communities. There are significant returns on 

these investments. As we look to continue to look at safety net programs and the consideration of MILC, we must evaluate the $2.4 

million production cap. We need to understand today’s farm structure. There has been the need for many farm operations to consolidate or to grow existing family farms to support future generations. 

We have many multifamily farm operations and that must be considered in the evaluation of the caps. 

The orders allow dairy farmers to share equitably in returns of 

the marketplace. Given St. Albans Cooperative’s location of its operation, and its member farms, and its overall size in a relationship 

to the marketplace, our dairy farmers continue to receive benefit 

from the Federal Order System. 

I would agree with the other remarks made today, that the Federal Order System needs to be streamlined, so that it can respond 

more quickly to changes when needed. 

Relative to conservation programs, conservation programs on 

that you address those questions promptly, if you do receive 

any.working agricultural lands brings benefit to both producers 

and the public. The 2002 Farm Bill added significant authorization 

for expanded funding to environmental quality incentive program. 

Vermont has also been committed to improving its water quality 

and conservation measures. The regional equity requirement was 

essential to a small state like Vermont to assist our dairy farmers 

in implementing the necessary and required conservation initiatives. I support to continue funding and the need for the regional 

equity provision in the future. 

In closing, there are many complex issues surrounding the structure of agriculture. We must have a vision for agriculture in this 

country. We must support this industry with sufficient resources. 

I thank you, Chairman, and the members of the committee to have 

the opportunity to participate in today’s panel. Your leadership, vision, and understanding are critical to the implementation and 

oversight of the USDA’s dairy programs. I look forward to questions that you may have, or the opportunity to provide additional 

information to the committee. Thank you. 

[The prepared statement of Mr. Berthiaume can be found in the 

appendix on page 89.] 

The CHAIRMAN. Thank you very much. Mr. Green, Mr. Hall, you 

both gave us your thoughts relative to the issue of Forward Contracting. Mr. Beckendorf, Mr. Berthiaume, what are your positions 

relative to Forward Contracting being extended to producers? 

25

Mr. BECKENDORF. In national milk, probably most of our members co—member’s cooperatives offer a Forward Contracting Program through the cooperative. The Pilot Program was a limited 

program. We felt like it underminded the minimum pricing and 

farmers that were involved got less money. 

The CHAIRMAN. OK. So, I take it your organization would not 

support? 

Mr. BECKENDORF. No. 

The CHAIRMAN. OK. Mr. Berthiaume? 

Mr. Berthiaume. Again, as a dairy cooperative, we have provided 

the opportunity to our members, as well, Forward Contracting opportunities. As it, again, relates, our concern would be again, not 

to—again, undermine the—again, Federal Order of Classified Pricing System would be our major concern. 

The CHAIRMAN. OK. Let me ask this to all four of you, do you 

support mandatory butter powder tilts as proposed by the Administration in the President’s budget for both 2006 and 2007, and are 

mandatory tilts an effective way to limit government expenditures 

and purchases of manufactured dairy products, or would these tilts 

disrupt the market? 

Mr. Beckendorf, we’ll start with you. 

Mr. BECKENDORF. There are already provisions in place to facilitate these tilts when the time comes. We felt like the last two tilts 

that were done, lead us into 18 months, or 20—24 months of the 

lowest prices we’ve had in 25 years. We didn’t support the Administration’s proposal. 

The CHAIRMAN. OK. Mr. Green? 

Mr. GREEN. I think the—our position would be that the mandatory tilts—I think the system, the way it is in terms of tilts right 

now, is operative, that the real issue here is the conflict between 

the two programs, and the conflict between the Dairy Price Support 

Program and the MILC Program. And that is the—that inherent 

conflict that leads to volatility on our industry and volatility on our 

industry is extremely detrimental, relative to the demand for dairy 

products. 

So, we see the big issue here being the conflict between the inherent conflict—the operating conflict between the two programs. 

The CHAIRMAN. Mr. Hall? 

Mr. HALL. I think the—my position on it is, that it interferes 

with the free market. We’re—as Idaho dairy association, we’re in 

favor of a free market system, and anything that would possibly—

that interferes with that goes against our belief, and that less government interference would be the way we should go. And as dairy 

producers, that’s the way we feel on that. 

The CHAIRMAN. OK. Mr. Berthiaume? 

Mr. Berthiaume. Again, USDA does have, again, parameters in 

terms of using its authority as it relates to the tilt. And again, I 

would suggest that the Department should utilize its tilt authority 

with the utmost restraint. Certainly, when farm milk prices are on 

the upswing. 

The CHAIRMAN. OK. Senator Crapo? 

Senator CRAPO. Thank you. Well, I want to talk to you about 

both Forward Contracting and the MILC Program. In your testimony, you expressed support for the availability of Forward ConVerDate 0ct 09 2002 14:36 Nov 16, 2006 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\DOCS\30429.TXT TOSHD PsN: LAVERN
26

tracting as a tool for all producers. Could you just explain to us 

generally, how Dairy Forward Contracting works, particularly for 

those who don’t have access to it now, those who’re not in cooperative, and why it’s important for the availability of the Forward 

Contracting for all producers? 

Mr. HALL. Thank you for the question, Senator. As a large dairy 

producer, having availability of a—to be able to do a Forward Contract allows me to be able to go to my bank and say I’ve got this 

price locked in, here are my costs, assuming everything stays fairly 

much equal, this is the kind of return I’ll be able to get on the investment. And so, it helps us to secure financing to go forward, and 

to be able to expand, and do the things that we’re involved in. 

Senator CRAPO. And is there any rationale, that you can think 

of, to say that cooperatives can utilize this tool, but those who are 

not a member of the cooperative cannot utilize it? 

Mr. HALL. I can’t think of any. 

Senator CRAPO. Let me go on with the—to the MILC Program. 

In your testimony, you know, one of the debates we have up here, 

is between small operations and large operations, because the 

MILC Program is—has—the cap is what, 250? 

Mr. HALL. 2.4 million pounds. 

Senator CRAPO. Yeah, 2.4 million pounds. One of the debates 

here is that this is just a debate between large producers and small 

producers, but as you indicated in your testimony, 49 percent of the 

Idaho dairy producers milk 200 cows or less. 

Mr. HALL. Right. 

Senator CRAPO. And they receive the full benefit of the MILC 

Program. 

Mr. HALL. They did. 

Senator CRAPO. Yet, they don’t get—the Association does not 

support the MILC Program. Can you explain that? 

Mr. HALL. Our position is that it holds prices down longer. It enables inefficiency to remain in business and by that, many producers who maybe are propped up by a support program, and that 

might be a little bit harsh, but that’s the reality of agriculture, and 

free enterprise. 

Senator CRAPO. All right. Thank you. I don’t have any other 

questions, Mr. Chairman, so I——

Senator Coleman 

[presiding]. I’ll think I’ll take the gavel, Senator Leahy? 

Senator LEAHY. Thank you, Mr. Chairman. I feel, as I mentioned 

with the Voting Rights Act on the floor, I’ve been in and out, but 

I do want to recognize Mr. Berthiaume. Leon, I’m glad you were 

able to join us. I know the board is meeting today, without you, so 

if you give Ralph McNall my thanks for letting you come down. I’m 

sure you were as disappointed as I was to hear that the Administration will not support the disaster relief that we were able to add 

to the appropriations bill. I know I’m disappointed, I’m sure you 

were. 

As your testimony pointed out, dairy prices continue to decline. 

Fuel costs continue to increase. Then the flood, as I said in St. Albans last week, this is the worst triple whammy I’ve seen certainly 

in all my years here on the Agriculture Committee. I was there in 

Paul and Bonnie Bergold’s Farm and I saw what happens when 

27

you get flooding, low milk price, and doubling or more fuel prices. 

That hurts. 

What would be the situation right now in Vermont if we didn’t 

have the MILC Program? 

Mr. Berthiaume. Again, thank you, Senator. I guess first, I would 

like to say, first of all in Vermont, I think we’re already at a critical juncture relative to our dairy industry. We need to maintain 

the number of cows that we currently have in order to, again, substantiate the infrastructure that we currently have. So, without the 

MILC and even with the MILC, right now, we are experiencing significant financial stress at the farm levels. 

Farms are not cash-flowing. We have farms that are in the process of having to make some serious decisions in terms of. One, do 

I continue to invest in this industry—No. 1? Two, how much more 

do I borrow against the equity that I have in my farm? Three, is 

this really the time that I should be selling out? And then, this is 

also really affecting the attitudes of our younger generation that 

are on these farms. 

Without the MILC, we would definitely be experiencing a more 

exodus of farms out of this business, which ultimately would affect 

the Ag businesses within our state. It certainly would affect the cooperative in terms of the volume of milk that is represented. It 

would potentially also affect the outlook that our processors would 

have that invested within our State of Vermont. So, again, the importance of MILC is critical. By, again, just to share the nature of 

the situation, is that again, based the information, and calls, and 

visits I’ve had with dairy farmers, we’ve also have gone to the 

State to ask for that additional support because of the crisis that 

we are experiencing, because of the depressed milk prices, the adverse weather conditions, and the escalating costs. 

Senator LEAHY. And even though the committee was able to extend the MILC Program last year, is reduced somewhat. The extended version of the program pays only 34 percent of the difference between the target price of the market price. What did that 

percentage reduction do to your members? 

Mr. Berthiaume. Well, again, I would say that many of our members right now are not covering their cost reduction, and that has 

certainly been a major challenge that our farms continuing to experience in certainly the reduction in the percentage that might have 

been received under the MILC, affects the operating cash-flow of 

our farms. It affects the outlook that our, again, the younger generation has in terms of what stability is there in continuing in agriculture. And it’s also continued to again, have farmers make those 

serious decisions as to which bills do I pay this month versus last 

month? But again, depending on what that payment, that can 

range as much as $500 to $1,000 dollars for the month. You know, 

in terms of the change in the MILC percentage calculation. 

Senator LEAHY. Thank you. And Mr. Green, I noted from you testimony, which I did read before I came down, you’d like to revive 

the Forward Contracting Pilot Program. Congress decided not to 

extend it. USDA—one of the reasons for that—one of the many reasons, USDA calculated over the life of the Forward Contract Pricing Pilot Program. Producers that are participating receive $7 million dollars less than they would’ve received if they had not particiVerDate 0ct 09 2002 14:36 Nov 16, 2006 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\30429.TXT TOSHD PsN: LAVERN
28

pated. I understand how the program benefits dairy processors, it 

allows them to pay less than the Federal ordered minimum price 

for milk, but how again, does it help dairy farmers? Not the processors, but the farmers, themselves? 

Mr. GREEN. Our position, Senator Leahy, is that the Forward 

Contracting Program needs to be a benefit to all processors, a level 

playing field. And we feel that the—our obligation as a processor 

to the Federal Milk Marketing Orders——

Senator LEAHY. Not my question, Mr. Green, and my time has 

run out. So, if you’ll go back to my question, I know how it helps 

the processors is, how does it help dairy farmers—individual dairy 

farmers? 

Mr. GREEN. It can help individual dairy farmers—all diary farmers by allowing them to reduce to have a—make an investment, 

and have a return that they know into the future, and that they 

know that they will not have to deal with the price volatility in the 

marketplace. And it works the same for the processors. It’s not—

from the processing perspective, it’s not an issue. It’s not an issue 

about paying the lower prices. It’s an issue about reducing the volatility in the marketplace, and by reducing the volatility in the marketplace to allow our consumption of dairy products to increase. 

Senator LEAHY. My time is up. I would disagree, but we could 

have—or, and Mr. Chairman, again, I thank you for your courtesy 

and letting me pop in and out on this. And I also appreciate your 

support. You covered entirely different part of the country than I 

do, but you’ve been very supportive of our folks in the Northeast. 

That means a lot to me. 

Senator Chambliss 

[presiding]. It’s because I like milk, Senator Leahy. They make 

good milk up there. 

[Laughter.] 

The CHAIRMAN. Senator Coleman? 

Senator Coleman. Thank you, Mr. Chairman. I think you just 

like food and——

The CHAIRMAN. Thank you. 

Senator Coleman. And I do, by the way, want to thank you for 

giving the committee the opportunity to review dairy programs. 

The complex nature of dairy policy, USDA implementation of these 

programs, it really makes a difference in some of my communities, 

whether they cross or whether they don’t. So, it is really kind of 

life or death decisions in this. And so, I appreciate the opportunity. 

I understand Mr. Chairman, that you dealt in your statement—

you have dealt with some questions regarding update make allowances. And I don’t know if I want to plow through that again. I—

Mr. Kemp, and by the way, welcome. It’s Mr. Green, Mr. Kemp, it’s 

very welcome—great to have you here. I’d say Kemp’s is great, 

great, great, great Minnesota business, and we appreciate your 

product, and we want you to be profitable. 

I think, you know, the question about Forwarding Contracting is 

one I’ve—I’m someone that’ll say up front, a proponent of the MILC 

Program, and obviously there’s some disagreement here about that. 

And I’m also a proponent to Forward Contracting to have some stability. And long-term stability is a good thing, we do it in other 

areas, and to me, it kind of makes sense. I would—my word of—

29

if I would offer some advice, one of the challenges we face in dealing with on this committee, is oftentimes, disagreements between 

us in the end make everybody losers. And we represent what, 

about 2 percent of the overall population of this country, the agriculture of farmers, producers. Fewer and fewer of our political districts, principal rural in Minnesota, I think you’re going to have 

two out eight there principally rural, so we’re shrinking in size. 

We’re not shrinking in—by the way, in productivity. We’re doing 

great in productivity. Dairy is shrinking, dairy has some issues. 

And so, I would just urge if there is a way to a little bit of give 

and take, I don’t know if the world is so upended by the MILC Program. I don’t—my sense is, I look at Minnesota producers. That I 

just don’t see, you know, great changes on the market because of 

the safety net, and I see the consequence that Mr. Berthiaume 

talks about in the absence of that safety net. At the same time, I 

understand the basic common sense interest in having some stability and it was something like Forward Contracting. Why would 

we not want to do it? And we start measuring who wins, who loses? 

If we do that as mathematicians, as a—just—I think we lose. I 

think society loses something. So, I just wanted to kind of to offer 

that. 

If I can get just one question to you, Mr. Green, about the update 

make allowances. Do you have anything to say on what the reason 

for the delay is, has that been articulated to you by USDA? 

Mr. GREEN. It was articulated here, this morning, that it’s under 

consideration and hopefully, we’ll get a resolution soon. We have 

a—we have an industry that’s losing $26 million dollars a month, 

Senator, and it’s becoming crippling to us as an entire industry, 

but to specific cheese makers, it’s becoming to the point of—coming 

down to the point of bankruptcy. So, we really need a process 

here—a decisionmaking process that it comes along with it from 

deadlines in terms how USDA comes through with this decisionmaking process. 

Senator Coleman. And one of the realities in Washington is that 

we have these hearings, all things get process. I had one with 

Homeland Security yesterday looking for a manual dealing with 

credit cards. So, the Department of Homeland Security it’s 2 years 

in the works, and the morning of the hearing, it comes out. And 

my question is, is—has there been a lack of data or a lack of information that has hampered this process? 

Mr. GREEN. There was several months ago, the—there was actually a 4–day hearing in term—where evidence and facts were gathered. In fact, the facts—very parallel situation, when the MILC allowances were first enacted. So, there has been a lot of time and 

a lot of effort in terms of gathering of evidence, gathering of facts. 

It seemed, as an industry it’s, again, we need a process that has 

firm deadlines and come to conclusions, right—rightly or wrongly, 

we have to come to a conclusion. We have a regulation in place 

now, that essentially fixes margins for these cheese plants, and if 

you’re going to have a—put a regulation that fixes margins, then 

you need to adjust those. As inputs adjust, you have to take that 

into consideration in terms of the formulas. So, it’s—it gets very 

frustrating. 

30

Senator Coleman. One final question I might have, I was interested in a—actually, it was I think Mr. Hall mentioned the—was 

it the CWT Program? Did you talk about that? 

Mr. HALL. Yes. 

Senator Coleman. I’d be interested—you gave some Idaho figures. Mr. Beckendorf, from a national perspective, can you give me 

some insight? You had some pretty strong numbers in terms of the 

Idaho level. Is that kind of a unique situation, or can you give me 

a national perspective on this CWT Program? 

Mr. BECKENDORF. CWT has—well, national milk producers—our 

membership is core producers of course and we have about 68 or 

69 percent of the milk in the country in our membership. Through 

the CWT Program, because we set it up the way we did as a cooperative, we’re able to have independent producers as well, and nonmembers of national milk participate. And so, we’re at 70 percent 

now for a extension. We started out in 2003 at five cents a hundredweight. We tried 18 cents, is what we said we needed and we 

wound up at a nickel, but we saved the program and it’s the best 

thing that’s ever happened to dairy farmers—to get that many people together. 

And so, on July the 1st, we went from a nickel to 10 cents and 

we’ve got 70 percent of the producers, or the production in the 

country involved in that. And a lot of that is, as Mr. Hall said, is 

independent producers, so it’s a very good program. 

Senator Coleman. OK. Very, very helpful. I appreciate this—I appreciate hearing that. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Mr. Beckendorf, in your testimony 

you mentioned that USDA could have more aggressively utilized 

the Dairy Export Incentive Program over the last several years, 

and in particular, you mentioned the program could increase the 

export of butter and cheese if used effectively. Would you please 

comment on how USDA could more effectively administer this program to assist the dairy industry in developing new markets, and 

their products in other countries? 

Mr. BECKENDORF. Am I limited to 5 minutes? 

The CHAIRMAN. Whatever it takes. 

Mr. BECKENDORF. OK. USDA has never used the DEIP Program 

for butter to the full extent. We’ve used powder and it was, as you 

know, developed to create international markets for the U.S. domestic dairy products. And so, what we’ve tried to do is use that 

program, and as Mr.—as the Dr. from USDA said, it’s not been 

used for the last 2 year. It has purchased a little—or CCC has purchased a little bit of powder, recently, in the last two, 3 months. 

But we think we need to use that to develop the programs. When 

we look at what’s coming down the line in trade policy and WTO, 

this may be one of the programs that the Ambassadors are going 

to use to trade away to end the negotiations. 

It’s going to be pretty hard to trade away a provision if you’re 

not even using it. You know, what value is there there? But, it is 

a great value to producers to be able to do that, to develop those 

markets overseas. CWT has done that through export bonuses to 

the members and has been very successful. So, it’s a good program. 

The CHAIRMAN. Gentlemen, here’s my dilemma. All of you make 

very strong cases here, this morning, as to why programs are good, 

31

or why programs aren’t good, and the direction in which we need 

to go. We’ve got regional differences; we’ve got farm size differences. As we look at all of our programs in dairy, we’ve got to 

develop a cookie cutter approach to dairy that is going to have to 

apply to all these farms. And one reason that we have this hearing 

today, is obviously to look back and let’s see how 2002 worked as 

we move forward, and that’s why we’re going to have another hearing this fall, to talk more specifically about what we should do 

moving forward. 

So, I just ask that all of you within your organizations, within 

the farmers that you deal with on a regular basis, that you all continue to think about how we’re going to look forward with the dairy 

program that may have to operate with less money. We don’t know 

what those numbers are going to be, but we may have to. We may 

have to operate within different—a different atmosphere from a 

trade perspective. And I would just—I would hope, obviously, that 

we can get all of our dairy farmers, producers, and everybody together, and processors together on a common theme, but I know 

that’s difficult. But I would just say, that as I listen to each of you, 

as I listen to Dr. Glauber a little earlier, and somebody who doesn’t 

come from an entirely neutral standpoint, but dairy is not huge in 

my part of the world. It gets too hot for cows in my part of the 

world. 

But it—this is going to be, as it always is, the most complex part 

of the Farm Bill and the most difficult part of the Farm Bill to 

reach a conclusion on. These guys are all my friends and I want 

to make all my friends happy when we wind up with a dairy program. So, I would urge you to just think through this. Think out 

of the box. Give us your ideas. Talk to Senator Coleman, Senator 

Leahy, Senator Crapo, and others about any thoughts that you 

have, that we might try to develop from a long term standpoint as 

we write this Farm Bill, because this is going to be the toughest 

year ever to write a Farm Bill for any number of reasons, and dairy 

is going to be obviously, critically important to us, and it’s going 

to be a very difficult part of the Farm Bill to write. 

So, I thank you. Thank you for being here today, and giving us 

this insight, and giving us your testimony. 

Senator Coleman. Just two things, Mr. Chairman. I want to 

thank the Chairman, again. What we see is that with this Chairman, is a very focused, concentrated effort to try to deal with the 

complexity of agricultural quality and in areas that he doesn’t necessarily have a dog in that hunt. I’ve seen it in regard to sugar, 

seen it in regard to ethanol, but I do think there some ethanol 

plants now, being built in Georgia, and obviously, we’ve seen it 

with dairy. And I just—I want the Chairman to know how much 

that’s appreciated. It’s just a very thoughtful way in which he approaches and the challenge that’s he’s laid out, I share. I associate 

myself with his work. 

So, let me—if I can just ask Mr. Beckendorf one question. I was 

reflected on the frustration that Mr. Green talked about getting the 

USDA update and make allowances. And from a national milk perspective, do you share the belief that it’s important for the longterm economic health of dairy farmers to make allowances that reflect current cost? 

32

Mr. BECKENDORF. Yes, and—and it’s our proposal that these 

make allowances hold Class I and II whole, that it not affect those, 

but yes. And we also have been talking to USDA forever about the 

timeliness of their decisions, and that there needs to be some revision there to speed those decisions up. 

Senator Coleman. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. All right. I noticed we have kept a full audience 

here today, which is unusual. So, there’s a lot of interest outside 

of the committee on what we’re going to be doing, relative today 

in the next Farm Bill, and I can’t help but notice my long time, 

good, personal friend, Mr. Gary Hanman back there. 

Gary, a former CEO of Dairy Farmers of America, has been a 

dear friend of mine for a long time. Gary, thank you for being here. 

Thanks to all of you for being here. The record will remain open 

for 5 days; there may be written questions submitted, to you gentlemen, we’d ask 

With that, this hearing will be concluded. 

[Whereupon at 11.50 a.m., the hearing was adjourned] 

(33)

A P P E N D I X

JULY 20, 2006

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