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S. HRG. 111–797 

RESPONDING TO LOW DAIRY PRICES: 

EXPLORING AVENUES FOR FEDERAL ACTION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON DOMESTIC AND FOREIGN 

MARKETING, INSPECTION, AND PLANT 

AND ANIMAL HEALTH 

AND THE

SUBCOMMITTEE ON PRODUCTION, INCOME 

PROTECTION AND PRICE SUPPORT 

OF THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

OCTOBER 27, 2009 

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 

BLANCHE L. LINCOLN, Arkansas, Chairman 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

DEBBIE STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

SHERROD BROWN, Ohio 

ROBERT CASEY, Jr., Pennsylvania 

AMY KLOBUCHAR, Minnesota 

MICHAEL BENNET, Colorado 

KIRSTEN GILLIBRAND, New York 

SAXBY CHAMBLISS, Georgia 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

MIKE JOHANNS, Nebraska 

CHARLES GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

JOHN CORNYN, Texas 

SUBCOMMITTEE ON DOMESTIC AND FOREIGN MARKETING, INSPECTION, 

AND PLANT AND ANIMAL HEALTH 

KIRSTEN GILLIBRAND, New York, Chairman 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

E. BENJAMIN NELSON, Nebraska 

AMY KLOBUCHAR, Minnesota 

MIKE JOHANNS, Nebraska 

RICHARD G. LUGAR, Indiana 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

SUBCOMMITTEE ON PRODUCTION, INCOME PROTECTION AND PRICE 

SUPPORT 

ROBERT CASEY, JR., Pennsylvania, Chairman 

PATRICK J. LEAHY, Vermont 

TOM HARKIN, Iowa 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

SHERROD BROWN, Ohio 

PAT ROBERTS, Kansas 

THAD COCHRAN, Mississippi 

MIKE JOHANNS, Nebraska 

CHARLES E. GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

ROBERT HOLIFIELD, Majority Staff Director 

JESSICA L. WILLIAMS, Chief Clerk 

MARTHA SCOTT POINDEXTER, Minority Staff Director 

ANNE C. HAZLETT, Minority Chief Counsel 

(II) 

(III) 

C O N T E N T S 

Page 

HEARING(S): 

Responding to Low Dairy Prices: Exploring Avenues for Federal Action ........... 1 

Tuesday, October 27, 2009 

STATEMENTS PRESENTED BY SENATORS 

Casey, Hon. Robert P., Jr., U.S. Senator from the State of Pennsylvania ......... 1 

Gillibrand, Hon. Kirsten E., U.S. Senator from the State of New York ............. 2 

Johanns, Hon. Mike, U.S. Senator from the State of Nebraska .......................... 3 

Klobuchar, Hon. Amy, U.S. Senator from the State of Minnesota ...................... 5 

Panel I 

Ooms, Eric, Dairy Farmer, Old Chatham, New York ........................................... 6 

Souza, Ray, President of Western United Dairymen, Mel-Delin Dairy, 

Turlock, CA ........................................................................................................... 10 

Toft, Paul, President, Associated Milk Producers Inc., Midwest Dairy Coalition, Rice Lake, Wisconsin .................................................................................. 8 

Nuttelman, Doug, Dairy Farmer, Nuttelman Dairy, Stromsburg, Nebraska ..... 13 

Panel II 

Gallagher, Ed, Vice President of Economics And Risk Management, Dairylea 

Cooperative Inc. Syracuse, New York ................................................................ 24 

Kruse, Paul W., Chief Executive Officer And President, Blue Bell Creameries, 

L.P., Brenham, Texas .......................................................................................... 29 

Redding, Russell C., Acting Secretary, Pennsylvania Department Of Agriculture, Harrisburg, Pennsylvania ..................................................................... 27 

Sjostrom, Lucas S., Government Relations Specialist and Communications 

Assistant, Holstein Association USA, Inc., Brattleboro, Vermont ................... 31 

APPENDIX 

PREPARED STATEMENTS: 

Casey, Hon. Robert P., Jr. ............................................................................... 44 

Roberts, Hon. Pat ............................................................................................. 46 

Gallagher, Ed .................................................................................................... 47 

Kruse, Paul W. .................................................................................................. 69 

Nuttelman, Doug .............................................................................................. 81 

Ooms, Eric ......................................................................................................... 91 

Redding, Russell C. .......................................................................................... 96 

Sjostrom, Lucas S. ............................................................................................ 101 

Souza, Ray ......................................................................................................... 108 

Toft, Paul ........................................................................................................... 121 

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Dairy Farmers of America, prepared statement ............................................ 128 

Resolution Urging Federal Response to the Economic Crisis of the Dairy 

Industry ......................................................................................................... 132 

Page

IV 

QUESTION AND ANSWER: 

Thune, Hon. John: 

Written questions for Lucas S. Sjostrom ........................................................ 136 

Written questions for Paul W. Kruse .............................................................. 137 

Written questions for Doug Nuttelman .......................................................... 137 

Kruse, Paul W.: 

Written response to questions from Hon. John Thune .................................. 138 

Nuttelman, Doug: 

Written response to questions from Hon. John Thune .................................. 140 

Sjostrom, Lucas S.: 

Written response to questions from Hon. John Thune .................................. 141 

(1) 

RESPONDING TO LOW DAIRY PRICES: 

EXPLORING AVENUES FOR FEDERAL ACTION 

Tuesday, October 27, 2009 

UNITED STATES SENATE, 

SUBCOMMITTEE ON DOMESTIC AND FOREIGN MARKETING, 

INSPECTION, AND PLANT AND ANIMAL HEALTH, 

SUBCOMMITTEE ON PRODUCTION, INCOME PROTECTION, 

AND PRICE SUPPORT, 

COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY, 

Washington, DC 

The Subcommittees met, pursuant to notice, at 2:41 p.m., in 

room SH–216, Hart Senate Office Building, Hon. Kirsten Gillibrand, Chairman of the Subcommittee, presiding. 

Present: Senators Gillibrand, Casey, Klobuchar, and Johanns. 

Senator GILLIBRAND. I call this meeting to order. I would like to 

recognize my Co-Chairman, Senator Casey, and allow him to make 

his opening remarks. 

STATEMENT OF HON. ROBERT P. CASEY, JR., U.S. SENATOR 

FROM THE STATE OF PENNSYLVANIA 

Senator CASEY. Thank you very much, Senator Gillibrand. I 

wanted to welcome everyone to our hearing today. We will be here 

for a while, as is appropriate for this topic, and we are grateful 

that we have two Subcommittees represented here. And I am 

grateful that Members of the Senate who are concerned about this 

issue are with us today, Senator Klobuchar as well as our Chair, 

Senator Gillibrand, and Senator Johanns as well. 

I will submit a fuller statement for the record, but I do not think 

I need to highlight or impress upon anywhere here the urgency in 

the gravity of the issue that brings us here today—the crisis that 

is dairy farming today, the crisis that the families and communities 

have been living through. Even in the midst of a terrible economic 

recession that so many families have lived through, I do not think 

there is a category of families or a group of families that have been 

more hard hit than those who are dairy farmers all across the 

Commonwealth of Pennsylvania as well as so many other States 

that are represented here today. 

So we have, I think, an obligation, those of us in the 

United States Senate broadly, but especially those of us who 

have agricultural interests in our States—in Pennsylvania, for example, we have a lot of important sectors, a lot of strong sectors 

of our agriculture economy, but dairy is the largest and one that 

we have real concern about. 

2 

We have as a region, beyond Pennsylvania, in the northeastern 

corner of the United States, the projection—we hope it does not 

materialize or come true, but the projection that we could lose up 

to 25 percent of our family dairy farms throughout the time of this 

crisis. In total, it is some 40,000 jobs in the Northeast at risk when 

I talk about this crisis. 

My top priority—and I think it is the top priority of everyone 

here—is to make sure that our agriculture in any State, but across 

the country, can compete nationally but also internationally. I 

think that is something we can all agree on. So whether you are 

a milk producer, a manager of a co-op, a plan operator, a food manufacturer, we all need a healthy industry. And we all gather here 

today to explore ways to get through this crisis, to provide shortterm help but also long-term help for our families and for our communities. 

So, with that, I will turn it back to our Co-Chair—I guess we are 

Co-Chairs today. 

Senator GILLIBRAND. Yes. 

Senator CASEY. Two Subcommittees meeting at the same time. It 

does not happen very often around here. And I think it is important that we note the diversity of this audience in terms of geographic diversity as well as the diversity of this panel. And we are 

grateful that so many are here. Thank you. 

[The prepared statement of Senator Casey can be found on page 

44 in the appendix.] 

STATEMENT OF HON. KIRSTEN E. GILLIBRAND, U.S. SENATOR 

FROM THE STATE OF NEW YORK 

Senator GILLIBRAND. Thank you, Senator Casey. 

I am so pleased that I have the opportunity to co-chair this hearing with my fellow Subcommittee Chairman Senator Casey. I 

would like to thank Ranking Member Johanns for also being here, 

as well as the other Senators—Senator Klobuchar, I appreciate you 

being here—to engage these distinguished panelists in a dialogue 

about the crisis that is now facing the dairy industry. 

The cost of doing business continues to surpass the price farmers 

are receiving for their product. There are not many businesses 

where people do back-breaking labor 7 days a week and come out 

financially worse for their trouble. Since February, prices per hundredweight have remained well below the cost of production. In my 

home State of New York, farmers pay over $18 to produce a hundredweight of milk. After action this summer by Congress and the 

USDA, prices have only risen to $15.80—still a losing game for our 

farmers. The pricing system simply does not work for America’s 

hard-working dairy farmers. 

As I met with farmers from across New York State, I saw the 

absolute anguish and despair on their faces as they showed me 

their balance books that simply did not add up. I heard stories of 

families quickly seeing generations of hard work simply vanishing 

into foreclosure. Dairy farmers compose the economic backbone of 

many of America’s rural communities. Over 60,000 American families directly earn their livelihoods from the dairy industry. Dairy 

farms also have a multiplier effect, creating support jobs that 

strengthen local economies. 

3 

In addition to hurting our agricultural communities, losing our 

local producing family-owned dairies will pose an enormous threat 

to the safety of America’s food supply. Instead of purchasing products made to satisfy American food safety standards, a race to the 

bottom will mean importing food from wherever costs are the lowest, such as China. 

As experience has shown us over the last few years, giving up 

our ability to produce our own food is something we cannot afford 

to do as a national security priority. I hope this hearing will give 

us an opportunity to have a very frank discussion about the proposals currently out there and help members of the Committee develop solutions that will work for our dairy farmers, processors, 

and our American families. 

With the sustained low prices we have seen over the last few 

months, it is important that we provide farmers with the shortterm assistance they need to make up for the money they are losing every day. In order to achieve this goal, I have introduced two 

pieces of legislation designed to improve the MILC Program’s ability to provide a true safety net during such a crisis. 

It is my hope to work with other Members of Congress to ensure 

that this crucial aid becomes a reality so we do not lose any more 

farms. However, as we have been seeing, there is something fundamentally wrong with the way dairy farmers are paid for their 

work. We must develop new solutions to ensure that this does not 

happen again. 

My colleagues in Congress and agricultural advocacy groups 

across the Nation have been working on a number of proposals to 

help remedy the many problems that are currently facing the dairy 

industry. Today’s hearing will focus on these solutions in order to 

determine the opportunities they present and the shortcomings 

that they may face. 

I am dedicated to developing comprehensive legislative fixes that 

will ultimately fix the problems the industry has once and for all. 

Today’s hearing will serve as a starting point for those discussions 

as we begin working on the next farm bill. 

I would like to remind panelists that they have 5 minutes to deliver their testimony. When you have 30 seconds remaining, a yellow light will illuminate, and at the end of 5 minutes, you will see 

a red light illuminate. Any part of your testimony that you are not 

able to get to will be submitted for the written record. 

I also encourage all attendees not on the panel to see my staff 

at the end of the hearing if you are interested in submitting testimony for the record. 

I am now opening the floor to Senator Johanns to make his opening statement. 

STATEMENT OF HON. MIKE JOHANNS, U.S. SENATOR FROM 

THE STATE OF NEBRASKA 

Senator JOHANNS. Well, thank you very much. Let me start out 

and just acknowledge the good work of both Chairs, and thank you 

for putting this hearing together. 

Before I begin with my statement, I would like to note that Senator Pat Roberts, the Ranking Member of the Production, Income 

4 

Protection, and Price Support Subcommittee, could not be with us 

today, but he will submit an opening statement for the record. 

I am pleased to be here to be a part of this hearing today. Having grown up on a dairy farm myself, I have always had a very 

strong and special interest in the issues that affect this very important industry. 

Dairies in the United States currently face a whole host of significant challenges. Significant increases in the cost of feed, energy, 

unpredictable foreign markets, and the current global economic 

downturn have all certainly contributed to the decreased demand 

for dairy products and a decline in milk and dairy product prices. 

The numbers are all too familiar to those that are in this room 

and to those who will testify today, but they really tell the story 

very clearly. 

The Congressional Research Service recently released a report on 

the dairy industry. I would recommend it. It states that the Milk 

Income Loss Contract—MILC—payments have been triggered 

every month since February of this year, and as of last month, total 

payments for the year were over $700 million. Anyone who knows 

something about the MILC Program will tell you that happens only 

because of very, very poor prices. The report also states that from 

January through September of this year, the all-MILC price received by farmers was 36 percent below a year ago. 

Administering the dairy program as the Secretary of agriculture 

provided me great insight into the intricacies and complications inherent in the Federal dairy policy. In fact, I had one reporter say 

to me at one point, he said, ‘‘Mr. Secretary, when you come to understand the dairy program, you have probably been in Washington 

too long.’’ 

Any changes in Federal policy must seek to strike an appropriate 

balance between providing producers with a reliable and a predictable safety net during times like these while at the same time not 

encouraging overproduction or inhibiting other sectors within the 

agricultural community. 

Today should provide us a productive forum to examine the existing challenges and positive solutions for the U.S. dairy industry. 

If I could take a moment just to welcome a panelist who is a 

friend of mine, Doug Nuttelman, from Stromsburg, Nebraska, Doug 

is a dairy owner and operator. As I said, he is a good friend, and 

he operates what I would describe as a ‘‘family farm.’’ I have 

known Doug for many years. He has worked very closely with me 

as I was the Governor of Nebraska. 

I have had an occasion to visit Doug’s family-run operation in 

Stromsburg and the great work that is done there. Doug’s impressive bio has been made available today with all the other hearing 

materials, but I just wanted to take a moment to personally attest 

to his leadership in agriculture. It is awful good to have Doug here. 

In addition to his involvement with Dairy Farmers of America, 

the National Milk Producers Federation, and the Nebraska Dairy 

Council, Doug is a member of my Ag Advisory Council, which is a 

collection of Nebraskans who are involved in production agriculture. I value Doug’s input, his perspective, and his friendship so, 

again, thank you. 

5 

Let me just wrap up my comments today and say I look forward 

to the hearing, and I look forward to the testimony of all the witnesses. I think we are going to have a very productive discussion. 

And, again, I want to thank our Chairs for putting this together. 

Senator GILLIBRAND. Thank you so much, Ranking Member. 

I would like to now invite Senator Klobuchar to give opening remarks. 

STATEMENT OF HON. AMY KLOBUCHAR, U.S. SENATOR FROM 

THE STATE OF MINNESOTA 

Senator KLOBUCHAR. Thank you very much, Madam Chairman, 

and thank you, Senator Casey as well for co-chairing this. I would 

like to first extend a welcome to our witnesses, including Mr. Toft, 

who, although he is from Wisconsin, is the Chairman of the Associated Milk Producers, which is based out of New Ulm, Minnesota. 

Like Brett Favre, he is a guy from Wisconsin who has seen the virtues of joining a Minnesota-based organization. 

You know, nowadays when we hear the word ‘‘crisis,’’ it is not always an appropriate description of reality. I have a 14-year-old 

daughter, so I know this firsthand. Today’s hearing, however, addresses a real crisis—a crisis that has hurt dairy farmers across 

our country. 

My State, the sixth largest dairy-producing State, is home to 

nearly half a million dairy cows who together produce nearly 9 billion pounds of dairy products each year. Our farmers have seen the 

price of milk drop severely. 

Now, in the 2008 farm bill, we worked hard to include the MILC 

Program into—actually improve the MILC Program to help ensure 

stability for our Nation’s dairy farmers. In the summer of 2008, 

when we passed the farm bill, we were seeing dairy prices peak. 

After that, however, dairy prices began to fall, eventually reaching 

their lowest levels in 20 years. And while dairy prices were falling, 

input costs remained high, creating a perfect storm for the nearly 

70,000 dairy farmers around the country. 

In the past year, I have met many times with our dairy farmers, 

including just recently last month. One family I met with, the 

Krieger family, offered this letter expressing the crisis that their 

family was facing: ‘‘I am writing out of desperation for the situation 

at hand. We are on the verge of losing everything we have worked 

for, for many, many years, including our home. Expenses to purchase fuel, grain feed, hay, electricity to produce the milk, medical 

expenses for the animals are all high, and there is no relief in 

sight. In spite of this, the prices we are receiving for our milk have 

remained low and, in fact, just went down again.’’ 

To address the short-term crisis and help farmers get back on 

their feet, we were able to amend the agriculture appropriations 

bill to provide, as you know, $350 million in additional relief. But 

in the long term, we need to consider how to change our dairy policies to prevent a future crisis. 

The National Milk Producer Federation’s Strategic Planning 

Task Force recently announced four actions to help address longterm problems with price volatility in the market. These include: 

revamping the safety nets of the Dairy Product Price Support and 

Milk Income Loss Contract Programs; creating a new Dairy ProVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
6 

ducer Income Insurance Program; addressing the need to improve 

participation in the producer self-help program, which is called 

‘‘Cooperatives Working Together,’’ while allowing it to better address periodic imbalances in the milk supply; and reforming the 

Federal Milk Marketing Order Program. 

Madam Chair, there was no single cause for this crisis, and 

farmers in Minnesota and across the country, our dairy farmers, 

are still not out of the woods. I look forward to hearing our witnesses’ thoughts on these long-term solutions as well as what we 

can do in the short term, and I look forward to working with all 

of you. 

Thank you very much. 

Senator GILLIBRAND. Thank you. 

[The prepared statement of Senator Roberts can be found on 

page 46 in the appendix.] 

Senator GILLIBRAND. I invite the panelists to come up. 

I would like to welcome each of you and thank you for your expertise. I want to take a personal privilege of introducing Mr. 

Ooms, who is from my State. Eric Ooms is a partner with his father and brothers of a 425-cow dairy farm in Columbia County, 

New York. The Ooms family has been milking cows in Columbia 

County since 1950. They also grow 1,700 acres of crops for their 

cows as well as selling forage to neighboring farmers. 

In addition to his work on his farm, Eric serves as the Vice President of the New York Farm Bureau. He has been part of this organization for over 14 years. He serves on the New York Commissioner of Agriculture Patrick Hooker’s Milk Marketing Advisory 

Committee. He is on Agri-Mark’s Legislative and Education Committee and the National Milk Producers Federation’s Immigration 

Committee. 

I also want to congratulate Eric and his lovely wife, Catherine 

Joy, on the newest addition to their family, 4-week-old Grace. 

STATEMENT OF ERIC OOMS, DAIRY FARMER, OLD CHATHAM, 

NEW YORK 

Mr. OOMS. Thank you. Good afternoon. My name is Eric Ooms. 

I am the Vice President of the New York Farm Bureau, which represents nearly 30,000 farm families in the Nation’s third largest 

dairy State. My father, two brothers, and I milk 425 cows in Chatham, New York. My family’s lineage in the dairy industry traces 

back to at least 1525 in the Netherlands and is part of who we are, 

and we are very proud of this. Many generations of my family have 

had the awesome opportunity to follow our Dad to the barn and 

learn the lessons that he has taught us. Part of my goal in life is 

that my son and daughter have the same opportunities that I have 

enjoyed so much. 

In addition to being a great place to raise a family, a dairy farm 

is a business. If the business is not successful, this is all academic, 

and the theory of raising kids on a farm becomes some relic of a 

Norman Rockwell painting of days gone by. Northeast Farm Credit 

estimates that dairy farm income will be down over $700 million 

in New York State alone in 2009. This, coupled with recent increased costs of production, is presenting us with a dilemma that 

my father assures me he has never seen in 60 years in the dairy 

7 

industry. I am actually surprised that there have not been more 

farms exiting the industry. I believe that the reason for this is the 

fact that the cows, land, and just about everything else is undervalued, so a farmer’s only choice is to proceed forward and hope for 

the best. 

Rather than spending time outlining the obvious economic challenges we are facing, I will outline some of the things that can help 

remedy the situation. 

First and foremost, we need to keep in mind that we are in an 

all-encompassing economic downturn that has not only left the U.S. 

economy staggering, but has also brought the global economy to its 

knees. If global and domestic economic conditions were stronger, 

dairy product demand would be greater, and we would not be facing such a historic dairy crisis. 

Essentially, the price of milk is set by the price of cheese on the 

Chicago Mercantile Exchange. With so little milk trading on the 

Merc, we feel very strongly that another method of price discovery 

must be devised. Unfortunately, I do not have a great remedy for 

the fiscal inequity presented by this price discovery method at this 

time, but the issue needs to be studied. We strongly support decoupling the price of Class I or beverage class milk from the CME, as 

fluid milk consumption is fairly inelastic and should not be tied to 

consumption of cheese. 

We fully support Secretary Tom Vilsack’s development of a Dairy 

Industry Advisory Committee and hope that it will come up with 

some positive ways to revamp the Federal order. Any plans that 

recommend eliminating or lowering the Class I differentials should 

be viewed very skeptically, if not out rightly opposed. With growing 

emphasis on the importance of regional food systems and local 

foods, it seems obvious to me that to steer Federal policy away 

from Class I differentials is counterproductive. 

We strongly support and appreciate the Milk Income Loss Contract Program and appreciate any and all efforts to increase the 

rate of payment and the production cap to accommodate multi-family farms. In addition, we greatly appreciate the addition of $350 

million to the appropriations bill, and we encourage that those payments be expedited. 

Looking forward, we need to be certain that imported milk products are on a level playing field with domestic products. Imported 

products should be paying the same 15-cent-per-hundredweight 

promotion fee that every U.S. dairy farmer is paying. This is something that should not be delayed. We urge Secretary Tom Vilsack 

to implement the rule that would allow the assessment of 7–1/2- 

cents-per-hundredweight on imported dairy products and ask that 

individual Members of Congress demand this action be taken as it 

was mandated in the 2008 farm bill. In addition, we support Senate 1542 which would assure that imported milk protein concentrates are paying tariffs that are consistent with our World 

Trade Organization commitments. There may be more that can and 

should be done, but let us stand and walk before we try to run. 

Conversely, part of the favorable farm milk price we received in 

2007 and 2008 was due to robust export opportunities for our products. We commend the Secretary for doing the Dairy Export Incentive Program earlier this year, and we encourage that it continue 

8 

to be utilized. We need to continue to aggressively pursue export 

opportunities for our products as we, for better or worse, are in a 

global economy. 

We support the U.S. Department of Justice investigating business concentrations in the dairy industry as we need to be certain 

that dairy farmers are able to compete in an equitable environment. However, it is important to note that we need to continue to 

maintain the Capper-Volstead law as it empowers farmers to work 

together and improve economic situations we face. 

We also support California’s standards for drinking milk as this 

type of fortified milk will better serve our nutrient-deficient populations, particularly in under served urban and rural areas. Nutrient-fortified milk which meets the higher solids standard to children in schools and families in their home communities is a practical and cost-effective way to improve public health. In my immediate area, Stewart’s shops have an award-winning milk that is fortified similar to California milk, so it can and should be done nationally. 

Currently, the American Farm Bureau Federation has policy that 

opposes a Government-run, mandatory supply management program. This is probably consistent with industry feelings on the 

issue for quite some time. However, there is a great deal of dialogue in the dairy industry about the issue right now, and the next 

few months will dictate if there is enough impetus to change our 

longstanding opposition to supply management. 

We have been very supportive of Cooperatives Working Together, 

and I am happy to report that my family supports that as well with 

our dollars. 

Thank you again for having this hearing and inviting me to 

speak today. We are in an uncertain time, and there is a great deal 

of trepidation throughout our industry. I remain optimistic, though, 

that we have an industry that is worth fighting for, and I look forward to partnering with you on all these endeavors. 

[The prepared statement of Mr. Ooms can be found on page 91 

in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. Ooms. 

Mr. Paul Toft, President, Associated Milk Producers, Inc., Midwest Dairy Coalition from Rice Lake, Wisconsin. Mr. Toft. 

STATEMENT OF PAUL TOFT, PRESIDENT, ASSOCIATED MILK 

PRODUCERS INC., MIDWEST DAIRY COALITION, RICE LAKE, 

WISCONSIN 

Mr. TOFT. Chairwoman Gillibrand, Chairman Casey, Ranking 

Members Johanns and Roberts, Senator Klobuchar, and other 

members of the Subcommittees, I appreciate the Committee’s invitation to present my views on solutions to the current dairy crisis. 

I am Paul Toft, a dairy producer from Rice Lake, Wisconsin. My 

family operates what many would call a classic Wisconsin dairy 

farm. With two generations working side by side, we milk 70 cows 

and grow the forage and grain to feed our herd. 

Our milk is marketed through Associated Milk Producers Inc., a 

Midwest milk marketing co-op. As Chairman of the AMPI Board of 

Directors, I participate in the dairy policy groups to which AMPI 

belongs: the National Milk Producers Federation and the Midwest 

9 

Dairy Coalition. The perspective I provide today is one of an upper 

Midwest dairy farmer, dairy cooperative member, and one who is 

active in the formation of dairy policy. 

Prices paid to dairy farmers are about half what they were a 

year ago. The economic stress in dairy-dependent regions like the 

upper Midwest, as in all dairy regions, is severe. Consistent anecdotal evidence suggests dairy farmers are losing $100 a cow each 

month. When this happens, we rapidly lose equity or our livelihoods. It is with this background that the following short-and longterm solutions are reviewed. 

Let us first examine the short-term solutions. The temporary 

hike in the Dairy Product Price Support Program is a good example 

of a short-term fix. Raising the cheese support to $1.31 from August through October served as an invisible floor. The market 

moved past $1.31—without the Commodity Credit Corporation buying a pound of cheese. 

Though the bump in the support price will expire this week, it 

resulted in dairy farmers receiving about $2 more per hundredweight of milk marketed. In times like these, I must underscore 

the importance of these dollars to my dairy farm. 

The next short-term fix is the $350 million Congress added to the 

agricultural spending bill. On behalf of all upper Midwest dairy 

farmers, thank you. I urge the USDA to quickly spend these dollars, given the severity of this dairy crisis. 

Now let us consider more long-term solutions to dairy reform. 

These must include current programs that work and due diligence 

on proposed policies. What works? The Milk Income Loss Contract 

and the previously discussed Dairy Product Price Support Program. 

Without a doubt, the economic safety net provided by these programs must be maintained. 

When the 2008 farm bill passed more than 1 year ago amidst $20 

milk, many did not think these programs were relevant. I am glad 

they are in place today. 

The MILC has provided significant financial assistance to dairy 

farmers nationwide during times of low prices. The direct assistance provided by this program has community-wide benefits as the 

dollars multiply throughout the dairy-dependent local economies. 

As originally envisioned, the MILC Program was intended to be 

a partner with the Dairy Product Price Support Program. The two 

programs working together, in theory, would provide the stability 

to allow viable dairy producers to weather the storm of low-price 

cycles. But the theory remains untested, because the Product Price 

Support Program is not fully functioning. 

AMPI and the Midwest Dairy Coalition urge the U.S. Secretary 

of Agriculture to implement a long-term increase in the Commodity 

Credit Corporation purchase price for butter, powder, and cheese. 

The 3-month increase has proven how cost-effective this can be. 

Support for the existing programs that work, however, does not negate the need to reform the dairy industry policies. Clearly, I do 

not want to operate my family farm under the current conditions. 

Due diligence is needed on new policies aimed at solving the 

dairy crisis. Let us make the 2012 farm bill our goal as we review 

policies introduced by groups such as the National Milk Producers 

10 

Federation and the Holstein Association USA. These policies all 

have merit, but must be analyzed with the following in mind: 

We must seek ways to reduce volatility in dairy farmer income. 

Proposals must not discriminate against manufacturing milk, by 

providing artificial enhancement of Class I (fluid) milk prices. 

Proposals must seek to eliminate or reduce the regional discrimination of the current Federal milk marketing order system. 

Proposals must be sensitive to the fact small-and medium-sized 

dairy farms make up the overwhelming majority of this Nation’s 

55,000 licensed dairy farms. Our rural communities cannot afford 

to lose one of them. 

With these objectives in mind, AMPI is supporting the concept of 

dairy price stabilization. The program developed by the Holstein 

Association aims to stabilize prices by managing production. The 

program recommends a market access fee for expanding milk production, not a quota system. This pricing approach has long been 

part of AMPI’s core policy resolutions which support managed, incremental expansion in our industry. Such a plan, however, will 

only be effective if paired with import controls. 

We must establish tariff rate quotas on imported products such 

as milk protein concentrate, casein, and products containing butterfat. 

In closing, I strongly urge these committees and the U.S. Secretary of Agriculture to help the industry analyze and develop options for the long-term viability of dairy farming in this country. 

While doing so, build upon the effective policies—the MILC and the 

Dairy Product Price Support Program—and consider ways to stabilize domestic markets. 

Thank you for this opportunity to testify. 

[The prepared statement of Mr. Toft can be found on page 121 

in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. Toft. 

Mr. Ray Souza, President of Western Union Dairymen, Mel-Delin 

Dairy in Turlock, California. 

STATEMENT OF RAY SOUZA, PRESIDENT, WESTERN UNITED 

DAIRYMEN, MEL–DELIN DAIRY, TURLOCK, CALIFORNIA 

Mr. SOUZA. Good afternoon, Chairs Gillibrand and Casey and 

members of the Subcommittee. My name is Ray Souza. I am from 

Turlock, California. My family and I have operated a dairy since 

1973. My wife and I also ship to California Dairies, Incorporated, 

which is a California Cooperative, and have shipped to that company now for a number of years. 

I want to thank you for giving me this opportunity to present a 

California perspective. What I am going to do, I am going to go 

through three things. I would like to talk about the current conditions, programs that are available for a short-term resolution, and 

then maybe some thought for the future. But before I do, I would 

like to also put a human face on the conditions in California. I 

would like to use two families. 

The Linhares family was recently honored by our community as 

having the longest continuous dairy operation in the area. For 102 

years, they have had a dairy farm. For 102 years, they have operated as a family farm, as most California farms do. They went 

11 

through the hoof-and-mouth disease outbreak and survived that, 

went through the Great Depression and survived that, but they 

have not been able to survive this current condition. They have lost 

so much equity that the family came together and decided to enroll 

their herd and retire their herd through the CWT so that they 

could retain some equity and some money for future generations. 

So that farm is no longer in operation, and I was talking to Joe 

the other day, and he told me they had never missed a day’s shipment of milk in 100 years until now, the first time. 

The other family is two young dairymen that got into the business a little over a year ago. They worked. They came from immigrant parents, worked on the farm, saved their money and had 

enough money to put a sizable down payment on a herd of cows. 

They paid for half of their cows. They went into the dairy business 

with half of their cows paid for, which is something that a lot of 

farmers who have been in the business cannot do today. A year 

ago, 50 percent of their herd was paid for. One year later, because 

of the drop in equity, cows dropping as much as $1,000 a cow, heifers dropping $750 in calves, which is $400—if you total that up, 

we have lost $2.6 billion in equity in that State, the dairy farmers 

in that State. As a result of that, they have become insolvent in 

less than a year, hard-working families, and they will probably be 

exiting the dairy industry as well. 

Like them, and the rest of us, we have suffered from high feed 

costs while we have had declining prices on our milk. Our cost of 

production in California alone has gone up 26 percent in 3 years. 

I have provided a chart for you in my written testimony to give you 

kind of an idea where these price fluctuations go. In 2006, we lost $3.30 a hundredweight, and we talked about 

that for the longest period of time, for a year or two. We had never 

seen losses like that until now. 

In 2009, we are looking at losses on dairy farms as much as $8 

a hundredweight—unprecedented in my life, and as you can see, 

that has been some time. 

But these problems are not unique just to California. It is beginning to happen across the country. We have had this dramatic increase in feed prices. We have these record levels in costs. And just 

about the time we see some recovery, we see feed costs begin to 

rise again. 

Production costs posted a slight decrease from 2008 to the first 

quarter of 2009 and again in the second quarter of 2009 due to 

slight decreases in feed costs. However, cost-of-production figures 

are not expected to decline by any significant amount as we move 

forward. 

And just this last few weeks alone, we have seen our canola 

prices, on which we are so dependent in California, move up 36 

percent. Corn prices, of course, have risen, but most of all, hay is 

a particular issue in California. Hay and canola are protein feeds. 

We feed two types of feed: protein feeds and energy feeds. Our protein feeds have escalated. As you probably know—I am sure you 

know, we have a drought in California, the west side of the valley, 

which is a primary hay-growing area. That area, we have suffered 

tremendous losses of alfalfa production in that area. And to add to 

that, Nevada has become a big hay-supplying area for our State, 

12 

and the rains that we had earlier this year basically ruined the 

best cutting of hay. The first cutting of hay has basically been ruined in Nevada. So hay is going to be quite an issue for us. 

I see we are running out of time, so I will try to get through the 

rest of my testimony as quickly as possible. 

The outlook for the remainder of 2009 and into 2010, we see 

some movement in price, but we do not see much movement in 

margins. As these prices move up, we were so far below the actual 

cost, our margins, we still see those as being pretty sad margins. 

We do not see much in recovery there 

The dairy safety nets. The support program, which has been the 

program that we have looked to for years and years as our basic 

support program, our safety net program, really has become inadequate and ineffective. As costs have gone up as dramatically as 

they have and the support price frozen where it is, it does not 

make—it is almost irrelevant any longer. Normally, we would have 

a support program below the cost of production, and in these 

downturns, we would have a number of producers that would exit 

the area, the more inefficient farmers, for whatever reason, a number of farmers that could weather the storm, and a number of 

farmers that could still produce a little bit. This loss has been so 

dramatic, no one is going to survive at these prices. I do not care 

how big, how small, where you are located, no one will survive. 

And what we have done, we have got ourselves into a situation now 

we have an inefficient industry. We have borrowed so much money 

against such little equity, we are no longer—we do have a global 

market, and I do not see how we can compete in that global market 

with these kind of prices. We need to do something immediately to 

stop the bleeding. 

The DEIP program, we want to thank the Secretary for help with 

the DEIP program. That has been a very effective program. We 

have moved some product out, and it has certainly helped us with 

our exports, and I think we need to remain—we would encourage 

the Secretary to fully use the DEIP program, as they can continue 

to do so. 

Back to the support program, I also want to thank the Secretary 

for raising the price to a level that it at least reasonable. The current price that we have, as we know, the way that program works, 

as the product price moves up by 10 percent, that product is reintroduced into the market. Theoretically, I could see where we 

could buy cheese at the current price, not the price that the Secretary has said. That could have the effect of actually lowering the 

price of cheese long run. As the price moves up slightly, that product is moved back into the open market, again, reducing the market price. I would encourage—and let me once again say, encourage 

with everything that I have—that he continue to use the new price 

to extend the current price at least through July. That would be 

tremendously helpful, I think, to all of us in the West—in the country, I should say. 

Dairy export enhancement I have talked about. Steps to take to 

address the issue, we have looked at a number of things. We have 

looked at the Holstein plan. We have not endorsed the plan. We 

feel it has—we endorse the concept of the plan, and we have made 

11 recommendations on how to improve the plan. That is not an 

13 

endorsement of the plan but a simple recognition that there is interest and it should be fully developed, and we want to look at 

those opportunities. 

I have the rest of my testimony written—— 

Senator GILLIBRAND. You can submit the rest for the record. 

Mr. SOUZA. I will submit the written, but one thing, though, I 

want to tell you that we do support the CWT program, and we encourage all non-participants to get involved. No matter how you cut 

it, there are 300,000 cows that have been retired, and that does 

have an impact. 

Thank you. 

[The prepared statement of Mr. Souza can be found on page 108 

in the appendix.] 

Senator GILLIBRAND. Okay. Thank you very much. 

Mr. Doug Nuttelman, dairy farmer, Nuttelman Dairy from 

Stromsburg. Mr. Nuttelman, go ahead. 

STATEMENT OF DOUG NUTTELMAN, DAIRY FARMER, 

NUTTELMAN DAIRY, STROMSBURG, NEBRASKA 

Mr. NUTTELMAN. Distinguished Senators, thank you, first of all, 

for such a warm welcome, and thank you for the opportunity to testify on the critical state of the American dairy industry. As has 

been mentioned, my name is Doug Nuttelman, and I am a dairy 

farmer from Stromsburg, Nebraska. My three sons and I own and 

operate Nuttelman Dairy. We milk 185 cows and farm a total of 

about 2,000 acres, which includes corn, soybeans and alfalfa. Although our family has not been milking for many years, we were 

rewarded this summer for being 108 years in our family farm at 

our local county fair. 

I am on the Board of Directors of Dairy Farmers of America and 

also on the Board of Directors of the National Milk Producers. 

First, I would like to express my appreciation to the Senators of 

this Committee and others for their relentless efforts to help dairy 

producers in these difficult times. Thanks to your tremendous efforts and that of USDA and the dairy producer community contributing to NFPF’s Cooperatives Working Together Program, industry 

experts believe the dairy industry may soon begin to recover from 

its disastrous years. 

As you know, U.S. dairy producers have been hit hard, experiencing unprecedented financial stress caused by historically high 

production costs. I would like to share just a little bit about how 

it has affected my farm this past year. 

In 2008, we were milking 145 head, and I brought my youngest 

son home to be on the farm, and we built a new dairy barn that 

would house 75 cows. Our goal was to have enough housing for 185 

to 200 cows. And the results of 2009 versus 2008—in 2008, we were 

milking about 145 cows. This summer we were milking 190 cows. 

My income from my milk is $4,000 a month less than it was last 

year. 

My feed costs—we raise all our own heifers, we raise all our own 

steers, and even though we do produce a lot of our forages and our 

silages, we are running about $12,000 a month higher than last 

year. 

14 

When I add my son on the payroll, when I add health insurance 

that I furnish my workers with, when I add my utility expense, 

when I add my vet bill and my $45 a month extra payment that 

I had to make for my building, I was at a net cash flow loss of 

$25,000 a month. And even with MILC at $5,000, you know, my 

farm was going backwards to the tune of about $20,000 a month 

on 200 cows. So you can just escalate how much some of the larger 

producers were losing in the loss of equity in the year. 

Even though I produce my own feed, my fertilizer costs this year were $1,000 a ton compared to $350 to $400 last year. My seed was 

$250 to $300 a bag, and my chemical costs were twice what they 

were last year. 

The sudden loss in late 2008 of export markets translated into a loss of over 25 percent of the U.S. dairy exports or about $6.5 billion of dairy producer equity. During January through August this 

year, the U.S. average all-milk price was $5.10 per hundred, below 

the U.S. cost of production. And if I would add $5 a hundred to my 

milk production over these periods, that translates into $20,100— 

in other words, a break-even for my dairy farm. 

And while milk prices are expected to recover, they are still not 

projected to reach break-even levels until early next year, which 

will only stop the bleeding. It will take much longer for some dairy 

farmers to recover equity that they have lost this past year. 

The traditional safety net for dairy farmers, the Price Support 

and Federal Milk Marketing Order Programs, are not designed to 

operate in the environment that we have had in 2009. However, to 

address the underlying problems that caused this crisis, we need 

to focus on solutions to avoid a reoccurrence of the present milkpricing dilemma in the future. 

A new approach to dairy programs must foster a climate of 

growth for the industry while protecting dairy farmers by taking 

the following steps: 

One, we need to revamp the current programs and revise them 

to establish a better safety net—specifically, a Dairy Producer Income Protection Program operating similar to that of other insurance programs. As a farmer, I participate in my Crop Insurance 

Program. I would like to see some type of program that would 

allow me to participate in a margin-type program on my dairy. The 

purpose is to help dairy farmers survive financially difficult times 

by paying them on an insurance indemnity when a loss occurs. 

We need to reform the Federal milk orders. The final outcome of 

that process must take into consideration various concerns by different regions of the country as well as different roles that the cooperatives play in balancing milk supplies and demand in the 

United States. The present make allowance system creates a winners and losers scenario. 

We need to evaluate a number of options to build upon the success of the industry initiative CWT, Cooperatives Working Together program, and make it even more effective. Currently, there 

are about 66 to 67 percent of the producers in the United States 

participating in this program. DFA has begun a program which we 

have looked at as far as dairy growth management which works to 

the goal of trying to get 100 percent participation in CWT, which 

may take a mandatory move by the Government. 

15 

If you look at our check-off system, if only 66 to 67 percent of 

our producers participate in our dairy check-off promotion, it would 

not be a successful program. But with the help of 100-percent participation, it is. 

As we all work to reform and reshape dairy policy in the future, 

we need to be cautious as it would be far worse to create crisis if 

we put policies in place that would hurt our ability to fulfill the opportunities that we may encounter in the domestic market, as well 

as international markets. Producers, like me, agree that the more 

than 70-year-old programs, especially safety net programs, need revamping. It needs to be made more relevant for the future to avoid 

the conditions we are now experiencing. 

Thank you again for the opportunity I have had to testify before 

you. 

[The prepared statement of Mr. Nuttelman can be found on page 

81 in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. Nuttelman. Thank you, 

each of you panelists, for these excellent testimonies and for your 

insights and expertise. 

I would like to talk a little bit about financing, because one of 

the issues that I have heard from a lot of my dairy farmers is they 

have no access to capital right now and that, in fact, they are not 

able to get the kinds of loans they typically would be able to get 

or the interest rates are too high. I would like you to give some information on that issue, if you have experienced any challenges 

with regard to getting access to capital in these tough economic 

times. 

Mr. NUTTELMAN. I guess I would like to speak on behalf of my 

farm. I have had to increase my working line this year, which even 

though I have been growing my farm, I have been able to maintain 

over the last 5 years, but this is the first year in 5 that I have had 

to increase my working capital line at the bank. And it took me 

testifying before, you know, my loan officers as far as where I was 

and what was happening in the dairy industry to be able to get 

that. 

I was fortunate enough to get it, but borrowing money on agriculture now with high inputs is getting tougher and tougher every 

day, not only for me as a dairy farmer but as for a farmer goes. 

Rents have escalated. Production costs have escalated. Equipment costs just continue to grow. And so I was fortunate enough 

to get the money I needed to finish this year, but it is getting 

tougher. 

Mr. OOMS. I think it has been a real challenge for anyone to get 

enough capital to keep going. For our farm personally, with our location where we are, we have enough equity that we have not had 

any problem yet. But there are plenty of people who are not—we 

live in the same county, Senator, and our land equity really kind 

of helps float the rest of us through times like these, even though 

our farms— we are optimistic about the future; we are concerned 

as well. And I think the industry as a whole is having a challenge, 

as I think our whole society is. 

Senator GILLIBRAND. Do you have an additional—— 

Mr. TOFT. Yes. On our farm we have so far weathered the storm. 

We have talked to our loan officer, and we have redone some of our 

16 

loans. Come next spring, when it comes time to put crops in, it is 

going to be an interesting time. 

But I was at our local feed mill, and I bought some feed, and 

when I wrote the check out, I told the gal behind the counter, I 

said, ‘‘I am going to have to quit writing these checks out pretty 

soon.’’ And she said, ‘‘Well, at least you are not calling in and telling us to use a different credit card.’’ So there are people out there 

that are putting feed costs on credit cards, and different credit 

cards, and that is going to be an awful disaster when those come 

due. 

So it is getting tight out there. It is starting to hurt really bad. 

Mr. SOUZA. I would say the same thing. I think that the farmers 

in California are doing the same. They are just burning up their 

equity, which is putting us in a pretty difficult position as far as 

being competitive. 

I am talking now to banks, and I am hearing information that 

banks will soon be cutting off credit. I do not know of any—maybe 

one or two farms they have actually gone out and picked up the 

cows, but it appears that they have finally come to the point where 

dairy is no longer the preferred crop in California so the credit is 

becoming more difficult. But what the financial institutions are 

looking at, though, they want to see policy that will put the industry back on its feet. They are very concerned about the long-term 

health of the industry, more so than they are the short-term 

health. 

Senator GILLIBRAND. Right. In terms of the subject of this hearing, we are really talking about what are the potential solutions, 

both short term and long term. And your testimony was all quite 

similar. You basically said that the safety nets need improving; 

they are not working as well as they need to be; you would like to 

see a new pricing mechanism, but do not necessarily know how to 

do that or what the best mechanism would be. So I think that is 

the kind of information we are going to have to develop over the 

next several months and years until we get to the next farm bill. 

But one issue that you all brought up was the CWT program, 

and you all spoke pretty favorably about it, so I would like to know 

what are your impressions of a mandatory Government-run supply 

management program. What would the strength or weakness of 

that be? And what is it about the CWT program now that you actually like that you would want to preserve? 

Mr. OOMS. I think the strength of the CWT right now is that it 

is producer controlled, so it is able to be responsive to the industry, 

and I think it has moved pretty fast this year. And I think a drawback of it being mandatory and having Federal involvement is you 

lose that ability to respond. 

Having said that, I know a number of people that are very favorable towards doing that, but I think there are drawbacks once you 

involve the Government in a program. 

But, overall, it has been successful and it could do more. 

Senator GILLIBRAND. Mr. Souza. 

Mr. SOUZA. Well, our organization has favored CWT, although 

there has been a lot of debate on how it could be run. But being 

a privately run organization, it really does help us deal with some 

17 

of the WTO rules. That is why we are doing it through the cooperatives. Through Capper-Volstead it gives us that opportunity. 

As far as a Government-run program, there are a lot of things 

about the Government-run program that we have to concern ourselves with. We have looked at supply management programs in 

the past that have been run by the Government that have been, 

to one degree or another, successful or not successful. But we are 

dealing with a whole new set of—we are in a global economy. We 

have WTO rules. And I think from our industry’s perspective, we 

recognize that there is some value there, but we really need to be 

careful how we move forward in this thing. 

The WTO rules, unfortunately, today—although we have tried to 

tighten them up as much as we can, there is a lot of wiggle room 

with our international competitors. So we continue to look at that, 

and we believe that needs to be fully vetted before we can fully buy 

into that type of a program. 

Senator GILLIBRAND. Thank you. I actually need to move on to 

Senator Klobuchar because I want to stick to the 5-minute rule. 

But we can revisit this issue when I have time again next. 

Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. I appreciate it. 

One of the things that I was wondering about—maybe you can 

start, Mr. Toft—is just the effect that this has beyond dairy farmers, you know, on processors and the rest of the dairy industry. We 

have a lot of co-ops and different dairy processors in Minnesota. 

Could you talk about the effect you have seen beyond dairy farmers? 

Mr. TOFT. When a dairy farmer has a dollar in his pocket, he 

spends it. And when you do not have that money in your pocket, 

you do not go to town, and it involves everybody on Main Street. 

In our county, we have been told that a dollar coming in on a 

milk check will turn seven times before it leaves our county. So 

that is a lot of money. And that keeps a lot of different businesses—whether it is a furniture store, a grocery store, or whatever, it keeps all these other businesses going. 

In the same way, this price volatility makes it hard for our coop to—when we sell product to a customer and the price goes up 

and down, they would rather have a stable price rather than the— 

I mean, the farmers like a high price, but our customers would 

rather have a low price. So we would rather have it somewhere in 

the middle so that we both can keep on. 

If that customer of ours reformulates from a dairy product to 

something else, they do not come back right away. And that is 

going to be a problem now if the prices go up. We are losing dairy 

farmers so that the milk supply is dropping. But there are too 

many customers that have already reformulated, and they are not 

coming back to dairy right away. 

So it involves the co-op, it involves the dairy farmer, it involves 

Main Streets. 

Senator KLOBUCHAR. Anyone else want to add to that, the effect? 

Mr. SOUZA. Well, I come from a high unemployment area. We are 

in the middle of the San Joaquin Valley in California. We have 

towns with as much as 25 and even 30 percent unemployment. And 

when you take $3 billion of farm gate value right out of the San 

18 

Joaquin Valley, it is going to have an impact. But the biggest impact really has been on the poor—of course, which we are all becoming poor quickly. But those folks that do not have jobs, have 

lost their jobs in agriculture today, really have nowhere to go. 

One of the good things that we did with our Cheese Buy Program 

and trying to get that Cheese Buy and the dairy products moved 

through the appropriations bill into those families was to help 

some of those families survive this very, very difficult time. It has 

had a very dramatic impact. And if you drive through the valley 

in some of those poor rural towns, you can see it for yourself. It 

is quite sad. 

Senator KLOBUCHAR. How about the export market? You know, 

we tried to figure out if there is anything out there to help in that 

way. And, of course, we have had issues with some of the concentrated milk and other things coming in from foreign countries. 

But what is the status of that? We fully funded the Dairy Export 

Incentive Program, but what do you think we can do better to promote exports? 

Mr. NUTTELMAN. I think the continuation of the DEIP program 

is going to help us out quite a bit. You know, just the idea that 

if markets around the world do improve, we become more competitive, too, and we can become a player in those markets. But I think 

the continuation of the DEIP program will continue to help us with 

our surpluses and get us into those countries we need to be in. 

Senator KLOBUCHAR. I just had a hearing yesterday in Minnesota 

on exports—it was not specific to agriculture— because I head up 

that Subcommittee in Commerce, and I was just struck by the 

growing markets out there internationally, like 95 percent of our 

customers are outside of the U.S. And I know this is not the panacea, but the more that we can try to help you with those exports, 

I think the better off we will be as some of these developing countries actually become consumers. 

Mr. NUTTELMAN. If you look back at what happened in 2008, 

other countries were not able to supply the markets and we were. 

And we grew a dairy industry that could be a player in the industry as far as other markets. And then all of a sudden when they 

were gone, you know, that was what created a lot of our dilemma. 

But now I think, you know, through DEIP and other programs, we 

will be able to get back in there and be a supplier. 

Senator KLOBUCHAR. Mr. Ooms. 

Mr. OOMS. I think one thing that is really playing a big role in 

this, as I said in my testimony, is that in 2007 and 2008 our prices 

were high. We were exporting up to 11 percent of our product, and 

historically we have done 4 or 5 percent. Part of the reason for that 

happening is the economics of everything, but the other thing is we 

cannot underestimate the impact of the melamine scandal in 

China, because the Chinese historically have not been dairy product consumers. So when they have that melamine issue, they do 

not switch to another milk. They just started drinking this product, 

and then they have their kids dying. They are not going to go back 

to it too quick. 

So I think that is another key factor because it is a huge market, 

and the dollar being a little weaker will help us export more. 

19 

Senator KLOBUCHAR. That is what we hope, and you mean to 

open up the Chinese market more or to—— 

Mr. OOMS. If they drink milk, we will find a way to get it there. 

Senator KLOBUCHAR. Mr. Souza. 

Mr. SOUZA. Yes, I would like to take a shot at that, too. Being 

from California, we have, you know, particular interest in the Chinese market. That is probably our market of the future. But we 

needed to pursue a more aggressive public-private partnership in 

reaching into those markets. It is very expensive, product development, marketing, and strictly for the co-ops themselves, it is extremely expensive and very difficult to do. 

But I think one of the things that we could look at is a publicprivate partnership and how do we aggressively crack those markets and get our American products to those markets. 

Senator KLOBUCHAR. Right. I was just struck at this hearing that 

30 percent of small businesses—again, outside of agriculture but 

there are a lot of lessons to be learned—say that they would like 

to export more, but they just do not know where those markets are, 

and trying to focus on that I think could be a big part of the solution. As we know, dairy products would be really good for people 

in these developing countries. 

Mr. NUTTELMAN. If I could make one more comment. If you look 

at the Price Support Program, you know, a lot of the products that 

have been manufactured over there were manufactured to meet 

Government standards, our Government standards, so that if the 

market fell out, we could sell them to the Government. You know, 

if we are going to be looking at playing in exports, we need maybe 

help of some type of developing the products that these other countries wants and get away from just producing products that would 

have a Government support program attached to it. So I think it 

is important that we help develop products that other countries 

want. 

Senator KLOBUCHAR. Thank you very much. 

Senator GILLIBRAND. Senator Johanns. 

Senator JOHANNS. Well, let me just start out and tell each of you 

how impressed I have been by your testimony. But, of course, you 

would know this industry because you live it every day. 

In preparation for the hearing, I was reviewing some of the overall numbers that are available through the USDA and the Congressional Research Service report, and there just is not any doubt 

about it. There was a perfect storm here. 

About the time, Doug, that I went back to Nebraska to start the 

campaign for the Senate, we saw historic prices for milk. Had I told 

you that you would see $21 milk, I think you probably would have 

wanted to debate that with me, but that is what you saw. 

It appears to me that the signal that sent to the producer was 

to do what farmers and dairy folks are really good at, and that is, 

to produce. After all, the price was very, very good. 

Consequently, it looks to me like what occurred is that instead 

of culling those animals out of the herds, some cows got kept, the 

herd expanded, while at the same time productivity has been going 

like this in dairy, just like it has in the rest of agriculture. Then 

all of a sudden you started to experience very expensive input 

costs. Corn prices in Nebraska flirted with $7. As you know if you 

20 

were buying that corn, that was going to be a painful situation, 

while at the same time demand dropped. And it just could not be 

a worse set of circumstances for the industry. It just could not be 

a worse set of circumstances. 

What I am trying to figure out and I think all of us here today 

are trying to figure out is the right approach that recognizes that 

you are really good at what you do and we should encourage that. 

We should encourage you producing, because with better genetics, 

et cetera, we are going to see great productivity. But the piece of 

that I think we have a role in is, number one, what is the right 

safety net. You do not want agriculture to collapse in bad times. 

And then, secondly, how do we increase that demand for the product that you raise? 

Now, let me throw something out to you on that demand equation. About 2 years ago, a little more than 2 years ago, trade promotion authority lapsed. Our President does not have trade promotion authority, and that is the legislation that allows for the upor-down vote on a given trade agreement. 

I submit, having worked in trade as a member of the Cabinet, 

there will be no bilateral trade agreements by this administration. 

There will not be any—not because they do not talk like they want 

them, but you cannot get them without trade promotion authority. 

What country would negotiate with you if 535 people then have the 

ability to amend the trade agreement? 

So tell me what your opinion is on trying to expand trade. We 

have got three bilateral agreements pending. We have got the issue 

of trade promotion authority, which I would gladly work to help the 

President get. 

Doug, get us started here. What is your sense of what I have said 

here about trade? 

Mr. NUTTELMAN. Well I think when it comes to outside markets 

and trade, we need to be able to be a fair player. You know, whatever we have, if the trade agreements are, it needs to be fair for 

both of us. And I know there is always a lot of talk about free trade 

with other countries and stuff like that. I am not that well versed 

when it comes to what the President can do or cannot do, and that 

is why I rely upon you, Mike, on knowing some of that stuff. 

But I believe that we can be a fair player in all these markets, 

and if these markets were open to us and we produced the products 

that these countries want, I think we could have a thriving dairy 

industry in this country. 

Senator JOHANNS. Mr. Souza, what is your thought on that? 

Mr. SOUZA. Well, first of all, I am impressed with your statement 

because I think you have pegged the industry exactly correct. I feel 

that trade is the future of our industry. We have a natural inclination to grow, and for us to grow, we have to get into the trade business. But, once again, we have to work—we have to be competitive. 

That goes back to the statement I made earlier that we need to 

have a public-private partnership in expanding those markets, and 

to do that we have to have good research. We have to be very aggressive in product development—product that is developed specifically for a country to meet their demands, not our demands. And, 

secondly, we have to have trade laws that will make those markets 

accessible to us. 

21 

I am with you. I think we need to strengthen our trade laws. I 

think we need to get very aggressive back in that arena, and hopefully those options will be made available to us. 

Senator JOHANNS. Mr. Toft or Mr. Ooms. 

Mr. TOFT. I probably have a little bit different perspective of 

what exports should be. We have talked a lot about free trade, and 

free trade is not what we need. What we need is fair trade. We 

need to be able to export on a fair basis rather than just free. 

But the problem comes in, if we are going to be an exporter of 

dairy products, unless they are something spec, some specific product that somebody else does not—we can export whey and whey 

products simply because most of the other countries in the world 

that export do not have much export in whey products. So we can 

export a lot of our whey products. 

But in order to be an exporter of non-fat dry milk, which is the 

biggest one that goes, we would have to be able to produce it at 

world prices or less. And the last 6 to 8 months has shown that 

we cannot survive at $9 milk. We have got to have something higher. 

So unless there is some way to raise the prices and we can still 

export, you know, non-fat is not going to be something that we can 

do at a profit. But there are products out there that we do, but like 

I say, the rest of the world does not make whey products to any 

extent and we do. So we have got a lot of that. But cheese and others, you know, our prices are too high for that most of the time. 

Now, with the falling dollar, that is going to make our prices a 

lot more competitive with foreign markets. 

Senator JOHANNS. Yes. Let me wrap up there. 

Senator GILLIBRAND. Yes, I think so. Thank you very much. 

Chairman Casey. 

Senator CASEY. Thank you, Senator Gillibrand, and I am grateful 

for all of your testimony. I know, Mr. Nuttelman, I missed your testimony. I had to step out. But I will—we do have your testimony. 

I think it gives an opportunity for you and others as well to focus 

on one or two questions. The first question would be: Each of you 

in your own way—and it is set forth in your testimony, Mr. Toft, 

on page 2, Mr. Souza, for example, on page 10, you talk about short 

term and long term. And I am glad you did that because it is critically important. In Washington, when there is a problem, sometimes saying we have a bill on that or there is a bill does not respond immediately enough to a lot of problems, but especially I 

think in this situation. 

If you were able to—and I know some of this will be redundant, 

but in this town it is important to be redundant, and then again 

and again and again, because of how busy people get and how 

sometimes we lose our focus. 

If you had to pinpoint—just dealing with the short term first— 

two or three immediate actions that the Congress, the executive 

branch of the Federal Government, any agency could take at the 

Federal level, what would be those two or three things if you had 

the proverbial magic wand? Because we are trying to think about 

in those time periods both short term and long term. And in our 

second panel, Russell Redding is here, and he has broad experience 

in Pennsylvania, and I am going to be giving him a half-hour buildVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
22 

up when his panel appears. But he can tell you how immediate the 

crisis is for Pennsylvania farmers, and I know it is true across the 

country. 

So if you had even two, what are the two things you would hope 

that the Federal Government could do in the near term, the next 

6 months or so, if not the next year? Why don’t we just go right 

to left? 

Mr. NUTTELMAN. I think one of the things you could do—and you have already done that with your $350 million—is getting some 

money into dairy farmers but be an active player in some of our 

markets and help us in controlling maybe some of our inventories. 

The purchase of cheese and even that for, you know—I am not 

going to say export, but for feeding programs and stuff like that, 

or anything that could help stimulate our price. I think our price 

is going to be, you know, gaining but I think that would help speed 

up the programs. 

When I look at what our co-op does right now, we do not have 

enough milk in some areas to supply markets. And you might 

think, well, that is not very good the way the markets are. But our 

milk supply at present right now does not supply all the milk without moving a lot of milk around. But the inventories that we still 

have on hand is what is holding some of our price back. So helping 

in some type of lowering of inventories would. 

Senator CASEY. Helping moving the inventory. 

Mr. NUTTELMAN. Helping moving the inventories I think would 

stimulate the price and get it back into dairy farmers’ pockets. 

Myself, you know, I would rather get my money from my market. 

You know, if there is something I could tell you guys, I believe in 

having the programs as safety nets and everything else. But I 

would like to be—I would love to be a farmer that gets all my 

money from the markets. And let me market my stuff the way I 

want to or whatever it is, and let me be a steward in marketing 

my product and not rely upon you guys to keep me in business. 

So we need to find a way to strengthen the price sooner than 

later. 

Senator CASEY. Thank you. 

Mr. Souza. 

Mr. SOUZA. Well, Chair Casey, I would agree that the most immediate thing with the greatest impact and probably it would give 

you the most bang for your buck would be the Cheese Buy, and I 

say cheese not dairy products, but in particular cheese. There was 

an analysis done by the National Milk Producers Federation that 

showed that the Cheese Buy Program would return more money 

per each dollar invested than a direct payment program or actually 

even an increase in the support price. 

And it also takes care of two problems. We have a business crisis 

in the dairy industry, but we have a social crisis. And I cannot 

think of an idea that would handle the dairy industry crisis, the 

social crisis, and is fiscally sound, money spent on that Cheese Program would effectively reduce the payments put into other safety 

net type of programs. And I think you can show a savings with 

that. 

So number one in my book is the Cheese Buy, but the one problem that I have was we actually gave a figure of 100 million 

23 

pounds, and there was a specific reason. We have 100 million 

pounds of overhang, of too much cheese. Anything below that, what 

concerns me is we may spend the money but not get the benefit. 

So I would recommend that we look hard to find the rest of the 

money to get the 100 million pounds bought, move that off the 

market right off of the CME, not through CCC, which requires additional packaging requirements and inspection requirements, take 

it right off of the CCC, the same way you buy it at home, get it 

to those families, even the $60 million we have now, it has to be 

moved immediately, and then immediately move into another 

phase to buy the rest of the cheese. 

We have a fairly good balance of supply and demand. Some regions you have a little bit more than you need. Other regions, there 

is a short supply. In California, we are short. They say as California goes, so goes the Nation. We are down 6.4 percent from 

where we were a year ago. 

We feel the market signals. I hope that the rest of the country 

will understand and will do the same as California does and get 

our production in line. But Cheese Buy is my answer to your question. 

Senator CASEY. Mr. Toft? I know I am out of time, but I will let 

the responses—— 

Mr. TOFT. I have to agree with these two gentlemen that buying 

that cheese as soon as possible, not waiting a month, but with our 

economy the way it is, there is an awful lot of hungry people out 

there that could put that cheese to good use. And I think if we did 

that right away, that would help us more than anything. And the 

other 290 million would go a long ways as soon as that can be put 

into the pockets of dairymen, that would really help the individual 

dairymen. 

I was going to mention, too—Senator Klobuchar is gone, but the 

other thing you could do is, you know, in Wisconsin we send aging 

quarterbacks, expensive quarterbacks across the State line. 

Senator CASEY. Well, she will watch this testimony tonight, so be 

careful. 

[Laughter.] 

Mr. TOFT. Okay. 

Senator CASEY. Just kidding. 

Mr. OOMS. I would just say I cannot disagree with anything that 

they said, but we oftentimes get caught up in big things, and there 

are little things that we let elude us. And two things that just really bother me is the 15 cents that every dairy farmer in America 

pays for promotion and the imported products do not have to pay 

it. The farm bill mandated that they pay 7–1/2 cents, which sounds 

like a good Washington deal that, you know, the IDFA wanted 

that. It should still be 15 cents, and why USDA is not expediting 

that process is beyond me. 

The second thing is that Senate bill 1542, which would basically—milk protein concentrates are essentially a new product that 

were left out of the last WTO round. They could be tariffed under 

the WTO rules, just so we are making sure that everybody is playing on a fair playing field. 

Again, they are not big things. They hit the big things, so I 

would take the opportunity to give you two things that we just 

24 

need to pay attention to this stuff, because we are letting too much 

of the little things go by. 

Senator CASEY. Thanks so much. 

Senator GILLIBRAND. I want to thank you all for participating in 

this hearing. This is obviously the first hearing on a very complex 

topic that is going to take a lot of time to develop a record and develop testimony and develop the ideas. I am very appreciative, in 

particular, of offering your short-term solutions and at least being 

able to lay out some of the long-term ideas that we need to begin 

to debate. 

But thank you for being here. We know how much stress your 

farms are under. We all represent dairy States, and we are very 

worried and concerned for you. 

We are going to do everything we can do to follow up on the 

three things that were your top priorities: getting the 15 cents for 

promotion out of our foreign competitors, making sure we focus on 

1542 as a way to have more money in, and then trying to get that 

cheese bought. So thank you so much for being here. I am very 

grateful. 

I invite the second panel to come up. 

Senator CASEY. Welcome to the second panel, and we are grateful 

that people are still in the audience to listen to the testimony. We 

are also grateful that our witnesses are here. And I think you 

know, our witnesses know the drill by now. We are going to try to 

keep your testimony to 5 minutes if you can. We probably have 

been adding a minute here or there, but I am not supposed to say 

that. 

What we will do is Senator Gillibrand will introduce Mr. Gallagher, and then I will introduce the next three witnesses, and then 

we will go from there. 

Senator Gillibrand. 

Senator GILLIBRAND. Thank you all for being here. Thank you, 

Mr. Chairman. 

Ed Gallagher serves as the Vice President of Economics and Risk 

Management at Dairylea Cooperative Inc., Dairy Marketing Services, and Dairy Farmers of America Farmer Services Unit. As a 

member of Dairylea’s senior management team, Ed is involved in 

milk marketing, regulatory and government affairs issues, and providing assistance developing various business ventures. He overseas the operation of Dairylea’s and DFA’s milk price risk management programs. 

Prior to joining Dairylea, Ed was employed for 12 years at the 

Office of the Federal Milk Market Administrator for the New YorkNew Jersey Marketing Area. He spent his last 5 years there as 

Chief of Market Analysis Research and Information. He was raised 

on a dairy farm in Sangerfield, New York. The family farm is currently being operated by his brother and sister-in-law. Ed lives 

with his wife and two children in Cosnovia, New York. 

STATEMENT OF ED GALLAGHER, VICE PRESIDENT OF ECONOMICS AND RISK MANAGEMENT, DAIRYLEA COOPERATIVE 

INC. SYRACUSE, NEW YORK 

Mr. GALLAGHER. Thank you, and thank you for the invitation to 

speak to you today, and thank you for everything that you have 

25 

done to date supporting America’s dairy farmers, and thank you for 

having this hearing. 

I do not want to make light of the economic crisis that is facing 

our dairy farmers, but I do want to get into some specific things. 

In my lifetime, this is the single worst crisis facing the dairy industry. This cost price squeeze is having impacts that are going beyond anything that we have ever seen before. It is made far worse 

by the cost of production increase that has occurred because of Federal policy to support the production of ethanol. My research would 

suggest that it has probably added almost $2 a hundredweight on 

average across the country right now to the cost of producing milk. 

When I look at farm returns, it is very similar to some of the returns that Mr. Souza spoke about earlier that losses on farms are 

deeper than they ever have been, and they are probably $5 per 

hundredweight or more. In the Northeast, they are probably averaging about $75 a cow a month, and as you go west where they 

buy more of their feed, they get worse. 

You know, the ultimate issue that we are dealing with is a collapse in demand, not a collapse in domestic demand but a collapse 

in export demand, that specifically can be attributed to the financial crisis. I often talk at dairy farmer gatherings about governmental policy, and I frequently start by saying the single most important policy that we should be trying to develop is policy that results in a strong, growing national economy. 

All of us here have a sense of what goes on in the dairy industry, 

but beyond that, about the issues that caused the financial collapse, we are neophytes. We need your support and your efforts to 

continue pursuing solutions to that so that crisis never occurs 

again. 

Prices are improving. I am optimistic about price increases, although I am not sure we are going to get beyond or up to in some 

cases break-even. Certainly there has been a lot of discussion about 

the $60 million. We need that spent right away, and we need it 

spent to buy cheese, not just any type of cheese but cheddar cheese. 

That will have the biggest bang for the buck, and I think markets 

are tight enough that we can move cheese prices fairly significantly 

with a new buyer in the marketplace. 

As the economies around the world pick up, there is definitely 

going to be inflationary issues running across commodities. One of 

the things we have to make sure is that undue speculation in the 

commodity markets is not contributing to higher prices. That has 

harmed dairy farmer income in the past. It has harmed prices that 

all of us have had to pay. There are issues that can—we need your 

support in making sure that some of that speculative activity is 

reined in and supports dairy farmer income. 

Regardless of some of the policies that we come out of after this 

is over, longer term with some of the things that we can do, milk 

price volatility is not going to go away, in my opinion. We need to 

help dairy farmers get educated on the opportunities that are out 

there to help them manage their milk price risk. I have got farms 

in my programs that are getting up to $8 a hundredweight over the 

market price right now because of actions they took last year 

through forward contracts in the DFA and Dairylea programs. 

26 

I think there needs to be incentives to encourage them to use the 

programs. I think for many farms there are some really good opportunities to create their own price floor far above anything the Federal Government will be able to afford to give them, but some farmers balked last year in doing that because they did not want to pay 

the cost of it. And I believe some incentives will help them. 

We need to look at supply management options. The CWT program has been successful. We have taken what would normally be 

a 1-to 3-percent increase in production and zeroed it out, and it is 

starting to decline now. Certainly if we can get more people participating in the investment in CWT, that would be helpful. 

Federal orders definitely need to be looked at and reformed. At 

the end of the day, we have got to make sure that we do not go 

create an unintended consequence of discouraging manufacturers 

from buying milk, and we have to make sure there is a linkage so 

that farmers and milk processors can continue to hedge. 

We need to get Secretary Vilsack’s Dairy Advisory Committee 

going. We need that so that we can get a pulse from the farming 

community and from the dairy industry about what is going on. We 

need to look at a whole bunch of things. 

In addition to everything that has already been stated, maybe we 

need to look and review how data is collected and the impact that 

that may have, dairy data is collected and the impact that that 

may have on the pricing system and are there ways to do a better 

job collecting the data to make sure that it is relevant. 

In closing, I want to thank you for the opportunity to be here. 

I look forward to working with this Committee and my partners 

here on this Committee and the entire dairy industry in working 

through these issues over the next months to improve the dairy industry and have a stronger, more profitable industry for dairy 

farmers. 

Thank you. 

[The prepared statement of Mr. Gallagher can be found on page 

47 in the appendix.] 

Senator CASEY. Mr. Gallagher, thank you very much for your testimony, and we appreciate you being here. 

Secretary Redding, the Acting Secretary of Agriculture for the 

Commonwealth of Pennsylvania, I was kidding before when I said 

I was going to give him a half-hour introduction. I will not do that. 

But I have known Russell Redding for many years. He served in 

State government, actually prior to my own service, and we were 

there in Harrisburg together doing different jobs. He has been part 

of the Department of Agriculture’s leadership team since 1995. He 

grew up on a family farm in Gettysburg, Pennsylvania, in Adams 

County. And since 2003, he has overseen the day-to-day management of the Department of Agriculture in Pennsylvania. I know his 

predecessor and former boss, Secretary Wolfe, is in the back of the 

room. I am happy to see Secretary Denny Wolfe from the Commonwealth of Pennsylvania. 

He also served here in Washington as a member of the staff of 

actually one of my predecessors, Senator Harris Wofford, as agricultural policy adviser and executive assistant to Senator Wofford 

in the 1990s. 

27 

He has served our Commonwealth in so many different capacities. He is a proud graduate of Penn State, and, Russ, we are glad 

you are here. I should say, ‘‘Mr. Secretary, we are glad you are 

here.’’ And we appreciate the perspective you bring to this for our 

Commonwealth and our country. Thank you. 

STATEMENT OF RUSSELL C. REDDING, ACTING SECRETARY, 

PENNSYLVANIA DEPARTMENT OF AGRICULTURE, HARRISBURG, PENNSYLVANIA 

Mr. REDDING. Thank you, Mr. Chairman, for the kind introduction. Madam Chairman, thank you, and to the Senators, thank you 

for being here and inviting the Commonwealth of Pennsylvania to 

be part of this testimony. This is certainly an important moment 

for us to talk about the dairy issue, and we heard from the first 

panel and we will hear from this group as well. But on behalf of 

Governor Rendell, thank you for the invitation to be here. 

We look forward to working with you as a Committee and your 

colleagues to deal with this issue. On behalf of the Pennsylvania 

producers, about 8,000 of them presently, I want to say thank you 

to the Committee for the $350 million supplemental support for the 

dairy industry. Certainly that is a critical step. It is the first step. 

We know how difficult that was and how difficult it is to come by 

with extra money, so certainly an important statement from Congress and from the Committee. 

It is certainly helpful in dealing with the near-term pain that the 

producers are experiencing, and you heard from them earlier. But 

also it maybe more importantly gives us some breathing room to 

really deal with this crisis and to talk through what is going on. 

I think that has been the real benefit of the $350 million, so thank 

you for that. 

I have said often in the past several months that you never want 

to waste a crisis, and we certainly have one here in the dairy industry today. Now, it is both a crisis in confidence and it is a crisis 

in income. We must use the rare moment to reform our pricing system, better understand the dairy market dynamics, and most importantly, change the approach to managing risk at the farm level. 

Now, several items of recommendation on reform. We must improve the system of price discovery. The U.S. dairy industry would 

benefit from a reliable and transparent method of price discovery 

for dairy commodities. It is questionable whether that exists today. 

The CME market for cheese and butter is thinly traded and is the 

market of last resort for both sellers and buyers at times. Yet it 

is these transactions and only these that send the signal to the 

USDA/NASS for prices of dairy products which the Federal Milk 

Marketing Order System depends on for prices of dairy commodities. There is a lot we could say on that. I just put that on the 

table as one of those items we need to come back to. 

Secondly, we would also suggest improving the integrity of the 

marketplace by creating alternatives to the CME or consider using 

a collection of price discovery tools that would more accurately reflect what is going on in the market and the market conditions. 

Thirdly, and maybe the most important recommendation I would 

make here today is that both Congress and the USDA work together to provide dairy producers with additional workable, affordVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
28 

able, and meaningful risk management tools. Mr. Gallagher mentioned this. I think this is one of those teachable moments that you 

rarely get in agricultural policy in particular. We spent a lot of 

time trying to build a system and a product and a private product 

that Congress gave the authority to do back in 2000 which Mr. 

Bruce Babcock called LGM Dairy. It is that first step to really encouraging dairy producers to use a risk management tool to hedge 

some of the risk that they are all experiencing. Whether it is the 

most effective product in doing that, there are certainly some 

things we should do, like providing some incentive. Ed mentioned 

this. That is the number one reason that folks buy crop insurance. 

There is some incentive there. There is no incentive at this point 

for the LGM Dairy. We think that is an important first step. 

We believe that there are some things we could do from an incremental payment standpoint, is that right now all the money is due 

up front. That is a very heavy lift when you are working with negative margins. So having some opportunity to spread those payments out. 

And, most importantly, I think, education, and clearly this is a 

changed day. You are asking producers to take a very different approach to managing their risk. We are going to have to help them 

get there. We have shown we can do that on the crop side over the 

last number of years, and thanks to Congress for having the foresight to consider that. We have worked hard on that. So the LGM 

Dairy or other risk management options I would say is important. 

And I think it becomes critical to moving forward because that is 

the tool that bankers and lenders will look to. How have you managed or will you manage your risk is important. 

Just a couple of final points. The standards of identity for imported product, we keep hearing over and over those issues. I 

think, again, this is a moment for us to talk about what is coming 

into the country, who is bringing it in, what form is it in, how is 

it being used. That is an issue. This is the confidence side when 

I say crisis of confidence. Producers really do not understand the 

pricing mechanism and is compounded by—you have imported 

product where we are really not sure of its intended use. Is it coming in with tariff rate quota? Is it coming in under the same standards of identity? That is an issue that simply must be dealt with, 

and I put that on the table as one of the near-term items. 

A final point, and this is not a dairy issue, but more in terms 

of going forward, is the most immediate thing we can focus on are 

the credit markets. Even if the milk market starts to turn up, 

which it is a little bit, and we have some outward hope, we have 

an issue in the near term of folks being able to finance their operations. We heard this in the first panel. That is the piece we really 

need to focus on. What can the USDA and Congress do to provide 

that bridge from this year to the better year? And we need to look 

at finance. We cannot probably price product the way everybody 

wants it priced at the moment or make all the changes. But we certainly can change the credit availability and how the USDA and 

the Federal Government manages this portfolio of credit for American agriculture. 

Finally, we are fortunate in a State, in Pennsylvania, to have a 

Milk Marketing Board under Governor Rendell’s leadership. Just 

29 

as we have asked this Committee and Congress and the USDA to 

work hard at finding some solutions, the Governor has also asked 

the Milk Marketing Board, which is a separate independent entity 

in the State, to look at their own authority. What can we do as a 

State to address the issue? It certainly has been over the years a 

partnership between State and Federal Government. We are one of 

six States in the Nation that have a pricing mechanism. How do 

you use that? Is it being used effectively? Is there some other way 

to use that tool to help the producers in the State of Pennsylvania? 

So I end there saying that we have a lot of good work to do. 

There has been a lot of good work done, and I think with this moment in time, we know producers now understand where their 

margins are or what their margins are. We know that. And that 

is an important statement, because only once you know that can 

you make an informed decision about how to manage your risk. So 

we have that moment now with the crisis that has been provided 

to us. We did not want it, but we have got it. What do we make 

of it? And then how do we apply these new risk management tools 

to really help our producers in Pennsylvania and this Nation. 

Again, thank you to the Committee. 

[The prepared statement of Mr. Redding can be found on page 

96 in the appendix.] 

Senator CASEY. Mr. Secretary, thank you very much. 

Our next witness is Paul W. Kruse, and Paul is currently the 

Chief Executive Officer and President of Blue Bell Creameries. He 

is a graduate of Texas A&M and Baylor Law School and also currently serves as Chairman of the International Dairy Foods Association and had been chair of the Dairy Products Institute of Texas. 

We are grateful that you are here, and thank you for your testimony, sir. 

STATEMENT OF PAUL W. KRUSE, CHIEF EXECUTIVE OFFICER 

AND PRESIDENT, BLUE BELL CREAMERIES, L.P., BRENHAM, 

TEXAS 

Mr. KRUSE. Thank you, Mr. Chairman and Madam Chairwoman 

and members of the Subcommittees. I appreciate the opportunity 

to be here today. As you said, I am the CEO and President of Blue 

Bell Creameries. We are an ice cream manufacturer located in 

Texas, and we basically distribute product through 18 South and 

Southeast States in the United States. We have been around in 

business for 102 years, so we have been at it a long time. 

I am also, as the Chairman said, the Chairman of the International Dairy Foods Association. That is 220 member companies 

that actually handle about 85 percent of all milk, cultured products, cheese, and ice cream that is manufactured and marketed in 

the United States. As a group, we are deeply concerned with the 

situation that dairy producers face today, and we are definitely 

available to help find solutions so that all producers, both large 

ones and small ones, can get the necessary tools to manage their 

businesses profitably. The partnership that we have with milk producers is critical to protect. 

There are three points I would like to make. 

First, most of our dairy policies were designed over 70 years ago, 

and the industry has changed very profoundly since then. 

30 

Second, price swings are normal for farm commodities, but dairy 

farmers lack the tools that would allow them to smooth those 

swings, and I think Mr. Gallagher and the Secretary here both elucidated that very well, talking about risk management and just 

how important it can be. 

And, third, the milk supply needs to continue to grow to meet demand, and Federal dairy policies should be reformed to let us reach 

that potential. 

Just a few facts about milk and the dairy industry. About 45 percent of domestic milk goes into cheese production; 30 percent into 

fluid, or the bottled, the beverage milk; and about 10 percent goes 

into frozen products like ice cream. Milk production really in the 

United States has soared in the last 30 years. Fluid sales have 

been very stagnant during that time. Cheese sales have taken up 

most of the milk growth over those years. And the frozen products 

have been relatively stagnant also over those years. 

As you know, probably three-quarters of our milk supply comes 

from the ten top dairy States. It is very concentrated. And when 

most of our Federal dairy programs were designed, there were 4.6 

million dairy farmers, and today by our count there are about 

67,000. So there has been a real decrease. 

Long ago, most of the milk came off small dairy farms, and today 

I think 59 percent of the milk comes from only 5 percent of the 

dairy farms, and those are classed as 500 cows and up. 

We used to be a net importer, and as you heard, I think, from 

the producers testifying today, last year about 10 percent of all the 

production of milk in the United States was actually exported last 

year. 

There is no question that the low prices have been kind of historic this year and have created a lot of concern. I think by our calculations, the Federal Government has put about $1 billion in help 

into that market this year. But even with this, I think people will 

agree that our old system is not serving us very well, and changes 

are really looked forward to, I think, by our industry. 

One of the ways, I think, is to stop treating dairy as different 

than any other commodity. We need to, as the previous two witnesses just testified, give them the ability to manage unavoidable 

swings in the market, encourage the use of market-based risk management tools that allow them and processors to manage the variability in market prices. As I understand it, I think every other agricultural sector can and does use those tools as a regular part of 

business, and it is just not real frequent in the dairy industry. 

Expanded insurance programs like the Livestock Gross Margin 

Insurance Program, and also the forward contracting program, I 

think, that was reauthorized in the 2008 farm bill are steps in the 

right direction. 

We think more can be done, and as the previous witnesses talked 

about, education for farmers to understand what tools are out there 

and what they can do. Providing the right insurance products is 

also important. 

But our outdated dairy programs discourage the use of these 

tools and, what is worse, they really stand in the way of our industry’s ability to expand demand for dairy both domestically and 

internationally. 

31 

Companies around the world have developed new dairy ingredients, but we have not done a good job in the United States of that. 

Why? Well, our support programs encourage the production of nonfat dry milk which food processors really do not want to use, and 

that is a drawback. 

We need to simplify the system by reducing the number of classes of milk and by eliminating the complex formulas that we use to 

establish prices. Prices are ticking up, and hopefully we will see 

them go in the right direction. Projections for next year I think are 

much different than they are for this year, but the question is: How 

do we get there? 

Some have proposed, I think, a supply management where the 

Government would be involved in managing the supply of milk, 

and those proposals I think are a little mind-boggling. We would 

rather not see those. We do not think that is the direction that the 

dairy industry needs to take in the United States. 

In sum, the U.S. dairy industry needs to make some fundamental 

decisions about the future. Are we going to choose to modernize 

and grow like other Ag sectors? Or do we have the Government 

limit the milk supply in an attempt to try and guarantee stable 

and higher foreign milk prices? If we do that, the industry is going 

to stop growing and decline as domestic and world markets are 

captured by our competitors. With the right policies in place, we 

can thrive as a U.S. dairy-producing region and be able to build demand for dairy products both here and abroad. 

I appreciate the opportunity to be here today. 

[The prepared statement of Mr. Kruse can be found on page 69 

in the appendix.] 

Senator CASEY. Thank you very much. 

And our final witness for this panel is Lucas S.—and I want to 

make sure I am pronouncing it right. Is it Sjostrom? 

Mr. SJOSTROM. Sjostrom. 

Senator CASEY. Say it again? 

Mr. SJOSTROM. Sjostrom. 

Senator CASEY. Sjostrom. Thank you, sir, and I appreciate the 

fact that Lucas has as his responsibility Government relations and 

communications for the Holstein Association USA, Incorporated. 

He grew up being fully involved in his family’s 100-cow Holstein 

farm in southern Minnesota, and—I am sorry? 

Senator GILLIBRAND. Isn’t he from Vermont? 

Senator CASEY. It says southern Minnesota. Is that correct? 

Mr. SJOSTROM. Originally, yes. Originally. 

Senator CASEY. Okay. We want to make sure we have the right 

State there. And we appreciate the fact that he can bring a perspective to this panel that we may not have heard before. Thank 

you very much. 

STATEMENT OF LUCAS S. SJOSTROM, GOVERNMENT RELATIONS SPECIALIST AND COMMUNICATIONS ASSISTANT, HOLSTEIN ASSOCIATION USA, INC., BRATTLEBORO, VERMONT 

Mr. SJOSTROM. Well, thank you, Chairs Gillibrand and Casey 

and Ranking Members Johanns, for inviting me here to testify before you today. I am the Government Relations Specialist and Communications Assistant for Holstein Association USA, a nonprofit 

32 

dairy organization that is headquartered in Brattleboro, Vermont, 

with over 30,000 members nationwide. I am here to talk to you 

today about a program we have proposed, called the Dairy Price 

Stabilization Program, which will stabilize the peaks and valleys of 

milk prices which make it so difficult for those in the dairy industry to manage. 

As you all know, for almost an entire year virtually all of America’s dairy farmers have risen every morning to find that they will 

be selling milk for less than the amount it costs to produce it. Obviously there are many factors that add into what the milk price will 

be and what the cost to produce milk is. 

In a typical commodity market, there is room for some volatility. 

You can have ups and downs and hedge against future losses. As 

stated earlier, milk is not a typical commodity; it is perishable. 

While we can forward contract milk, there is no way to hang onto 

that milk for a few months until the prices go up again, like farmers can in other commodity markets, such as corn, soybeans, rice, 

cotton, and others. 

In the dairy market, an oversupply of milk leads to lower prices. 

As dairy farmers are paid per hundredweight for their milk, the 

only incentive they have to generate more income when milk prices 

are down is to produce more milk. This is precisely why we have 

seen the roller-coaster ride of milk prices over the years. Bottom 

line, in order to improve the plight of the American dairy farmer, 

there needs to be some incentive, either a penalty or a premium, 

to keep supply and demand closer together. The Holstein Association’s Dairy Price Stabilization Program accomplishes this. 

The Dairy Price Stabilization Program is not a quota system. Unlike supply management systems in other countries, you can still 

produce as much milk as you want, and there are no large barriers 

to growth. Ultimately the program rewards producers for making 

good decisions for the betterment of their industry. Instead of financial incentives directing farmers to produce more milk, the direction received at each farm will help the farmer decide, based on 

his goals, what that farmer wants to do. 

The basic objectives of the Holstein Association’s Dairy Price Stabilization Program are: 

To prevent severely depressed producer milk prices that result in 

low and negative returns over feed costs to dairy producers. 

To reduce the volatility of milk prices to dairy producers and 

thereby reduce the price risk to dairy producers, dairy processors, 

and consumers of milk and dairy products. 

To complement, and not replace, other existing dairy programs 

such as the Federal Dairy Product Price Support Program and the 

Milk Income Loss Contract Program. In fact, our program may reduce the Federal Government cost of both of These two programs. 

Here is a quick overview of the program, and further details 

have been submitted to the Committee in writing. 

The Dairy Price Stabilization Program removes the incentive to 

produce milk beyond the levels our market demands. It rewards 

producers who stay in line with market needs. 

The U.S. Secretary of Agriculture would administer the program 

with an Advisory Board. The Board will forecast the 12-month domestic and export market demands for fluid milk and manufacVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
33 

tured dairy products. With consideration of the current level of 

milk production, a determination will be made to the needed 

change in milk production to fulfill the market needs for each quarter of the next 12 months and return a profitable price to dairymen. This is referred to as ‘‘allowable milk marketings.’’ 

Dairy farmers who maintain their milk marketings by quarter 

within the allowable milk marketings will not have to pay market 

access fees. Dairy farmers who expand their operation and exceed 

their allowable milk marketings will be accessed a market access 

fee per hundredweight on their additional milk marketings. The fee 

would be determined by the U.S. Secretary of Agriculture and the 

board on a quarterly basis. The fees collected from those producers 

paying the market access fee would be distributed as a bonus to 

the dairy producers who stayed within their allowable milk marketings. 

Producers will receive their base by filing their history of milk 

production and monthly marketings to their area USDA Farm 

Service Agency office. The FSA office will notify the producer’s milk 

plant or dairy cooperative to deduct the market access fee if the 

producer exceeded their allowable milk marketings. 

The cost of the program to taxpayers is nothing. We would expect 

an assessment of less than 2 cents per hundredweight to producers 

on all milk marketings to cover the administrative costs of the program. 

Dairy farmers are very thankful to our representatives 

in Washington, DC, for putting dairy and agriculture as priorities. We would especially like to thank our Senator, Senator Sanders, and all the other Senators who aided in adding some shortterm help for dairy farmers to the agricultural appropriations bill 

the President signed just days ago. 

With the Dairy Price Stabilization Program, we have a long-term 

solution that can have an impact almost immediately, with no cost 

to taxpayers. The DPSP was developed for dairy producers, by 

dairy producers. The key to this program is that dairy farmers now 

have an incentive to produce milk for the market instead of producing all the milk they can and finding out what they are paid 

for it after it is sold. The program will be beneficial to dairy farmers, milk cooperatives, processors and consumers. 

In closing, I would like to emphasize three points: 

The Dairy Price Stabilization Program could be put into place 

without affecting any current dairy programs. 

Implementing the DPSP does not require opening the farm gill. 

The Dairy Price Stabilization Program is the only new, detailed 

program available that can have a positive effect on mailbox milk 

prices now and in the future. 

On behalf of the Holstein Association USA’s 30,000 members 

across the country, thank you for the attention you are giving to 

the volatile position America’s dairy farmers are in. 

[The prepared statement of Mr. Sjostrom can be found on page 

101 in the appendix.] 

Senator CASEY. Thank you very much, and I appreciate you mentioning your Senator, Senator Bernie Sanders, who worked very 

hard on that $350 million. 

34 

Let me go to questions. I will start, and we will try to keep our 

questions within the 5-minute limit. 

I am going to ask two basic questions. I ran out of time on the 

first panel to ask the second part of this, so I will start with that. 

With regard to risk management tools, I would ask each of you 

to assess where we are. I know that we have had in place the socalled LGM Dairy risk management tool. If you could assess that 

and any other risk management strategies in place right now or 

programs in place right now, and how we can either add to the list 

of tools or programs, but any improvements—or outline improvements, if any, for the LGM Dairy risk management program. 

Maybe we will just go left to right. Mr. Gallagher. 

Mr. GALLAGHER. Thank you. One of the challenges we have with 

risk management that in its infancy the only thing you could do 

was lock in a milk price. And so at the end of the day, you were 

either so many dollars above the market or so many dollars below 

the market, and when you were below the market, you thought it 

was the worse thing in the world. 

The programs have matured. We have got programs now where 

you can have price floors, where you can have things that we call 

an upside rider, which is basically you have a floor, and it is like 

a deductible on an insurance policy. You choose how much you are 

willing to give up on the upside, but you can get the rest. And I 

do not think there is enough knowledge of how those programs can 

help dairy farmers protect themselves against dramatic price declines. 

When I go out and I talk to dairy farmers about these things, I 

talk to them about it as if it is insurance and they are ensuring 

all these assets and accepting those as cost of production, and yet 

they are not insuring the single biggest thing that can wreck the 

operation, and that is their milk price. And so we have got some 

really good programs, and I think some of the programs that are 

going on in Pennsylvania and in New York to help educate dairy 

farmers through the Centers of Dairy Excellence in the two States 

to educate dairy farmers on the benefits of these I think are extraordinary, and we have got to figure out how to lever that up and 

get more participation on a Federal level as well as, again, creating 

incentives. 

One of the biggest challenges Russell mentioned with LGM is, 

one, it is kind of complicated and it is new, and it is talking about 

managing a margin, milk over feed. And a lot of farms—although 

they think that way, a lot of farms do not, so it is a little bit of 

a challenging concept. And so there is an extra added amount of 

education that needs to go on, as well as it is all front-loaded and 

farmers cannot afford to pay that. 

Actually, our insurance agency sells LGM Dairy insurance, and 

we have been trying to work with the crop insurance people to 

allow us to have monthly milk deductions for the insurance so that 

there is no up-front cost, we just take it out of the milk check, like 

we do with our forward contracting programs. And I think that 

would be an improvement that would get more use out of the program. Thank you. 

Senator CASEY. Thank you. 

Secretary Redding. 

35 

Mr. REDDING. Yes, Senator, thank you. I appreciate the question 

on LGM. As I mentioned in the testimony, we have worked on that. 

It is a private product, which I think is sort of interesting. When 

Congress made some changes back in 2000 under the ARPA legislation, it basically allowed the private sector to come in the door 

with a product to propose to RMA and the Federal Crop Insurance 

Board, and we did that with an AGR-like product, and Bruce Babcock did it here with the support of initially the States in the 

Northeast. So you have a private product, which I think is important to note that that is not one that is offered by—it is approved 

by but it is not—it is approved by the USDA and RMA, but it is 

a private product. So you need to manage that system. 

I would say this: It is only in the second year. It is available in 

36 States. It is a pilot project. And probably the lesson here—Ed 

had mentioned this—when you really need to support it financially, 

you need to continually talk about it. You mentioned, Senator, in 

your opening comments about repetition. That is absolutely the key 

to understanding risk management. You need to hear this over and 

over and over several times to really grasp the principles. And then 

once you understand the principles, it is to translate that into a 

policy that is going to protect your paycheck. And the nice thing 

is farmers can do that in this program on a monthly basis, and 

they can do it to the level of insurance and deductible that they 

want. So it has a lot of nice pieces to it, but it is expensive at the 

moment. Education is key. And I think the near-term need is for 

folks like Dairylea, who really invested in risk management education and tools, to help guide that because they can sort of be that 

translator that we are needing right now. So I think it has a lot 

of potential. 

The point I would make, I guess, we have tried with LGM, and 

we think it has a lot of potential. We do not know what all the options are, and in this moment, when you really have this dairy 

world upside down, you know, there may be a better product out 

there. There may be a better idea out there that the private sector 

can bring forth. And it would be nice, in this moment when we are 

really looking for what the next generation of risk management 

tools are, to set a course for the near term, the next couple of 

months or so, to really have four or five different pilot projects and 

products in the marketplace. Let us experiment, right? We have 

lost billions of dollars in dairy equity. We need to have a really 

good response to that, and giving the tools to producers in different 

parts of the country in different ways to experiment a little bit I 

think would be to our advantage. 

Thank you. 

Senator CASEY. Thank you. I am out of time, but I will try to 

come back. 

Senator Johanns. 

Senator JOHANNS. Thank you, Mr. Chairman. 

Mr. Kruse, let me start with a question or two to you. If you do 

not mind my asking, how many people are employed by your company? 

Mr. KRUSE. We have 3,100. 

Senator JOHANNS. 3,100. And how would you feel about a Federal law that basically would give to me as Secretary of AgriVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00039 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
36 

culture—and I occupied that post for a while, as you know—the 

power to look across this country and dictate what the milk supply 

is going to be? Would that be troublesome to you as a processor of 

the milk supply? 

Mr. KRUSE. Very much so, sir. 

Senator JOHANNS. Yes. Now, I am not suggesting your company 

would do this, but some other company that employed people could 

look to Mexico, Canada, whatever, and say, well, they do not have 

such a law. Do you think there would be a temptation to move 

those jobs someplace else because of that kind of law? 

Mr. KRUSE. I would think so, yes, sir. If I may say, you know, 

the up and down volatility, we hate it as an industry. I hate it as 

a company. It is very destructive. It chases away consumers. It 

makes many people go substitute products. You have heard that 

today, and it is very, very true. I still make ice cream straight out 

of milk, and I fully intend to. But, boy, if we can either through 

forward contracting, my biggest cost, milk and cream, I cannot. In 

essence, it has not been very easy. I forward contract everything 

else. 

Senator JOHANNS. Yes. That was going to be where I wanted to 

go with my next question. I think there are some really good ideas 

here, and I think this is fixable. Interestingly enough, in the last 

farm bill, the Dairy Title actually went through without a lot of opposition. Of course, prices were very good. 

When you talk about risk management, I think you have really 

hit the nail on the head. I really believe that farming these days 

is as much about risk management as it is about milking cows. 

And so what I have kind of pieced together through your testimony—and, Secretary, I would like you to respond to this—is the 

notion that with better risk management tools, better educational 

opportunities for producers on how to use those, and maybe even 

something like a revenue-based crop insurance program that would 

be subsidized—I will openly acknowledge there will be a piece of 

this that would be subsidized, like crop insurance is today—that 

you could put together a risk management forward contracting sort 

of approach for the dairy industry that would take some of these 

peaks and valleys that we see out, because these good producers 

that were here before you are doing exactly what the marketplace 

is saying to do. They are saying produce more, the price is good. 

And, by golly, they did it. And they are really, really good at it. But 

then there is a cliff effect to that. 

What is your reaction to what I am saying about forward contracting, maybe a revenue-based almost crop insurance type program, only it would be revenue-based based upon milk prices? Is 

that something we should be thinking about as a Subcommittee? 

Mr. REDDING. Senator, absolutely. I think it is the next generation of dairy policy. You know, you are going to have to move at 

some point from the MILC and the Dairy Price Support Program 

and deal with a lot of market dynamics that we all speak about. 

But the question is: How do you want the American producer, you 

know, to manage that risk? 

We have found out you cannot self-insure, right? That is what we 

are experiencing right now. Folks thought they had enough equity, 

they had enough savings, and some are doing it. But long term I 

37 

think we need to borrow the page from the other commodities 

where the Federal Government has made a significant investment 

in development of meaningful, workable, and affordable products to 

help mitigate that risk. 

We have not done that on dairy. I think that is where we need 

to be focused. We need to insure and assure that there are really 

good products available for a dairy industry that reaches from coast 

to coast, and being Secretary, you understand the challenges of 

finding a product that works from coast to coast. So that was my 

point earlier, that there may be things in different markets and different areas that would be worth exploring, but the principles are 

the same. You are going to try to transfer some of that risk, hedge 

as much of that risk somewhere else away from your farm and out 

of the farm so you do not experience these cruel cycles that we are 

experiencing right now. But it takes support, financial support to 

do it. You would not sell many crop insurance policies unless you 

underwrote that by 40 or 60 percent, right? You would not have a 

lot of folks—and I will speak for Pennsylvania—in the crop insurance system if it was not for Congress identifying the State as an 

underserved State and really every year being there to help educate. And then you have got a delivery mechanism that you have 

to think about in dairy that may be a little different than crop because you use the private sector—not saying they cannot, but you 

are introducing a fundamental change in risk management and a 

whole new industry to a delivery mechanism that has not historically used or been involved in livestock risk management or dairy 

risk management. 

So there are some things to learn, but most of what we have 

learned about risk management is transferable. 

Senator JOHANNS. I have run out of time. This is such an important discussion because you cannot sell Holsteins unless you can 

allow the industry to grow and protect itself. And that is just kind 

of the bottom line. I think if we work on this, I think we can position ourselves to move these programs forward in a forward-looking 

sort of way, and I will conclude with this last thought. 

I so appreciated Doug Nuttelman saying what I have been hearing since I was a little kid growing up on a farm. Farmers do not 

want to farm for the Government. They want to farm for the marketplace and for the price, and they want to manage their own operations. And I think if we can work with the dairy industry to get 

that done, we can come up with a good, a really good dairy program. 

Thank you. 

Senator CASEY. Thank you, Senator Johanns. 

Senator Gillibrand. 

Senator GILLIBRAND. I would like to follow up on some of the import and export market issues that particularly were raised in the 

last panel. We have touched on a number of them ranging from increasing the tariff on milk protein concentrates to promotion assessments to the Dairy Export Incentive Program. What, in your 

opinion, is the net result of these kinds of programs? Do the benefits they provide the American dairy farmers outweigh the potential for trade retaliation? Anybody? 

38 

Mr. GALLAGHER. I believe the benefits derived are greater than 

the risks and costs associated with it. The Dairy Export Incentive 

Program for this current fiscal year has the ability to take about 

1.5 billion pounds of milk equivalent off the market. That is very 

meaningful and is going to help in the price recovery. 

You know, one of the things that was mentioned frequently is the 

milk protein concentrate issue. You read the testimony and you listen to the colleagues of mine that have been testifying today, and 

on supply management, we are all over the board. On the issue 

about milk protein concentrate, I think there is complete producer 

unanimity in this country on that one particular issue, and we 

would encourage you to work with your colleagues to move that 

along because that can make a difference. And to tweak it a little 

bit, one of the things—you know, we can put tariffs on that will 

put limits on how much of a product will come in on an annual 

basis. But still and all, if they can bring all the product in 1 or 2 

months, I am not sure we are solving the problem. And so if there 

is some way we could tweak that so that there maybe is some 

monthly limit as well, I think that would be extraordinary. 

You know, there is tremendous opportunity in U.S. exporting 

products that we have to keep digging deeper and deeper and looking into ways to tweak our regulatory system to encourage that, 

and that may even be getting into things like do we adjust the 

Price Support Program a little bit to create incentives to create 

things like milk protein concentrates here in the U.S. as opposed 

to a discouragement, which the current program does. 

But I think at the end of the day these things that we do on the 

export market I think will add more value to the U.S. dairy farmer 

than the risk of whatever retaliation may occur. 

Thank you. 

Mr. KRUSE. Madam Chairman, could I address that? 

Senator GILLIBRAND. Yes. 

Mr. KRUSE. One of the things is people are demanding milk protein concentrate as an ingredient for sports drinks, for energy bars, 

and things of that sort. We do not make it here because Federal 

policy favors making nonfat dry milk. That is the safer thing to 

make, and it is really not in demand. And so if we see some imports coming in, it is because there is a desire to use those ingredients. We need to make them here, but part of the reason they are 

not made here is there is a disincentive. 

Senator GILLIBRAND. How does Federal policy favor only making 

the nonfat dry milk? 

Mr. KRUSE. It relates to all the Federal support prices and 

things. There is a ready market for your nonfat dry milk, and you 

know where you are going to go with it. You might get into the 

MPCs and find out that you did not come out as well. So it is the 

safe way to do it. 

Senator GILLIBRAND. Okay. 

Mr. SJOSTROM. I will take a shot at that. Obviously, the MPC 

thing is unanimous, as we have said, and then also as we have 

said, there have been a few different opinions on supply management. But no matter what happens to the imports and exports, if 

we do not change the incentives to produce more milk all the time, 

which is what is happening right now when the price is low and 

39 

what also happens when the price is high, and that is something 

that our program can change. Without changing those incentives, 

risk management is still hard to manage because we have not 

changed what is inevitably wrong with why there is too much milk. 

Senator GILLIBRAND. Do any of you have comments about his 

proposal specifically, why you think it would work or why think it 

would not work? 

Mr. GALLAGHER. We call the Holstein program a base access program, and it is actually being implemented right now on a private 

basis in California by the dairy cooperatives in California and in 

Arizona by the single dairy cooperative in Arizona. So it is a workable program. The program that Dairylea and DFA are talking to 

our counterparts in the National Milk Producers Federation about 

the Dairy Growth Management Initiative would look to take the 

best of the best of the things that people are talking about, including the plan like—a base access program like the Holstein Association’s. If a region of the country would like to implement it, they 

have room within this initiative to implement it. 

So there are some really good aspects of what the Holstein Association and the dairy farmers in California have been talking 

about. 

Mr. KRUSE. You know, I think if it would tend to not bring on 

producers in areas that are growing, Nevada or Idaho or places like 

that, if all of a sudden there is a disincentive to enter the milk 

business and grow the milk in regions where processors have located and where it is natural for them to produce this milk, then 

I think I would have to study the program. I would rather not the 

Government dictate supply management. I think it is going down 

the wrong path. 

Senator GILLIBRAND. Thank you. 

Senator CASEY. Thanks very much. I want to make sure that 

Vermont gets a little rebuttal time here. I say that for a couple reasons. Number one, I do want to be able to have that opportunity, 

but one of the members, a longstanding member, of the Agriculture 

Committee and former Chairman of the Committee, Pat Leahy, 

would have been here today. He is very sick. We were talking at 

our caucus lunch today that he is out today, and if he is able to 

get here for a vote, it is going to be very difficult for him. But I 

know he would want to be here. So he would want me, as I do, to 

give Vermont some time to rebut that. Do you want to do that, sir? 

Mr. SJOSTROM. Sure, yes. As a resident of Vermont, I am proud 

to support the State, and anytime we get—being somebody that 

has—a State that is represented very well by Mr. Leahy, and it is 

too bad he is not here. 

In rebuttal, first of all, I thank all the farmers for the support 

on the last panel, and Mr. Gallagher’s comments, they mean a lot. 

Moving forward, I think it shows that our plan at least needs to 

be considered we hope for the short-term, if that is not possible, at 

least for the long-term solution, and it does not mean that we want 

our plan to be the sole sailing ship. There are other things that can 

come along with it. There are other things that can be added or 

subtracted from it. But we think the concept of it that changes the 

inherent incentives that are the bad part of our industry right now 

or what makes our industry hard to manage, we think if those inVerDate Nov 24 2008 14:11 Jan 20, 2011 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6633 C:\DOCS\62717 MICHA
40 

centives can be added into a long-term solution, it is going to be 

better for all of us. 

Senator CASEY. Thank you. I wanted to also ask a couple more 

follow-up questions about the short term versus the long term. I 

will ask the same question I did of the last panel. 

Each of you in your own way has provided testimony about your 

experience, your assessment of where we are now, and also where 

we should be going in the near term in addition to the long term. 

I think the long-term strategies are critically important. We have 

got to get them right. But most observers of this crisis—and there 

is no other better word, I do not think, to describe it—are mostly 

concerned about how do we help in the near term. And I just want 

to literally go down the table again as fast as you can, in 20 seconds or less, give us your one-two punch on what we should be 

doing in the short term. 

In addition to that, I was just going to ask Secretary Redding, 

we have been losing in Pennsylvania a couple hundred dairy farms 

every year for a while. I do not know if you have any current sense 

of that, say, in the last 2 to 3 years, what the annual loss has been. 

Do we have any accurate numbers on—I have seen as high as 200 

dairy farms to 300, losing that number every year in Pennsylvania. 

Is that—— 

Mr. REDDING. That is about right. You are just about 8,000 

today, just slightly over 8,000. You were at 9,000 five years or so 

ago, so you end up with that 200, 250 a year that you are losing. 

Cow numbers have been stable. Production has been stable. 

Senator CASEY. And I know, Mr. Kruse, you mentioned the national number. You said it was 4.5 million and went down to 

67,000? 

Mr. KRUSE. Right. A lot of consolidation. 

Senator CASEY. In what time period was that? 

Mr. KRUSE. From when the Federal orders came in, about 70 

years ago. 

Senator CASEY. Well, I will just wrap up with my 20-second response to my question on the one-two thing in the near term you 

think we should be doing. 

Mr. GALLAGHER. Cash is king. Farms need cash right now. The 

milk production correction I think has occurred. We need to get 

more cash back on dairy farms. And, certainly, if there was some 

way to give a grant to CWT so that it could do more, taking out 

cows, if necessary, I think it would work. 

Senator CASEY. Thank you. 

Mr. REDDING. Several points I think I made earlier. This whole 

social crisis, I think you can deal with two problems at one time— 

that of the food bank and those who are nutritionally at risk and 

are relying on the tradable system. Of course, the dairy issue, but 

a couple of things. 

One, continue to use the full authority of the USDA both on 

DEIP and the commodity purchase. Push the credit standards as 

hard as you can push them. I think folks are going to need to know 

that they have got at least the ability to refinance to get to the 

next year. Pilot projects on risk management. And I think most importantly for the confidence of the producer and the industry is we 

have got to challenge the current systems, both the domestic and 

41 

international. A lot of questions about how a product is priced, not 

really understanding it well, and having less of an appreciation or 

understanding of what is coming in. I think focus on those points. 

Senator CASEY. Thank you. 

Mr. KRUSE. The problem occurred when markets more or less 

went away, the export markets, and we had to much milk. So every 

time we send a signal to say it is going to be okay, do not stop 

milking, we are going to get some money to you, it is a price signal. 

And so I think it is a little bit of a disservice. Obviously, we need 

to remove a certain amount of milk from the market, and it needs 

to leave and get back into balance. 

I have heard a lot of dairy farmers talk about the overhang of 

stocks, whether it is in private holdings or it is in the Government 

through the CCC purchases, that is going to stretch out the pain. 

And so those are just things that happen. 

But anytime you say, hey, it is going to be okay, you are telling 

them do not stop doing what you are doing; instead of pulling back, 

just keep going. 

Mr. SJOSTROM. I would just like to say this is the dairy crisis of 

2008, but if you look at all the modeling and if you look at when 

the next farm bill is going to need to be reconstructed, the next 

dairy crisis might happen to coincide at the same time as the next 

formation of that next farm bill. Without a long-term solution before then, you might see the same people in front of your, or maybe 

these four people behind me might all be gone by then, talking 

about the same sort of things. Obviously, they asked for cheese 

purchases, and there are a lot of other things that can be done in 

the short term. But we think long term you are going to need to 

change the incentives, and something like our plan can do that. 

Senator CASEY. Thank you very much. 

Senator GILLIBRAND. Thank you, Mr. Chairman, for hosting this 

panel. 

I want to close with the same question but the long-term issue, 

and, Mr. Gallagher, you addressed this somewhat in your testimony, and so did Secretary Redding, about price discovery. And if 

you have any recommendations for long-term changes on how we 

price milk in this country, I would like to hear them. 

Mr. GALLAGHER. The challenge we are going to have is getting 

consensus, and there are a lot of good ideas out there. Mr. Redding 

talked about having a market basket of things to look at. 

You know, one of the things that, for good or for bad, most of the 

other commodities are priced off the futures market. It is some 

price off the Board of Trade. And there is a working group that I 

participate in of young bucks like myself that are steeped in dairy 

economics, and that is one of the things that we are next going to 

address to see is there some way that we can develop some sort of 

a futures-based pricing system that then has buyers and sellers 

that may be the gentlemen that testified in the first panel trying 

to hedge their milk that are impacting what their price of milk 

may be under the Federal order system. So that is something that 

we need to look at. 

Senator GILLIBRAND. So you would like us to use credit default 

swaps in the dairy industry? 

Mr. GALLAGHER. We—— 

42 

Senator GILLIBRAND. It was a joke. 

Mr. GALLAGHER. Yes. 

Mr. REDDING. Just picking up on the testimony and Ed’s comments, I think anything we can do in terms of transparency. I 

mean, I think folks need to know what the product is worth. We 

know what we are being paid, but what is the product worth? And 

I think this is one of those moments when you can talk about that. 

So you are going to need transparency to get to that point, and that 

ought to be mandatory reporting, what is coming in, in terms of 

trade, and what are we using and how are we using it, we ought 

to report that and use those numbers, that information to make an 

intelligent decision about what the price is worth. 

Two, get rid of the lags in the system, the lags in pricing. Today 

there are lags just in reporting and how those numbers ultimately 

play out for the producer, reduce the lags or eliminate them at 

least. 

And the final point would simply be looking at a two-class system. I think it is inherently complicated today to have four classes 

of product milk. You know, you get down to a fluid product. You 

can understand what fluid is; you understand what manufacturing 

is. Because in the pricing system, it should be something the producer did not understand as well. So a recommendation would be 

looking at a two-class system versus a four-class system. 

Mr. KRUSE. You know, I would say that existing policies have not 

performed as we would have hoped they had and were not sufficient to do the job. 

On the two-class system, IDFA has gone on record as saying, yes, 

we would like a two-class system of, one, fluid or beverage milk 

and then the second class being manufactured milk. 

But long term, you know, look at everything we can do from a 

risk management standpoint to get dairy more like all the other Ag 

sectors that seem to manage themselves. There is volatility—I 

think in my written testimony, there is more volatility in the other 

ones as opposed to dairy, and so we just need to manage those 

risks out there. 

Mr. SJOSTROM. As I have said before, thank you again for the opportunity, but the Holstein Association thinks one of the best longterm fixes is going to be implementation of a plan like the Dairy 

Price Stabilization Program that we have endorsed and tried to 

gain support for. 

Thank you. 

Senator GILLIBRAND. Thank you all for your time and your expertise. 

Senator CASEY. Thank you as well. We can do it together? Hearing adjourned. 

Senator GILLIBRAND. No, you can do it. I got to do the first one. 

Go ahead. 

Senator CASEY. This hearing is adjourned. Thank you very much. 

[Whereupon, at 4:54 p.m., the Subcommittees were adjourned.] 

(43) 

A P P E N D I X 

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DOCUMENTS SUBMITTED FOR THE RECORD 

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QUESTIONS AND ANSWERS 

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