S. Hrg. 111–522 

LEGISLATIVE RESPONSES 

TO THE DAIRY CRISIS: 

REFORMING THE PRICING STRUCTURE 

FIELD HEARING 

øBEFORE THE¿ 

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

AUGUST 27, 2009 

Printed for the use of the 

Committee on Agriculture, Nutrition, and Forestry 

( 

LEGISLATIVE RESPONSES TO THE DAIRY CRISIS: REFORMING THE PRICING STRUCTURE 

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WASHINGTON : 

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56–564 PDF 2010

S. HRG. 111–522 

LEGISLATIVE RESPONSES 

TO THE DAIRY CRISIS: 

REFORMING THE PRICING STRUCTURE 

FIELD HEARING 

BEFORE THE

COMMITTEE ON AGRICULTURE, 

NUTRITION, AND FORESTRY 

UNITED STATES SENATE 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

AUGUST 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 

TOM HARKIN, Iowa, Chairman 

PATRICK J. LEAHY, Vermont 

KENT CONRAD, North Dakota 

MAX BAUCUS, Montana 

BLANCHE L. LINCOLN, Arkansas 

DEBBIE A. STABENOW, Michigan 

E. BENJAMIN NELSON, Nebraska 

SHERROD BROWN, Ohio 

ROBERT P. CASEY, Jr., Pennsylvania 

AMY KLOBUCHAR, Minnesota 

KIRSTEN GILLIBRAND, New York 

MICHAEL BENNET, Colorado 

SAXBY CHAMBLISS, Georgia 

RICHARD G. LUGAR, Indiana 

THAD COCHRAN, Mississippi 

MITCH MCCONNELL, Kentucky 

PAT ROBERTS, Kansas 

MIKE JOHANNS, Nebraska 

CHARLES E. GRASSLEY, Iowa 

JOHN THUNE, South Dakota 

MARK HALVERSON, Majority Staff Director 

JESSICA L. WILLIAMS, Chief Clerk 

MARTHA SCOTT POINDEXTER, Minority Staff Director 

VERNIE HUBERT, Minority Chief Counsel 

(II) 

(III) 

C O N T E N T S 

Page 

FIELD HEARING(S): 

Legislative Responses to the Dairy Crisis: Reforming The Pricing Structure .... 1 

Thursday, August 27, 2009 

STATEMENTS PRESENTED BY SENATORS 

Gillibrand, Hon. Kirsten E., U.S. Senator from the State of New York ............. 1 

Lee, Hon. Christopher, U.S. Representative from the State of New York .......... 3 

Massa, Hon. Eric, U.S. Representative from the State of New York .................. 4 

Panel I 

Church, Robert, Herd Manager, Patterson Farms ................................................ 7 

Hanselman, Barbara, Dairy Farmer, Bloomville, New York ............................... 5 

Keller, Robin, Dairy Farmer and President, Genesee County Farm Bureau ..... 9 

Krupke, Bruce, Executive Vice President, Northeast Dairy Foods Association . 11 

McCormick, Ron, former Representative, National Dairy Board ........................ 13 

Panel II 

Norton, Dean, President, New York Farm Bureau ............................................... 22 

Novakovic, Andrew, Director, Cornell Program on Dairy Markets and Policy .. 24 

Pickard-Dudley, Kim, Chief Dairy Economist, Upstate Niagara Co-op .............. 28 

Wellington, Bob, Chief Economist, AGRI-MARK .................................................. 26 

APPENDIX 

PREPARED STATEMENTS: 

Church, Robert .................................................................................................. 38 

Hanselman, Barbara ........................................................................................ 46 

Keller, Robin ..................................................................................................... 54 

Krupke, Bruce ................................................................................................... 58 

McCormick, Ron ............................................................................................... 63 

Norton, Dean ..................................................................................................... 69 

Novakovic, Andrew ........................................................................................... 74 

Pickard-Dudley, Kim ........................................................................................ 83 

Wellington, Bob ................................................................................................ 89 

DOCUMENT(S) SUBMITTED FOR THE RECORD: 

Novakovic, Andrew: 

‘‘U.S. Dairy Price Policy Options and Consequences’’, Council Program 

on Dairy Markets & Policy ........................................................................... 94 

State of New York, Department of Agriculture & Markets, prepared 

statement ....................................................................................................... 150 

Various letters and prepared statements from farmers and organizations . 154 

QUESTION AND ANSWER: 

Krupke, Bruce: 

Written response to questions from Hon. Kirsten Gillibrand ....................... 334 

(1) 

LEGISLATIVE RESPONSES 

TO THE DAIRY CRISIS: 

REFORMING THE PRICING STRUCTURE 

Thursday, August 27, 2009 

U.S. SENATE, 

COMMITTEE ON AGRICULTURE, NUTRITION AND FORESTRY, 

Batavia, NY 

The Committee met, pursuant to notice, at 2 p.m., at Genesee 

Community College, Batavia, New York, Hon. Kirsten Gillibrand, 

presiding. 

Present: Senator Gillibrand. 

Also present: Representatives Lee and Massa. 

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

FROM THE STATE OF NEW YORK 

Senator GILLIBRAND. Good afternoon, everyone. Thank you for 

joining us. I am pleased to be here at Batavia, the birthplace of 

Western New York. 

Since this is a formal Senate hearing, only the panelists will 

have the opportunity to present their testimony and participate in 

the question and answer period. However, anyone can submit written testimony within the next 5 days, which will be submitted for 

the official record. 

There is no question that the dairy industry is in crisis. Imagine 

running a business where you are doing backbreaking labor 7 days 

a week and losing money every single day. That is exactly what is 

happening to our farmers in Batavia, across all of New York State 

and across the Country. Farmers are forced to sell their milk for 

less than it costs them to produce it, and the MILC government 

safety net program does not even begin to make up the difference. 

I would like to welcome the distinguished panelists and thank 

them for making the time to come here and share their knowledge 

and personal experiences in testifying before the Senate Agriculture Committee. 

I want to thank my colleagues from the House, Congressman Lee 

and Congressman Massa, for their work on this issue and for joining me today to address this crisis. 

The current pricing system is simply not working for the hardworking dairy farmers of New York. Since February, prices per 

hundredweight have fallen over $6 below cost of production. In 

New York, farmers are paying nearly $18 to produce hundredweight and being paid around $12. 

2 

As I travel the State, I see the despair on farmers’ faces as they 

show me the balance books that simply do not add up. I hear stories of families that see generations of hard work simply vanishing 

into foreclosure. 

Dairy farmers are the backbone of many of New York’s rural 

communities. In fact, dairy farmers are responsible for the single 

largest share of New York’s diverse and vital agricultural output, 

generating $2.4 billion a year, stimulating local economies, creating 

jobs and supporting a cultural heritage and bright future for our 

communities all across New York State. 

But beyond the agricultural communities in our State, the loss 

of locally producing, family owned dairies poses a huge threat to 

the safety of the American food supply. This trend will result in a 

race to the bottom. Instead of nourishing our families with products made by our neighbors, we will be importing food from wherever costs are lowest, places like China, where we cannot have the 

same confidence in the safety of consumer products. Giving up our 

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

do as a Nation and is a grave national security risk. 

Given the current crisis, it is important that we take action to 

help the farmers both in the short term and in the long term. I 

have introduced two pieces of legislation to provide farmers with 

immediate assistance to make up for money that they are losing 

every single day by improving the MILC program’s ability to provide a true safety net during this crisis. However, there is certainly 

something fundamentally wrong with the way dairy farmers are 

paid for their work. 

We must develop new solutions to address this problem over the 

long term and ensure that this crisis does not happen again. My 

colleagues in Congress and agriculture advocacy groups across the 

Nation have been working on a number of proposals to help remedy 

the many problems facing the dairy industry. 

I hope this hearing will give us an opportunity to have a frank 

discussion about all of the proposals that are currently out there 

and help members of the community to develop a solution that 

works for dairy farmers, processors and American families. We will 

certainly discuss Senate Bill 889, a piece of legislation introduced 

by Senator Specter and Senator Casey, both from Pennsylvania, 

and Senator Schumer’s legislation, Senate Bill 1542, which increases the tariff on milk protein concentrates, MPCs. I also hope 

to discuss the USDA’s price support system, price support program, 

as well as the different supply management ideas that are out 

there. 

Today’s hearing will serve as a critical starting point for discussions as we begin working on the next Farm Bill, and I pledge to 

go back to Washington with these ideas and work with my colleagues to develop comprehensive legislation that fixes the problems in the industry, once and for all. 

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 appear. When you have exceeded your 5 minutes, a 

red light will appear. Any part of your testimony that you are not 

able to get to, we can submit in writing into the record. 

3 

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 written testimony for the record. We will take your name and your 

email and your number to make sure that testimony gets in. 

I now open the floor to Congressman Chris Lee to make his opening statement. 

STATEMENT OF HON. CHRISTOPHER LEE, U.S. 

REPRESENTATIVE FROM THE STATE OF NEW YORK 

Mr. LEE. Thank you, Senator. 

It is nice to actually look around the room and see some familiar 

faces and people that I have had an opportunity to talk to and get 

to know over the past several months, and I truly appreciate your 

willingness to put this together because this is a critical issue. 

I live and breathe this every day, based on my district, and how 

important dairy is to this part and truly throughout New York 

State. It is a vibrant industry, and, if we do not get our arms 

around it, we could quickly see it vanish. 

The part that frustrates me as we are talking about small business owners, those, and what you find quickly about dairy farmers 

is these are some of the hardest working Americans in this Country, who have a job that is 365 days a year, 24–7, and it is not a 

day you can leave these cows. It is a very tough way to make a 

living, and it is unfortunate in the fact that the way this pricing 

scheme is right now is a deterrent. That is where we want government to come up and find ideas on how we can help you, not deter 

your ability to be successful. 

I look at, right now, the projections, and that you talk about Genesee County potentially losing $28 million this year in the dairy 

business, Wyoming County, $60 million, Livingston County, $23 

million—all of these within my district. It is a major concern, and 

dairy being such an important economic driver for this community 

is something we have to get corrected now. 

When I came to Washington in January, the one thing that I do 

know, I come from the private business sector and manufacturing, 

but I was not a dairy expert. I am not a crop farmer expert. But 

what I was smart enough to do was put together an advisory board 

so that I could hear from people like yourselves because that is 

where the true answers come from. 

The solutions come from you, not a bunch of people in Washington. You are the ones who give us the ideas, and that is why 

again I am pleased to be a part of this function. 

What I would like the panel to potentially comment on today are 

just a few topics that maybe you can make note of, but areas that 

I think have some promise, of somewhere along the lines making 

sure we talk about: 

The California milk standard and whether or not to adopt that 

on a national basis and the need for the USDA to implement the 

7.5 cents promotion fee that importers right now do not pay but 

our national producers of milk are paying 15 cents and talking 

about a fairness issue here, the fact that only 5 percent of our products are exported. Again, how do we get the government to help 

you, allow us to export more product which even a 1 or 2 percent 

4 

uptick in exporter produce will have a huge impact on the price of 

milk? 

The MILC program is a safety net in case of large fluctuations, 

but it obviously is a system that is broken right now and talking 

about how to fix that. 

And then, last, the USDA Federal Milk Marketing Order system, 

among other things, we need to find better price discovery transparency because right now it is a system that it penalizes producers in areas that have higher cost of production. 

So, again, with that, I appreciate the Senator for calling this 

hearing, and I look forward to your testimony and coming up with 

some real ideas to help those people who I truly admire, who work 

in a very difficult industry, and we want to see it flourish here in 

New York State. So, thank you for having me here. 

Senator GILLIBRAND. Congressman Eric Massa. 

STATEMENT OF HON. ERIC MASSA, U.S. REPRESENTATIVE 

FROM THE STATE OF NEW YORK 

Mr. MASSA. Thank you, Senator. 

Thank you, Chris, for inviting me to your district and for inviting 

me to sit and listen and learn. My congressional district is adjacent 

to yours, running south throughout most of the New York/Pennsylvania border, where this industry is a particular cruciality, and I 

have the honor of serving on the House Agriculture Committee. 

To all the farmers who are here, who may not have an opportunity to offer verbal testimony, I look forward to reading any written testimony that you submit or meeting with you, either one on 

one or as a group. 

I have learned one overarching and critical factor about what we 

face today, and that is the incredible and often tremendously unfair 

impact that our import/export policies have upon local, domestic 

dairy production. Testimony before the House Agriculture Committee has shown us that a fluctuation of less than 3 percent in 

the total global market has put us where we are today. 

Literally, if a butterfly sneezes in New Zealand, farmers in Western New York State go out of business, and, frankly, that is just 

not right. We need to put in place the kind of shock absorbers that 

are absolutely so critical, so that domestic production is not held 

hostage by fluctuations in foreign markets over which we have absolutely no control nor desire to have control over. 

I understand we live in a very interconnected global market, but 

that interconnected global market has placed our domestic industries of all kinds and particularly those of a perishable nature, such 

as dairy. No product is more perishable on an hour-to-hour basis 

than milk. These kinds of unprotected fluctuations in New Zealand 

and in Australia absolutely are killing us. 

We are being held hostage by the threat of being overrun from 

foreign imports that have absolutely no product safeguards associated with them at all, none. We have invested generations—generations of effort—into ensuring our food supply is safe for our children, and we do better, I believe, than anyone else in the world. 

Hats off to the USDA and to the cooperative nature of all those 

farmers across a broad spectrum that have given us a safe food 

5 

supply. Yet, now we are on the verge of importing more foodstuffs 

than we make ourselves. 

Nowhere is that more dangerous than in milk concentrate. We 

have to figure out how to encourage a domestic market, a domestic 

production market capability. We all understand what we have to 

overcome to do that. It is very, very capital intensive. The margins 

are, at best, unpredictable and fleeting, and that is where a publicprivate partnership can help encourage domestic industrial growth 

in this sector. 

So I look forward to hearing the opinions of the experts who will 

testify before us today, and I am exceptionally grateful for the leadership of both Senator Gillibrand in the Senate Agriculture Committee and for your Congressman Lee who has been very much involved in this and liaisoning directly with our office as we present 

that information before the sister committee in the House. 

Thank you again for being here, and let’s get started. 

Senator GILLIBRAND. Thank you, Congress members. 

I would like to turn it over to the first panel. Each panelist will 

introduce themselves. We have Barb Hanselman. We have Robert 

Church, Robin Keller, Bruce Krupke and Ron McCormick. 

And, before we start, I just want to thank Dr. Stuart Steiner, our 

host, the President of Genesee Community College. Thank you, 

Doctor. 

I also want to recognize two of our local elected leaders who have 

joined us. Senator Maziarz is here as well as Assemblyman 

Hawley. Thank you for joining our hearing. I appreciate it very 

much. 

Barb, you can start. 

STATEMENT OF BARBARA HANSELMAN, DAIRY FARMER, 

BLOOMVILLE, NEW YORK 

Ms. HANSELMAN. Good afternoon. My name is Barbara 

Hanselman. My husband, Ernie, and I farm in Delaware County. 

We milk 60 cows. We have seven children who have contributed to 

the success of our operation. Because of the lows and highs of the 

dairy industry, we have also learned to be enterprises, and so, in 

addition to the dairy, we also have a crop enterprise. We do a farm 

stand, and I bake and cater. 

With that, I would like to thank you, the very Honorable Kirsten 

Gillibrand, for allowing me to speak on behalf of dairy farmers. I 

would like to convey to you, Senator, Congressman Massa, Congressman Lee and other officials and my fellow dairymen, about 

my concerns and hope for the future of the dairy industry and all 

its breadth in the United States. 

I must say, and I am the eternal optimist, that this is a very difficult time. There are forecasts that 25 percent of the current dairy 

farms will be forced out of their livelihood before our industry 

rights itself. As we struggle to survive through this time, we need 

to make changes to ensure our dairy industry’s long-term strength 

and viability. 

The variety, size and number of U.S. dairy farms located 

throughout our Country is key to homeland security and our Country’s rural infrastructure. The U.S. dairy farmer provided over $37 

billion to the economy of the U.S. last year. 

6 

The greatest challenge I have today as a producer, is the 

disjunction between the price I am paid for the milk I produce and 

the expenses it costs me to produce it. I have no control over the 

price I am paid. In the first 8 months of this year, the average 

price paid me per 100 was $13.22. My cost of production was 

$15.79, and this was without being paid for our labor and management, which this is our cost of living. 

If I have no guarantee of being paid for my production costs, I 

have no understanding of why Federal policy guarantees processors 

their cost of production. This is called the make allowance. If the 

price of milk falls below the level that will cover this expense, 

farmers have it deducted from their milk check. The price of this 

component was low enough from October of last year to May of this 

year, so that producers had money removed from their checks to 

cover the processors’ guaranteed make allowances. 

As our prices ride the highs and lows, the retail price bounces 

with it. When our price increases, the retail price surges with it. 

When our price slides backwards, the retail price never slides back 

to the low we are experiencing. Where does the excess go? 

The farmer pays for the hauling even though we relinquish the 

risk at the time of pickup. We have very little say about the variability and the changes in our hauling costs. Producers pay a hauling charge, a stop charge and a fuel surcharge as their transportation costs. These costs are deducted from the gross pay in our 

milk checks. 

The price of milk is decided by the trading of less than 2 percent 

of the milk produced in this Country on the Chicago Mercantile Exchange. The pricing structure is formatted so that the cheese traded today will dictate the price of milk 3 months from now. 

The fact that such a small percentage of the Country’s milk production is being traded to dictate the other 98 percent’s price, as 

well as having so few participants in the trading—it is a very thinly traded market—it would seem that there could be a great 

change for anti-competitive conduct. There have been concerns of 

price fixing, price manipulation and predatory behavior. 

There are four classes of milk. The blend price paid farmers is 

based on the utilization of these classes by the Federal order it is 

produced in. There are now way more products manufactured than 

can be clearly defined by these parameters. 

Another concern in the dairy industry today is the role of the cooperatives and the role of the processors. I am not sure that the 

huge cooperatives that dominate our industry always have the 

farmers’ best interest as their primary interest. 

In the dairy industry, the mega-processors, such as Dean Foods, 

dictate a lot of how our cooperatives interact with us as producers. 

They have played a huge role in dictating how the consumer decides to buy what milk, what technology should be used in producing milk and what milk is good or bad for them. They have initiated changes in the standards of milk quality that help them 

have the ability to move milk around the Country and extend shelf 

life in the grocery, not to ensure a safer, better tasting product to 

the consumer. 

I am not opposed to change, but I am opposed to it when it is 

at my expense and their increased profitability. 

7 

Relative to the global market, it is paramount that the standards 

of production of milk products be held to the same level for imports 

as they are domestically. They also need to be required to pay tariffs as a food when they are used in food manufacturing in this 

Country. I realize that it is a global economy, but we as U.S. consumers need to know that the same standards and regulations that 

U.S. dairy producers uphold exist for the products that are imported. 

I am in support of a mandatory supply management system. The 

global and domestic market processors, cooperatives and, most of 

all, producers would benefit from a more stable milk supply and 

price. These highs and lows are killers for producers, but they 

cause issues with other parts of our industry, including the services 

that support dairy production. Each low time changes the infrastructure of our dairy industry that cannot be reclaimed or rebuilt 

during the highs. 

History has shown that our Country usually has a year-over-year 

increase in demand for dairy of about 3 percent. Something needs 

to be addressed to stabilize our prices toward this. 

Last, this is an industry that needs young people. Dairy farming 

is physically demanding. It is an industry filled with stress because 

you are not only at the mercy of the volatility in milk prices; you 

are also at the mercy of the weather, crop and animal health, volatility of input costs, and labor issues. An industry is only vital 

when there are young minds and strengths to fuel the future, to 

guarantee its perpetuation. 

Thank you, and I would be happy to answer any questions. 

[The prepared statement of Ms. Hanselman can be found on page 

46 in the appendix.] 

Senator GILLIBRAND. Thank you for your testimony. 

Robert Church. 

STATEMENT OF ROBERT CHURCH, HERD MANAGER, 

PATTERSON FARMS 

Mr. CHURCH. Good afternoon. My name is Robert Church, and I 

am a partner and dairy manager at Patterson Farms located in Auburn, New York. Our dairy currently is milking about 950 cows; we 

have 720 heifers; and we farm about 2,500 acres of land. We are 

a sixth generation farm and have demonstrated the passion for the 

stewardship of the land the cattle we care for. 

Thank you for allowing me the opportunity to discuss with you 

the current economic crisis in the dairy industry. I commend your 

desire to address this issue by hearing firsthand from all parties 

involved regarding the current milk price that farmers are receiving. 

The problem farms are facing today is that revenues are not 

large enough to cover the expenses necessary to produce milk. This 

is resulting in producers using the equity in their businesses that 

would have been saved for retirement to finance daily operations. 

I would like to discuss the following points this afternoon: changing input costs, debt and financial health of dairies after extended 

down cycles, Federal Milk Marketing Order, Commodity Credit 

Corporation’s usage of dairy products, imports and exports, and 

milk inventory management programs. 

8 

Escalating input costs have eroded our ability to produce milk for 

what would have been, a few years ago, an acceptable milk price. 

Purchased feed costs are typically the biggest line item expense in 

our budgets. In 2006, the average feed costs per cow were $978. In 

2008, the average feed costs per cow were $1,445. This is a 47 percent increase. 

Labor costs have risen 20 percent. Fuel costs have risen 63 percent. Increasing fuel costs have a twofold impact on dairy farmers: 

We pay freight costs of both inputs and outputs, making our situation unique. Fundamentally, this is wrong. We should not bear 

the burden of hauling expenses on both ends. 

When the expenses are greater than the income, there is only 

one option. That option is to borrow more money to pay for the expenses, and that is how most farms are surviving the current situation. It is only a matter of time before the lending institutions stop 

lending money to struggling dairy farmers. 

Many farmers are now experiencing losses in excess of $100 per 

cow per month. This is taxing our ability to remain in a financial 

position that will support sustainability. It will require strong 

prices for three to 4 years straight for farms to pay back this debt. 

Without some reform to our safety net levels and pricing structure, 

we will undoubtedly continue to see the dairy industry struggle for 

a prolonged period of time. 

Changes that will impact both the short-term and long-term 

health of the dairy industry: 

The need to evaluate the Federal Milk Marketing Order is necessary to support prosperity of the dairy industry. This system 

needs to reflect not only the utilization of our products but also the 

costs associated with producing these products. Changes to the 

FMMO might include ensuring all milk produced is pooled in the 

order, changing the make allowances to reflect our input costs, setting a floor support price for Class I milk and putting the burden 

of transportation costs on the processor. 

Within the industry, there is a lot of disagreement about the effectiveness of the MILC program. I would suggest that a better use 

of the assets of this program would be to support the efforts of the 

Commodity Credit Corporation. Increased consumer usage of dairy 

products will be the best way to help farmers obtain a higher price 

for their product. 

The Commodity Credit Corporation has the ability to affect the 

market in a profound way. The largest limiting factor in the efficiency of this program is the packaging. Processors have no real 

economic incentive to package solely for this program and therefore 

do not do so. 

The solution to this problem seems simple. The CCC needs to 

have the ability to purchase products that are sized and packaged 

for consumer sales. Support of this program would result in prompt 

changes in the price received at the farm for milk sold and have 

no negative impacts on the product’s consumers. 

In respect to the global economy, the U.S. dairy economy must 

be positioned to both receive imported milk products and export 

them as well. The first issue to address is the enforcement of assessing imports the promotional fee. All milk and milk components 

9 

benefit from the use of this money. Imported milk products should 

not be exempt from this. 

Second, milk protein concentrates continue to enter our domestic 

milk shed without regulation. These products need to become a 

part of the existing policies that regulate imports. In the short 

term, the USDA should fully utilize the Dairy Export Incentive 

Program. 

The leaders of our industry, both producers and processors, 

should be selected and appointed to work on assessing the impact 

of a National Inventory Management Program. In the short term, 

supporting the efforts of risk management programs offered by our 

cooperatives will help dairy farmers secure their future. 

In summary, the dairy industry is in a state of severe crisis. 

Food, air and water are the essential elements needed to support 

life. It is the farmers in this Country that provide the food. Without 

a united front to protect our natural resources, our citizens will go 

hungry. 

Sustainability has become the latest buzzword and rightfully so. 

I would encourage all of us to band together, put aside the individual agendas and tackle the issues that threaten our ability to 

sustain our resources. 

Thank you for your support. 

[The prepared statement of Mr. Church can be found on page 38 

in the appendix.] 

Senator GILLIBRAND. Thank you for your testimony. 

Robin Keller. 

STATEMENT OF ROBIN KELLER, DAIRY FARMER AND 

PRESIDENT, GENESEE COUNTY FARM BUREAU 

Ms. KELLER. Hello. My name is Robin Denniston-Keller, and I 

am a proud American dairy farmer. My husband and I milk 100 

Jersey cows and take care of another 100 young stock about 10 

minutes from here in Byron, New York. 

It is a privilege and honor to speak today. 

I am not an economist or expert on milk pricing, but I do feel 

I have common sense and a strong work ethic which have served 

me well so far in life. I milk my own cows every day, and being 

up to my elbows’ in the results of lactation and excretion, generally 

not at the same time, gives me a certain sense of reality. 

On our farm, our paid price for our milk produced in July of 2009 

was $13.26 a hundredweight. Put in consumer terms, that is $1.14 

a gallon. This includes protein and quality premiums received from 

Sorrento, the cheese plant we supply with pure, fresh Jersey milk. 

Last year, our July paid price was $24.23 per hundredweight, or 

$2.08 a gallon. 

I could spend my next 3 minutes ranting about the volatility and 

injustice of this, but that is not constructive, and you can figure out 

on your own how I do the math. We pay for our own health insurance, groceries, feed for the cows and calves, fuel for the tractors, 

hauling and fuel surcharge costs to send the milk to the processor 

and the numerous other bills staring me in the face each month. 

Our 100–cow dairy benefits from the MILC program. We are the 

perfect size to maximize our usage of the program. Our MILC govVerDate Nov 24 2008 14:14 Aug 04, 2010 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 C:\DOCS\AUG27.TXT SAG2 PsN: SAG2
10 

ernment payments are currently a little more than 10 percent of 

our monthly income. 

Solutions to milk pricing issues: Time heals all wounds. However, how do we stop the bleeding now? 

My first suggestion is to increase solids-nonfat fluid milk standards. I like to call this the No More Blue Skim Milk suggestion. 

Since 1962, California has had higher minimum standards for nonfat solids in fluid milk than the rest of the United States. 

Raising the United States standards to match the California 

standards will accomplish the following: 

Improve the nutrition benefits of milk. For example, California 2 

percent milk has 21 percent more calcium than does 2 percent milk 

in other States. In addition, higher solids result in better tasting 

milk. I am talking protein and calcium here, not fat. 

Utilize more milk solids in consumer products and reduce the 

amount of nonfat dry milk produced for CCC purchase. This June, 

Dairy Farmers of America estimated that if the California standards had been in effect for the rest of the U.S. during 2008 an additional 300 pounds of milk solids would have been included in fluid 

milk sales. This represents more milk solids than were in all the 

CCC nonfat dry milk purchases through July, 2009. 

And, finally, California retail milk prices have remained competitive with, not higher than, the rest of the U.S. 

My second suggestion is urge Agriculture Secretary Vilsack to 

have USDA purchase cheese for nutrition programs. This single action would accomplish several goals: help to bolster milk prices and 

ease the current crisis faced by many dairy producers across the 

Country; reduce outlays in dairy safety net programs such as MILC 

payments and CCC purchase; by donating the purchased cheese to 

food banks and other charitable organizations, USDA would be providing humanitarian nutrition services. 

Cheese inventories are poised to be much higher than normal, 

heading into this fall. This supply is weighing on the market and 

suppressing prices. A purchase of 100 million pounds of cheese 

would bring inventories more in line with the past and would help 

our farm milk prices. 

Overhaul the dairy price discovery program. I believe that our 

current milk pricing structure is based on the trading of 2 percent 

of the cheese in this Country on the Chicago Mercantile Exchange. 

This small amount of cheese determines my mailbox price, or, in 

other words, what the check I get in the mail says I will be paid 

for the product I spent the last month getting covered in manure 

and other fine things to harvest. 

This whole process goes against my good old common sense. 

Large milk processors were convicted for price manipulation as recently as 2006. Clearly, a more fair and broad-based pricing mechanism is needed. We need a new set of tools in our milk-pricing toolbox. 

Sometimes I wonder why I am in a business where I buy everything retail and sell my product wholesale and the pricing mechanism is based on what I would call a house of cards. 

Fourth, imports, charge a promotion fee on imports. United 

States dairymen contribute 15 cents for every hundredweight of 

milk we produce toward dairy promotion. I believe the Farm Bill 

11 

instructs USDA to charge importers 7.5 cents for every hundredweight. 

Dairy promotion basically helps us with a larger market. Importers benefit from the increased demand for dairy that our domestic 

producers have paid for, so it only seems fair to have importers 

contribute into promotion program. 

Proceed with extreme caution implementing growth management 

or supply management programs. Some producers and organizations are promoting this, but I have some issues with it. 

And, I have run out of time. So if anyone would like my issues, 

I would be happy to share them with you. 

[The prepared statement of Ms. Keller can be found on page 54 

in the appendix.] 

Senator GILLIBRAND. Thank you for your testimony. 

Ms. KELLER. Thank you. 

Senator GILLIBRAND. Bruce Krupke. 

STATEMENT OF BRUCE KRUPKE, EXECUTIVE VICE 

PRESIDENT, NORTHEAST DAIRY FOODS ASSOCIATION 

Mr. KRUPKE. Senator Gillibrand, Congressmen Massa and Lee, 

thank you for the opportunity to appear before you today and provide you with statements regarding U.S. dairy pricing structure. 

My name is Bruce Krupke. I am the Executive Vice President for 

the Northeast Dairy Foods Association which was formed in 1928. 

I am here representing the 111 member companies of our full-service trade association of fluid milk processors, distributors, manufacturers of ice cream, yogurt, cheese, sour cream, cottage cheese, 

cream cheese, butter, whipped cream and dips, among many others. 

Collectively, these companies employ over 18,000 people here in 

New York State. Most importantly, these companies are the buyers 

of raw milk and the customers of dairy farmers. 

As you and the United States Agriculture Committee consider 

the national dairy pricing system, I would like to provide you with 

our association’s positions on a few critical issues. 

Our association supports the current Federal Milk Marketing 

Order system. It is our position that the Federal Milk Marketing 

Order system is working as created and as intended. We support 

the system because the formulas USDA uses to calculate monthly 

producer prices is based on supply and demand factors. 

Our association believes it is very important any system mandated by the Federal Government, which ultimately prices raw 

milk is based on competitive policies and encourages efficiencies 

within the entire dairy industry. Another policy we regard as very 

important for any pricing system is that it be fair for all participants—producers, processors and consumers. 

We support the ability of dairy producers to compete for buyers 

of their raw milk, either as members of cooperatives or as independents. 

We do not support policies that artificially inflate the raw milk 

price that is not based on supply and demand and is not fair and 

competitive. We do not support state programs that usurp or interfere with the Federal Milk Marketing Order program. 

12 

New York State has approximately 600 companies licensed and 

engaged in processing, manufacturing, hauling, distribution or that 

are bargaining agencies. Of those 600, about 300 distribute milk 

and dairy products to retail and food service locations. Of the 300, 

there are 31 pasteurized milk plants and 69 manufacturing plants. 

For perspective, 25 years ago in 1983, there were 100 milk plants 

and 71 manufacturing plants. Our industry, like the number of 

dairy farmers, has dramatically contracted and consolidated. 

Here in New York State and the Northeast U.S., we are blessed 

with an adequate raw supply of milk. There is not a milk shortage. 

In a week, schools across the State will open, and our milk plants 

will easily be able to service their customer. The reason there will 

not be a problem is because milk production overall per cow here 

in New York State and key areas of the Nation have steadily increased over time. 

As customers of raw milk, our customers are similar to any customer. We need a consistent and adequate supply of quality raw 

milk for our processing and manufacturing plants. They want a 

good price, a good quality and sufficient supply to choose from, although these wants are really more like mandatory needs. 

New York State, and the Northeast for that matter, are fortunate 

to be in close proximity to both the raw milk supply and to millions 

of consumers. We have a very good mix of all types of Class I, II, 

III and IV milk and dairy product plants that provide us operating 

efficiencies. 

It is very important for you to understand our milk processing 

and dairy product manufacturing plants need to be competitive. We 

compete with companies from all across the United States. What 

we need is to have access to a good supply of raw milk, but, even 

more importantly, we need producers that are efficient and costproductive. 

Our members’ survival requires them to produce and procure 

raw milk at the best competitive price. If other regions of the Country have lower priced raw milk, producers in our region, as well as 

our association members, will lose market share. We will be beat 

out by our competition from the West and Upper Midwest. 

What should the Federal Government do when considering 

changes to the current system? 

First and most important, any program, whether it is a government program or a voluntary industry initiative, needs to focus on 

increasing consumption and sales of milk and dairy products. We 

have lost sales of fluid milk to competing beverages, which has 

been the single largest reason why prices are lower for producers. 

Any program, law or regulation that stymies milk consumption 

should not be implemented or passed. This includes changes to the 

National School Lunch program or WIC. 

Before any changes to the Federal Milk Marketing Order are 

proposed or enacted, they should be carefully reviewed by experts 

from the industry who clearly understand milk marketing from 

farm to consumer. 

Any changes to the Federal Milk Marketing Order system should 

mandate and include all dairy producers in the Nation. How can 

a fair program be established if some producers are not participating while others enjoy advantages or protections, either regional 

13 

or by State? Participation should be mandatory for all U.S. producers in any milk marketing program. 

Any program changes should be implemented to allow producers 

to compete on a world market. We cannot survive if we do not have 

a world marketplace to sell excess products at competitive prices. 

Programs that try to manage raw milk supplies should be discouraged. Supply management only decreases cost efficiencies, 

technologies and growth. To be a world leader, we need all three 

of these examples to compete and survive. 

And, in summary, if I may, dairy producers in other parts of the 

Country are currently finding and implementing new methods and 

technologies that will make them more competitive with New York 

producers. We encourage New York and Northeast producers to 

utilize the many public and private options to increase revenues, 

protect costs and lock in prices. 

The dairy industry needs practical, market-driven solutions. The 

industry needs to build a consensus between producers and processors to find equitable solutions. 

The government needs to listen carefully to the entire dairy industry, to help implement effective and lasting improvements for 

dairy producers, processors and manufacturers. 

Thank you for your time. 

[The prepared statement of Mr. Krupke can be found on page 58 

in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. Krupke. 

Ron McCormick. 

STATEMENT OF RON MCCORMICK, FORMER 

REPRESENTATIVE, NATIONAL DAIRY BOARD 

Mr. MCCORMICK. Good afternoon, Congressmen, Senator. Thank 

you very much for being here today. 

As you said, I am Ron McCormick. I am a dairy farmer. Our 

farm was established in 1854 when my great-great grandfather 

came over from Ireland. My wife and I formed an LLC with our 

two sons and their families. If we can survive this financial crisis, 

I can see the seventh generation, my two grandsons, continuing on 

my family farm. 

We milk 400 cows 3 times a day, with 5 employees. My daughterin-law raises all the calves. We raise all our own crops—corn and 

alfalfa—on 500 acres. And, our main mission on our farm is quality 

milk, cow comfort and leave the land and water in better condition 

for the next generation. 

The problem: Too much of a good thing. The demand in the 

United States has remained the same or has increased a bit in the 

last years. Last year, however, the U.S. exported the equivalent of 

11 percent of our milk that was produced in the United States— 

this year, only 4 to 5 percent, which leaves a difference of between 

5 and 6 percent of the milk that we have to find a way to get rid 

of. 

I, as a dairy producer, produce the most nutritious, safest food 

for our Nation. With thousands of starving people around the 

United States and around the world, it is hard for me to understand why we have to cut production or go broke. 

14 

The current milk marketing order is based on demand. Two proven ways to increase sales and demand for our dairy products are 

through the New Look of School Milk program and Breakfast in 

the Classroom program. Not only do these programs help sell dairy 

products now, but they will help build lifelong dairy consumers, 

which will improve our children’s health and nutrition. 

Another win-win for the farmers in the United States, and the 

consumers, is to require that all fluid milk in the United States be 

fortified with extra milk solids by using the California standards. 

Such fortification benefits the consumers by adding nutrients without adding fat to their diets. Furthermore, most customers would 

prefer the white color of fortified nonfat milk instead of the blue 

color of traditional skim milk. Farmers will benefit because more 

milk and milk solids will be consumed. 

Another problem facing our dairy farmers is when consumers require us not to use modern technology that has been approved by 

the USDA as being safe, for example, when customers refuse to 

take milk from our cows which have been given rBST. This means 

that our farmers either have to pay more to produce the same volume of milk or pay higher hauler costs to transfer their milk to a 

processor who will take it. 

Traditionally, milk orders enable farmers to be paid depending 

on the factors such as protein, butter fat, cell count that can be determined by lab tests. However, farmers need to be compensated 

fairly for their increased production costs when their milk must 

meet the requirements for rBST-free or organic and other such new 

demands that might come down in the future. If customers require 

producers not to use legal, approved farming technology, we have 

to find a way to pay for it. 

In the last two Farm Bills, it was required that all milk, even 

imported, pay the 15 cents for promotion and research. As of today, 

the USDA has still not written the regulations to collect the 15 

cents that was passed by two Farm Bills, which will help level the 

playing field. If the 15 cents is collected, U.S. processors will be 

able to make MPCs which will enable them to compete against 

world imports. We all know that our milk in the United States is 

the most regulated and the safest in the world. 

Our government has to find a way to feed the hungry people of 

the world and the United States. Give food, not money. It will not 

only help feed the hungry but will help balance our budget, trade 

deficit. 

This crisis is real—hitting my farm by the end of the year with 

a loss of approximately $1,000 a cow or $400,000. Thank you very 

much for stimulating the MILC payment. But, on my farm, I am 

$400,000 in debt, and my payment was $49,226.02, and I am done 

receiving it. 

Most farmers are on interest only with their banks, but the bigger problem is how it is affecting the families and owners and the 

employees of other infrastructures of our community, such as feed 

dealers, vets and fuel providers. In Wyoming County, these families, accounting for more than 70 percent of the jobs directly or indirectly, depend on our cows. 

Senator Gillibrand, your proposal to double the MILC payment 

from March to this November, although most of our farmers would 

15 

rather get the money from the marketplace, will sure help our farm 

and the many more farmers who are wondering how they are going 

to pay for their open accounts. 

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

63 in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. McCormick. 

Mr. MCCORMICK. Thank you very much for listening to us today 

and thank you for wanting to help our dairy farmers and our employees in all the small communities. Thank you. 

Senator GILLIBRAND. Thank you. 

We are now going to ask you some questions. I will ask a few, 

and then I will turn it over to my colleagues to ask additional questions. 

I wanted to start with something that Barb raised about the 

make allowance, and I want to ask Mr. Krupke if he could please 

address the concern that came up through Barb’s testimony and 

other testimony about having to pay the make allowance. What is 

the purpose of the make allowance and why should dairy farmers 

pay it? 

Mr. KRUPKE. I am not an expert on the make allowance. I understand what it is and what it does. 

It is designed more for manufacturing plants. As the cost of production goes up at a manufacturing plant, it is based in the Federal Milk Marketing Order formula, that allows an increased cost 

production to go to manufacturing plants. That is my basic understanding of what it does. 

It has been changed occasionally, most recently within the past 

year or so. It had taken a good year or so, year and a half, after 

it was proposed by a regional company for a change in that make 

allowance. It went through a series of hearings. 

What we find is as the make allowance is proposed to be 

changed, it takes quite a long time for it to actually go through the 

approval process, so that by the time it actually gets changed the 

cost of production has actually increased even more so. So it always 

seems to be in arrears. But, basically, the make allowance is the 

factor that is allowed in the Federal Milk Marketing Order formula, that allows a change for the cost of production built into the 

price that the farmers paid. That is my general understanding. 

Senator GILLIBRAND. I am sorry. I do not understand what you 

just said. 

[Applause.] 

Senator GILLIBRAND. I am sorry. We will start again. 

The concern that is raised is why should it be paid by the producer? 

Mr. KRUPKE. Well, it basically comes out of the price that the 

producer is paid. It is not actually something that they would pay, 

but it is a deduction. 

Senator GILLIBRAND. It gets deducted. But why does that cost? 

In your view as a representative of the industry, why should it be 

a cost that accrues to the producer? 

Mr. KRUPKE. The way, from my understanding, the way it is just 

built into the price, it is a formula. It is part of an overall formula. 

It can be debated whether or not it is good or bad. 

16 

A manufacturing firm has the basic cost of doing business. All I 

can say is it is built into the formula and that it is something that 

was approved as part of the Federal order process system. 

Senator GILLIBRAND. A long time ago. 

Mr. KRUPKE. Possibly, Dr. Novakovic or Mr. Wellington could 

give you a further explanation. 

Senator GILLIBRAND. We will ask the next panel as well. 

Similarly, the other question that came up a lot was the cost of 

transportation. In your view, why should the producer pay both 

parts of transportation? 

Mr. KRUPKE. Transportation is, if you look back in history, again, 

that is debatable. It is something that is within the industry that 

is debatable and can be discussed. 

If you look back in history, how did milk get from the farm to 

the milk plant, the dairy farmer would put it in milk cans, put it 

on the back of the truck and haul it to the milk plant. 

Over time, evolution, better trucking, refrigeration, highways, 

firms that developed that haul milk for a living—it is what they 

do. It is another part of the business or it is part of the overall distribution system. So a farm that belongs to a cooperative would either have the cooperative hauling milk for them or they will hire 

a firm to do it for them or the milk plant will have a truck and 

go and get it. But it is just the standard within the industry. 

If you use other examples, if you have a lobster fisherman and 

they are out on the boat in the ocean, they have got to get the 

product from the ocean back to store. They are paying for their 

hauling. 

It is a standard within the agriculture industry that the producer 

pay to get their products to market. If a producer goes to a farmer’s 

market in the middle of a city, they have to pay to get their product to market. So it is just the standard. 

If there is a discussion whether or not hauling should be paid for 

by the buyer, that is something that could be discussed in the national forum. 

If it is eventually decided upon that it should be paid for by the 

processor or the manufacturer, it can easily be done universally 

through the whole Federal order system. You could not have just 

one State, for instance, implement a law that says, well, in this 

State, the processor is going to be mandated to pay for hauling. 

Well, then that would just create a competitive disadvantage for 

the processor in that particular State. They would be forced to go 

in another State and buy the farm milk there. So that is why it 

would have to be done on a national basis. 

Senator GILLIBRAND. So if we are looking between now and the 

next Farm Bill, on all of these issues, could you see a world where 

the farmer did not absorb the costs of hauling and the farmer did 

not absorb the costs of the make allowance? 

Mr. KRUPKE. I think the general point of a manufacturer or processor is that is current law and we abide by it. If it changes, then 

we will have to abide by it. 

Somebody has got to pay to get the milk from the farm to the 

consumer, and, ultimately, it is going to be built into the price, one 

way or the other. Currently, the system is just set up so that the 

farmer, producer pays for the price to get it to market. 

17 

Senator GILLIBRAND. The last issue I would like to raise, and 

then I will turn it over to my colleagues, is many of you mentioned 

this issue of requiring milk solids to be in milk. What is the downside of that? 

We had some testimony on this in front of the Agriculture Committee on the House side in the last 2 years, and some people opposed the idea, although it is a good way to make money, because 

it was affecting what is actually in the milk. So you are not having 

milk as produced being offered for sale. It was milk that was affected and changed by adding more protein solids. 

What is the downside? 

Go ahead, Robin. 

Ms. KELLER. From a dairyman’s perspective, I am not sure there 

is a downside. 

From your processor or your middleman, they are going to have 

to get different equipment, I believe. I am not a processor, so I cannot speak for them. But I think they are going to have to purchase 

more milk solids in order to fortify the milk. 

But, as far as the consumer goes, they are going to get a better 

quality tasting glass of milk. 

From the producer’s perspective, we are going to be able to minimize the excess milk in the Nation. The powdered milk that we 

will fortify the liquid milk with, California is a strong producer of 

powdered milk. 

Senator GILLIBRAND. Is it better tasting though? 

Is it, Barb? Barb told me about this taste test she did, and she 

could tell which milk came from a Jersey cow, which milk came 

from all the different cows she had in the taste testing. Some had 

higher fat content. Some had other protein content. She could tell 

by the nature of the cow. 

Are tastes not more regionally based? 

Ms. KELLER. Taste is a personal thing. 

Senator GILLIBRAND. Right. So why would it necessarily taste 

better if it had more protein? 

Ms. KELLER. I think my answer to that is, from talking to neighboring dairy farmers who have been on vacation or at conferences 

in California and their kids go with them, the kids will sit at the 

table at breakfast with them and say, dad, this milk tastes different than ours at home. 

Senator GILLIBRAND. Different or better? 

Ms. KELLER. Better, different. 

Senator GILLIBRAND. OK. 

Ms. KELLER. It has a creamier mouth feel. 

Senator GILLIBRAND. Barb? 

Ms. Hanselman? From that standpoint, protein provides a lot of 

flavor and mouth feel to milk and because we have taken away 

butter fat. Butter fat is an enhancer, but our public wants low fat, 

non-fat milk. 

But, interestingly, in Texas, they were having huge issues with 

kids buying or participating in the school program and drinking 

their milk. And so, in Texas, they have something called Texas 

Two-Step Milk, and that is where they did this same process where 

they put the solids, protein solids back into the milk. It increased 

consumption hugely, and this was no fat milk, which was a very 

18 

positive thing there because there were huge issues with concerns 

with obesity because people were drinking high fat milk but then 

also refusing milk, and so there were the health issues on that 

side. 

Senator GILLIBRAND. Bruce, any thoughts? 

Mr. KRUPKE. Yes, I do. 

This is a perfect example of the differences between standards 

throughout the United States. You have one State, California, that 

sets a standard for milk and another standard for the rest of the 

United States. 

What happens in California, I am not an expert in this area either, in California, but it is my understanding that the fortification 

of protein in milk, in Class I, when you ask what are the downsides 

of something if you implemented that program nationally. It costs 

more for the consumer. It costs more to put that into the product. 

It is more of something that is there that has got to be paid for 

and gets passed on to the consumer. 

So I guess a simple answer is the downside is consumers pay for 

it. 

But the other part that you all see, that you all probably in the 

room recognize is when you see a happy cow commercial from California, why are they advertising happy cows in New York State? 

It is really not the happy cows; it is the happy farmers and the 

happy processors in California that have a price advantage. 

The reason they have a price advantage is because the Class I 

sales in California, because of this protein-fortified product, it helps 

subsidize their manufactured products in California and allows 

them to manufacture them, ship them all the way out here in New 

York State, in New York City, Buffalo, Batavia, and you will see 

California cheese here. The reason they can do that is because 

their pricing system in California is outside of the Federal order 

system. 

And, this gets back to my testimony that you need to question 

whether or not that system in California should be allowed to continue. Why do we not have a national Federal order program and 

allow one State to do it and have different standards of identity 

and products and pricing where there are different competitive levels throughout the Country? 

Senator GILLIBRAND. Robin. 

Ms. KELLER. I can discuss that a little further. In my testimony, 

from sources that I have, California retail milk prices have remained competitive with, not higher than, the rest of the U.S. So 

I think that kind of goes against what Mr. Krupke said. So I am 

not sure who is right and who is wrong, but I want that to be on 

the record. 

Senator GILLIBRAND. Right. 

Mr. KRUPKE. I did not mean necessarily retail prices that the 

consumer buys. I am talking about the formula price for Class I 

milk in California. 

Senator GILLIBRAND. You are saying the formula price for Class 

I milk in California is higher than the Class I price for New York 

milk? 

Mr. KRUPKE. Yes, that is correct. It is my understanding that the 

way the formula works in California is it is higher and it helps to 

19 

subsidize the manufacturing process, but it does not have anything 

to do with retail. 

Senator GILLIBRAND. We can ask the next panel. They will have 

some data on that. 

Mr. CHURCH. If I can comment on that real quick, as farmers, 

our primary objective is to get product usage by consumers. If we 

have a tool that we can provide a better product or a healthier 

product and we can market it that way and have consumer acceptance of it, those are all good things for our industry. 

Senator GILLIBRAND. Thank you. 

I am turning over to Congressman Lee. 

Mr. LEE. I think I am going to stay on that line of questioning 

because I guess at the end of the day what we can do to help drive 

demand and provide a better product to the market seems like a 

win-win, where we can. I like white milk, I like brown milk, but 

I do not like blue milk, and I have had that in New York State. 

So the opportunity to put real solids and make it a better tasting 

product that, by the way, that helps drive demand, helps our producers, it seems like an area that we definitely want to explore. 

We hope that outside of California it sounds like a very simple 

way and a healthier way to get people to drink skim way. So I 

think that is a very worthwhile point. 

Another area, and I just want to make sure, and maybe I can direct this toward—I think a few people brought it up—maybe to 

Robin. On this issue of the fact that we have a promotion fee, I 

want to make sure I understand this for the rest of the panel as 

well. My understanding is that U.S. producers pay a 15–cent promotion fee. I believe it is 5 cents of that is going nationally and 

10 cents locally, and that is used to go out and actually promote 

the values of milk and try to increase the market. 

I am one who believes in fair competition, but what you are 

doing here is actually helping to grow the market, which is a wonderful thing. That is what we want. 

But you are saying importers right now, who are going to benefit 

from all of that promotion, both locally and nationally, do not have 

to pay a penny. Is that correct? 

Ms. KELLER. That is my understanding, yes. 

Mr. LEE. Then I think what you also said is that the USDA has 

been instructed through the 2002 and 2008 Farm Bills to enact 

this, but no such legislation or ruling has occurred. 

Ms. KELLER. Correct. I think that is our issue, that USDA has 

not implemented the legislation that is on the books. The speediness of that activity is not impressive. It is on the Farm Bill for 

two times now, and it has not been done. 

I guess I support Senator Schumer’s suggestion to tariff or tax 

milk protein concentrates, MPCs. However, I think this promotion 

fee on all imported milk products may be a more WTO-friendly way 

of getting around that. 

Mr. LEE. I would agree. 

Ms. KELLER. No promotion fees come back to dairy farmers in expanded markets. Whereas, a tariff, I am not sure whether that 

comes back to us as dairy farmers at all. 

Mr. LEE. Do you know what the instruction was, the full 15 cents 

or was it 7.5 cents? Do you know what that instruction was? 

20 

Ms. KELLER. I think the instruction was 7.5 cents. 

Mr. MCCORMICK. It was 15 cents, but during negotiations they 

cut it down to 7.5 cents, and that 7.5 cents would go right to the 

National Dairy Board, and then they use it for research on what 

else we could you use our milk for—MPCs or development or develop new products. 

Ms. KELLER. Ultimately, I would like to see the 15 cents. I would 

like to have it be a level playing field rather than slightly lopsided. 

But I will take 7.5 cents if that is what is on the books already. 

Mr. LEE. Let me ask one other question. This is open too. We 

have 5 minutes here, and I want to make sure that we are fair to 

the other panelists as well and make sure Mr. Massa has time. 

The one thing I am also a huge believer in is that it is government’s role to help support businesses in this Country but not 

deter their ability to succeed. One thing I get concerned about is, 

as I said, I am not on the Agriculture Committee. But I sit on an 

advisory board, and I sit on financial services, and we are creating 

a whole host of regulations. My concern is regulation that, at the 

end of the day, does not help farmers or dairy farmers, based on 

EPA or Clean Water or the COFA. 

Can anybody elaborate on areas that you think really are nonvalue added, because what you talked about is we only export 5 

percent of our product? Is it putting us at a cost disadvantage so 

that we are going to ultimately continue to be pressed by imports? 

I am curious if anyone has any thoughts on areas that you think 

that, from a regulation standpoint, should be relooked at, that truly 

are non-value added. Anyone have any thoughts? 

Mr. CHURCH. I would comment on some of the environmental 

regulations and that whole train of thought. As dairy producers, we 

make our living with the land, and I do not think there is another 

group of people out there that want to conserve our resources as 

much as this group does. 

You know in terms of are those programs bad, no, none of those 

programs are bad. When we can protect our resources, all those 

things are good, and they are going to benefit us at the end of the 

day, and we know that. It may not be tangible dollars that we can 

put our hands on today or tomorrow, but we know that is going to 

protect us. 

To abide by some of those regulations comes with a cost. If we 

can find ways to help offset that cost, that would be a big advantage to us, whether it is low-interest loans or grant funding, some 

of that, some of the regulations that come down on local businesses 

and particularly dairy farmers. 

Mr. LEE. Something specific, like Clean Water, to get there, the 

initial capital funding? 

Mr. CHURCH. Yes, that is exactly the kind of thing that I am 

speaking to. Grant funding and may very low-interest loans or nointerest loans will go a long way in helping us fund those projects 

and meet the requirements and live up to being good stewards of 

the land. 

Senator GILLIBRAND. Thank you, Congressman. 

Congressman Massa. 

Mr. MASSA. Thank you. 

21 

Mr. Krupke, you and I are going to tangle a little bit here because I was a little concerned about some of the things I heard. I 

have never milked a lobster in my life. I am not quite sure of the 

analogy. 

But you did say very specifically that you want to move toward 

market-driven solutions. Got it. Market-driven solutions would lead 

me to believe that there is an ability for a dairy farmer to choose 

from where that dairy farmer is going to take his or her product 

to try to obtain the best deal possible. 

Yet, as you are a student of history, as illustrated by your analogy of milk in cans, I think we can all understand that the whole 

reason we have a hyper-regulated dairy market is because milk is 

so incredibly perishable, and dairy farmers have been historically 

been held hostage by a take it or leave it policy that leaves them 

only one choice—to accept a price that is given to them regardless 

of their choices or to destroy their commodity. 

So the entire concept of market-driven solutions favors those that 

you represent, but in my opinion has absolutely nothing to do with 

the reality that actual dairymen face. So I am not sure that I understand how we implement market-driven solutions for dairy 

farmers in the Northeast. 

The second thing I would like to bounce back off you, sir, you 

have said at least four times that you are looking for homogenous 

national policies, one size fits all. Having visited and gone to many 

dairy farms in, yes, go figure, New Mexico or in the deserts of Arizona or in the plains of nontraditional dairy farming areas in California, I can tell you that what they do there in dairy farming is 

about as similar to what we do here as Mars is to Pluto. Dairy 

farming in California, New Mexico and Arizona, maybe there they 

do in fact milk lobsters because that would be something that 

would be in fact more similar. 

And, I am not in favor of one size fits all. My job is to protect 

New York. Let me be very clear about that. That is what I am here 

to do. 

[Applause.] 

Mr. MASSA. I am absolutely, positively not interested in happy 

California cows. I am absolutely committed to thriving and surviving New York farms. And, if that makes a lot of Pennsylvanians 

angry, well, then maybe we can figure out how to work across borders. 

But, you get west of the Mississippi, sir, and it has got nothing 

to do with what we do here. So I need to express that very clearly 

to you because these arguments are at the base of a lot of things 

that are hurting us. 

And, I do not think one size fits all is benefiting what we deal 

because we do not even begin to farm the same way. The farms in 

New Mexico, California and Arizona do not have contiguous cropland because, guess what, they do not have water, and they do not 

even begin to fit the same problems that we fit as far as producing 

those kinds of costs. I lay that as a marker for the record. 

Now, having said that, my question to you is this: We have 

heard, and I will just use the numbers today although there are 

many others available, that milk went from $24.23 a hundredweight to $13.22. That is roughly a cut of 50 percent. My wife tells 

22 

me that we have seen no such drop in the price of a gallon of milk 

at home. So where is the money going? 

Mr. KRUPKE. I have an ad here—upstate farms, half gallon of 

milk, 1 or 2 percent or skim for 99 cents. It is happening here in 

New York State. 

Mr. MASSA. Not by 50 percent, sir. 

Mr. KRUPKE. Well, that is $2, less than $2 a gallon. If the dairy 

farmer is getting a dollar—— 

Mr. MASSA. So you are saying that the retail price of milk during 

the same period of time reflects the drop in the wholesale price. 

Mr. KRUPKE. The retail price is reflective. 

Mr. MASSA. I am sorry. It is a yes or no. 

Mr. KRUPKE. Yes. 

Mr. MASSA. It does? 

Mr. KRUPKE. Yes, sir. 

Mr. MASSA. OK. For the record, you stand on that? 

Mr. KRUPKE. Yes. 

Mr. MASSA. All right, fair enough. Thank you. 

Senator GILLIBRAND. Well, I would like to thank all our panelists 

for their very helpful and informative testimony. We are extremely 

grateful for your time and your expertise, and I invite you to stay 

along for the second panel. We are going to be hearing from a panel 

of economists that will continue this conversation. 

So, thank you for your time and your attention. 

[Applause.] 

Senator GILLIBRAND.—Andrew Novakovic, Bob Wellington and 

Kim Pickard-Dudley. 

Dean, why do you not start us off. 

STATEMENT OF DEAN NORTON, PRESIDENT, NEW YORK FARM 

BUREAU 

Mr. NORTON. Thank you, Senator Gillibrand, Representative Lee, 

Representative Massa, for inviting me to testify before you today. 

My name is Dean Norton, and I address you as a dairy farmer, 

agricultural consultant and President of New York Farm Bureau, 

the State’s largest general farm organization. I represent more 

than 30,000 family farm members, including many dairy farm families struggling under the weight of this economic crisis. 

Dairy farms throughout New York, the Northeast and the Nation 

are indeed facing the worst economic crisis they have ever experienced. This crisis is impacting every farm regardless of size or geography. The combination of extremely low milk prices, well below 

those of 25 years ago, along with very high fuel, feed, energy, fertilizer and other operating costs have resulted in unprecedented 

losses for all dairy farms. 

Even with the inclusion of the feed cost adjuster in the Milk Income Loss Contract payments, which we owe to your efforts during 

the negotiations of the 2008 Farm Bill, farmers are not able to 

cover their costs of production. In simplest terms, farm families are 

getting paid nothing to cover their living expenses and bills and 

then losing money per hundredweight on top of that. 

It is important to remember that dairy cows are not like a water 

faucet. You cannot turn them on and off when you need or do not 

need milk. Production takes a relatively long time to gear up, and 

23 

after production has increased lower demand can result in overproduction and, thus, lower prices. For this reason, it is critical 

that there be price stability at the farm level. 

There is enormous frustration that the Federal Milk Marketing 

Order system does not offer adequacy or stability in pricing. It is 

clear that a systemic review and overhaul of the Federal Milk Marketing Order system and its relationship to the Chicago Mercantile 

Exchange should be undertaken in an effort to avoid extremely cyclical downturns so that dairy farmers are not forced to seek emergency government assistance simply to survive. 

While the Milk Income Loss Contract program has helped New 

York dairy farmers, a regional pricing program that extracts its 

value from the market instead of the taxpayers, similar to the 

Northeast Dairy Compact that expired in 2001, would be far more 

effective. 

Because of the movement of milk and milk products across state 

lines, no State acting alone can solve the milk price issue within 

its boundaries. The Northeast Region is a major milk shed to some 

of the Nation’s largest population centers. Under the milk marketing order, our dairy farm families are currently reliant upon a 

nationally based pricing system which balances national supply 

and demand but does not always recognize the regional production 

needs throughout the entire Nation. This system also tends to penalize areas with higher costs of production which are closer to existing population centers, such as in our geographic region. 

Recognizing this, the Northeast State Farm Bureaus and their 

producers are working together to capitalize on our assets and ensure that milk pricing structures work for our region. It is clear to 

the Northeast Farm Bureaus that the Federal order system must 

be reformed to accommodate regional variations in fluid milk production, in order to keep milk supply near population centers. Several weeks ago, New York Farm Bureau and 12 other Northeast 

State Farm Bureaus sent a joint letter to USDA Secretary Tom 

Vilsack, making such a request. 

We ask that you consider other options that accomplish profitability and stability within the dairy industry. New York Farm Bureau suggests that the congressional authority be granted to legislatively allow two or more States to work cohesively to best utilize 

their milk pricing laws. Allowing States to work together to establish over-order prices for fluid milk will prevent disruption of movement of manufactured dairy products but achieve some stability 

and retention of farms in the region. 

Dairy promotion fees are dedicated to building consumer demand 

for dairy products. They should also be collected on all imported 

MPCs, casein, dairy and cheese products. Our foreign competitors 

are currently enjoying the benefits of national dairy advertising 

being paid by our U.S. dairy farmers. It is like we are giving away 

our retail market to our foreign competitors and paying them to 

take it from us. 

U.S. dairy farmers have been contributing 15 cents each hundredweight of milk they sell to fund national advertising and nutrition research, to increase U.S. milk product consumption. The 

USDA is currently delaying implementation of regulatory proposals 

to assess 7.5 cents per hundredweight on all dairy imports, includVerDate Nov 24 2008 14:14 Aug 04, 2010 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 C:\DOCS\AUG27.TXT SAG2 PsN: SAG2
24 

ing cheese and butter products as well as dry ingredients such as 

casein and MPCs. Statutorily authorized under the 2008 Farm Bill, 

we recommend that USDA enact this promotion assessment on all 

imported MPCs immediately and require that this fee on imports 

be equal to what is paid by U.S. farmers, which is currently 15 

cents. 

In order to fill the workforce gap, passing and enacting a viable 

agricultural guest worker program, either as a standalone initiative such as AgJOBS or part of comprehensive immigration reform, 

is one of our highest legislative priorities. NFYB asks for your cosponsorship of AgJOBS and advocacy within the Senate leadership 

to bring the issues of agricultural guest labor to the Senate floor 

by the end of this session. 

If you will allow me to finish, please, in closing, there is no question that finding a solution to the cyclical dairy pricing crisis is a 

significant challenge, but I am confident that enough people, from 

producers to consumers, recognize that something must be done so 

that the depth and length of price downturns can be avoided in the 

future. 

Thank you, and I would be happy for any questions that you may 

have. 

[The prepared statement of Mr. Norton can be found on page 69 

in the appendix.] 

Senator GILLIBRAND. Thank you, Mr. Norton. 

Mr. Novakovic. 

STATEMENT OF ANDREW NOVAKOVIC, DIRECTOR, CORNELL 

PROGRAM ON DAIRY MARKETS AND POLICY 

Mr. NOVAKOVIC. Madam Senator and Congressmen, thank you. 

Thank you for coming. Thank you for being in New York. Thank 

you for inviting me to participate. 

If I may, I would like to say I am pleased to see that this meeting is both bicameral and bipartisan. We New Yorkers are not always used to that kind of behavior, and so it is a pleasure to see 

it at least in our U.S. Congress. 

My name is Andrew Novakovic. I am the E.V. Baker Professor 

of Agricultural Economics at Cornell University. I am also the Director of the Cornell Program on Dairy Markets and Policy. I have 

been working on dairy policy issues for about 30 years, professionally, and was interested in it for a bit before that, before I became a professor. 

I provided you with a packet of information. This includes written remarks, a short paper that I did which looks at a history of 

dairy prices, just for the basic data, and also a rather lengthy 

PowerPoint type review of basic programs. Obviously, I will not be 

reading those, but they are there for your information if that is 

useful. 

I have been asked to discuss current dairy policy and some options, and I would like to briefly do that. 

Let me begin by getting just a wee bit philosophical. As you 

know and as you have heard, the situation for dairy farmers today 

is dire indeed. I do not know exactly how you measure how bad is 

bad, but my feeling is it is probably the worst situation for dairy 

farmers since the Great Depression. 

25 

I will not try to recount the different ways you might measure 

this; you have heard testimony. But, before I begin jumping into 

policies, let me say a couple things about how we might work to 

understand the nature of the problem. 

My colleague used two words that I am fond of. When I talk 

about pricing, I remind people that there are three dimensions to 

pricing that are important to understand: stability, certainty and 

adequacy. 

We often use the word stability as some kind of proxy for the 

other two, but that in fact can be misleading. A price can be stable 

and totally inadequate, and the problem today really is adequacy. 

People are associating the fact that we have highly unstable prices, 

with prices that occasionally dip really low, but let’s not lose sight 

of the fact that the problem we have to solve is adequacy. Stability 

is an issue but probably not the most important issue today. 

When we think about it from that perspective, we begin to understand that some programs, either ones we have or ones we 

might have, may work really well on one issue, maybe not so well 

on another. 

Federal orders: Federal orders have been much cussed and discussed. They are complicated. They are described often as incomprehensible. I think they are comprehensible; you just have to work 

really hard at it. 

We have been discussing reform in Federal orders for about 20 

years. Let me simply say you will hear many proposals for reforming Federal orders. I do not believe any of those will address the 

problem of adequacy now. They may deserve discussion on their 

own merits, but I do not believe they are the appropriate tools to 

be dealing with the current issue. 

The price support program is in fact the perfect tool for dealing 

with low prices. It is exactly what it is supposed to deal with. Unfortunately, we found this tool incredibly heavy to lift recently. 

There are budget issues that have prevented us from using this 

program for 20 years until August 1st. There are WTO issues. We 

may ask, are we using it enough or should we use it longer, but 

at least it is a tool we ought to think about. 

MILC is also a help. One of my concerns with MILC is the very 

thing it is intended to do to help you get through a bad time may 

actually prolong how long it is bad. I think we have to give some 

serious thought to how well we wield that tool. As you have a 

chance to read my testimony, you will understand that I have some 

ideas about how we might improve that. 

Others have talked about growth management. I am going to 

skip over that, and I want to introduce one topic that is controversial. 

Let me be most clear. I am not an advocate, but we had a program 20 years ago called the Dairy Termination program, more 

popularly known as the buyout. It lives today as a voluntary program under CWT. If we wanted to have a rather rapid effect on 

the price of milk and give at least some group of farmers some dignity in exiting of their choosing, we might consider dusting off that 

set of regulations and doing another buyout program. Now that 

conversation could unfold in a much longer discussion, and, if you 

would like to talk about it further, I would be happy to do so. 

26 

I look forward to your questions later or at any other time in the 

future. Thank you. 

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

74 in the appendix.] 

Senator GILLIBRAND. Thank you, Doctor. 

Bob Wellington. 

STATEMENT OF BOB WELLINGTON, CHIEF ECONOMIST, AGRIMARK 

Mr. WELLINGTON. Thank you for this opportunity to appear before you. 

My name is Bob Wellington. I am the Economist for Agri-Mark 

dairy co-op. Agri-Mark is a co-op that just markets milk here in the 

Northeast. We have about 1,250 dairy farmer members. Our members milk, on average, about 100 cows, so our average is not very 

large. We do have all size members. However, our largest member 

is still smaller than the average size member in California. 

And, I cannot miss the opportunity to say that I have been to 

many farms in California. The type of farming they have, if those 

are cows are happy, then they must be eating what other people 

are smoking out there. It is a different type of agriculture. 

[Laughter.] 

Mr. WELLINGTON. Our farmers, our biggest block of farmers is 

here in New York, and we own four plants because we are trying 

to get closer to consumers. Three of those plants were closing by 

their owners, and so we ended up buying them. The farmers in our 

co-op bought them, and we operate them. 

We turned one of them into a business called Cabot Cheese, that 

has won the world cheese championship twice in the last 10 years. 

The other one was the most recent up at McCadam Cheese in 

Chateaugay, New York. We are pleased to say that was struggling 

because of their quality when we bought them, and last year they 

won the award for the best cheese in the U.S. So farmers have 

been able to turn around these things quite well. 

I just want to go over a couple quick points. I believe that the 

problems and the legislative responses we should be looking at 

should be looked at two levels. The first is the fundamentals of 

supply and demand that affect price. The second is the pricing 

structure itself that determines prices paid to farmers. 

Small differences in supply and demand can result in large differences in prices. A general rule of thumb that I have used is that 

a 2 percent discrepancy in supply and demand balance often leads 

to a 20 percent change in price. This has worked to both moving 

milk prices up and down. While there is no documentation that 

this 10–fold price increase still applies at larger imbalance levels, 

that certainly appears to be the case when growing international 

demand for U.S. dairy products drove farm prices above $20 per 

hundredweight in 2007 and then declining demand and small supply increases collapsed prices below $12 in 2009. 

Most dairy farmers have the freedom to choose how many cows 

they wish to milk and how much milk they wish to produce. Unlike 

in other commodities, dairy farmers in most areas, such as the 

Northeast, have rarely been hampered by the need to find a market if they planned on expanding. Federal orders and cooperative 

27 

marketing have played a role in these freedoms. However, because 

farmers have not taken into consideration demand for their production, they pay a bitter price of severe price volatility and a depressed income when more milk is produced than demanded at acceptable price levels. 

Most farmers recognize this problem but are very independent 

dairymen and do not like others restricting their farm business decisions. What many do not recognize is that the lack of any production discipline likely created more price-related restrictions on their 

business than anything else. 

When there is too much milk in the marketplace relative to demand, the market needs to send a low price signal to lower supply. 

Unfortunately, the farmers’ reaction to lower prices is if the price 

goes down, they make more milk to keep up their cash-flow; if the 

price goes up, they make more milk because they try to get more 

profit and return back to their farm. So they are in Catch–22. We 

need to send the right signals back to farmers. 

In terms of the price support program, that has been operating 

since 1949. Those prices actually peaked in 1980 to over $13. Currently, they are less than $10—so, an older program that has been 

going downhill. 

I usually describe the price support program as a safety net lying 

untethered on a concrete floor. If the price hits that level, the damage done to farm operations is usually extreme. Efforts by many 

legislators, including our own Northeast Senators, to urge Secretary Vilsack to temporarily raise support prices for cheese and 

powder were needed and greatly appreciated. 

We also support the amendment to the Senate Ag Committee 

that would give USDA an additional $350 million. It is important 

that USDA use these funds to actually purchase dairy products, to 

increase demand and lessen the burden of high inventories built up 

early this year. 

It was a great disappointment to see the market price for cheese 

fall below the support price for much of the year, yet not a pound 

of product was sold to the CCC. I believe that the support price 

was used by many in the industry as a benchmark to set the market price, not as an alternative outlet for milk supplies. 

Had the cheese price been 20 or 30 cents higher throughout the 

year, I estimate that little, if any, cheese would still have been 

bought by the government. With food banks and other low income 

feeding programs clamoring for product donations, CCC cheese purchasers would have found a welcome home and would not be 

around to further aggravate supply and demand imbalances today. 

We do believe there need to be changes in the Federal order system, but we also believe that that system is really more of a messenger of the problem. But there are some other changes that need 

to be made, and I would be happy to talk to you about them in the 

question period or beyond this meeting. Thank you. 

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

89 in the appendix.] 

Senator GILLIBRAND. Thank you, Bob. 

Kim Pickard-Dudley. 

28 

STATEMENT OF KIM PICKARD-DUDLEY, CHIEF DAIRY 

ECONOMIST, UPSTATE NIAGARA CO-OP 

Ms. PICKARD-DUDLEY. Good afternoon and thank you for giving 

me the opportunity to testify today on behalf of Upstate Niagara 

and for your steadfast work in support of our dairy industry, especially through these difficult times. 

My name is Kim Pickard Dudley, and I am Chief Dairy Economist of Upstate Niagara Dairy Cooperative. We are made up of 400 

dairy farm families. We market about a billion and a half pounds 

of milk annually, and we also own and operate four dairy plants 

in Western New York and employ about a thousand people in 

Rochester, Buffalo and Batavia. 

In my role as Chief Dairy Economist, I have direct access, direct 

responsibilities and direct involvement with our dairy farmer members, with our commercial operations and sales staff as well as 

with our commercial customers. I interact with all these stakeholders on any and all issues relating to milk pricing, including 

price forecast and risk management strategies. 

My full testimony is set forth in my written testimony. In my 

oral remarks, I will focus on actions that the Senate can take to 

improve the U.S. dairy industry, discussing primarily changes in 

the Federal Milk Marketing Order system which I will refer to as 

the Federal Orders. 

Since Upstate Niagara is owned by dairy farmers who operate 

plants, we are well suited to seek real-world solutions for all stakeholders in the dairy industry, from dairy farm families to processors to retailers to consumers. 

We strongly believe that while there are some changes that need 

to occur in the Federal Orders, it is essential not to overlook the 

many benefits that the orders provide to all dairy industry stakeholder. Federal Orders provide a regulatory framework in which 

the industry has functioned for decades while serving consumers 

with a broad array of delicious, wholesome and safe dairy products. 

Federal Orders help to maintain a system of orderly marketing by 

establishing minimum prices that processors pay and blend prices 

that farmers receive for their milk. 

Right now, the dairy industry is in crisis. That is why we are 

here. However, it would be wrong to assign the blame for the current dairy prices to the Federal Orders. Rather, this crisis is the 

result of the greatest financial and economic collapse since the 

Great Depression which, in turn, led to a collapse in dairy demand 

for our products both here and abroad. 

The dreadfully low milk prices announced by the Federal Orders 

have been the messenger of this bad news. So we should not kill 

the messenger when in fact the grim message behind the terribly 

low milk prices spells out this stark reality: Demand for dairy products has collapsed, and, therefore, painful reductions in the supply 

of milk must occur. 

We do, however, have suggestions for how the messenger can 

more appropriately deliver the message so that farmers, processors, 

retailers and consumers are not whipsawed every time a change in 

market conditions occurs. Our suggestions deal with improving 

price discovery. 

29 

We believe that the core of the price discovery problem is this: 

On the CME, only a scant amount of product is bought and sold 

by a scant number of buyers and sellers. This very small, seemingly insignificant sample has huge economic significance because 

it is the basis of all Federal Order pricing. In other words, it is a 

small quantity of milk that is used to set pricing that all federally 

regulated processors pay and that all dairy farmers ultimately receive for their milk. 

What we see therefore as being a solution to this pricing structure dilemma is to find ways to use a broader basket of price discovery tools that are more reflective of the current and future supply/demand situation to be the basis of the price that processors 

pay and dairy farmers receive for their milk. 

For example, we could use additional products in the pricing formula such as mozzarella cheese. We should use additional markets 

in the formula such as futures markets. We should use actual 

prices paid for dairy products such as in pricing surveys. And, last, 

we should use gauges of input costs in the pricing formulas, by 

using such indices such as CPI and others that track certain costs 

such as corn and energy. 

Such a basket of price discovery tools has several benefits: 

First, by using a variety of price discovery tools from a variety 

of sources—cash and futures markets, pricing surveys and indices—you inherently improve the integrity of the marketplace by, 

one, adding liquidity to the market and, two, smoothing out random, extreme and perhaps unwarranted price fluctuations. 

Second, by using a variety of price discovery tools, it allows the 

industry to learn the advantages and disadvantages of each factor 

gradually. The benefit of this gradual learning curve in developing 

price discovery tools is best seen from the unintended adverse consequences that have developed since the last major change to price 

discovery 10 years ago. 

At that time, the Federal Orders started using a system called 

end product pricing to determine minimum prices. The USDA’s decision was based on much learned testimony from experienced 

dairy economists. Nevertheless, real-world experience has revealed 

a number of harmful drawbacks to producers and processors as a 

result of end product pricing. 

I spell this all out in detail in my written testimony, namely the 

problem of make allowances, but, suffice it to say, this system is 

causing huge problems for both processors in recovering real costs 

from the marketplace as well as blatant unfairness to producers. 

To summarize, and I know I am out of time, it is my view that 

a necessary first step in reforming the pricing structure of the Federal Orders is to fix the flawed system of price discovery. This system has created huge problems for processors, blatant unfairness 

to producers and has fostered extreme price volatility—$20 milk 1 

day and $10 milk the next is unhealthy and destructive for dairymen, processors, retailers and consumers alike. 

I would be glad to answer questions. 

[The prepared statement of Ms. Pickard-Dudley can be found on 

page 83 in the appendix.] 

Senator GILLIBRAND. Thank you all for your testimony. 

30 

I would like to start with you, Dr. Pickard-Dudley. One thing you 

said struck me. You said that the current crisis is due to the economic collapse. But if we are getting paid $12 a hundredweight, 

that just does not seem consistent with the volatility we have seen 

over the last 25 years. Just to note that this is the price volatility, we have had $12 a 

hundredweight of milk on and off since the eighties, the last of 

which was being in the 2005–2006 cycle it got down to about $12 

a hundredweight. 

Ms. PICKARD-DUDLEY. Right. 

Senator GILLIBRAND. That is so soon to see it go from $12 to $24 

in a very short time. 

I guess my question is everyone always says it is supply and demand. Are we taking on so many cows so quickly that we are very 

much ratcheting up production so that demand cannot keep up or 

is something at work? It does not seem that this kind of volatility 

could be possibly caused by supply and demand. 

Ms. PICKARD-DUDLEY. The reason that prices rose so rapidly and 

have fallen off so rapidly, is that we have just experienced backto-back years of extreme situations. In 2007, we rode on the tails 

of emerging markets, and the export business of the United States 

grew from about 4 to 5 percent of the total U.S. milk supply to 11 

percent. Now that is a lot. 

In 2007, the world could not produce enough dry milk powder to 

serve the world, and so what happens in that regard is that milk 

prices respond. They get very, very high to attract, to send signals 

to producers to produce. There was literally not enough milk powder to serve the world. So that was one very extreme situation, and 

that is just part of the story. 

Just as dairy farmers responded across the world to this price 

signal, just like this, the rug was ripped out from under them when 

we had the financial collapse, the economic collapse, in the same 

way that oil prices went from $147 a barrel to $34 a barrel over 

dinner. 

Senator GILLIBRAND. Right, but there has been so much testimony developed over the last 2 years that supply and demand in 

fact was not the cause of those wild swings in oil, that manipulation and speculation had some role. 

So the reason why I question that testimony is because we have the same fluctuation from $19 a hundredweight in February, 2004, 

through July, 2005, and then back down to $12 by December, 2006. 

So that is not the collapse. Was there a great shortage of milk at 

the end of February, 2004? 

Ms. PICKARD-DUDLEY. There are so many factors that impact this 

business and yield price volatility. There is a huge seasonal variation in milk production patterns. There is also a huge seasonal 

variation in when consumers buy products, right? For example, 

when kids go back to school, we see a huge influx of demand. 

So you have these forces really working in the opposite way. 

When producers make less milk, it is demanded more. And so, that 

is a part of the story. 

But also, there is another part of the story, and that is, in the 

year 2000, when we went through this Federal Orders reform process, we changed the system from what was then a competitive pay 

31 

price system called what used to be the MW and then the BFP, the 

Basic Formula Price. In 2000, we switched over to a system called 

‘‘end product pricing,’’ which I have laid out in much greater detail 

in my written testimony. 

From the time that we switched over to that system, certainly, 

the markets have been more volatile simply because of the way 

that the pricing formulas work. 

Senator GILLIBRAND. Thank you. 

Congressman would you like to ask some questions? 

Mr. LEE. Sure. Thank you. 

It has been very enlightening, and I appreciate again your coming in here today and trying to educate us on a few of the ideas 

that you had. 

If I can start first briefly with Andrew. I know you had said you 

outlined it in your testimony, but I have not had a chance to read 

it. I was curious on the MILC program, in terms of you said you 

had some ideas. I am just curious because I want to get to one 

other question, but if you give me one or two of the major ideas, 

if it is anything like indexing to inflation or whatever, that would 

help ensure that we do not have this same stagnant formula. 

Mr. NOVAKOVIC. There are several things that potentially could 

be useful, that are sort of technical details, but let me focus on a 

couple of key items. 

One is the fundamental concept of the MILC program is to pick 

some trigger price that somehow represents something good and 

compare it to what you really have and try to make up the difference. For various historical reasons, we have picked a certain 

trigger, and we have taken a percentage of the distance between 

actual and that trigger. 

Personally, I think it would be more transparent, easier for farmers to understand, and operationally more successful to modify that 

somewhat. Instead of using our current trigger, which is based on 

a portion of the market in one part of the Country, to look at the 

U.S. average all-milk price as our trigger and figure out an appropriate level at which to trigger those payments, at which point you 

can talk about 100 percent payment difference between the gap as 

opposed to some percentage. 

I also think that it might be helpful, particularly realizing there 

is just only so much money to spend, to think about a graduated 

scale of payments. So maybe if the distance between the trigger 

and the actual is relatively small, you do not have full restitution. 

But, at some point, you say we are going to completely make up 

the difference between the actual and the trigger so that as the gap 

becomes greater you help more. I think clearly that current percentage is feeling like we are falling short. 

Mr. LEE. Andrew, excuse me, I want to make sure with my time 

I have left. But, thank you, and I will go through the rest of the 

details you provided. 

I wanted to go over to Mr. Wellington because I liked his approach. I think you talked a little bit about it is an interesting market because the high degree of price elasticity. As you mentioned, 

a 2 percent fluctuation in supply can have a 20 percent change in 

price, and that is a difficult situation to deal with. 

32 

To your point, if we can somehow push demand up, we can get 

to a much better price point. I am curious. You were starting to 

mention a few ideas that you had. Is there anything else that you 

thought was of value that we should be hearing and to the audience? 

Mr. WELLINGTON. Well, I think that 2 percent rule is a horrible 

situation when the price is going down, but it is also a tremendous 

opportunity when the price is going up. It is the reason why farmers had prices exceeding $20 in 2007 and had one of their better 

years. 

And so, what we have to do is look at both supply and demand 

and try to drive demand any way we can. That is why farmers give 

money for promotion. 

On the other hand, farmers have to look at the supply and 

produce for the marketplace, and farmers are really good at increasing their production, from a cow, number of cows, whatever, 

and sometimes they are their own worst enemy because what they 

do for their farm, OK, that is good for their farm, is bad for the 

marketplace. That is why we have to try to coordinate that. 

So we are looking at saying, is there a way that we can send the 

right message to farmers? If it is 3 or 4 percent too much milk, why 

have that drop the price 96 percent? Why can we not say, that milk 

is worth less? 

So maybe you do not want to produce that milk if it is worth 

three or four dollars. Get rid of that in the marketplace and bring 

that supply and demand in balance again. 

So there are ways we are looking at trying to do that, but the 

biggest issue we have is farmers agreeing on what kind of program 

to do and getting a consensus because farmers are independentminded, as you guys know, and they do not like restrictions on 

their farms, which we all understand. But they have to start producing for the marketplace because, otherwise, they create their 

price imbalance. 

Mr. LEE. Thank you. 

Senator GILLIBRAND. Congressman Massa. 

Mr. MASSA. Thank you, Senator. 

Just very quickly, Mr. Norton, we have had a wonderful relationship. I literally flood your office with legislative questions. Is it 

true—and this gets back to a real pet peeve of mine, and it was 

brought up earlier—that the 15 cents per hundredweight advertising fee is in fact funding the California happy cow program here 

in New York? 

Mr. NORTON. Here in New York? 

Mr. MASSA. Yes. 

Mr. NORTON. The 15 cents is mandated. 

Mr. MASSA. Is that what funds those advertisements? 

Mr. NORTON. No, no. 

Mr. MASSA. I mean can we do the same thing, just out of curiosity? Let’s get some Steinbrenner cows over in California. 

It is a rhetorical question because I do not understand what we 

get in New York out of California cows. I mean I do not. Why? 

Mr. NORTON. Keep in mind that there are two promotions. There 

is a part of the money that goes nationally for everything, like Got 

Milk, milk mustaches, things like that. 

33 

Mr. MASSA. Right. 

Mr. NORTON. And then, there is part of the milk that stays local. 

OK. That California milk stays local. The California money that 

stays local is the happy cows. You see a little tag line. 

Mr. MASSA. Yes, but I do not see a lot of locality between Sacramento and Batavia. So that is where I am. 

Mr. NORTON. Well, we have some money in New York, in the 

Northeast, that stays local. 

Mr. MASSA. So let’s invade California. I mean that is my point. 

I am interested in regional things we can do, but that answers my 

question. 

Mr. NORTON. Well, keep in mind California also is the biggest 

dairy State in the Country. So they have the most money out of 

anybody too. 

Mr. MASSA. OK. 

Mr. NORTON. They need a way to spend it. 

Mr. MASSA. That is a good point. 

Bob, if I could have a follow-up question with you, sir, so you talk 

a lot about supply and demand. Would I be correct to open and reexamine—and I will not ask the question in a way that taints my 

opinion—would I be correct to open and examine the incredible, obnoxious, negative, counterproductive program that we have now to 

flood our schools with Coca-Cola and soft drink products? 

Mr. WELLINGTON. I think they are addressing some of that now. 

Mr. MASSA. Again, I do not want to flood my personal opinion on 

it. 

[Laughter.] 

Mr. WELLINGTON. I saw that, but I am just saying that I think 

we are starting to address that. OK? 

But I would caution you on one thing with the California milk 

standards. We support that at my co-op. OK? But when you add 

those extra solids, you are also adding lactose, no sugar. 

Mr. MASSA. No. I understand that. 

Mr. WELLINGTON. I am just saying, there are a lot of different 

pros and cons, but we would support that effort. 

Mr. MASSA. Bob, I would rather have a fight between different 

kinds of milk rather than a fight between milk and Sprite. And, I 

do not mean to single out products, but when I go to a high school 

and I realize that high school students are drinking three, four, 

five sodas a day because there is an agreement between soft drink 

distributors and manufacturers in funding school boards, I find 

that to be hideously counterproductive to our national health 

standards. 

So I would rather have a fight about what kind of milk we are 

supplying in schools. 

Mr. WELLINGTON. There is a problem in New York City that you 

guys should be aware of, and that is New York City has started 

taking out any of the whole milk or 2 percent milk. So they all 

want to do is leave the skim milk, the blue milk. OK? And, you can 

say, well, that is good, it is healthy for them, but a lot of students 

do not drink it. 

Mr. MASSA. No one has died from drinking 2 percent milk. 

Mr. WELLINGTON. That is what I am saying. So I mean we have 

issues ourselves, even locally, on how to try to address that. 

34 

Mr. MASSA. Last question, Doctor, you are probably very erudite 

in this. But I have listened all day to experts who know a lot more 

about this than I do, and I opened my remarks by saying, gee, is 

it not odd that something went wrong in New Zealand and now all 

of the dairy farms in my congressional district are getting ready to 

go under? 

I have not heard anyone tell me what I can do to stick it to our 

international competitors. I am sorry. I am just a plain-spoken 

Navy guy. I do not have a Ph.D. in economics. I spent my whole 

life going to war in the United States Military. I kind of frame 

things that way. 

And, I am a little bit concerned that everything we come up with 

is a form of self-flagellation, and we are not going after our foreign 

competitors. So here is an idea I would like you to tell me about. 

I was asked to sign off on God only knows how much money. 

Chris keeps track of these things because he holds me accountable 

for everything we spend. It was about a, who knows, $500 billion 

foreign aid bill where we give stuff away all over the world. What 

I come to find out is some of that U.S. foreign aid buys foreign food 

to be delivered as emergency aid in foreign ships to foreign countries. 

Why should we not create a law that says every dollar of emergency U.S. foreign food aid has to come out of a U.S. farm and why 

can we not do that? Is that a bad idea or a good idea? 

Ms. PICKARD-DUDLEY. It sounds like a great idea to me. 

Mr. MASSA. All right. Everybody here in concurrence? 

[Applause.] 

Ms. PICKARD-DUDLEY. If I may—— 

Mr. MASSA. Doctor, here is the problem. I cannot ship whole milk 

to India or to some other country that needs it badly. What I need 

is some help about what we can ship, and that comes back to you 

need to come tell me, or you all do, what do we do to incentivize 

the creation of milk concentrate plants here in the United States. 

Ms. PICKARD-DUDLEY. I am so glad that you asked. Actually, I 

do have about a paragraph and a half in my testimony that I was 

hoping to get to. 

USDA needs—desperately needs—to resolve the Federal Orders 

product classification issue that has been tied up in the hearing 

process now for about 5 years. We need a decision out of the USDA 

that will encourage the production of dairy proteins, the domestic 

production of dairy protein ingredients such as MPCs. 

We see tremendous opportunity in all sorts of dairy-source protein ingredients that are lower in carbs and calories, and we would 

like to see the production of those protein ingredients be produced 

right here in our own borders, so that dairy farmers right here in 

the United States of American can benefit, and not foreign dairy 

farmers. 

Mr. MASSA. Doctor, if I could just ask because this is where the 

rubber hits the road—a lot of erudite things we have to do. I would 

like you to draft a letter that I will sign, and I think I can find 

other people to help, and we will sign it out to the head of the 

USDA, to a little building on Pennsylvania Avenue called the 

White House and wherever else we have to go to force that action 

to happen quickly, if you think that that will help the situation. 

35 

Ms. PICKARD-DUDLEY. Yes. I will absolutely do that. 

Mr. MASSA. Good. OK. 

Ms. PICKARD-DUDLEY. Also, as it relates to this aim issue of domestic MPC production there has been a capital expansion project 

at the O-AT-KA Milk Products plant right here in Batavia, New 

York, that has been on hold since 2005, awaiting a decision out of 

USDA. 

Mr. MASSA. OK, so the call for action. I do not know if I can 

speak for the Senator and Chris on this, but I struggle at hearings 

with, all right, give me the action that I want. 

You know you put 200 dairymen in a room, you get 250 opinions. 

And, if you stay for 3 hours, you have a civil war. 

So what I want is tell me my homework, and I will take a bite 

of the apple, and we will do it. So thank you very much, and we 

will make it happen. 

I yield back my balance, Senator. 

Senator GILLIBRAND. Thank you. 

Thank you so much for your testimony. Thank you for your expertise. Thank you to our audience for your participation as well. 

And, again, anyone who wants to submit their own testimony, 

you have 5 days to do so, and my staff is around the room. This 

is Cheyenne Roy. Please stand up, Cheyenne. He is our agriculture 

specialist in our Senate office. Please speak to him directly before 

the end of the day. 

Thank you so much. 

Hearing adjourned. 

[Whereupon, at 3:45 p.m., the Committee was adjourned.] 

(37) 

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