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HEARING TO REVIEW DAIRY POLICY

HEARING

BEFORE THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

SECOND SESSION

APRIL 20, 2010, HARRISBURG, PA

Serial No. 111–47

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

STEVE KAGEN, Wisconsin 

KURT SCHRADER, Oregon 

DEBORAH L. HALVORSON, Illinois 

KATHLEEN A. DAHLKEMPER, 

Pennsylvania 

BOBBY BRIGHT, Alabama 

BETSY MARKEY, Colorado 

FRANK KRATOVIL, JR., Maryland 

MARK H. SCHAUER, Michigan 

LARRY KISSELL, North Carolina 

JOHN A. BOCCIERI, Ohio 

SCOTT MURPHY, New York 

EARL POMEROY, North Dakota 

TRAVIS W. CHILDERS, Mississippi 

WALT MINNICK, Idaho 

———

FRANK D. LUCAS, Oklahoma, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

JERRY MORAN, Kansas 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

DAVID P. ROE, Tennessee 

BLAINE LUETKEMEYER, Missouri 

GLENN THOMPSON, Pennsylvania 

BILL CASSIDY, Louisiana 

CYNTHIA M. LUMMIS, Wyoming 

———

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

APRIL SLAYTON, Communications Director 

NICOLE SCOTT, Minority Staff Director 

(II) 

(III)

C O N T E N T S 

Page 

Holden, Hon. Tim, a Representative in Congress from Pennsylvania, opening 

statement .............................................................................................................. 3

Prepared statement .......................................................................................... 3

Neugebauer, Hon. Randy, a Representative in Congress from Texas, opening 

statement .............................................................................................................. 4

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 1

Prepared statement .......................................................................................... 2

WITNESSES

Redding, Hon. Russell C., Secretary, Pennsylvania Department of Agriculture, 

Harrisburg, PA ..................................................................................................... 5

Prepared statement .......................................................................................... 8

Dunn, Ph.D., James W., Professor of Agricultural Economics, Pennsylvania 

State University, University Park, PA ............................................................... 12

Prepared statement .......................................................................................... 13

Frey, John, Executive Director, Center for Dairy Excellence, Harrisburg, PA .. 28

Prepared statement .......................................................................................... 30

Hissong, Rod, Co-Owner, Mercer Vu Farms Inc.; Past President, Professional 

Dairy Managers of Pennsylvania, Mercersburg, PA ......................................... 33

Prepared statement .......................................................................................... 35

Mosemann, Lauren, Dairy Producer, Misty Mountain Dairy LLC, 

Warfordsburg, PA; on behalf of Maryland & Virginia Milk Producers Cooperative Association, Inc.; National Milk Producers Federation ........................ 38

Prepared statement .......................................................................................... 40

Supplemental material ..................................................................................... 84

Heffner, Kent, President, Schuylkill/Carbon County Farm Bureau; Dairy Producer, Pine Grove, PA .......................................................................................... 47

Prepared statement .......................................................................................... 49

Brandt, Daniel, Vice Chair, Charter Board, Dairy Policy Action Coalition; 

Partner, Brandt View Farms, Annville, PA ....................................................... 51

Prepared statement .......................................................................................... 53

Rutter, Todd M., President, Rutter’s Dairy, York, PA .......................................... 55

Prepared statement .......................................................................................... 57

SUBMITTED MATERIAL

Carlin, Gerald, Dairy Farmer, Meshoppen, PA, submitted statement ............... 71

Gotham, Bryan, Dairy Farmer, St. Lawrence County, NY, submitted material 75

Moyer, Ralph E., Dairy Producer, Myerstown, PA, submitted statement .......... 83

Tewksbury, Arden, Manager, Progressive Agriculture Organization, submitted 

statement .............................................................................................................. 76

(1)

HEARING TO REVIEW DAIRY POLICY 

TUESDAY, APRIL 20, 2010

HOUSE OF REPRESENTATIVES, COMMITTEE ON AGRICULTURE, Harrisburg, PA. 

The Committee met, pursuant to call, at 9:26 a.m., at the Farm 

Show Complex and Expo Center, 2300 North Cameron Street, VIP 

Room, Harrisburg, Pennsylvania, Hon. Collin C. Peterson [Chairman of the Committee] presiding. 

Members present: Representatives Peterson, Holden, Boswell, 

Scott, Dahlkemper, Neugebauer, and Thompson. 

Staff present: Mary Knigge, Dean Goeldner, Nona Darrell, 

Alejandra Gonzalez-Arias, April Slayton, John Konya, Debbie 

Smith, John Goldberg, and Sangina Wright. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

The CHAIRMAN. Welcome to today’s hearing of the House Agriculture Committee and we are happy to be here in central Pennsylvania, the home of our esteemed Vice Chairman of the Committee, 

one of our outstanding Members who has been a great ally of mine 

and a great help to the Committee bringing his expertise and the 

views of people from this area to the Agriculture Committee. We 

are here to talk about the future of dairy policy because I know 

that this issue is very important to this state and the people of this 

community. 

The crisis that dairy farmers continue to face is an ongoing concern of the Members of the Agriculture Committee and other Members of Congress who represent dairy-producing areas. Last year in 

July, we held a series of three hearings to address the economic 

conditions facing the dairy industry and the message we received 

was loud and clear that the current present dairy programs are not 

providing an adequate safety net for dairy farmers. 

Between 2003 and 2007 the price of milk has fluctuated from a low of $11 to as high as $20 per hundredweight. Something needs 

to change in order to prevent this roller coaster ride that farmers 

face on a regular basis, and we have been through this a little bit, 

but this last year was the worst I have ever seen, and it is just 

not tolerable. We are still not out of all of the effects that happened 

because of what happened last year. 

To complicate matters, less than one percent of Americans today 

are involved in the production of agriculture and few of our friends 

in the cities and suburbs understand what a critical piece of the 

economy the dairy industry represents. Most Americans do not unVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
2

derstand the volatility, the long hours and the many challenges 

faced by dairy farmers. The challenges facing the dairy industry 

are longstanding and solving these problems is not going to be 

easy. As long as I have been in Congress, I have studied the dairy 

industry and I guess I know enough now to be dangerous. It is 

complicated. It is regional and the situation we are facing has been 

made worse by trade agreements that have tied our hands, and in 

some cases, preventing us from doing what is best for our dairy 

producers. 

We recognize that the need to have an effective dairy safety net 

to prevent the kind of crisis we are seeing. I have asked all the 

stakeholders to come together and start a long-term list to the current programs that could be included in the next farm bill to provide better support for this essential industry. Today I hope our 

witnesses will help us continue the conversation about the reality 

facing the industry right now and what we can do to fix things. I 

want to thank all of you for joining us today to talk about this important issue. I look forward to your testimony. 

[The prepared statement of Mr. Peterson follows:]

PREPARED STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN

CONGRESS FROM MINNESOTA

Good morning and welcome to today’s hearing of the House Agriculture Committee. We are happy to be here in central Pennsylvania to talk about the future 

of dairy policy because I know that this is an issue that is very important to this 

state and the people of this community. 

The crisis that dairy farmers continue to face is an ongoing concern for Members 

of the House Agriculture Committee and other Members of Congress who represent 

dairy producing areas. Last year in July, we held a series of three hearings to address the economic conditions facing the dairy industry, and the message we received was loud and clear—the current Federal dairy programs are not providing 

an adequate safety net for dairy farmers. 

Between 2003 and 2007, the price of milk has fluctuated from as low as $11 and 

as high as $20 per hundredweight. Something needs to change in order to prevent 

this roller coaster ride that farmers face on a regular basis. 

Complicating matters, less than one percent of Americans today are involved in 

production agriculture, and few of our friends in the cities and suburbs understand 

what a critical piece of the economy the dairy industry represents. Most Americans 

do not understand the volatility, the long hours and the many challenges faced by 

dairy farmers. 

The challenges facing the dairy industry are long standing, and solving these 

problems is not easy. As long as I have been in Congress, I have been studying the 

dairy industry. It is complicated and very regional, and the situation we’re facing 

has been made worse by trade agreements that have tied our hands and, in some 

cases, are preventing us from doing what is best for our dairy producers. 

Recognizing the need to have an effective dairy safety net to prevent the kind of 

crisis we’re seeing, I have asked all of the stakeholders to come together and start 

looking for alternatives to the current programs that could be included in the next 

farm bill to provide better support for this essential industry. 

Today, I hope our witnesses will help us continue the conversation about the reality facing the dairy industry right now and what we can do to fix things. Thank 

you all for joining us today to talk about this important issue, and I look forward 

to the testimony.

The CHAIRMAN. I would like to recognize the Vice Chairman for 

an opening statement. I will recognize, as well, Mr. Neugebauer 

and the others will have their statements made a part of the 

record. 

3

OPENING STATEMENT OF HON. TIM HOLDEN, A 

REPRESENTATIVE IN CONGRESS FROM PENNSYLVANIA 

Mr. HOLDEN. Thank you, Mr. Chairman, for your leadership and 

then thank you for having this hearing here in Harrisburg, Pennsylvania. To all of my colleagues on the Committee thank you so 

much for your participation today. 

We are here today because we are committed to a strong and 

prosperous future for the dairy industry. This hearing presents an 

opportunity for Members of the Committee to gain a better understanding of the state of the dairy industry in Pennsylvania and 

across the Northeast. In 2009, Pennsylvania ranked fifth in the nation in total milk production behind only California, Wisconsin, 

New York, and Idaho. Agriculture is our number one industry and 

dairy is the top economic driver contributing 42 percent of the agricultural receipts. It is estimated that nearly 85 percent of the dairy 

farm’s income is spent locally and recycles 2.5 times through the 

community. As a result, the dairy industry contributes more than 

$4.2 billion into the Pennsylvania economy. 

Additionally, the area generates over 40,000 jobs across the Commonwealth. Despite its strength, 2009 also presented challenges for 

the industry. Record low milk prices decreased milk margins by 

more than 40 percent, causing the average farm to lose $1,000 per 

cow in equity during the year. The number of dairy farm operations in the state dropped more than five percent, while the number of cows dropped by nearly two percent. Taking steps to correct 

these challenges is critical not only for the future of our family 

farmer but for the entire Commonwealth of Pennsylvania. 

Today’s hearing will include testimony from witnesses representing a broad cross-section of the local dairy community who 

will provide information and perspective on issues of particular importance to Pennsylvania as we continue our look at the dairy policy for the next farm bill. Pennsylvania farmers deserve the strongest advocacy possible in Washington, and I am committed to working with Chairman Peterson and the other Members of this Committee to bring home the best deal possible to a family dairy farmer in Pennsylvania and across the nation. A Pennsylvania-based 

hearing is a great step toward assuring an even stronger Pennsylvania voice in this process. I look forward to today’s expert testimony and to the opportunity to listen, learn and question those at 

the forefront of this issue. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Holden follows:]

PREPARED STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM

PENNSYLVANIA

Thank you, Chairman Peterson. I’d like to welcome you and all my colleagues on 

the House Agriculture Committee to the Commonwealth of Pennsylvania. I would 

also like to thank our witnesses and guests for coming today. 

We are here today because we are committed to a strong and prosperous future 

for the dairy industry. This hearing presents an opportunity for Members of the 

Committee to gain a better understanding of the state of the dairy industry in Pennsylvania and across the Northeast. 

In 2009, Pennsylvania ranked 5th in the nation in total milk production, behind 

only California, Wisconsin, New York, and Idaho. Agriculture is our number one industry and dairy is the top economic driver contributing 42 percent of the agricultural receipts. It is estimated that nearly 85 percent of a dairy farm’s income is 

4

spent locally and recycles 2.5 times through the community. As a result, the dairy 

industry contributes more than $4.2 billion into the Pennsylvania economy. Additionally, dairy generates over 40,000 jobs across the Commonwealth. 

Despite its strengths, 2009 also presented challenges for the industry. Record low 

milk prices decreased milk margins by more than 40 percent causing the average 

farm to lose $1,000 per cow in equity during the year. The number of dairy farm 

operations in the state dropped more than five percent while the number of cows 

dropped by nearly two percent. 

Taking steps to correct for these challenges is critical not only for the future of 

our family farmer but for the entire Commonwealth of Pennsylvania. Today’s hearing will include testimony from witnesses representing a broad cross section of the 

local dairy community who will provide information and perspective on issues of 

particular importance to Pennsylvania as we continue our look at dairy policy for 

the next farm bill. 

Pennsylvania farmers deserve the strongest advocacy possible in Washington. I 

am committed to working hard with Chairman Peterson to bring home the best deal 

possible for family dairy farmers in PA and across the nation. A Pennsylvania-based 

hearing is a great step toward assuring an even stronger Pennsylvania voice in this 

process. I look forward to today’s expert testimony and the opportunity to listen, 

learn and question those on the forefront of this issue.

The CHAIRMAN. I thank the gentleman and I want to recognize, 

we have Mr. David Scott from Georgia with us, who is the Chairman of the Subcommittee that deals with livestock and dairy, and 

Mr. Scott has been gracious to allow Mr. Holden to make an opening statement and we appreciate his leadership and being with us 

today. I now recognize the Ranking Member of the Livestock, 

Dairy, and Poultry Subcommittee, Mr. Neugebauer, for a statement. 

OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A 

REPRESENTATIVE IN CONGRESS FROM TEXAS 

Mr. NEUGEBAUER. Well, thank you, Mr. Chairman. I am Randy 

Neugebauer from the great State of Texas. It is great to be here 

in Pennsylvania. We want to thank Representatives Holden, 

Thompson, and Dahlkemper for hosting us. It is good to be here 

and thanks for all of your great hospitality. 

Mr. Chairman, the dairy industry has faced an enormous challenge over the last 18 months. While the industry has had past experiences with price swings, this particular downturn has been exacerbated by an unusual spike in feed prices that have negatively 

affected the margin of dairymen. It has become clear to me from 

talking with dairy producers from my district in the panhandle of 

Texas that existing Federal dairy policies do not adequately empower producers to manage the increasing volatility that threatens 

their survival. 

While it is difficult in these circumstances to talk about the upside, I do believe that the current situation we find ourselves in 

represents the best opportunity in many years to bring an industry 

plagued with internal divisions together behind a new comprehensive policy approach. I am aware that numerous groups have developed internal approaches to attacking these problems, and I am 

thankful for all their hard work that they have already done. 

As we begin today the process of developing the next farm bill, 

I don’t expect at this stage that any proposal will have all the i’s 

dotted and the t’s crossed, but I would like to hear from the individuals and organizations regarding the process that they are undertaking and the direction that they are heading. Dairy policy in 

our country has long suffered from a band-aid approach and each 

5

time Congress has tackled this issue the end product is simply to 

be added onto the new measures that in many cases are contradictory to the programs that are already in place. I think and I hope 

that we can all come together and we can do better for this industry. 

I look forward to hearing what producers in Pennsylvania have 

to say about the future direction of our national dairy policy. I am 

confident that their contribution will greatly inform our coming debate. 

Thank you, Mr. Chairman, and thank you to all the producers 

who have taken their time to participate in this process today. 

The CHAIRMAN. I thank the gentleman. The chair would request 

that other Members submit their opening statements for the record 

so that the witnesses may begin their testimony and make sure 

that we have ample time for questions. 

So we will call up this panel. First we have the Honorable Russell Redding, the Secretary of the Pennsylvania Department of Agriculture. Mr. Secretary, welcome to the Committee, and Jim Dunn, 

Ph.D., Professor of Agricultural Economics at Penn State University, welcome gentlemen. We appreciate your being with us today 

and look forward to your testimony and your full statements will 

be made part of the record. Feel free to summarize and we are on 

the 5 minute rule, I guess. Oh, Mr. Secretary, I understand you 

have as much time as you want so you talk at your peril. 

Mr. REDDING. I will still try to honor the 5 minutes. 

STATEMENT OF HON. RUSSELL C. REDDING, SECRETARY, 

PENNSYLVANIA DEPARTMENT OF AGRICULTURE,

HARRISBURG, PA 

Mr. REDDING. Mr. Chairman, Vice Chairman and distinguished 

Members of the Committee, welcome to Pennsylvania and thank 

you very much for coming to PA. 

The CHAIRMAN. I think you need to get the microphone a little 

closer. You may have to raise it. 

Mr. REDDING. Okay, got it. Thank you for coming to Pennsylvania to talk about the dairy industry. We are very proud to have 

three Members on your Committee from Pennsylvania, Congresswoman Dahlkemper, Congressman Thompson and of course the 

Vice Chairman. I am very pleased to have all of you here today. 

I also want to say thank you to your staff. We have a lot of contact 

with them over time on a lot of different issues and many of them 

are here today. I just want to thank you for the excellent work that 

the Committee and the staff do. 

On behalf of the governor, welcome and it is a pleasure to have 

you here. I will certainly try to abbreviate the comments. You have 

the written testimony in front of you, but I just want to have a couple of opening statements and then get to some near term actions 

and some longer term actions that we would like to have some consideration on by the Committee. We appreciate your interest in the 

Committee and particularly this industry of dairy. We look forward 

to working with you and the Committee on both short- and longterm actions. 

We cannot allow this moment to pass without some aggressive 

action on dairy policy reform, pricing transparency, risk manageVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
6

ment tools, and adequate financing mechanisms. The industry cannot hit pause and wait for the next farm bill negotiations to actively address the dairy policy and price reform. We must use this 

time at hand to explore and experiment on some of the critical 

dairy issues, and then use these experiences to inform the debate 

for the next farm bill. 

I would be remiss if I didn’t mention clearly as we have talked 

about in the opening statements of the Committee that each time 

we do dairy policy we add onto that. Sometimes we forget to say 

thank you for what was done, and the recent farm bill is a good 

example. There was a lot of good work done by the Committee, the 

Senate, and Members of the delegation here so we thank you very 

much for that. Certainly, the reporting requirements, the feed adjustment factors, they are just a couple of examples and a thank 

you to Secretary Vilsack for the work that he is doing presently 

with the Dairy Industry Advisory Committee. I want to say thank 

you to him and the work that he is doing, as well. 

So these things combined are real time. They are making a real 

difference. Unfortunately, this economy is upside down financially, 

and is having a toll on the dairy industry and the rest of the agricultural economy, as well. But the actions you have taken as a 

Committee, both in terms of the appropriation for the Dairy Loss 

Assistance Program and also the farm bill and the work of the 

USDA, are encouraging to the farm families of Pennsylvania. It is 

a signal that you understand the issues and are trying and prepared to work with them so thank you for that. 

Today we face a crisis in our dairy industry, not just for price 

but of confidence. Confidence in the markets, confidence in the 

prices going back to our farmers, and confidence in our ability to 

continue to manage and have viable dairy operations. It is a confidence crisis and confidence in crisis for price, as well, but just a 

couple of things to focus in on. 

One is the issue of price discovery. We hear a lot about that. 

There was discussion in the last farm bill. I put that at the top of 

the list as one of the issues we have to address that really doesn’t 

take any additional authority of Congress. It simply takes the implementation of the 2008 Farm Bill provision. We have had discussions with Secretary Vilsack at the USDA. We think that is one of 

the most important items that can be done. Actually this could be 

done right now because you have to at some point address this 

issue of what triggers the price of milk. Right now, a very thinly 

traded Chicago Mercantile is really the primary indicator. We believe that there needs to be a more robust system of price discovery, so that is number one. 

Two, and probably the most important thing I will say today is 

really about creating a new outlook on income protection for farmers. Many, again, have worked for years, Mr. Chairman, in particular, the Vice Chairman on the issue of risk management and 

crop insurance. We believe with our lessons learned on the crop 

side of the business that I can borrow for the benefit of dairy. It 

is the only major commodity where there is not a workable, meaningful, affordable crop insurance equivalent for the industry. We 

think the time is right, given what we have learned over the years 

with the crop insurance, is that if you have a meaningful and afVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00010 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
7

fordable and workable product, producers will participate. So I put 

that on the table as one of those important items today. As we look 

at the future of the dairy industry and all the complications of finding some way for balancing supply and demand and regions, et 

cetera, this is the one thing that is a common denominator from the 

Susquehanna Valley to the San Joaquin Valley is that you have to 

be able to manage the margin right and insure that margin. The 

Livestock Gross Margin product that we have worked with the private developer producer and the USDA on, we think holds great 

potential. It is called LGM Dairy and as the name implies, it is 

really about insuring that margin so we think that is one item 

that, again, is an actual item for the Committee to consider. I believe we can look at both the LGM Dairy and maybe there are 

other better options, but this one—we don’t say believe—but we 

hope that the next year or 2 we can use this time to really explore 

and experiment with other risk management tools. 

On the LGM Dairy, just to note, there are a couple of things that 

we would appreciate the support of the Committee on. One is that 

there is no subsidy at this point for the LGM Dairy crop. It is 100 

percent of the producers’ cost and we all know that if that was the 

case on the crop side, how difficult it would be to sell those policies 

to producers. At this moment, it is not a subsidized product. It is 

an available product to the industry. We are seeing steady but slow 

growth in number of policies. The fundamentals are right. It really 

is about insuring that margin and that is what the product is designed to do, but there needs to be some subsidy on that. 

Second, we would appreciate flexibility in the use of the product, 

meaning at this point the sales closing dates are pretty narrow and 

we are requiring the producer to pay 100 percent of the premium 

up-front. It is all front-loaded, so you know how difficult it is when 

there aren’t many dollars available, so another one of those 

changes is what we suggest, as well. 

My final point would be just on the credit side. The other two 

recommendations are more dairy specific, but as a general comment, we believe that there are a lot of producers just given the 

collapse of the industry and the eroding price that they have been 

historically good investments for lenders, both Farm Credit and 

private sector. The challenge, of course, is what happens with equity, and the equity I have been told that in the last year that 

these folks have lost 3 years of equity. So given the loan status we 

would ask the Committee to take a look at the availability of credit, both in terms of the USDA’s Farm Service Agency. 

Just as an example, in the last year the Farm Service Agency in 

Pennsylvania has grown by $150 million, 65 percent of that is 

dairy. The concern, of course, is the credit quality and whether 

they are really in a position to continue to be viable borrowers for 

the future. We believe the credit discussion is really the bridge to 

the better year, right. If we can get this dairy turned in a way, it 

is still going to take some time to work out what the right policies 

are long-term, so we need the cooperation of the lenders to really 

work with us. We believe they want to work with us but we have 

been told that in this post-TARP environment, where the regulations are much more stringent in terms of how they have to handle 

particularly those loans that are termed troubled assets which are 

8

loans that were 90 days past due. So that is going to put them in 

a very awkward spot. Even if they want to work with the farm 

community, they may not be able to so that is one of those regulatory pieces that I would ask the Committee to take a look at. 

There is a good example in the testimony about a borrower from 

Lancaster County, Pennsylvania and the challenges that he has 

had, and the family has had, of building that business. A great operator and he is doing okay but the question remains, can they 

withstand some extended period of time. 

So there is much we could talk about and I will end where I 

began with a simple thank you to the Committee for the good work 

that has been done. For the full cooperation, the Committee should 

really try to explore and look in-depth at whether the policy is good 

for the dairy industry in Pennsylvania and America so, Mr. Chairman, thank you. 

[The prepared statement of Mr. Redding follows:]

PREPARED STATEMENT OF HON. RUSSELL C. REDDING, SECRETARY, PENNSYLVANIA

DEPARTMENT OF AGRICULTURE, HARRISBURG, PA 

Chairman Peterson, Vice Chairman Holden and distinguished Members of the 

Committee, welcome and thank you for inviting the Commonwealth of Pennsylvania 

to be part of this important hearing to explore potential actions to strengthen our 

dairy industry. 

On behalf of Governor Edward G. Rendell, it is my honor to testify before you 

today. The Governor has been a strong advocate in seeking new and innovative 

tools, programs and policies at the state and Federal level to help our state’s dairy 

industry address the current economic struggle as well the future of Pennsylvania 

agriculture’s largest sector. We appreciate your interest in the dairy industry, and 

we look forward to working with you and the Committee to find both short-term and 

long-term solutions to the current financial challenges that our dairy farms face. We 

can not allow this moment to pass without aggressive action on dairy policy reform, 

pricing transparency, risk management tools, and adequate financing mechanisms. 

The industry simply cannot hit pause and wait until the start of farm bill negotiations to actively address dairy policy and price reform. We must use the time at 

hand to explore and experiment on some of the critical dairy issues—and then use 

these experiences to inform the work that we do in the next farm bill. In addition 

to looking to the future, we must also utilize every ounce of authority available to 

us today to have a positive impact on the farmers’ margins since milk prices continue to erode. 

We are very appreciative of Congress for the Dairy Loss Assistance Program and 

the efforts of USDA Secretary Vilsack, including the creation of the Dairy Industry 

Advisory Committee, the purchase of dairy products for nutrition programs and the 

steps taken to increase the support price. All of these actions are helpful and have 

provided much-needed encouragement to our dairy farm families that we value their 

work and we are prepared to work together to find solutions. 

The last 12 to 18 months have caused considerable debate—and rightly so—about 

our existing U.S. dairy policy and to what extent it serves the needs of dairy farmers, milk processors and consumers. As painful as this period has been, it is important to not loose sight of what has happened to U.S. dairy production over the past 

30 years: production has risen from 129 billion pounds in 1980 to 189 billion pounds 

in 2008. We have also enjoyed increasing exports of dairy products during this same 

timeframe, reaching a peak in 2008 when 11.5% of our domestic product was 

shipped and marketed outside of the U.S. Looking forward, the United Nations Food 

and Agriculture Organization has called for a 100 percent increase in food production by the year 2050, prompting the U.S. Dairy Export Council to conclude that 

the U.S. will have a significant opportunity to continue growing exports to help 

meet the increased expectation for food worldwide. This is positive news, and should 

help shape a U.S. strategy for dairy that sees our industry as the source for growing 

demand, creating the opportunity for dairy farms to incorporate additional family 

members, welcome the next generation of producers back to profitable operations, 

and grow dairy-related businesses. 

Having stated the above, we know that this scenario does not occur simply because we wish it to. Today we face a crisis in our dairy industry not just of price, 

9

but of confidence—confidence in the market; confidence in the prices going back to 

our farmers; confidence in our ability to continue to manage viable dairy operations. 

The current systems used to discover prices, manage risk and protect farm income, 

and secure financing/bolster farm equity must be revisited before we can truly move 

past this crisis. 

Understanding that price discovery has an important place in smoothing the 

peaks and valleys impacting the dairy industry, Pennsylvania developed (in cooperation with dairy economists from the Land-Grant institutions in Pennsylvania, New 

York and Wisconsin) dairy policy recommendations in 2007 that we believe hold 

true today. There has been growing concern for some time that the amount of dairy 

product being bought and sold on the Chicago Mercantile Exchange (CME) is a very 

small sample in relationship to the overall quantity of milk products produced in 

the U.S. This ‘‘small sample’’ has huge economic implications for dairy farmers, as 

it effectively sets the price they receive for their milk. This is an issue that deserves 

immediate attention. 

We must improve the systems of price discovery; the dairy industry would benefit 

from a reliable and transparent method of price discovery for the commodities produced. Many individuals in the room today worked hard to get language in the 2008 

Farm Bill that mandates greater transparency. We need to have the reporting provision activated so we can have an informed discussion about the value of milk—

which is required before we can honestly redesign the milk pricing system. Presently, the CME market for cheese and butter is thinly traded and is the market of 

last resort for both buyers and sellers. Yet these are the transactions that send the 

signal to USDA’s National Agricultural Statistics Service (NASS) for prices of dairy 

products, which the Federal Milk Marketing Order system depends on for market 

prices of dairy commodities. The challenge in this system is that the NASS survey 

creates a lag in pricing information (typically 1 to 2 weeks). Understanding that the 

NASS work is the foundation for the dairy pricing system, the NASS survey must 

be improved. This should include the elimination of lag time, applying the survey 

to all dairy products sold (including inventories in cold storage facilities), and mandatory daily reporting as required by other protein commodities. We believe this 

change—which could be implemented by NASS or USDA’s Agricultural Marketing 

Service (AMS)—would represent a major step forward by the industry and would 

require a minimal investment. 

We would also like to improve the integrity of the marketplace—again addressing 

the crisis of confidence—by creating an alternative to the CME or using a collection 

of price discovery tools that would more accurately reflect current market conditions 

of supply and demand. These tools could include the futures market prices, 

reportings of actual prices paid from mandatory pricing surveys, and Consumer 

Price Index (CPI) numbers which reflect the costs of corn, energy and other input 

costs realized by farmers. Each factor would be assigned an appropriate weighting 

and would have numerous benefits to dairy farmers. By using a collection of discovery tools for price such as cash and futures markets, pricing surveys and input 

cost calculations, the integrity of the marketplace is improved and extreme price 

fluctuations are abated. 

In addition to addressing what we believe is a flawed pricing system, we must 

use this time to create a new outlook on income protection by farmers and allied 

industry partners. The most important recommendation I can share here today is 

that we borrow a lesson from the crop side of our business, where risk management 

has been used to help protect the income of farmers and transfer this learning to 

the dairy industry. The time is right to make workable, meaningful and affordable 

voluntary dairy risk management products available to producers. 

August of 2008 saw the launch of a new risk management program for dairy producers. Livestock Gross Margin for Dairy, or LGM Dairy, is a federally reinsured 

dairy insurance program now included with USDA’s crop insurance offerings. The 

program provides protection against unexpected declines in gross margins on targeted quantities of milk, without forfeiting increased profits. The program is based 

on milk income over feed costs, which are termed the ‘‘gross margin.’’ The insurance 

policy covers the difference between the expected gross margin (insurance guarantee) and the actual gross margin for the producer’s selected months, based on a 

targeted amount of milk. Futures prices from the CME and Chicago Board of Trade 

(CBOT) are used to determine the values of Class III milk, corn and soybean meal. 

Futures prices result in uniform commodity prices for all producers, however the 

program offers flexibility in the margin insured by individual producers and the 

months covered by the policy. There is a maximum enrollment limit of 240,000 

hundredweights of milk per year. 

There is no doubt that a risk management tool for dairy producers is required. 

This option is available for all other major agricultural commodities, and risk manVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00013 Fmt 6633 Sfmt 6621 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
10

agement has been used quite effectively in Pennsylvania since the state was severely impacted by a disastrous drought in 1999. As we have promoted LGM Dairy 

in Pennsylvania and worked with the crop insurance industry and producers alike 

to encourage participation, we have received valuable feedback on how to speed the 

adoption of this critical tool. We would request your support for flexibility for the 

producers to pay the premium costs for policies incrementally versus one flat, upfront fee, which would better reflect the standard business operations of the dairy 

industry. As most dairy farmers operate on a cash flow basis, this change would be 

a significant help in aligning this product with standard financial management protocols. An extension of the sales closing period for LGM Dairy would also encourage 

more producers to take advantage of this new risk management option. 

We believe that LGM Dairy has great potential to help dairy producers better 

manage their risk, but at this point it is cost-prohibitive and needs premium subsidy. In addition, since this is a new concept for the industry, we must have an aggressive and sustained education campaign—for producers as well as the insurance 

industry. 

While we have provided the insight we have gleaned throughout the process of 

helping to launch LGM Dairy, we know that this is just one tool available to the 

dairy industry. Perhaps there are other approaches to managing risk. Now is the 

time to experiment and learn, allowing us to take the best ideas forward in the 2012 

Farm Bill. 

The support of the Committee is requested to address the need for risk management in the dairy industry, including assistance with funding producer-paid premiums and industry education. 

In Pennsylvania, many of our dairy producers have gone months without a paycheck. This diminished income has had a severe impact on cash-flow and farm equity. Credit, equity loss, and existing banking and USDA Farm Service Agency 

(FSA) regulations require attention at this time to provide producers with a bridge 

to a better year. There are two key terms to keep in mind when discussing the current agricultural credit situation—risk and uncertainty. 

We increasingly hear of producers seeking loans from the USDA Farm Service 

Agency, and we have shared recommendations with Secretary Vilsack on options to 

extend the support provided by the state FSA teams. We know that many of the 

producers turning to FSA have not worked with this group before, raising both the 

number of borrowers and the dollars being borrowed. According to the Pennsylvania 

FSA office, the loan portfolio for the state has grown from $350 million less than 

a year ago to more than $425 million today—and 65% of this portfolio is tied to the 

dairy industry. While we deeply appreciate this support and the breathing room the 

FSA funds provide to producers, we worry that this rate of increase is not sustainable and that FSA funds may be depleted, compounding existing credit issues. 

Dairy producers are not unaccustomed to a fluctuating market or the associated 

spikes and drops reflected in the wholesale price of milk. Historically, producers 

have been able to manage these cycles by implementing best management practices, 

developing sound business plans and establishing cost-saving measures in their operations to create a reserve in good times and counteract decreases in cash flow 

when milk prices drop. This dynamic has prompted producers to develop strong relationships with their lenders and creditors to manage debt, and has helped highlight dairy farmers among the most reliable borrows in a lender’s portfolio. 

The challenge, then, is not fiscal management. It is—to a certain extent—the nature of the industry itself. Dairies are not like many other businesses, as they cannot shut down a production line during downturns. Milking must continue, multiple 

times each and every day. The option to sell cows does not hold a strong appeal, 

as this further reduces equity and cash flow on the farm. Additionally, cow prices 

track with the movement of the market, meaning producers receive lower prices for 

animals they sell during downturns in the market and then must pay increased 

prices as they look to increase their herd size and production levels—a lose/lose 

proposition in any industry. 

Agricultural lenders are keenly aware of these unique market situations and experience has shown that this group works diligently to help their customers through 

downturns. Despite solid business plans and sound management to build financial 

cushions to support the dairy during periods of low prices, this most recent downtown was far deeper and much longer than we could have predicted. The overall 

loss of cash-flow, coupled with losses in real estate values has diminished or nearly 

eliminated equity on some of our most progressive and forward-looking farms. 

History has shown us that another downturn will occur. Should this take place 

in the near-term, lenders will be forced to assess how many of their customers will 

have the cash reserves required to survive, further exacerbating the risk being asVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00014 Fmt 6633 Sfmt 6621 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
11

sumed by both lenders and borrowers—and greatly impacting the available credit 

that will be required to sustain the dairy industry. 

We do not live or work in a vacuum. Collapses in the real estate market coupled 

with those in the larger lending sector have had an impact on the dairy industry. 

Today, lenders are under more scrutiny than ever by stockholders as well as regulators. Even in instances where lenders are willing to extend forbearance to dairy 

producer clients, regulations are having an impact that hampers this action and, in 

some instances, prevents it. Post-TARP changes in how troubled assets (those accounts greater than 90 days past due) are accounted for on lenders’ books have 

forced a higher standard of risk assessment on loans and has resulted in the reduction of availability of credit for many existing and new borrowers. 

Perhaps the best way to describe the effects of these confluence of trends is 

through examples of dairies in Pennsylvania. A dairy farm in Lancaster County provides a great illustration: Approximately 3 years ago, a progressive 150 cow operation with an updated business plan and sound best management practices decided 

to bring their two children into the farm business as partners and managers. These 

two new partners each had families of their own and were excited to represent the 

next generation making a living on the home farm. 

The business plan was revisited and the decision was made to add an additional 

125 cows, raising the herd total to 275. This expansion required expanded manure 

and feed storage, as well as the rental of an extra 250 acres to meet feed and best 

management practice needs. At the time, milk prices were strong and cow costs were in the $1,400/cow range— meaning their planned herd expansion had a price tag of $175,000. Their additional 

infrastructure needs were calculated at $2,000/cow, resulting in a $250,000 expense. 

At the time expected income over feed costs on the farm would have provided for 

a milk margin on $13.00/hundredweight (cwt). Based on this information, expected 

additional debt load, and projected energy and family living costs, it was determined 

that the business plan showed sufficient equity and cash flow to make this plan a 

reality. 

Fast forward to 2009—just 2 years into the additional debt load and expenses— and the income over feed costs milk margin that was at $13.00/cwt had plummeted 

to $6.50/cwt, about 50 percent of what had been projected. Coupled with increased 

energy and family living costs, the farm was struggling to keep up with expenses. 

As this milk price drama unfolded, the real estate crisis drove down land values, 

reducing the equity built up over generations. In addition, cow prices were declining, meaning the herd the family had on hand was worth less—regardless of milk 

production. The farm’s debt now exceeded existing equity. 

The family was aware and took advantage of programs designed to assist them, 

restructuring operating expenses to a lower percentage term loan through the 

USDA Farm Service Agency and working with their other lenders who held the infrastructure debt. 

While this family was able to survive the downturn in 2009, they are still facing 

its challenges and realities. Cash reserves are low and cash flow is only now in 2010 

starting to meet their operating expense needs. They have additional term debt 

through the restructuring of 2009 operating expenses, and equity on the farm—

while increasing—will likely not allow for further infrastructure investments or 

emergency actions should a building or equipment need replacing. Consequently, 

their operating expense lines of credit with their lenders have been reduced, creating more risk and uncertainty as the children of the new farm partners evaluate 

the potential for them to continue on this family operation when they complete college. This story is not unique to the family in question and is, in fact, playing out 

on numerous farms in Pennsylvania—with much more dire results in many cases. 

Assistance for agriculture and especially the dairy industry exists at many levels 

of government. However, we must not become complacent in what exists and we 

must look at bolstering existing programs and exploring new ways to maintain a 

vibrant diary industry. Most of the dairies that have survived to-date will find it 

difficult to say the least to make it through another downturn, especially one as protracted as the crisis we are still working through. 

I share this example to emphasize the important role our financial institutions 

play in supporting the dairy industry. Agriculture is a business without walls, but 

it is every bit a business and we must take strides to ensure that our farmers have 

access to the capital and resources needed to survive today so they can thrive tomorrow. 

While we are exploring all options with Congress and the USDA, let me assure 

you we are doing the same right here in Pennsylvania. We are fortunate to be one 

of a small number of states that have a state pricing mechanism to assist dairy 

farmers. The Milk Marketing Law was first enacted in 1937. The Pennsylvania Milk 

12

Marketing Board (PMMB) has exercised its authority under the statue in various 

ways since then in an effort to be responsive to changing market conditions. The 

Governor and the Department continue to work with the Board to ensure farmers 

are receiving the full benefit of the over-order premium, as we know well the value 

of this additional income. 

I have said often that you never want to waste a crisis. We didn’t want this challenge, but there is no better time for good thinking than when you are under fire. 

It is imperative that we listen, learn and lead during this time of crisis. We do this 

through sessions like today’s hearing where we can engage in discussions about the 

industry and its future. We also meet this prompt by evaluating the tools at our 

disposal to support the industry and investigating new ways to price our products, 

protect farm-level margins and income, and secure financial resources for dairy operations. 

Our actions here today do far more than bolster the leading sector of Pennsylvania agriculture. Our voices, our actions and our leadership recognize that the 

dairy industry is an important part of our nation’s heritage—and set the path for 

this industry to be a vibrant part of our future. 

Having the right state and Federal dairy policies in place will be critical to improving farm income, capturing international markets and encouraging investments 

at all levels of the industry—from the farms to the processors. For these reasons, 

I want to thank you for your continued good work and willingness to challenge all 

of us to think creatively about possible solutions both short- and long-term. It is our 

goal to see from this crisis a dairy industry that is stronger, both here in the U.S. 

and around the world. 

Thank you.

The CHAIRMAN. Thank you very much, Mr. Secretary. It was 

great, very much on-point testimony and we probably have some 

back-and-forth to do. 

We appreciate you being with us, Dr. Dunn, and we appreciate 

you being with the Committee and welcome to the Committee. We 

look forward to your testimony. 

STATEMENT OF JAMES W. DUNN, PH.D., PROFESSOR OF

AGRICULTURAL ECONOMICS, PENNSYLVANIA STATE

UNIVERSITY, UNIVERSITY PARK, PA 

Dr. DUNN. Thank you, Mr. Chairman, and thank you for the invitation to participate. My job, apparently, is to provide a little background of what has been going on. 

Two thousand-nine, was a very bad year for dairy farms. The 

previous 2 years we had conditions internationally, in particular, 

the severe drought in New Zealand and Australia which are two 

of the major dairy exporting countries, and the weak dollar made 

our exports very competitive and we exported a lot more product 

then we had traditionally. Our milk prices soared and many dairy 

farmers across the country expanded their herds. This is important 

because unlike most agricultural products in the United States, we 

are proximately self-sufficient. We export about ten percent of the 

world’s dairy products and we import about ten percent of the 

world’s dairy products. But the demand for dairy products is not 

very sensitive to the price in the United States and so if we have 

more milk, the price really goes down sharply which, of course, is 

what we saw last year. 

The European Union is also a very important exporter of heavily 

subsidized exports, I might add, unlike Australia and New Zealand. 

Since 2009 began, the world economy collapsed and the dollar went 

up very sharply in value and it began to rain in Australia and New 

Zealand and our exports were no longer competitive. However, now 

we had more cows then we had had in the past, our domestic econVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00016 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
13

omy was weak and in order to get rid of the milk the price went 

down very sharply. Pennsylvania all-milk price was at $23.90 per hundredweight in 2007, and averaged $20 for 2008, and averaged $14.38 in 2009 and 

was as low as $12.90, so essentially half of what it had been 2 

years before, a very big shock for everybody. The market started 

to come back in the fall but many farmers lost $500 a cow. Some 

lost $1,000 per cow. One of my friends who is in the banking business said his clients lost $332 per cow or $1.36 per hundredweight. 

I believe that portfolio is a little bit better than the typical portfolio 

in losses were generally worse than that. So as a result, farmers 

were having trouble paying their bills, servicing their debt and 

feeding their families. The prices had been that low early in the 

decade, but in 2009, the feed costs were very high and the cost of 

other goods, such as petroleum products and things like that were 

also very expensive. The purchasing power of the dollar had eroded 

in the meantime so that $13 milk in 2009 doesn’t do as much for 

you as the $13 milk did in the year 2000. In 2006, we essentially 

had the same prices as we did in 2009, but because of the feed cost 

in particular, 2009 was much worse. 

As the year went on, the national dairy herd decreased and so 

what happened is that the price went up and then there was a 

bearish calf report at the beginning of this year. The price started 

to come down again but the average milk price for the year, based 

on the work that I have been doing, is going to end up for the 

Pennsylvania all-milk price to be about $17.50. This would be a 

very reasonable price within the context of the past decade were 

it not for what had just happened, and essentially, most farms now 

have a lot of debt on their balance sheet. Planting is coming up. 

They are going to have to go out for more borrowing, perhaps the 

third time they have done so in the last 15 months considering the 

situation now is much worse. If they had $4,000 to invest per cow 

15 months ago, it is $5,000 now and they are running out of collateral. They are running out of borrowing capacity and the ability to 

service debt, and although all farmers are not the same, in some 

cases their survival is very much in doubt, especially people who 

didn’t really take advantage of the high price system, cut their debt 

in the past. And so the net effect of all of this, of course, in the 

industry as the Secretary said has many participants who are on 

very thin ice and when they go back to their borrowers, the borrowers are not going to be universally enthusiastic about coming 

up with more money given their situation. 

[The prepared statement of Dr. Dunn follows:]

PREPARED STATEMENT OF JAMES W. DUNN, PH.D., PROFESSOR OF AGRICULTURAL

ECONOMICS, PENNSYLVANIA STATE UNIVERSITY, UNIVERSITY PARK, PA 

Two thousand-nine, was a very bad year for dairy farms. In 2007 and 2008 conditions internationally, including severe drought in New Zealand and Australia and 

a weak dollar, made the United States a much bigger dairy exporter that had been 

true before. Milk prices soared and many dairy farmers expanded their herds. Unlike most U.S. agricultural products, the U.S. dairy industry serves primarily the 

domestic market. We sell about 10% of the world’s dairy exports and buy about the 

same. The European Union is the biggest exporter, followed by New Zealand, the 

U.S., and Australia. As the world economy collapsed and it began to rain in the Antipodes, our exports were no longer as competitive. However, we had more cows producing and our domestic economy was weak, hurting domestic demand as well. 

14

Prices dropped sharply. The Pennsylvania all-milk price, which had hit $23.90/cwt. 

in 2007, fell to the $13/cwt. range for several months, with a low of $12.90 in June 

2009. For all of 2009, this price was $14.38.cwt., compare to $20.04 for all of 2008. 

The market came back in the fall, but many farmers lost $500/cow and some $1,000/

cow. One source told me that based on his analysis of his clients they lost $332/

cow or $1.36/cwt. Farmers had trouble paying their bills, servicing their debt, and 

supporting their families. Prices had been that low earlier in the decade, but in 

2009 feed costs were much higher and the costs of other inputs were more expensive, and of course, the purchasing power of the dollar has eroded with inflation. 

The profits from $13 milk in 2009 are less than $13 milk in 2000. Figures 1 and 

2 illustrate these points. The milk price in 2009 was about the same as in 2006, 

however the amount available to pay the bills after paying for feed (income over 

feed costs) was much less. 

A national reduction in cow numbers drove a late-year price increase in 2009, but 

prices fell after a bearish calf report in late January, 2010. The latest value is 

$17.30/cwt. This value is a bit higher than the average for the last 10 years. However, most farms now have more debt on their balance sheets and with planting 

coming soon, farmers may need to borrow additional funds. For many, this is the 

third time they have needed more money in a year. Depending on their financial 

situation in December 2008, farmers now are in a somewhat worse situation or a 

much worse situation than they were then. If they had $4,000 debt/cow Jan. 1, 2009, 

they may now have $5,000. Many needed a new loan last spring and another in late 

summer. They now need to make this debt manageable by restructuring. Some are 

running out of collateral, borrowing capacity, and the ability to service debt. For everyone, the break-even milk price is now higher than it was 15 months ago. 

All farmers are not the same, but for some, the farm’s survival is in doubt. Many 

farms that recently expanded are now on thin ice. Many small farms are struggling. 

A lot depends on what the debt load was 2 years ago and how focused the farm 

is on controlling costs. I might add that some of the big farms in California and 

other western states were hit very hard by 2009. Cow numbers dropped 4.2% in 

California in 2009 and by 1.9% in Pennsylvania. 

The expected prices for 2010 are okay, but not great. They will probably be a bit 

above the average values for the past decade. In a different year they would not 

be notable, but after last year dairy farmers could really benefit from higher prices.

15

Figure 1: Pennsylvania All-Milk Price

Source: USDA. 

Figure 2: Pennsylvania Dairy Income Over Feed Costs


11147001 11147002
16

The CHAIRMAN. Thank you very much, both of you, for that great 

testimony and we will now move to questions. I will first yield to 

the Vice Chairman for questions. 

Mr. HOLDEN. Well, thank you, Mr. Chairman. 

Secretary Redding, you and your predecessor, Secretary Wolff, I 

take it is here today, did an excellent job in increasing on the crop 

side participation in the Commonwealth of Pennsylvania and you 

talked a little bit about it in your opening remarks. Can you elaborate on what you learned from that experience and how you think 

that it could be applied to the dairy program? 

Mr. REDDING. Congressman, thank you. The work over the last 

10 or 15 years has taught us a couple of things. There is a threelegged stool when we talk about insurance. One, you have to have 

a product that actually is real. You have to have something that 

is really workable that the producers find value in. So you need to 

have a workable product. Two, it has to be affordable. You have to 

use the best product. You have to be able to afford it. And three, 

is education, and all three of those legs of that stool need to be imported to the dairy conversation and at this point we don’t have 

that. 

As I mentioned in my testimony, we have the LGM Dairy which 

is a new product, 2008 was its introduction. As you know, when we 

proffer legislation, new product development is a role of the private 

sector and this is a private sector product owned by a firm out of 

Iowa and that we can partner on, that is the Department of Agriculture. But it is a private product so we are at their wishes in 

terms of how they want to move forward with that, but we need 

to sort of focus in on the risk management tool. I think it is really 

the piece that while some of the other pricing mechanisms will require some additional thought and work while international trade 

comes back into balance on dairy, while some of the Federal reform 

is to talk about habits, the one thing we can do today is really to 

use the authority of the Risk Management Agency. So I would just 

look at that and say we have a product that is in its infancy, but 

it needs support from both Congress and the USDA. 

We believe the LGM Dairy has great potential if we can put 

some subsidy under it to really incentivize participation. We need 

to do a very active education campaign just because the producers—we have not thought about how you can manage risk 

through an insurance policy in the dairy industry. We just haven’t 

done that, so it is going to take some work to really make sure that 

producers understand what they are doing. I would add that the 

crop insurance industry is a full participant in that. We have a lot 

of crop insurance agents who look great on the economic side but 

when you start talking about livestock products, particularly dairy, 

that is not something that is universal, right. So I just put that on 

the table as the Committee is considering the standard insurance 

agreement and those issues of insurance. That is one of those we 

need a full participant in the private insurance industry. So the 

long answer is to say we have taken a step. We have some lessons 

learned that we think are invaluable to moving us forward. We 

think long-term that the answer for the industry, one of the critical 

tools at least, is risk management. We just need the support to 

17

subsidize, educate and some flexibility in terms of how to approach 

it. 

Mr. HOLDEN. What would be the result if the entire Commonwealth were added to the Federal Order? 

Mr. REDDING. Instead of what we have today? 

Mr. HOLDEN. Yes. 

Mr. REDDING. Oh, how much time do you have? I mean I hate 

to give you an answer. This may be a better question for the economists to talk about. I would just say that really at this point you 

have Federal Order and non-Federal Order pockets. I think there 

is some benefit to having some uniformity of a particular state in 

a Federal Order versus the pockets that we have right now. 

Dr. DUNN. It is my understanding there are only four or five nonOrder plants so within the context of Pennsylvania it is not a particularly big problem. But, symbolically, it is probably more important that it is otherwise the fact that we do have one set of rules 

for almost everybody and there is another set of rules for a few people. 

Mr. HOLDEN. Thank you, Mr. Chairman. I yield back. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. Secretary, a couple of things you mentioned in your testimony. One is that you mentioned that price discovery still continues to be a problem and you mentioned that you had some conversations with Secretary Vilsack. Where are those discussions and 

where do you think the Secretary is on that? And what are some 

of the suggestions that you put forward to the Secretary? 

Mr. REDDING. Yes, a couple points. Thank you, Congressman, for 

the question. 

First of all, the conversations with the Secretary have been fruitful and productive and desired by the Secretary to implement the 

provisions of the 2008 Farm Bill. The limitation is money. We understand that there is a cost to do the price discovery and just to 

build the IT systems or to do the compilation of the information. 

I don’t know the exact number on that, but another thing we are 

looking at need for some additional monies, several million dollars 

over several years to actually do that implementation on a 2 year 

timeline. The other part of the discussion is really then what are 

the different points for you to collect. Our general sense has been 

we have to look at something more then the Chicago Mercantile, 

right. The difficulty we have today, part of the difficulty is we really don’t know the value of the product. We know the price but we 

don’t know the value of the product. So the discovery ought to be 

what is the product worth in the marketplace, a full-range of products, right, from manufactured products to fresh products of all 

these different product lines that we have for the dairy industry. 

We really ought to use all of those to form what the price ought 

to be, and then the second part of that is to what extent the other 

economic indicators might be, the price index and some of those 

econometric pieces ought to be used as the price and formula. So 

we have had a general conversation with them that I would characterize as very supportive. I am encouraged all we need are some 

18

additional resources to implement and the discussion of what the 

sort of bucket of indicators are and certainly be taken. 

Mr. NEUGEBAUER. And also, Mr. Secretary, I agree with you that 

our risk management is not just due to the fact that our costs need 

some fine tuning. I have been kind of leading that charge on the 

Agriculture Committee, and I know Chairman Peterson is interested in seeing if there is a way we can make that better. I want 

to go back to something that Dr. Dunn said though is that, ‘‘prices 

soared and producers expanded their herds,’’ and one of the things 

that we will be looking at policy-wise here is we need to make sure 

that we are not a part of the problem here. And so I guess one of 

the things that I would ask you is when we are looking at a risk 

management policy, how do we make sure that the government is 

not increasing, encouraging excessive production. When I talk to 

some folks in, I have one of the fastest growing dairy areas in the 

country, what people say about this is all the way from do nothing, 

just leave us alone and let the supply and demand make the markets equalize, to people saying we need some safety nets and some 

other things. But how do we design a safety net that doesn’t manipulate the normal supply and demand that should happen in the 

marketplace? 

Dr. DUNN. Well, clearly the scene we have up until now has been 

not very supportive, the century since 1888 the price occasionally 

hits us but it really doesn’t amount to anything within the context 

of the last 200 years but a risk management tool is tied to the market prices. So, to the extent it is designed effectively and used then 

something such as the dairy loss gives us the opportunity to do 

that in the same context as other risk management tools, but it 

doesn’t encourage risky behavior as such. 

Mr. NEUGEBAUER. Mr. Secretary, do you want to comment on 

that? 

Mr. REDDING. It is a great question, and I have thought a lot 

about this trying to figure out what is the right answer because 

you send signals. Even the dairy loss and payments in December 

sent a signal, right. The product purchases of the USDA sent a signal and so I don’t know how you balance all the signals and reform, 

right. In a certain light we focused in on the risk management 

piece. You know, there comes a point in the industry where we 

have to make a decision about what is the perfect role for government. As I have looked at it personally, we have this Dairy Price 

Support Program which is buying excess product. I just think we 

are not sending the right signals in terms of technology, innovation 

and creativity when you have a buyer call the government who is 

prepared to take whatever product coming out of the plant that is 

not absorbed in the marketplace, right. That is not a good signal 

and that is unfortunately one of the signals, historical signals in 

the industry that are creating part of our challenge today. Building 

a topside signal of Congress providing some dairy product support 

instead of payments, loss payments, so you have sort of the bookends covered. What do you do with the center, right? That ought 

to be sort of the marketplace decision, but the one area that I think 

we can agree that no matter what size dairy you are and no matter 

where you are in this country is that we really ought to have a 

product that will catch your margin and that is a decision we 

19

should have with them to make that decision is to what is your 

margin. Right now we are trying to have a policy that is going to 

fit small herds and large herds, and East and West. Kind of the 

philosophy, the one place that we can really be helpful to producers 

is to give them a product that they then decide I will take product 

by the way that they decide to what extent they want to protect 

their margin and it is their margin. It is not the government’s margin and it is not the, somebody else’s margin. It is their margin. 

So to your question, the signals, if we had a product that is really 

available and workable and affordable is that you could point to 

folks, the producer, you make the decision about your margin and 

as a government we are prepared to sort of work with you as we 

do with crop insurance. That is a personal decision to make and 

then transition out of the Dairy Price Support Payment. Use those 

dollars to really pay for the insurance program, right. So I mean 

that is where I would be on that just to make sure that long-term 

you get some alternative to coming back to the Congress on a continual basis and asking for resources or simply buying product off 

of the bottom where you don’t have a viable market for it, right. 

So I mean if we did the insurance piece, the signal would be that 

that is where we want you to go to buy your protection versus expecting it to come from either product purchases or on an appropriation request to Congress. 

The CHAIRMAN. I thank the gentleman and I will just weigh in 

on this point. I fully agree that we have to develop a risk management tool for dairy, I think you are on the right line and I would 

go beyond that. I would say that we need to expand insurance so 

that it covers all agriculture products and livestock. The long-term 

reality is that that is going to be what we have left at the end of 

the day, 10 years from now, 20, whenever we get there, that is 

going to be probably what is left in terms of government support 

or government help in managing the risk in agriculture. 

In regard to the price discovery, we examined that whole bit in 

the 2008 Farm Bill and my sense at that time was the dairy industry wasn’t ready completely at that point. But, people may not be 

aware but the mandatory price warning has to be reauthorized before September. One of my goals is to address this issue in dairy 

like we have done in some of the other areas. Last Friday I had 

a meeting with AMS going over one of the provisions I put in the 

farm bill to make the price authority more useable for the average 

people out there. They have contracted and gave me an overview 

of what this is going to look like, and I think they are on the right 

track and it is very useful the way that this is presented. You 

know, if you are a big guy and you have all these folks that work 

for you that can work on this stuff everyday, you could take that 

information and figure out what is going on. If you are an average 

guy out there, a farmer, and you log onto the Internet and see all 

this information, it is pretty hard to put together. 

So we are going to try to pull that stuff together and apparently 

that is going to be ready to roll-out at the end of July, so we have 

to figure out some way to get this dairy stuff into that system and 

available to producers. I think it would be a big step to get that, 

to get some of the issues that are out there. 

20

I have been dealing with this for a long time. Way back when 

the Green Bay Cheese Exchange was the bogeyman 10 years ago 

or whenever it was that was the problem. We just had to get rid 

of the Green Bay Cheese Exchange because it was not giving us 

the right information. I looked into it quite a bit. I thought it was 

a mistake to move to get rid of the Green Bay Cheese Exchange. 

I think it was working fine. It cost about $600,000, and it was run 

on a private basis. I felt at the time we went to the CME and we 

had a thinly traded market that would not be acceptable, but everybody was wanting change and here we are. I think what I was 

afraid of at the time turned out to be correct, and I don’t think we 

can go back to the Green Bay Cheese Exchange but we do have to 

have some way to do a better job with this. 

We are committed to working with you and would appreciate 

your ideas as we go forward with that but I am encouraged by 

what is going on within the industry. I think there is consensus 

building across the country. I think the only good thing that came 

out of this problem that we have been through is that everybody 

now understands that we have to change, I think that is it. I am 

hopeful that we are going to come out of this with a much better 

program that is more market-oriented and gives the tools to the 

producers that they want. 

All right, I recognize the gentleman from Iowa, the Chairman of 

the Subcommittee that deals with crop insurance and we will leave 

it to him to fine tune this and make it work at the end of the day. 

So the gentleman is recognized. 

Mr. BOSWELL. Thank you, Mr. Chairman, and thank all of you 

for being here today and, Mr. Secretary and Doctor, I appreciate 

your testimony. We appreciate it very much and I am not going to 

ask a lot of questions. I appreciate what you had to share. I really 

think you are right on the uniformity and accessibility, and I agree 

with the Chairman that the price is certainly something that all 

across the board on agriculture we have to have. Our leading producers have one, so it is very much needed, and I also say, particularly, with having just been on the road that on the livestock and 

dairy that we have to have a smooth flow from the producer with 

the processor. There are not very many provisions out there that 

make sense and they have to have reliability and uniformity as 

well. I think that we need to look at this whole thing and how does 

that farmer out there have protections for his entire operation 

whether it is a different varieties we all get involved in sometimes. 

I think we are at that state where we need to do something like 

that, so we will be looking forward to continuing to hear from you 

and in our Committee so that we will hear what is going on here. 

We appreciate that very much and the rest of your delegation and 

it is just good to be here. 

I thank you and I am going to yield back, Mr. Chairman. 

Mr. REDDING. Congressman and Mr. Chairman, let me pick up 

with your comments about the whole farm. You know, the USDA 

and the Risk Management Agency developed the Adjusted Gross 

Revenue, AGR Program several years ago. The Department of Agriculture in Pennsylvania was the only State Department of Agriculture in the nation to sort of take the AGR and develop our own 

whole farm insurance product called AGR Light. That was borVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00024 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
21

rowing sort of the best of the AGR and by putting it into a little 

more of a Pennsylvania agriculture setting which had a lot of livestock in it. And I can tell you that from the USDA and the RMA, 

our challenge has been how the agency sort of manages livestock, 

right, and it is really an interesting discussion. It is not wrong. 

They just are not sure what to do with it, right, and the Committee 

has dealt with this issue as well. We agree wholeheartedly though 

that the model is to have a whole farm policy, right, and that way 

you are wrapping all of those things into your operation that are 

part of your income strength. So if you are a specialty crop producer or a dairy producer with some diversified portfolio of enterprises, all of that should be included as part of protection of your 

operation, right. Our job should be protecting your paycheck but 

not wondering about whether one particular segment of the operation has more value than another. Let’s insure it all. Long-term, 

I think that is where we have to get to, but it will take some additional work on the mechanics of managing livestock within those 

whole farm policies. But, we agree that absolutely that is the answer long-term. Thank you. 

The CHAIRMAN. Thank you. I recognize the gentleman from 

Pennsylvania, Mr. Thompson. 

Mr. THOMPSON. Well, thank you, Chairman, and thank you so 

much for bringing this hearing to the Keystone State. It is greatly 

appreciated. Agriculture is our number one industry here. It is a 

tremendous part of our heritage, our history and what it does today 

to feed and provide food security. This hearing is important because we need it to be part of our future too and especially when 

it comes to dairy. Thank you to Secretary Redding for your vision 

and your leadership for Pennsylvania and agriculture which is 

greatly appreciated. And, Dr. Dunn, we talked before and I look 

forward to reading your white papers every time they come to my 

desk. I was so proud to have a resource like you right in my back 

yard at Penn State. 

So we, actually my first question is from your comments, Secretary Redding, I really appreciate all the testimony today. Your 

testimony really, both yours kind of looked to the future, looking 

forward to the next farm bill which will be, hopefully will be 2012. 

But, you had mentioned about credit and called it a bridge to a better year because we do need the short-term too. You know, we have 

lost I don’t know how many farm operations we have lost in Pennsylvania, dairy specifically just this past 15 months—2 years. 

When we lose them they turn into malls and housing developments 

and we don’t get them back and that is just bleeding our agriculture to death. So I was really curious to just follow-up a little 

bit with your bridge to the future credit and needing the cooperation of the lenders and understanding that troubled assets is anything defined as more than 90 days, and that means there are a 

whole bunch of troubled assets on most farms. And you had mentioned about certainty with regulatory changes, are there any specific recommendations that you had to make, to be able to allow 

our lenders to meet the needs of our farmers today? 

Mr. REDDING. Congressman, thank you, that is a good question. 

I appreciate the focus on the credit issues. It is one of those issues 

that have come to us recently as these farmers have gone back to 

22

secure their operating loans for this crop season. This issue is now 

starting to appear where you have the conversation occurring between the borrower and the lender saying I am not so sure that 

we can make that loan or its condition. So we have had in the last 

10 days, conversations with the Bankers Association have raised 

this issue saying, we really want to work with these customers. 

They have been good customers for this long and in some cases, 

customers for generations, but we are going to be forced, given the 

new regulatory environment we are living and working in to place 

those loans if they are in accounts that go 90 days past due, are 

going to have to be forced to put them in. It is not a discretionary 

point that we have. We are simply going to have to place them into 

this troubled assets account and that will mean certain things in 

terms of whether we can work with that producer or borrower. 

So I don’t have a specific request for you yet. We have just started to talk this through. We understand the words, troubled assets, and what that means to our nation and our state and how those 

words brought us to where we are, so we are very cautious of about 

that. We believe in this industry of agriculture where seasons are 

important, cycles are important, that when you are dealing with a 

food system it has multiple benefits to both sustain in that maybe 

it requires a different level of review and management then simply 

placing them into a 90 day past due account. So it may be a conversation between the committees, the Agriculture and Banking to 

really look at is there any way for us to manage those assets past 

the 90 day period so we don’t have to place them into a troubled 

asset category, right. Not a simple thing to do but we think that 

is the bridge to a better year. We may not be able to change the 

price, but at least if we can ensure that the farm families are secure in their ability to work with the lenders who want to work 

with them to get them to the next year, right to the next season, 

we think that may be from our standpoint the best thing that we 

can do. It buys us time too to get some of these policy pieces right, 

but you need to be able to work with somebody who is in a difficult 

financial circumstance. We know that is an FSA issue in part with 

the USDA, but there are a lot of private lenders in the Bankers Association who are living by the larger credit quality issues of banking. 

Mr. THOMPSON. Thank you, sounds like we need to allow them 

to keep that discretion. 

Dr. Dunn, from your perspective what are the full impacts from 

a supply management system and is it possible for the U.S. to remain competitive in the world market with a supply management 

system? 

Dr. DUNN. I am not really much of a fan of supply management. 

The places that we have it, it works okay for a little while and then 

it kind of runs away. It makes it difficult for farmers to adjust to 

changing conditions and things like that. I spent a year in Australia and a year in Ireland and kind of saw the worst of it in both 

cases because what happens is to the extent that the policy succeeds, it ends up being capitalized in the prices of the cows in the 

case of dairy and things like that where the farmer has more 

wealth but not more income. So, in my opinion, supply management will not work over a very long period of time. Certainly, if you 

23

look back on the PEDA Program there is pretty strong evidence of 

that. 

Mr. THOMPSON. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman. 

I now recognize the Chairman of the Livestock, Dairy, and Poultry Subcommittee, Mr. Scott from Georgia. 

Mr. SCOTT. Thank you very much. 

Good morning, everyone. It certainly is good to be here. Thank 

you, Mr. Chairman. It is good to be here with my distinguished 

friends from Pennsylvania, Congressman Holden, Congress Lady 

Dahlkemper and Congressman Thompson, all fine representatives 

of Pennsylvania. Please do your utmost to send them back because 

they do such a great job for us there, and I also feel that I am a 

Pennsylvanian, grown up in Scranton, a little to the north of here 

with elementary school and eventually my education at the University of Pennsylvania’s Wharton School in Philadelphia. So while I 

am from Georgia, once a Pennsylvanian, always a Pennsylvanian 

is the way I look at it. But, I really have deep affection for the people of Pennsylvania, and I certainly appreciated coming back to one 

of my home states. 

Certainly, Secretary Redding and Dr. Dunn, thank you very 

much. We have had a number of hearings in our Subcommittee on 

Livestock, Dairy, and Poultry and it seems to me that the paramount issue is very complex, complicated. It is the most significant 

and troublesome issue facing all of agriculture, in my opinion and 

this sort of stemming on about four major concerns of pricing, supply, profitability and stability. And so I would like to ask you, each 

of you to just comment, first of all on stability and how we can 

bring some stability to this issue and with that would you think 

that moving to a single nationwide market Order, would that bring 

stability, more stability in each of your opinions? 

Dr. DUNN. They tested me right away. That is interesting. A nationwide marketing Order is a very controversial issue in dairy because some parts of the country would be beneficiaries of some of 

the news. However, I don’t think that it is the regional marketing 

Orders that are really the source of the instability, but rather some 

of the other issues. The biggest problem of course is the farmers 

can’t turn on and off the milk supply. It is relatively small amounts 

of changes in the milk supply that send the prices going all over 

the place. So to the extent that you are going to affect the stability 

it is not really going to come from a single nationwide marketing 

Order. There may be some things that you can do to the marketing 

Orders to introduce more stability. An example might be for example to have the Class I milk price not be a single month’s average, 

but maybe a moving average of several months. So, at least that 

portion of the milk check would not be moving around as much, 

and so that the farmers’ price would have a little bit more stability. 

A farmer can’t adjust to the month to month changes in prices irrespective of what they are. To have them move as fast as the market price for the cheese and the other products is counterproductive, in my opinion. 

Mr. SCOTT. So you come down on the side of no on that? 

Dr. DUNN. No, as in the nationwide marketing Order? 

24

Mr. SCOTT. Yes. 

Dr. DUNN. I don’t know that I am necessarily opposed to it philosophically. I don’t think it really solves the problem. Other places 

have a single marketing Order. Not countries as big as this one, 

but the reason we have the market interest we have now may have 

not been changed as transportation systems and things make a nationwide marketing or make more sense. 

Mr. SCOTT. And you mentioned that some regions will lose, some 

regions will win under a nationwide marketing Order. Which regions win? Which regions lose? 

Dr. DUNN. Well, for example, your region, that loses because you 

have a very high proportion of Class I drinking milk usage of your 

total milk supply. Regions such as the upper Midwest where they 

have a lot of manufactured products they would win. Pennsylvania 

would lose but it has been a very thorny issue. When I worked on 

the 1995 Farm Bill, that was one of the issues that essentially kept 

dairy out of the first draft of the farm bill, the industry couldn’t 

decide. 

Mr. SCOTT. Do you concur, Mr. Secretary, with his idea? 

Mr. REDDING. With the nationwide marketing Order? Yes, I 

would concur. I mean there are other things that are probably 

more beneficial to providing some sustainability and predictability 

and profitability that we probably should put our efforts into versus

worrying about the one nationwide marketing Order. 

Mr. SCOTT. And I have one more point I want to just ask you at 

this point too about pricing and profitability. Do you think that as 

we consider our new foreign policies that we should begin to emphasize more profitability over pricing? Now it seems that we have 

a greater emphasis on final pricing for the product as opposed to 

the overall profitability of the farm. 

Mr. REDDING. That is a great question. I would say that the emphasis really ought to be on sort of the profitability and how do we 

help ensure that. I guess that is to both ensure and insure through 

the risk management, is our ability to help ensure that. I mean you 

have so many moving parts. It is very difficult for us to guarantee 

someone is going to be profitable. I think we can help facilitate that 

by our right market policies or trade policies or credit policies in 

providing the opportunities for producers, but we ought to in all of 

that make sure that we have some way for that producer to manage the risk that they are exhibiting—encountering every day. I 

think that is one piece that really can help us. The insurance program sort of helps to guarantee a payday, right, and right now up 

in the dairy industry we don’t have that. On the crop side we do. 

You could argue whether it really gives the full guarantee of a payday, but compared to what we are experiencing with dairy, that 

you have this wild ride, up and down with no ability to really give 

some stability, but the income is going to be for the family. I think 

that is the one area that I would really come back to and focus on 

long-term to the four points you talked about in terms of pricing, 

supply, profitability and sustainability. It is our ability to manage 

risk long-term is probably the single most important policy decision 

we can make, and the best indicator whether we really are going 

to be able to sustain these operations is the ability to manage that 

risk. 

25

But yes, I want to pick up on the first question you talked about 

sustainability and some of the indicators. I mention in the testimony and it is probably worth noting here that part of the rapid 

increase that we experienced in 2007 and 2008, came out of the national marketplace, right. And 111⁄2 percent of our production is exported and so as we look to the changes occurring around the globe, 

we are moving from a six billion population to a nine billion population. I would argue that that is a piece of our future, right. It is 

a huge piece, three billion people over the course of the next 40 

years are going to be added to this planet. So we are going to want 

protein and we are in that business. We really don’t want to shortcircuit as we talk about what the right policies are, going forward, 

is let’s not lose sight of the best benefit to an up market has been 

the international marketplace. 

Number two, this risk management needs to be really focusing 

on finding some good tools for that. And the final point, I mentioned in this sort of rebuilding of some of the infrastructure and 

the process inside. We don’t necessarily have that today. I know 

that folks will argue that point, but if we are looking long-term at 

where the growth is in certain product categories and then you 

overlay that with where we are with the processing infrastructure 

in this country, you come up with this list of things we need to do. 

We need to reinvest again in some of the product processing. Somebody needs to do that, inherently expensive plants to build, but it 

is going to be a part of both finding the domestic markets but also 

allowing us to feed this international market. So I put that on the 

third piece of sustainability is reinvesting in the processing capacity of our industry and our nation from a dairy product standpoint. 

That is really a key part. 

The CHAIRMAN. I thank the gentleman. 

Oh, we have, oh I missed Kathleen as well. I now recognize another outstanding Member of the delegation, the Pennsylvania Delegation from the great Pennsylvania area, Mrs. Dahlkemper. 

Mrs. DAHLKEMPER. Thank you, Mr. Chairman. I appreciate you 

coming to Pennsylvania because it is a beautiful state and bringing 

this hearing to the Harrisburg area. I certainly want to thank Secretary Redding, who is a wonderful asset to this state. I had numerous chances to meet with you and talk with you, and you bring 

a lot of knowledge and insight into this issue. Dr. Dunn, obviously 

a wonderful asset also at Penn State University, a great facility 

that we have here, a great educational facility to help us in our agricultural policy, going forward. And I want to thank the other 

Members of the Committee for joining us here today, particularly 

those who came from other states and get a chance to see our beautiful Commonwealth of Pennsylvania. 

I want to actually touch on a couple of issues that you just 

brought up, Mr. Secretary. And I guess first I want to talk about 

imports a little bit and maybe, Dr. Dunn, you can address this 

question first. Talking about imports and exports, they are obviously when I go around my district there are a number of people 

who bring up this discussion with me and are concerned regarding 

some of the other markets internationally. Can you tell us now exactly where and what type of imports you are seeing come into the 

United States, and where we are exporting, and where you see that 

26

in terms of some of the trade agreements that we are currently investigating on a Federal level? 

Dr. DUNN. We have, as I said, about ten percent of the dairy industry. We import about ten percent of the world’s exports and we 

export about ten percent so we have a balance on imports and exports. We tend to bring in a lot of high-value products, cheeses and 

things like that. We also bring in a variety of other things, some 

of which are quite controversial in the industry in particular, milk 

protein concentrates. The issue with imports is kind of a hot-button 

issue for the industry. Having said that I think it really misses the 

point because unless we start to satisfy the worldwide community 

that the Secretary referred to, we are going to have a domestic industry continue to shrink as far as numbers of farms. Farms decrease anyway but we essentially have fewer cows every year over 

time because of productivity on the farm increases faster than the 

domestic demand for milk and unless we export, we are not going 

to maintain the herd size and things like that grow as we have 

with the other products that we export which is essentially most 

of our domestic agriculture. But trade is a very important issue 

and we buy and we sell approximately in demand in loss years. 

Mrs. DAHLKEMPER. Where do you see the market moving in 

terms of our exports? Where would you see potential and maybe 

this also could be answered, Secretary Redding, because I know 

you talked about new innovative products, some of the things that 

we are probably not looking at. Not everyone is eating cheddar 

cheese any longer or there are new products, milk products that I 

think we need to be looking at, but where do you see the potential 

for growth in this area? 

Dr. DUNN. Well first, the most valuable things you could export 

are high-value products which we produce some of them in the 

United States but we import a lot of them for various reasons. But 

if you think about the growth in the rest of the world’s demand for 

dairy products, almost the opposite is true that the most of these 

new people in the world are going to be poor people, and they are 

not going to be buying brie or expensive cheeses. Rather, they are 

going to be buying storable dairy products, which we already 

produce in large numbers, but we are a little bit out of line with 

the world prices at this point. 

Mrs. DAHLKEMPER. Do you see any particular places where the 

market could increase? I am looking I guess for specifics. Are there 

certain regions of the world where we should be looking at? 

Dr. DUNN. Well, obviously the places that have the most people 

and the least food, Africa is a good example. Unfortunately, most 

of those countries also have the least money so the talking about 

it is a lot easier then the actually finding the market there. 

Mrs. DAHLKEMPER. So you don’t really see a change in what is 

currently happening with ten percent import and ten percent export in the near future? 

Dr. DUNN. Well, actually we are starting. We are a net exporter 

right now on a small scale and it looks like based on what is happening in the world right now we are going to be doing more of 

that. The big question is whether it is going to disappear quickly 

as it did 15 months ago or whether we are going to be hanging in 

there continuing to have our exports grow. That depends on world 

27

supply and demand, and weather in various places, and things like 

that. 

Mrs. DAHLKEMPER. I have one other question and then both of 

you may answer this. As you look at the increased price transparency, what do you see as the effects on not the producer but 

also the processor of the entire industry? 

Mr. REDDING. I think transparency is good. The sunlight is helpful. You know, that is part of our challenge is we really don’t know, 

again to the point earlier, that we don’t know the value of the products. It is difficult then to construct a pricing system that gives the 

producer the right price and a fair price without knowing what the 

value of the product is. I think that is part of what the Chairman 

mentioned about in these difficult times, the crisis, there is nothing 

better than a crisis to bring things into focus, right. This is one of 

those moments when we look at it and said we really have some 

issues with the import piece, Congresswoman, to your point, and 

then folks start to ask questions about where is the product coming 

from. I mean who are we doing business with? What products are 

coming into the marketplace? All of those are fair questions but unfortunately we are doing our thinking under crisis when we really 

ought to be doing that in a everyday, transparent way, and that 

is a challenge for us to then comprehend the impact of the importance of that course. But to the point of—I don’t see a downside to 

transparency. It is really tough when you are talking about an industry that has to accommodate producers, and processors and consumers. It has to have all of us in that conversation, but we ought 

to at least understand who we are doing business with and what 

the value of our product is, and use that to inform what the right 

construction of the pricing mechanism moving forward would look 

like. 

Just on the import side, I just want to mention a couple of 

points. When we look at the issue of imports, I know we have had 

many, many conversations about this. I mean there are folks who 

want to sort of close the borders, right, and it is so difficult. If you 

look at American agriculture and say okay, we are just going to 

lock this down until the economy improves, the impact of that is 

that you can just have an entire production system that is in a 

pause mode, right, and you can’t make decisions, going forward. We 

have to commit ourselves. I think as an industry we have, but in 

this environment when folks are calling for us to be restrictive in 

our trade policies, we need to go find the consumers, right, and the 

United States of America is five percent of the available stomachs 

on any given day. So 95 percent of your market is somewhere other 

than the borders of the United States of America. So I don’t know 

of any industry that can grow and say I don’t want to access 95 

percent of the market and that is what we are up against right 

there, and that this conversation is playing out right now is important. We can’t expect to be a reliable supplier in the world market 

and at the same time restrict access. Now, that is not saying we 

do that haphazardly. I think we have to do it in a constructive way, 

but I would hope that as we move forward with our dairy policy, 

whatever that looks like in the coming months and years, is that 

we build in a significant part of an export development program, 

and really take a look at both in terms of a committed supplier to 

28

the world market providing products that the world wants. Not 

what we are wanting to buy, right, but what the world wants, and 

that is a very different conversation than the one that we have 

been having. And that is to the point of the opening statement 

about reinvesting in the infrastructure of our processing is we have 

to change the mind-set if we want to have products available on 

the world market, but we have a changing consumer around the 

world. They don’t necessarily want the products we have in inventory, so it is just a general comment that exports are important. 

Imports are a part of the conversation about how do we generally 

support agriculture, and on general commerce we need to be understanding that is a two-way street. But most important is for us as 

an industry to just say if we are going to be in the world market 

then we have to commit ourselves to provide a product that the 

world market wants. 

Mrs. DAHLKEMPER. Thank you. I yield back, Mr. Chairman. 

The CHAIRMAN. I thank the gentlelady and again, thank you to 

the panel. Your testimony was very helpful to the Committee and 

your answers to the questions, and I look forward to working with 

both of you as we move through this process. 

Mr. REDDING. All right, thank you. 

The CHAIRMAN. So the panel will be dismissed and we will call 

the second panel to the witness table. Mr. John Frey, Executive Director of the Center for Dairy Excellence in Harrisburg, Pennsylvania; Mr. Rod Hissong, dairy producer, Mercer Vu Farms, 

Mercersburg, Pennsylvania; Ms. Lauren Mosemann, dairy producer, Misty Mountain Dairy, Warfordsburg, Pennsylvania; Mr. 

Kent Heffner, dairy producer from Pine Grove, Pennsylvania; Mr. 

Daniel Brandt, dairy producer from Brandt View Farms in 

Annville, Pennsylvania; and Mr. Todd Rutter, President of Rutter’s 

Dairy in York, Pennsylvania, so welcome to the Committee. We appreciate all of you making the time to be with us today and, Mr. 

Frey, I understand you have a time commitment problem at 11:30 

so we will try to recognize that and so all of your statements will 

be made a part of the record in their entirety. We would like to 

have you summarize and try to stay within the 5 minute timeframe 

and so welcome to the Committee. Mr. Frey, you are recognized. 

STATEMENT OF JOHN FREY, EXECUTIVE DIRECTOR, CENTER 

FOR DAIRY EXCELLENCE, HARRISBURG, PA 

Mr. FREY. Thank you, Chairman Peterson, Vice Chairman 

Holden and distinguished Members of the Committee on Agriculture. Thank you for inviting the Center for Dairy Excellence to 

participate in this important discussion today. 

Our industry is changing very rapidly. In 1975, there were 

84,000 dairy farms in the United States. Today in 2010, there are 

about 55,000 dairies and about 84 percent of the U.S. milk production is actually produced on slightly under 16,000 dairy farms, so 

clearly the industry is changing. It is that supply that meets domestic needs and also that supply that is helping us to become a 

major supplier to the world. 

So how do we lead and create policy in what clearly is a new era 

in the U.S. dairy industry? This is something we at the Center for 

Dairy Excellence have been thinking about very often over the past 

29

year. I have a few things I would like to share relative to that 

today. 

Our profitability crisis in this industry is clearly progressing in 

severity. According to Ag Choice, a Farm Credit System here in 

Pennsylvania, based on about 150,000 cows on their annual profitability summary, there is an average negative margin on Pennsylvania dairy farm of $2.60 in 2009. So how did dairy farms survive 

last year? On average, according to that summary, dairy farms incurred about $600 new debt per cow and they decreased variable 

expenses about $500 per cow. Of course, that is repair, supplies, reinvestment, things greatly impacted from a negative standpoint the 

infrastructure here in Pennsylvania. 

A dairy farmer here in Pennsylvania by the name of Erick Coolidge who serves on the USDA Dairy Advisory Committee made a 

comment to me just the other day. He said while we are having 

discussions about long-term dairy policy, it is critical that we don’t 

lose sight of the short-term needs impacting all dairy farmers as 

we go to the fields to plant here in the spring and then prepare 

for summer and fall harvest. And to that end I would strongly recommend that this Committee encourage the FSA organization 

through USDA to make additional guaranteed operating loans 

available and any potential for short-term loan funding to get us 

through the next 6 months. 

I would like to change my direction a little bit to talk about a 

roundtable discussion that happened here in the Commonwealth in 

2006, led by former Secretary of Agriculture, Dennis Wolff and current Secretary, Russell Redding. There was a document developed 

called, Growth and Opportunity for the U.S. Dairy Industry. That 

document was not only relevant then but it is critical today. There 

were six points that were included in that document and I would 

like to comment on two of those. In particular, the first one listed 

the need for improved systems of price discovery and market transparency. As you are well aware, we have based many of the prices 

for dairy on a scant number of trades that happen on the Chicago 

Mercantile Exchange. It has been called numerous times the market of last resort if you are a milk buyer. What is needed is daily 

reporting of sales and inventories of multiple products. Certainly, 

this would greatly improve the integrity and quality of the information from which to base management, risk management and investment decisions on. 

I would like to draw your attention to the bottom of page two 

and the top of page three of my formal testimony where I reference 

what the beef industry did through the USDA Packers and Stockyards Act. This Act was implemented to assure fair competition 

and fair trade practices, to safeguard farmers and ranchers, to protect consumers, and to protect members of the livestock industry 

from unfair and deceptive practices. This appears to be a model for 

consideration for the dairy industry. And reading on, I know of no 

other industry which can be successful and make objective business 

management or investment decisions based on incomplete data, 

and certainly the dairy industry shouldn’t be in a position to do 

that as well. 

That leads me to my second point relative to that document that 

was built here in Pennsylvania where we talked about the imporVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
30

tance of new and meaningful risk management tools. And clearly 

since then we have really experienced the next generation of risk 

management tools like the livestock gross margin for dairy which 

we think is a great step forward. And yet, it is estimated only 

about five percent of U.S. dairy producers use fundamental risk 

management tools, and in part it goes back to the lack of comprehensive information from which to base risk management decisions on, but it also goes to the reality of today’s tools are very costly and we lack education. So we certainly encourage any additional 

funding for subsidies and education around those tools. 

I would like to end by talking about the Center’s involvement in 

what is called the Northeast Dairy Leadership Team. The Center 

coordinates the efforts of that group which is comprised of the 

three largest dairy states in the Northeast Agriculture secretaries 

and then about 40 other stakeholders, including many dairy producers. That group spent much of 2009 reviewing different dairy 

policy proposals that were being circulated across the country. 

Now, drawing your attention to the bottom of page three in my 

formal testimony where we talk about what the NEDLT believes 

any form of pricing or policy structure should include. Number one 

and first and foremost it should be market-oriented. It should be 

responsive to quickly changing market conditions. It should be 

global in nature. It should be national in scope and have minimal 

government involvement. And to that end there was a policy proposal that was presented to the NEDLT late last year called the 

Dairy Growth Management Initiative which essentially establishes 

a dairy board which would have at its disposal a number of tools 

from which to use to attempt to mitigate price volatility. 

I will draw your attention to the middle of my fourth and final 

page of my written testimony where it talks about it would also 

have at its disposal something called a marginal milk program. 

This would be a program that would be used to manage unbridled 

growth in milk supplies during times of extremely low milk prices 

relative to feed costs. This concept is intended to only price that extreme surplus milk according to its marginal value only during 

those times when prices fall below a preset level. 

I would like to end my testimony by saying thank you to this 

Committee for the opportunity to represent the Pennsylvania dairy 

industry. 

[The prepared statement of Mr. Frey follows:]

PREPARED STATEMENT OF JOHN FREY, EXECUTIVE DIRECTOR, CENTER FOR DAIRY

EXCELLENCE, HARRISBURG, PA 

Chairman Peterson, Vice Chairman Holden, and distinguished Members of the 

Committee on Agriculture, thank you for inviting the Center for Dairy Excellence 

to be a part of this important hearing reviewing dairy policy. Since 2004 the Center 

for Dairy Excellence has been the organization in Pennsylvania which has served 

as the central office for dairy and have had as our mission to coordinate resources, 

create initiatives and partnerships, and grow both the size and profitability of our 

industry. One of the primary functions of the center is to coordinate the Pennsylvania Dairy Task Force which is comprised of over 100 producers and industry 

stakeholders. 

Just 10 years ago in 2000, there were 83,000 dairy farms in the U.S.; today there 

are 55,000. 84% of the nations milk supply comes from 15,800 farms. Pennsylvania, 

while still the 5th largest dairy state, is generally comprised of smaller dairy farms. 

While we may not have the efficiency advantages of some of our western counterpart states, access to water supplies and forages for feed and access to the vast 

31

northeast and southeast population and markets make Pennsylvania a viable and 

critical state for future dairy production. 

The core priorities of the center have included making resources available to dairy 

farm families to help them be more competitive. Resources like dairy profit teams 

and succession planning teams have enabled producers to assemble resources 

around the kitchen or office table and work through key decisions impacting the 

business. Dairy Decision Consultants and Practical Dairy Advisors are available for 

one on one consultation through the center. Hundreds of Pennsylvania dairy farms 

have used these resource programs to help guide them and chart a course for business direction. Educational programs like our annual Dairy Profitability Forums, 

Summer Dairy Tours, Mastering the Dairy Business Learning Series, and DAIRY 

PRO’s seminars have helped thousands of dairy farm owners, employees, and industry support professionals navigate this increasingly volatile and challenging industry. The center has become a weekly source of information through our Markets and 

Management Report and Dairy Week in Review. In addition, dairy producers across 

Pennsylvania leverage the expertise of the center in helping understand the important resources available like LGM for dairy and other tools designed to protect margins and aid in marketing plans. Last, resources like on line business planning templates and costs of production calculators are valuable tools for dairy business management available through the center. 

The center is optimistic about the future opportunities we see to support a growing and dynamic dairy industry. Our strategic plan includes a focus on modernization, technology, and innovation in dairy. Renewable energy systems and beneficial 

environmental practices pose tremendous opportunities for the region. However, the 

situation our dairy industry finds its self in has progressed in severity as margins 

remain significantly below break even for a majority of producers. To put this in 

perspective, I’d like to reference financial summary data from 2009. One such study 

which represented over 150,000 cows on dairy operations in the northeast reflects 

a ‘‘break-even milk price’’ of $17.08; according to the CDE Pennsylvania Dairy Industry Scorecard, the average monthly all-milk price for 2009 was $14.45. This reflects a negative margin of $2.63 per hundred lbs. of milk (cwt) on these farms. According to Scott Owens of Ag Choice Farm Credit, ‘‘to cash flow these losses, new 

debt per cow increased an average of $600.00 and average farm expenses were cut 

$500.00 per cow, which represents a nearly 20% reduction in variable expenses like 

feed, labor, needed repairs, family living, reinvestment, etc.’’ Not only can these ‘‘expense efficiencies’’ not be sustained long term, some of the added daily operating 

debt has been amortized longer term and has added in excess of $1.00/CWT to annual Cost of Production (COP). The short term debt incurred is reliant on significantly improved margins which, even after 15 months, simply are not being realized. Mike Evanish from MSC Business Services commented, ‘‘our preliminary business performance data from 288 dairy farms suggests 16% showed positive net earnings in Pennsylvania.’’ Clearly, we find ourselves as an industry in waters unchartered that could forever change the landscape of dairy farming. For short term immediate relief, I strongly recommend congress explore opportunities for low interest 

and additional guaranteed funds made available through the Farm Service Agency 

to support this new debt. 

Long term needs are as complex for our industry. In 2006, the center participated 

in the roundtable discussion which led to the document entitled ‘‘Growth and Opportunity for the U.S. Dairy Industry.’’ This document developed by former PA Secretary of Agriculture Dennis Wolff, highlights key priorities for dairy policy and addressed changes needed to maintain a viable dairy industry in the U.S. The priorities identified then, remain critical to the long term viability of our U.S. dairy industry. I would like to comment on two of these here today.

1. In this report, improved systems of price discovery and market transparency 

were identified as being fundamental to any new dairy policy. Transparency in 

pricing is vital as markets need to both understand and have confidence in how 

prices are arrived at. This is the foundation for all critical marketing decisions. 

It has been my observation that U.S. dairy producers are eagerly anticipating 

improvements in a system which lacks transparency and the ability to deliver 

real time reflections of product value. Successful commodity markets have access to information from heavily traded markets. Livestock markets have cash 

market prices reported every day. Earlier this year, at the request of U.S. Senator Arlen Specter’s office, we submitted a paper entitled ‘‘The Case for Mandatory Daily Reporting of Dairy Products.’’ In it we referenced the U.S. beef industry, and the USDA Packers and Stockyards Act. This Act was implemented ‘‘to 

assure fair competition and fair trade practices, to safeguard farmers and 

ranchers . . . to protect consumers . . . and to protect members of the livestock, 

32

meat, and poultry industries from unfair, deceptive, unjustly discriminatory and 

monopolistic practices.’’ This appears to be a model for consideration for our industry. In dairy, the Federal Milk Marketing Order’s depend on NASS surveys 

of dairy commodities. The problem with the latter is that the NASS survey creates a lag in pricing information (1–2 weeks). What is needed are improvements 

in the NASS surveys; eliminate the lag, apply it to more dairy products sold, 

and make reporting on a daily basis mandatory in the same way other protein 

commodities report. The current system results in producer skepticism, and perhaps worst of all is an inadequate source from which to base risk management 

and investment decisions on. I know of no other industry which can be successful and make objective business management or investment decisions based on 

incomplete data—and dairy shouldn’t have to either.

2. The 2nd area, from this report, I would like to discuss is the need to explore 

whether our current tools for Dairy Risk Management are adequate, accessible, 

and affordable. Currently, it is estimated that less than 5% of U.S. dairy producers utilize fundamental risk management tools. In part, I believe this is due 

to the lack of comprehensive and transparent data from which to base risk management decisions on. It is also based on a system which is more complex than 

need be. As Secretary Redding indicated in his testimony, progress has been 

made with tools like LGM for dairy. Improving this resource, providing subsidies as is done with other commodity protection programs and re-launching 

the Dairy Options Pilot Program would increase usage of this important aspect 

of dairy business management.

The Center for Dairy Excellence is involved in other discussions involving changes 

in dairy policy. We provide coordination for the Northeast Dairy leadership Team 

(NEDLT) which is comprised of the Secretaries and Commissioner of Agriculture 

from Pennsylvania, Vermont, and New York as well as approximately 50 producers 

and industry stakeholders from throughout the Northeast. This group has been 

meeting and working through issues impacting our regional dairy industry. As the 

economic recession has unfolded and has had a severe impact on our regions dairy 

industry, the NEDLT has intensified discussions and developed policy points of 

agreement. 

Based on these discussions, the NEDLT developed a position paper last year outlining what we believe revised dairy policy needs to include; this document was updated in February to include the following. 

The NEDLT believes any dairy policy or pricing structure should:

• Be market oriented to allow for growth both domestically & internationally.

• Be responsive to quickly changing market conditions.

• Have 100 percent financial participation by producers.

• Be global in nature to consider the impact of imports and exports.

• Be national in scope with the ability to implement regionally.

• Have minimal government involvement.

The NEDLT has been reviewing policy and pricing proposals from across the U.S. 

to evaluate how each proposal would align with these objectives. Last month, the 

NEDLT committed to fund a comprehensive analysis of specific program options intended to reduce dairy price volatility. This analysis is to be completed by Dr. Chuck 

Nicholson of Cal Poly San Luis Obispo and Dr. Mark Stephenson of Cornell University by June 1st. 

The analysis will include, as part of the study, a Dairy Growth Management Initiative concept proposed by a U.S. coalition including cooperatives, breed associations, and other stakeholder organizations. This initiative would include the establishment of a new dairy board made up largely of dairy producers, which would 

have at its disposal several tools to use to reduce extreme volatility. Some of those 

tools include:

• Herd reduction programs.

• Export assistance.

• Dairy commodity production incentives that allow for the displacement of imported dairy products, such as casein.

• Programs to enhance risk management tools and opportunities among producers, cooperatives, and customers.

• Managing inventories of dairy commodities to limit price volatility.

In addition, the Board would have authority to implement a program to manage 

unbridled growth in milk supplies during times of low milk prices relative to feed 

33

costs. An example of this is the Marginal Milk Pricing plan proposed by Agri Mark 

Cooperative. This concept is intended to price ‘‘surplus milk’’ according to its marginal value only during those times when prices fall below a pre-set level. 

In their analysis, Stephenson and Nicholson will look at the impact on volatility, 

exports, and revenue for producers and processors. The NEDLT will be reviewing 

the findings of this analysis and communicating them with our Northeast Congressional delegation. 

I’ll conclude my testimony by relating a conversation I had last week with a very 

successful young dairy producer here in Pennsylvania, who said, ‘‘so far this year 

I have had three neighbors sell their herds; we are losing jobs and critical mass infrastructure and it is looking more and more like a lonely business to be in.’’ In 

summary, the U.S. dairy industry has been based on incentive, growth, and opportunity. Farmers have been fortunate to be able to begin each day with incentive to 

compete and to improve their dairy business and reap rewards for their effort. Communities have benefited from infrastructure established in large part, to serve agriculture and in particular the dairy industry. However, the situation we face today 

will not remedy itself on its own; and change is not optional. The viability of this 

industry is at stake. Thank you for this opportunity to speak on behalf of the Pennsylvania dairy industry and for your ongoing support of the U.S. dairy industry.

The CHAIRMAN. Thank you, Mr. Frey. 

Mr. Hissong, welcome to the Committee. 

STATEMENT OF ROD HISSONG, CO-OWNER, MERCER VU 

FARMS INC.; PAST PRESIDENT, PROFESSIONAL DAIRY

MANAGERS OF PENNSYLVANIA, MERCERSBURG, PA 

Mr. HISSONG. Thank you, Chairman Peterson and the rest of the 

Committee on Agriculture. 

My name is Rod Hissong. I appreciate the opportunity to visit 

with you this morning about dairy policy. My family and I own and 

operate Mercer Vu Farms in Mercersburg, Pennsylvania. On our 

dairy in Franklin County we milk 1,600 cows, raise 1,400 heifers, 

farm 1,800 acres and haul over 42 million pounds of milk a year 

from our dairy with our own trucks to Land O’ Lakes. We have 26 

full-time employees that are dedicated to producing high-quality 

milk, efficiently, safely, and profitability as to benefit management, 

employees, cows, the environment and the community in which we 

live. Our dairy supports over 170 agricultural jobs and provides 

over $22 million of economic stimulus to our region. 

While I am here to speak on behalf of my own operation and my 

own views, I am also here to speak to you as past President of the 

Professional Dairy Managers of Pennsylvania. PDMP is a professional dairy organization that has a positive, can-do attitude about 

the dairy industry in Pennsylvania. We like to look at the longterm solutions instead of short-term band-aids, and while these are 

tough times in the dairy industry, we focus on things that we can 

change instead of complaining about the things we can’t. 

After the last 12 to 14 months, issues related to and concerning 

milk pricing seem to be at the forefront of dairy policy issues. Attached to my testimony is a 2009 position paper published by 

PDMP that concisely relays our message and organization’s 

thoughts on what needs to be done to ensure the long-term viability of the dairy industry as it relates to dairy pricing. It states the 

PDMP believes that in general, the dairy industry would be best 

served if the government stopped purchasing excess dairy products, 

many of which are not made to world specifications. These products 

need to be replaced by products that can be sold on the world marketplace. As long as the government continues to purchase our 

34

products like butter, cheese and powder that are not made to world 

specifications, the dairy industry will remain complacent and not 

change what it makes. Manufacturers will keep making what they 

always make because they know eventually their products will be 

bought by the government at a profit. It would be better for the 

long-term prosperity of our industry to make products that 

strengthen our ability to compete in the international markets that 

have a growing need for dairy products. 

PDMP believes that there needs to be an overhaul to the Federal 

Order System. Currently, our milk is priced using the CME, a 

mechanism on which only one percent of the nation’s milk production is sold. This market is thinly traded and has very few buyers 

and sellers, yet this mechanism is allowed to price all of our milk, 

is being viewed by many as the future of how we price milk and 

how we either lock-in profits or losses. The industry will be better 

in the long-term if we stop reliance on the CME and develop a 

more transparent pricing system that pays producers for what they 

produce and take into consideration the cost of producing it. We 

need a Federal Order System that is easier to understand, has 

greater transparency and is more reliable at pricing milk. 

PDMP believes that the industry should be focused on economic 

growth rather than supply management. It is essential for our industry to operate under a growth model. Growth is a key business 

concept to our dairy producers and industry infrastructure because 

a business that is not growing tends to be moving backwards. We 

need to encourage our system to be developing new products and 

models that allow growth in the industry. We believe in letting the 

marketplace decide who has cows and who doesn’t. Given the honest opportunity to compete in the world marketplace, the dairymen 

in the industry that can adapt and manage effectively will succeed. 

PDMP believes that direct government payments are short-term 

solutions to long-term problems. Continuation of programs that 

provide direct payments to farmers do not provide for any longterm relief. Direct payments are viewed as welfare for the dairymen that do not reflect well on the industry. These funds would be 

better used to help provide long-term solutions and plans that help 

our industry compete in the world marketplace. 

Personally, I believe that the lowering of the somatic cell limit 

to 400,000 is a win-win for everyone, including farmers, processors 

and the consumers. It aligns us with international standards of 

milk quality, eliminates the lower quality milk for the market and 

is a positive move for our industry. International markets and 

more recently the European Union demand it and it is time that 

we deliver. 

I believe that calls for increased accuracy in pricing and inventory reporting is just. The call to enforce policy like electronic 

NASS reporting and auditing and import assessments to dairy promotion, which are already part of the last farm bill, seems to make 

sense. 

While milk pricing and milk-related issues are at the forefront of 

the dairy issues at the moment, there is one other important issue 

I would like you to indulge me with for a little bit, but it relates 

to dairy policy, and it has the potential to be just as harmful to 

dairy farm families such as mine. Dairymen are desperately in 

35

need of a workable guest worker program for agriculture. Many 

Americans are unwilling to work the jobs that diary farms have to 

offer. This has caused many dairies large and small to look to foreign workers to fill that void. In our case, the Hispanic community 

has been a source of hardworking, reliable and trustworthy labor. 

They are good with animals and help to ease the demand of a 24 

hours a day, 365 days a year business. On our dairy, many of our 

foreign workers are paid quite well and many have moved beyond 

entry-level positions to become integral management caliber employees. Without them, the work of feeding our nation would come 

to a screeching halt. We need a guest worker program that secures 

our borders, allows foreign workers to pay their fair share of the 

tax burden, allows workers to stay for a reasonable length of time, 

cuts through all the red tape, is fast and efficient to obtain, is economical to obtain, and simplifies the documentation process. 

Like it or not, foreign born workers have become an integral part 

of our workforce and play a vital role in our food supply chain. 

While a comprehensive guest worker program may seem like a 

steep hill to climb, I would urge you to consider a guest worker program for agriculture and dairy that would ease the burden on the 

food supply chain. 

Many farm families such as my own have suffered financial 

hardships like never before. We own a business that is demanding 

and requires a complete, total commitment. Why else would we 

crawl out of bed this winter to milk the cows or deliver a calf? All 

that we have are in our dairy operations. Many of us feel we are 

left to the mercy of a broken system. I look at dairy policy like an 

old, tattered barn. Do you remodel or do you tear it down and start 

from scratch? With dairy policy we have been remodeling for decades and I feel that we have reached a crossroads where, in many 

cases, we need to tear down and start from scratch. 

I am not here for a handout. I am here to ask you to do the difficult work that needs to be done to fix a broken system. You have 

started by taking the time to do what you are doing today. I commend you for listening to all of us and for allowing me to participate. Thank you. 

[The prepared statement of Mr. Hissong follows:]

PREPARED STATEMENT OF ROD HISSONG, CO-OWNER, MERCER VU FARMS INC.; PAST

PRESIDENT, PROFESSIONAL DAIRY MANAGERS OF PENNSYLVANIA, MERCERSBURG, PA 

Good morning Chairman Peterson and the rest of the Committee on Agriculture. 

My name is Rod Hissong. I appreciate the opportunity to visit with you this morning about dairy policy. My family and I own and operate Mercer Vu Farms Inc. in 

Mercersburg, Pennsylvania. On our dairy in Franklin County we milk 1,600 cows, 

raise 1,400 heifers, farm 1800 acres and haul over 42 million pounds of milk a year 

from the dairy with our own trucks to Land O’ Lakes. We have 26 full time employees that are dedicated to producing high quality milk, efficiently, safely, and profitably as to benefit management, employees, cows, the environment and the community in which we live. Our dairy supports over 170 agricultural jobs and provides 

over $22 million of economic stimulus to our region. 

While I am here to speak on behalf of my own dairy operation and my own views 

I am also here to speak to you as past President of the Professional Dairy Managers 

of Pennsylvania. PDMP is a professional dairy producer organization that has a 

positive, can-do attitude about the dairy industry in Pennsylvania. We like to look 

at long term solutions instead of short term band-aids and while these are tough 

times in the dairy industry, we focus on things we can change instead of complaining about the things we can’t. 

36

After the last 12–14 months issues related to and concerning milk pricing seem 

to be at the forefront of dairy policy issues. Attached to my testimony is a 2009 position paper published by PDMP that concisely relays our organization’s thoughts on 

what needs to be done to ensure the long-term viability of the dairy industry as it 

relates to milk pricing. 

It states that PDMP believes, in general, that the dairy industry would be best 

served if the government stopped purchasing excess dairy products, many of which 

are not made to world specifications. These products need to be replaced by products 

that can be sold on the world marketplace. As long as the government continues 

to purchase our products, like butter, cheese, and powder that are not made to 

world specifications, the dairy industry will remain complacent and not change what 

it makes. Manufacturers will keep making what they always make because they 

know eventually their products will be bought by the government at a profit. It 

would be better for the long-term prosperity of our industry to make products that 

strengthen our ability to compete in international markets that have a growing need 

for dairy products. 

PDMP believes there needs to be an overhaul of the Federal Order System. Currently our milk is priced using the Chicago Mercantile Exchange (CME), a mechanism through which only 1% of the nation’s milk production is sold. This market 

is thinly traded and has very few buyers and sellers. Yet, this mechanism is allowed 

to price all of our milk and it is being viewed by many as the future of how we 

price milk and how we either lock in our profits or loses. The industry will be better 

in the long-term if we stop reliance on the CME and develop a more transparent 

pricing system that pays producers for what they produce and takes into consideration the cost of producing it. We need a Federal Order system that is easier to understand, has greater transparency and is more reliable at pricing milk. 

PDMP believes that the industry should be focused on economic growth rather 

than supply management. It’s essential for our industry to be operating under a 

growth model. Growth is a key business concept for our dairy producers and industry infrastructure because a business that is not growing tends to be moving backwards. We need to encourage our system to be developing new products and models 

that allow growth in the industry. We believe in letting the marketplace decide who 

has cows and who doesn’t. Given the honest opportunity to compete on the world 

marketplace, the dairymen in the industry that can adapt and manage effectively 

will succeed. 

PDMP believes that direct government payments are short-term solutions to long 

term problems. Continuation of programs that provide direct payments to farmers 

does not provide for any long term relief. Direct payments are viewed as welfare 

for the dairymen and do not reflect well on the dairy industry. These funds would 

be better used to help provide long term solutions and plans that help our industry 

compete on the world marketplace. 

Personally I believe that lowering of the somatic cell (SCC) limit to 400,000 is a 

win-win for everyone including farmers, processors and the consumer. It aligns us 

with international standards of milk quality, eliminates the lower quality milk from 

the market and is a positive move for our industry. International markets demand 

it and it is time we deliver. 

I believe the calls for increased accuracy in price and inventory reporting is just. 

The call to enforce policy like electronic NASS reporting and auditing and import 

assessments to dairy promotion which are already a part of the last farm bill seems 

to make sense. 

While milk pricing and milk relates issues are at the forefront of dairy issues at 

the moment there is one other important issue related to dairy policy that has the 

potential to be just as harmful to dairy farm families such as mine. 

Dairymen are desperately in need of a workable guest worker program for agriculture. Many Americans are unwilling to work the jobs that dairy farms have to 

offer. This has caused many dairies, large and small, to look to foreign workers to 

fill that void. In our case the Hispanic community has been a source of hard working, reliable and trustworthy labor. They are good with animals and help ease the 

demand of a 24 hour a day, 365 days a year business. On our dairy many of our 

foreign workers are paid quite well and many have moved beyond entry level positions to become integral management caliber employees. Without them the work of 

feeding our nation would come to a screeching halt. We need a guest worker program that secures our borders, allows foreign workers to pay their fair share of the 

tax burden, allows workers to stay for a reasonable length of time, cuts through all 

the red tape, is fast and efficient to obtain, is economical to obtain and simplifies 

the documentation process. Like it or not foreign born workers have become an integral part of our workforce and play a vital role in our food supply chain. While a 

comprehensive guest worker program may seem like a steep hill to climb I would 

37

urge you to consider a guest worker program for agriculture and dairy that would 

ease the burden on our food supply chain. 

Many family farm dairies, my own included have suffered financial hardships like 

never before. We are in a business that is demanding and requires a complete and 

total commitment. Why else would we have crawled out of bed this winter to milk 

the cows or deliver a calf? All that we have are in our dairy operations. Many of 

us feel we are left to the mercy of a broken system. I look at dairy policy like an 

old tattered barn. Do you remodel or do you tear down and start from scratch? With 

dairy policy we have been remodeling for decades and I believe we have reached a 

crossroads where in many cases we just need to tear down and start from scratch. 

I am not here for a handout. I am here to ask for you to do the difficult work that 

needs to be done to fix a broken system. You have started by taking the time to 

do what you are doing today. I commend you for listening to all of us and thank 

you for allowing me to participate. Thank you. 

ATTACHMENT

Long-term Viability of the Dairy Industry 

A Position Paper from the Professional Dairy Managers of Pennsylvania 

The Professional Dairy Managers of Pennsylvania is driven by a very clear mission. It is on all PDMP documents and it is central to all that the organization does. 

PDMP exists to advance the dairy industry in Pennsylvania through improved productivity and profitability. Dairy producers who chose PDMP membership want to be in a position to be in the business for the long haul. 

The industry is at a critical juncture. In the current economic climate and with 

the growing pressures on how dairy farms operate, the future of the industry is at 

stake. PDMP leadership believes it is this organization’s responsibility to examine 

what it will take to ensure that our members can realize their dreams. The industry 

must act to guarantee that it will continue to be a leading force in the U.S. and 

World economies, and that consumers will continue to have access to a supply of 

dairy products produced within its own borders. 

Many forces have come into play to create a situation where dairy producers are 

not able to make enough money on their production to support the basic costs of 

doing business. 

In keeping with the positive, progressive-minded attitude of this association’s 

membership, the Board of Directors is making recommendations on dairy policy. 

Given these desperate times, many solutions are being proposed by various sectors of the industry. Some of these solutions would provide immediate shortterm relief from our current problems; however, they are not long-term solutions for the industry. The PDMP Board has been guided by the overall 

philosophy that it is in the best interests of the industry to make constructive changes based on a desire to create permanent, long-term solutions that 

will ultimately make the dairy industry stronger.

In a meeting on September 24 the PDMP Board of Directors established the following four position statements that summarize our core beliefs:

1. PDMP believes that, in general, the dairy industry would be best 

served if the government stopped purchasing excess dairy products, 

many of which are not made to world specifications. These products 

need to be replaced by products that can be sold on the world marketplace.

Government purchase of excess products in the past provided a safety net and 

allowed our industry to grow. Today this safety net continues to allow our industry to grow but it has caused manufacturers to become complacent in the 

products that they produce. Manufacturers are not producing products that 

meet the world demand, which has resulted in world markets looking to the 

United States as a last stop for what they need. As long as the government continues to purchase our products (i.e., butter, cheese, & powder) that are not 

made to world specifications, the dairy industry will not change what it makes. 

Manufacturers will keep making what they always make because they know 

eventually their products will be bought by the government at a profit. It would 

be better for the long-term prosperity of our industry to make products that 

strengthen our ability to compete in international markets. While it is agreed 

that certain issues are best maintained as part of the government regulatory 

process, the dairy industry should be allowed to operate in a free market system 

just as other businesses do. If the government ceases to buy the products that 

no one wants, then manufacturers will stop making them. They will instead 

38

produce products that everyone wants and that can be sold in the growing 

world marketplace that is in need of dairy products.

2. PDMP believes that the Federal Pricing System needs to be overhauled.

The $350 million Dairy Assistance proposal is a short-term bandage with no 

long-term solutions. We believe funds should be earmarked for the overhaul of 

the Federal Order System. Currently our milk is priced using the Chicago Mercantile Exchange (CME), a mechanism through which only 1% of the nation’s 

milk production is sold. This market is thinly traded and has very few buyers 

and sellers. Yet, this mechanism is allowed to price all of our milk and it is 

being viewed by many as the future of how we price milk and how we either 

lock in our profits or loses. The industry will be better in the long-term if we 

stop reliance on the CME and develop a more transparent pricing system that 

pays producers for what they produce and takes into consideration the cost of 

producing it.

3. PDMP believes that the industry should be focused on economic 

growth rather than supply management.

It’s essential for our industry to be operating under a growth model. Growth 

is a key business concept for our dairy producers and industry infrastructure 

because a business that is not growing tends to be moving backwards. We need 

to encourage our system to be developing new products and models that allow 

growth in the industry. We may need to operate under a more controlled 

growth, and rely more on the world market versus the domestic market. Thus, 

PDMP’s points 1 & 2 are essential to having growth occur. Supply management 

gives unfair advantages to certain geographical locations and certain size farms. 

We believe in letting the marketplace decide who has cows and who doesn’t. 

Given the honest opportunity to compete on the world marketplace, the dairymen in the industry that can adapt and manage effectively will succeed.

4. PDMP believes that direct government payments are short-term solutions to long-term problems.

Continuation of programs that provide direct payments to farmers does not provide for any long term relief. Direct payments are viewed as welfare for the 

dairymen and do not reflect well on the dairy industry. These funds would be 

better used to help provide long term solutions and plans that help our industry 

compete on the world marketplace.

The CHAIRMAN. Thank you, Mr. Hissong, I appreciate your testimony. 

Ms. Mosemann, welcome to the Committee. 

STATEMENT OF LAUREN MOSEMANN, DAIRY PRODUCER, 

MISTY MOUNTAIN DAIRY LLC, WARFORDSBURG, PA; ON

BEHALF OF MARYLAND & VIRGINIA MILK PRODUCERS

COOPERATIVE ASSOCIATION, INC.; NATIONAL MILK

PRODUCERS FEDERATION 

Ms. MOSEMANN. Chairman Peterson and most honored Committee Members, thank you for allowing me to testify today about 

dairy policy on behalf of my cooperative, Maryland & Virginia Milk 

Producers and the National Milk Producers Federation. 

My name is Lauren Mosemann and I farm with my husband, 

Mark and his family in Warfordsburg, Pennsylvania. We have approximately 375 milking cows. My primary job is to manage the 

300+ replacement heifers and calves. Mark and I have been active 

participants in our co-op, served as Outstanding YC Couple, have 

enjoyed participating in the YC visits to the Congress. 

Mark is the third generation on his family’s home farm and I 

was third generation on my farm which is, unfortunately, no longer 

in business. Although we both could have had other career opportunities, and today’s dairy economy naturally creates us to have secVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00042 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
39

ond thoughts, we are thankful to be doing the work that we love 

and raising our children on the farm. 

Two thousand-nine, presented an unprecedented financial catastrophe for our dairy producer community. U.S. dairy exports had 

grown strongly from the equivalent of about five percent of U.S. 

milk production in 2002, to about 11 percent in 2008. Exports collapsed as the recession deepened worldwide to a low of less than 

eight percent of production in January 2009. 

What has become clear to the dairy producer community from 

this extraordinary strain is that we need a combination of approaches to deal with the current situation. Last year, NMPF created a Strategic Planning Task Force to seek consensus across the 

dairy producer community and create a solid ‘‘Foundation for the 

Future.’’ Our co-op has been an integral part of this process. The 

goal of this task force has been to analyze and develop a long-term, 

strategic plan that will have a positive impact on both supply and 

demand for milk and dairy products. 

Both the Dairy Product Price Support Program and the MILC 

Program are inadequate protections against not just periodic low 

milk prices, but also destructively low profit margins that occur 

when input costs, especially feed prices, shoot up. The Price Support Program, in particular, has outlived its usefulness and hinders 

the ability of U.S. and world markets to adjust to supply-demand 

signals. Neither was designed to function in a more globalized market where not just milk prices, but also feed costs and energy expenses are more volatile and trending higher. In the future, the 

solvency of dairy farms will depend more on the margins than just 

the milk price alone. 

In order to address this dilemma, NMPF is proposing a new program called the Dairy Producer Income Protection Program that 

can help insure against the type of margin squeezes that farmers 

experienced in 2009. It would offer a combination of a base level 

of insurance coupled with voluntary supplemental coverage, and 

will allow farmers of all sizes in all regions to protect themselves 

from periodic margin squeezes caused both by both high input costs 

and low milk prices. 

The base level of coverage subsidized by the government covers 

a portion but not all of a farms historical annual milk production, 

and protects against a modestly negative margin between milk 

prices and feed costs. The second level would be optional and allow 

a farmer to purchase a greater level of coverage with a portion of 

that insurance subsidized by the government. 

The goal of this effort is to develop a pricing system that compensates producers fairly, reduces price volatility and creates a 

more dynamic dairy industry. The key in doing so is to establish 

a competitive pay price for milk that doesn’t depend on the current 

milk pricing formulas that can distort signals sent both to producers and processors. 

The Strategic Planning Task Force also proposes to revamp Federal Orders so we can encourage the movement of milk to its highest value uses. For the past 7 years, NMPF Cooperatives Working 

Together Program has voluntarily helped to address the supply 

side of the supply-demand equation that ultimately determines 

milk prices. We need to both revitalize CWT and evaluate other apVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00043 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
40

proaches that will address the extremes in price volatility impacting producer profit margins. The Foundation for the Future is focused on a program that will increase demand, and when necessary, send a signal that less supply is needed. 

There are other issues that are very important to us in the dairy 

industry. The Child Nutrition reauthorization is critical to the 

funding of school and breakfast meal programs which provides our 

children with more opportunities to receive their drinking milk. 

Comprehensive immigration reform is long overdue. For example, 

we have always tried to hire locally and at reasonable rate but unfortunately our last job ad resulted in four phone calls, one interview and no returns. 

Estate tax laws must be reformed, too. As our family works out 

our partnership agreement this year, uncertainty about 

generational transfer of the farm assets is a major factor. 

I thank you for the opportunity to testify today on the issue of 

dairy policies and I look forward to answering any questions the 

Committee may have. Thank you. 

[The prepared statement of Ms. Mosemann follows:]

PREPARED STATEMENT OF LAUREN MOSEMANN, DAIRY PRODUCER, MISTY MOUNTAIN

DAIRY LLC, WARFORDSBURG, PA; ON BEHALF OF MARYLAND & VIRGINIA MILK

PRODUCERS COOPERATIVE ASSOCIATION, INC.; NATIONAL MILK PRODUCERS

FEDERATION

Chairman Peterson, Ranking Member Lucas and House Agriculture Committee 

Members: thank you for allowing me to testify today about dairy policy on behalf 

of my cooperative, Maryland & Virginia Milk Producers, and the National Milk Producers Federation (NMPF). Maryland & Virginia markets milk for its 1,500 farmer 

owners from Pennsylvania to Georgia. Just over 700 of those farmer members dairy 

right here in the Commonwealth of Pennsylvania. NMPF develops and carries out 

policies that advance the well being of dairy producers and the cooperatives they 

own. The members of NMPF’s 31 cooperatives produce the majority of the U.S. milk 

supply, making NMPF the voice of more than 40,000 dairy producers on Capitol Hill 

and with government agencies. 

My name is Lauren Mosemann and I am from Warfordsburg, PA. My husband 

Mark and I farm with Mark’s family in Misty Mountain Dairy. We milk approximately 375 cows and have about the same number of replacement animals. In fact, 

my primary job is the care of those replacement heifers and calves. Mark and I have 

been active participants in the Maryland & Virginia Young Cooperators Program 

and have also attended YC visits to the Congress coordinated by NMPF. Mark and 

I were honored to be the Maryland & Virginia Outstanding YC Couple in 2007–

2008. 

Mark and I have made a conscious decision to raise our children on the dairy 

farm and we do not rely on any outside income. We have also made a commitment 

to be involved in our community. Mark is on the local school board and I volunteer 

with the local Farm Bureau for their Mobile Ag Lab. I have also just signed up to 

help promote the ‘‘Fuel Up to Play 60’’ nutrition and physical activity program 

launched recently by the dairy promotion and research Check-Off and the National 

Football League. 

Both Mark and I come from long lines of dairy farmers. Mark is the third generation of his family on the home farm and I was the third generation on my family 

farm that is, unfortunately, no longer in business. Looking back on our decision to 

dairy, we both had other career options. While today’s dairy farm economy naturally 

creates a second thought or two, this is the decision we made about how we wanted 

to raise our children. 

Mark and I have friends at church with a college age son who would like to return 

to the farm. That family is debating whether that is an economically viable decision 

for their son to make. Mark and I see ourselves in that same situation with our 

children in 15 years or so and we’d like to think that some of the policy decisions 

we’re considering here today will improve that opportunity for our family. 

As NMPF and others have testified before this Committee, 2009 presented an unprecedented financial catastrophe for the dairy producer community. Last year, 

41

dairy farmers in the United States experienced their worst year financially in anyone’s memory. U.S. dairy exports had grown strongly from the equivalent of about 

five percent of U.S. milk production in 2002 to about 11 percent of production in 

2008, peaking, on a monthly basis, at almost 13 percent of production in August of 

2008. Then, over the following 6 months, exports collapsed as the recession deepened worldwide, to a low of less than eight percent of production by January 2009. 

Although exports recovered steadily, to average 9.3 percent of production for the 

year, and domestic dairy product sales were strong despite the economy, this could 

not counterbalance losing the equivalent of five percent of total commercial sales 

during the second half of 2008. Milk prices fell far below the costs of production for 

all dairy farmers, who incurred losses estimated at almost $8 billion last year. 

Prices recovered gradually during the second half of 2009, as the cumulative effects 

of removing about 250,000 cows through the voluntary Cooperatives Working Together (CWT) program plus recovering exports slowly began to reestablish a supplydemand balance in the market. Milk prices rose briefly above break-even around the 

first of this year, but have subsequently retreated back below cost levels in the past 

2 months, as residual dairy product stocks remain too large to sustain prices above 

costs at the percent time. 

The current dairy and grain futures markets indicate that milk prices will rise 

again above costs around mid-year and remain there for the remainder of the year, 

but not to the extent that dairy farmers will make much headway in rebuilding the 

huge losses of equity in their dairy farms that they experienced last year. Financial 

recovery may likely prove impossible for many, while some farms are currently in 

receivership, with their lenders waiting only for the value of dairy cows and the 

land, their main sources of collateral, to recover equity before they proceed to liquidate them. 

A Way Forward: 

What has become clear to the dairy producer community from this extraordinary 

strain is that we need a combination of approaches to deal with the current situation. To address the underlying problems that caused this crisis and the many industry factors that have contributed to its depth and protracted nature, we need to 

focus on solutions that avoid recurrences of this situation in the future. 

Towards that end, last year NMPF created a Strategic Planning Task Force to 

seek consensus across the dairy producer community and create a solid ‘‘Foundation 

for the Future.’’ My co-op, Maryland & Virginia Milk Producers, has been an integral part of this process. The goal of the Strategic Planning Task Force has been 

to analyze and develop a long-term strategic plan for consideration by the NMPF 

Board of Directors that will have a positive impact on the various factors influencing 

both supply and demand for milk and dairy products. It is extremely important to 

develop workable and realistic solutions that will garner broad support from dairy 

producers nationwide in order to unify behind an approach as this Committee begins to consider the next farm bill. 

As Albert Einstein said, ‘‘We can’t solve problems by using the same kind of 

thinking we used when we created them.’’ 

NMPF’s new roadmap for U.S. dairy policy, called the Foundation for the Future, 

will drastically change many aspects of current policy, some of which have existed 

for decades. Our existing dairy policies and programs were designed in an earlier 

time to operate in a relatively closed domestic market. However, today’s market for 

U.S. dairy farmers’ milk is greatly influenced by global demand and supply, as the 

record prices of 2008—and their disastrous plunge in 2009—clearly demonstrated. 

Rather than offering just one solution, the Foundation for the Future program is 

multi-faceted: it seeks to refocus existing farm-level safety nets; create a new program to protect farmers against low margins; revamp the Federal Order milk pricing system; and establish a way to better balance dairy supply and demand. I would 

like to touch on each aspect of this approach.

1. Refocusing Current Safety Nets

Both the Dairy Product Price Support Program and the MILC program are inadequate protections against not just periodic low milk prices, but also destructively low profit margins that occur when input costs, especially feed prices, 

shoot up. The Price Support Program, in particular, has outlived its usefulness 

and hinders the ability of U.S. and world markets to adjust to supply-demand 

signals.

Discontinuing the Dairy Product Price Support Program (DPPSP) would allow 

greater flexibility to meet increased global demand and shorten periods of low 

prices by reducing foreign competition. Additionally, shifting resources from the 

42

DPPSP toward a new income protection program would provide farmers a more 

effective safety net.

As this Committee may recall, NMPF vigorously defended the importance of the 

price support program, albeit modified to make improvements in certain respects, in the 2008 Farm Bill process. But at the end of the day, it is clear at 

this point that the dairy product price support program is not the best use of 

Federal resources to establish a safety net to help farmers cope with periods of 

low prices and is not the most effective way of achieving this goal.

• The DPPSP reduces total demand for U.S. dairy products and 

dampens our ability to export, while encouraging more foreign imports into the U.S.

The price support program effectively reduces U.S. exports, by diverting some 

of our milk flow into government warehouses, rather than to commercial buyers in other nations. It creates a dynamic where it’s harder for the U.S. to 

be a consistent supplier of many products, since sometimes we have products 

to export, and at other times, we just sell to the government.

• The Program acts as a disincentive to product innovation.

It distorts what we produce, i.e., too much nonfat dry milk, and not enough 

protein-standardized skim milk powder, as well as specialty milk proteins 

such as milk protein concentrate, that are in demand both domestically and 

internationally. Because the price support program is a blunt instrument that 

will buy only nonfat dry milk—and because that’s what some plants have 

been built to produce, as opposed to other forms of milk powder—it puts the 

U.S. at a competitive disadvantage to other global dairy vendors.

• DPPSP supports dairy farmers all around the world and disadvantages U.S. dairy farmers.

Further aggravating measures, the current program helps balance world supplies, by encouraging the periodic global surplus of milk products to be purchased by U.S. taxpayers. Dairy farmers in other countries, particularly the 

Oceania region, enjoy as much price protection from the DPPSP as our farmers. Without USDA’s CCC buying up an occasional surplus of dairy proteins 

in the form of nonfat dry milk, a temporarily lower world price would affect 

our competitors—all of whom would be forced to adjust their production 

downward—and ultimately hasten a global recovery in prices.

• The DPPSP isn’t effectively managed to fulfill its objectives.

Although the DPPSP has a standing offer to purchase butter, cheese and nonfat dry milk, during the past 12 years, only the last of that trio has been sold 

to the USDA in any significant quantity. In essence, the product that the 

DPPSP really supports is nonfat dry milk. Even at times when the cheese 

price has sagged well beneath the price support target, cheese makers choose 

not to sell to the government for a variety of logistical and marketing-related 

reasons. We have tried to address these problems, but USDA has to date been 

unwilling to account for the additional costs required to sell to government 

specifications. Once purchased, powder returning back to the market from 

government storage also presents challenges, and can dampen the recovery of 

prices as government stocks are reduced.

• The price levels it seeks to achieve aren’t relevant to farmers in 2010.

Even though the $9.90 per hundredweight milk price target was eliminated 

in the last farm bill, the individual product price support targets: $1.13/lb. for 

block cheese, $0.85 for powder, and $1.05 for butter—essentially will return 

Class III and IV prices around $10/cwt. But in an era of higher cost of production, that minimal price isn’t acceptable in any way, shape or form. The chart 

below depicts the U.S. average cost of production and the effective level of 

support the program provides for the average price dairy farmers receive for 

milk in the U.S. As is clear from this graph, this effective price support level 

is far below today’s cost of production.

We believe that with the current funding constraints facing Congress, we are 

unlikely to see increased support prices. Even if it did, however, we would 

likely face the same barriers described in the prior point.

43

In summary, discontinuing the DPPSP would eventually result in higher milk 

prices for U.S. dairy farmers. By focusing on indemnifying against poor margins, rather than on a milk price target that is clearly inadequate, we can 

create a more relevant safety net that allows for quicker price adjustments, 

reduced imports and greater exports. As a result of our DPPSP, the U.S. has 

become the world’s balancing plant. As time marches on, so, too, must our approach to helping farmers. It is because of this that NMPF is now focused 

upon a transitional process that shifts the resources previously invested in 

the dairy product price support program, to a new producer income protection 

program.

2. Dairy Producer Income Protection Program.

As mentioned above, existing safety net programs (the price support program, 

and the MILC program) were created in a different era. Neither was designed 

to function in a more globalized market, where not just milk prices, but also 

feed costs and energy expenses, are more volatile and trending higher. In the 

future, the solvency of dairy farms will depend more on margins (the difference 

between input costs and milk prices) than just the milk price alone. In order 

to address this dilemma, NMPF is proposing a revolutionary new program 

called the Dairy Producer Income Projection Program (DPIPP). It will help insure against the type of margin squeeze farmers experienced in 2009, and also 

at other points in the past when milk prices dropped, feed costs rose—or both 

conditions occurred in tandem.

In developing the Dairy Producer Income Protection Program, a few important 

principles are being followed:

• Losses caused by either low milk prices or high feed costs need to be covered.

• A farmer’s cost for basic protection must be kept low or nonexistent.

• The level of protection available should be flexible, and producers should be 

able to purchase a higher level of protection if they choose.

• The program should be voluntary, national in scope, and open to all dairy 

farmers, regardless of size.

• The program should not provide incentives to create artificial over-production.

• The program must be easy to access by all producers through a simple application process or through the assistance of their cooperative.

Essentially, the Dairy Producer Income Protection Program (DPIPP) is intended 

to be a farm-level safety net program focused on margins, rather than just on 

prices, in order to create a better tool to deal with global price volatility. DPIPP 


11147003
44

would offer a combination of a base level of insurance, coupled with voluntary 

supplemental coverage, will allow farmers of all sizes in all regions to protect 

themselves from periodic margin squeezes caused both by high input costs and 

low milk prices.

As a substitute for the other two safety nets, DPIPP would involve two levels 

of insurance against negative margins. The first would be a base level of coverage, subsidized by the government that covers a portion (but not 100%) of a 

farm’s historical annual milk production, and protects against a modestly negative margin between milk prices and feed costs. The second level would be optional, and allow a farmer to purchase a greater level of coverage, with a portion of that insurance subsidized by the government.

Key elements include:

• Defining margin as the difference between the national all-milk price 

and key feed inputs.

The all-milk price is the best proxy to define what an average nationwide 

price is for milk each month. Feed costs are represented by corn, soybean 

meal, and alfalfa hay, and the cost of those is also tracked monthly by USDA. 

The difference between the per hundredweight price of milk, and the cost of 

feeding cows, will establish this program’s margin.

• The government will invest to help defray the cost of a basic level of 

margin insurance for all farmers.

A significant portion—but not 100%—of a farm’s historic production base will 

be eligible for coverage. Indemnifying against part, but not all, of that farm’s 

milk volume will ensure that the program does not stimulate overproduction. 

Once the numerical margin target is established, it will be fixed for the life 

of the farm bill. USDA will calculate actual margins on a monthly basis and 

make indemnity payments quarterly, as market conditions dictate.

• Producers will have the option of purchasing an additional level of 

coverage.

For a fee, farmers who wish to insure a higher level of margin protection will 

have that option, with the premium partially subsidized by the government. 

The premium will be calculated by the probability or frequency of payments 

of the specific level of coverage selected. Producers will have a year after implementation of the farm bill to sign up for additional coverage.

• The DPIPP will be equitable and national.

This program is designed to have no payment limitations, or production caps, 

thus ensuring that dairy farms of all sizes will be covered proportionately. 

The DPIPP will allow for new entrants, i.e. new farming options, but only 

under strict parameters so the system can’t be gamed. The program will be 

administered by the USDA through the Farm Service Agency (FSA) or the 

Risk Management Agency (RMA).

This approach is really no different than the concept of private property or auto 

insurance, where premiums adjust to the coverage desired. But under the 

DPIPP, the base level of coverage would be the government’s obligation to fund, 

while the supplemental coverage would be a combination of farmer and government cost. And nowhere in here is there a price assurance; the goal is margin 

insurance, an important distinction. We believe this would provide a much more 

effective safety net for dairy producers.

3. Federal Milk Market Order Reform

The goal of this effort is to develop a pricing system that compensates producers 

fairly, reduces price volatility, and creates a more dynamic dairy industry. The 

key in doing so is to establish a competitive pay price for milk that doesn’t depend on the current milk pricing formulas that can distort signals sent both to 

producers and processors. By revamping Federal Orders, we can encourage the 

movement of milk to its highest-value uses.

4. Production Management

For the past 7 years, NMPF’s Cooperatives Working Together (CWT) program 

has voluntarily helped to address the supply side of the supply-demand equation that ultimately determines milk prices. We need to both revitalize Cooperatives Working Together, and evaluate other approaches that will address the extremes in price volatility impacting producer profit margins. The Foundation for 

the Future is focused on a program that will trigger, when necessary, a signal 

to farmers that less supply is needed. This can be blended with elements of the 

CWT programs. NMPF recognizes that there is considerable interest in action 

45

on this point and will be happy to provide greater details on this element to 

the Committee once it is further developed.

All of these potential changes will ultimately require a new way of thinking about 

dairy economics. NMPF is not underestimating the size of the shift in attitude necessary on the part of producers to give these proposed programs a fair evaluation. 

The dairy farmers I know recognize something has to be done before all the farms 

are gone and if there is one lesson to be learned from the past year, it’s that change 

is needed. 

Other Critical Elements Impacting the Dairy Industry: 

I have focused the bulk of my testimony on the primary dairy-specific Federal 

policies and particularly those aspects that will most likely be part of the 2012 Farm 

Bill consideration process. However, there are other issues with significant impact 

on the dairy industry and I would like to take the time here to touch on each of 

those key areas.

1. Importance of Dairy in Nutrition Programs

Milk contains a complete nutrient package of nine essential nutrients. In addition to being an excellent source of calcium and vitamin D, it is a good source 

of Vitamin A, protein and potassium. In fact, milk is the top contributor in our 

diet for calcium, potassium and magnesium. (All milks—whole, low-fat, fat-free, 

flavored and lactose-free—contain the same amount of calcium) Bones continue 

to grow in density and strength until about age 35. After that, drinking milk 

and eating milk products help prevent further bone loss. Milk provides all five 

of the five nutrients of concern for children and adolescents: calcium, potassium, 

fiber, magnesium, and vitamin E.

The Child Nutrition Act, which is scheduled to be reauthorized this year, accounts for more than 5% of the total milk consumed in the United States 

through the school meal programs. The Healthy, Hunger-Free Kids Act of 2010, 

approved March 24, by the Senate Agriculture Committee, invests an additional 

$4.5 billion in child nutrition programs over the next 10 years. The bill both 

protects milk’s current position in several critical child nutrition programs and 

offers significant opportunities to increase milk consumption by school-age children nationwide. The House Education and Labor Committee should be releasing their draft of the child nutrition bill soon and we are hoping to see a similar 

positive outcome.

The child nutrition programs play a vital role in helping children, especially 

those in low-income families, achieve access to quality nutrition, child care, and 

educational and enrichment activities while improving their overall health, development, and school achievement. These programs are proven to work, but too 

many children continue to miss out on their benefits because of low participation rates and unnecessary access barriers.

NMPF supports the efforts by the Food Research and Action Center (FRAC), 

School Nutrition Association (SNA) and the Center for Science in the Public Interest (CSPI) to:

—Expand the Afterschool Meal Program to all 50 states.

—Improve the area eligibility test so more communities can operate afterschool, 

summer, and family child care food programs.

—Provide funds for grants to support the start-up and expansion of universal 

and in-classroom school breakfast programs in low-income schools and provide breakfast commodity support.

—Invest in Summer Nutrition Programs by providing funding for start-up, outreach, and transportation grants.

—Allow child care centers and homes the option of serving a third meal.

—Eliminate unnecessary paperwork that is a barrier to participation through 

data-based eligibility systems in schools in high-poverty areas and through 

improved direct certification systems.

—Streamline afterschool nutrition rules to allow community-based and local 

governments in all states the ability to provide meals and snacks year-round 

through the rules and paperwork of the Summer Food Service Program.

NMPF also supports increasing the Special Milk Program and increasing the 

reimbursement rate for the school meal program. As has been stated over and 

over, hungry, under-nourished children have difficulty learning.

2. Immigration Reform

46

Now, more than ever, dairy producers urgently need Congress to act on agricultural immigration reform. Immigrant labor plays a very important role in contributing to the success of America’s dairy industry; a large percentage of the 

hired workers on dairy farms are immigrants. This is true for a great number 

of dairy farmers across this country, both large and small. NMPF strongly supports the type of broad immigration reform for the agriculture sector that 

AgJOBS (H.R. 2414) contains and the visa program proposed by H.R. 1660, the 

Dairy and Sheep H–2A Visa Enhancement Act.

Dairy farmers share the concerns of all Americans about securing our borders 

& protecting this country and they are not willing to sacrifice its security. However, failing to provide for orderly flows of greatly needed workers is creating 

enormous economic consequences for our industry and do very little to enhance 

our border protection. We urge Members of Congress to join as cosponsors of 

H.R. 2414 and H.R. 1660 to once and for all address the endemic labor shortage 

in the dairy farming sector and allow for dairy producers to work within the 

agricultural visa system.

It is a common misperception in our community and others that immigrant 

workers take jobs from local workers. It is our experience on my family’s farm 

that this is simply not the case. We’ve tried to hire local workers and jobs on 

our farm pay well above minimum wage. Our last job ad resulted in four phone 

calls. Just one person showed up for an interview but never came back.

3. Estate Tax reform

NMPF supports permanent and meaningful estate tax relief. If estate taxes are 

allowed to be reinstated at the beginning of 2011 with only a $1 million exemption and top rate of 55 percent, the negative impact on our industry will be significant. We support permanently raising the exemption to no less than $5 million per person and reducing the top rate to no more than 35 percent. It is also 

imperative that the exemption be indexed to inflation, provide for spousal transfers and include the stepped-up basis.

Family farmers and ranchers are not only the caretakers of our nation’s rural 

lands but they are small businesses too. The 2011 change to the estate tax law 

does a disservice to agriculture because we are a land-based capital intensive 

industry with few options for paying estate taxes when they come due. The current state of our economy, coupled with the uncertain nature of estate tax liabilities make it difficult for family-owned farm and ranches to make sound business decisions. We urge Congress to pass permanent estate tax reform now.

As our family works out the partnership agreement, uncertainty about 

generational transfer of the farm assets is a major factor we must deal with. 

We strongly support estate tax relief as outlined above, which provides the 

greatest relief and certainty for agriculture.

4. Climate Change Legislation and Regulation

I thank Chairman Peterson for introducing H.J. Resolution 76 disapproving the 

EPA rule that uses an endangerment finding to regulate six greenhouse gases 

under the Clean Air Act. Regulation of GHG emissions should be done only at 

the direction of the Congress and NMPF supports this attempt to reassert that 

authority. Agriculture will be one of the industries most affected by climate 

change regulation and that issue deserves to be fully debated and decided by 

our elected representatives.

5. Trade

NMPF has been a strong supporter of balanced trade agreements that present 

net benefits for America’s dairy producers. Good examples of agreements that 

fit this bill are the three pending free trade agreements with South Korea, Colombia and Panama. Of those three, the FTA with Korea offers the greatest 

prospects for increased U.S. dairy exports, but the latter two agreements would 

also provide useful new opportunities. As a result, NMPF has strongly supported the passage of all three.

Another good opportunity to expand the market for U.S. dairy products is 

Chairman Peterson and Representative Moran’s Travel Restriction Reform and 

Export Enhancement Act, H.R. 4645, which NMPF testified in support of before 

this Committee last month. NMPF believes that efforts to help regain the exports we lost last year are essential to helping farmers and putting the U.S. 

dairy industry on a firmer footing going forward and H.R. 4645 represents one 

such positive step in the right direction to increase demand for U.S. dairy products.

47

A critical threat to the future health of the dairy industry also exists, however, 

in the prospect of open dairy trade with New Zealand as part of the Trans-Pacific Partnership FTA. Expanded dairy trade with New Zealand offers an entirely one-way street since the FTA would open up no effective new opportunity 

for the U.S. dairy industry in New Zealand and even the prospect of increasing 

access to other markets within the TPP is limited. Because of this, producers 

everywhere throughout the U.S., as well as many leading dairy processors, are 

seeking the full exclusion of U.S.-New Zealand dairy trade from the TPP.

6. Additional Useful Near-Term Measures

Some measures exist that could be taken prior to the next farm bill that are 

of concern to dairy producers in Pennsylvania and throughout the country. 

NMPF and most other dairy producers have been supportive of legislation to 

apply tariff rate quotas (TRQs) to imported milk protein concentrates, casein 

and caseinates in order to close a major loophole that currently exists in our 

trade structure. We support H.R. 3674 which would create a path to achieve 

this important goal.

Additionally, those of us engaged in selling safe and wholesome milk to the 

marketplace would like to see stronger efforts to discourage the sale of 

unpasteurized milk. Pasteurization is widely used in the U.S. and around the 

world because it helps ensure that the final dairy product sold to consumers will 

be safe. Raw/unpasteurized milk is currently permitted to be sold in many 

states under certain conditions, but this creates the possibility for consumers 

to get sick from these unpasteurized products for which appropriate safety 

measures have not been taken. The last thing the dairy industry needs at this 

point is a food safety scare. 

Closing: 

Thank you for the opportunity to testify on the issue of dairy policies here today. 

My family and I, Maryland & Virginia Milk Producers and NMPF look forward to 

working with the Members of this Committee on issues of critical importance to the 

dairy industry. I look forward to answering questions from the Committee.

The CHAIRMAN. Thank you very much. 

Mr. Heffner, welcome to the Committee. 

STATEMENT OF KENT HEFFNER, PRESIDENT, SCHUYLKILL/

CARBON COUNTY FARM BUREAU; DAIRY PRODUCER, PINE 

GROVE, PA 

Mr. HEFFNER. Good morning, Chairman Peterson, Vice Chairman Holden and Members of the full House Committee on Agriculture. 

My name is Kent Heffner. I milk 160 Jersey cows with my brother in Pine Grove, Schuylkill County. We grow our own forage crops 

on approximately 700 acres, part of which is rented. It is a pleasure to offer testimony today based upon my experiences as an individual producer. I also serve as President of the Schuylkill/Carbon 

County Farm Bureau. 

As I mentioned, my family milks Jersey cows. We sell our milk 

to a small, independent dairy that is not in a Federal Milk Marketing Order. The milk we ship is highly desirable because it is five 

percent butter-fat content. While the prices I receive are generally 

higher than that of other producers, the milk alone does not tell 

the entire story. My farm still lost money. 

My farm is not just a dairy. We also have a roadside market and 

winery. These direct-market opportunities add diversity to our operation and certainly keep things interesting. However, diversification was not enough to mitigate our risk. Across the entire operation, the farm still experienced a net loss in 2009, despite what 

would normally be a good year for the winery and roadside market. 

48

On my farm I have seen an average increase of 20 percent in the 

price of alfalfa hay, feed concentrate and roasted soybeans per ton 

when comparing prices between 2007 and 2009. During the same 

period, seed prices increased by an average of 30 percent, fertilizers 

and chemicals by as much as 125 percent. Those increases are even 

more troubling when considering the gross value of my milk check 

decreased by 41 percent from July of 2008 to August of 2009. 

I appreciate the House Agriculture Committee examining this 

issue as a starting point for the next farm bill debate. I also recognize that dairy policy is largely complex, divisive and regionally 

charged. While discussing the critical issues of milk price volatility 

and dairy farm profitability, I encourage Congress to consider the 

following: the Federal Order structure, formulas and price classes 

used to compute milk prices must better reflect current market 

conditions and enhance transparency, as well as take into account 

regional differences in the cost of milk production. Changes are 

needed to ensure long-term market development of value-added 

products that can encourage the domestic production of milk protein concentrates mitigating concerns of these products being imported. The development of a price discovery method that utilizes 

more milk and expands mandatory reporting and auditing of prices 

and inventories including penalties for inaccurate reporting, the 

California standards for solids-non-fat in fluid milk should be implemented at a national level. From the current 8.25 percent raise 

it to 8.75 percent. This I feel would give the consumer the higher 

quality product and help keep excess milk off our market. 

Farmers are entrepreneurs who believe that dairy policy should 

be market-oriented and consistent with worldwide trade. After all, 

global demand and exports contributed to the 2008 prices. In order 

to see better prices, American dairy farmers and processors need 

to be able to move products around the globe. Dairy policy is no 

longer confined to the dairy farm. Agriculture also operates within 

a global economy. 

While seeking changes to the Federal Order to reduce price volatility, Congress must ensure that producer safeguards remain in 

place. Continuation of a countercyclical program like the Milk Income Loss Contract should be key components to any future farm 

bill discussion. 

Current promotion mechanisms, such as the industry funded 

‘‘Got Milk’’ campaign should continue and be complemented by an 

expanded national dairy product promotion program. Current selfhelp programs show promise such as the Cooperatives Working Together and is an industry driven program privately funded that 

culls cows when the supply-demand imbalance needs to be corrected. 

On the other hand, the risk management tool such as the Livestock Gross Margin for Dairy, a crop insurance tool shows great 

promise. Unfortunately, the Federal premium subsidy does not 

apply to this very costly price tag. Additionally, the crop insurance 

sticker shock goes up when producers learn the entire premium for 

the covered time period is due up-front in one lump sum payment. 

Congress could direct changes to this product to make it more affordable and user-friendly. 

49

In closing, farmers are not looking for handouts. Producers in 

this industry choose to be dairymen because of a love of the work, 

the independence, the satisfaction of participating in the lifecycle 

of cattle, and putting food on the table in homes across the nation. 

Dairy farmers simply want the ability to continue to make an honest living. It would be silly of me to ask for an economic climate 

within dairy that did not have volatility, but I do respectfully ask 

Congress to help lessen the volatility and help mitigate large 

swings between market highs and lows. 

Thank you again for the opportunity to testify today. I would 

welcome any questions. 

[The prepared statement of Mr. Heffner follows:]

PREPARED STATEMENT OF KENT HEFFNER, PRESIDENT, SCHUYLKILL/CARBON COUNTY

FARM BUREAU; DAIRY PRODUCER, PINE GROVE, PA 

Good morning Chairman Peterson, Ranking Member Lucas and Members of the 

full House Committee on Agriculture. My name is Kent Heffner and I milk 160 Jersey cows with my brother in Pine Grove, Schuylkill County, only 35 miles from today’s hearing in Pennsylvania. We grow our own forage crops on approximately 700 

acres, part of which is rented land. It is a pleasure to offer testimony today based 

upon my experience as an individual producer. I also serve as President of the 

Schuylkill/Carbon County Farm Bureau. 

As you will hear during today’s proceedings, dairy farmers have struggled through 

one of the worst periods of dairy prices in memory, but the volatility of the market 

is certainly not behind us. Some economists are projecting another dip in prices in 

the near future. In late 2008 and throughout 2009 reduced demand for exports, excess milk and dairy product supply, and high feed and energy costs created a perfect 

storm within the dairy industry, driving prices so low that the very survival of dairy 

farmers was (and still is) threatened. 

I think it is important to give you a bit of perspective on how the last few years 

have affected dairy farmers. In 2006, milk prices were extremely low, straining 

dairy farmers’ budgets to the limit and forcing us to make difficult decisions around 

the farm. For example, we might consider how much we could reduce our fertilizer 

usage without a significant reduction in our crop output. As milk prices climbed in 

2007 and much of 2008, we tried to get caught up on bills, and where possible, make 

improvements around the farm. However, higher input costs offset the gains from 

strong milk prices and we were again facing hard decisions. 

In 2009, dairy prices plummeted beyond the levels seen in 2006. Across the industry, producers worked diligently to cut costs and increase efficiency. However the 

global price dip was beyond the influence of any individual practices a farmer can 

implement with his cows. Frankly, the efforts of dairy farmers across the nation to 

keep their own head above water—by increasing efficiency or producing more milk—

contributed to the supply-demand imbalance. 

As I mentioned earlier, my family milks Jersey cows. We sell our milk to a small, 

independent dairy that is not in a Federal Milk Marketing Order. The milk we ship 

for processing is highly desirable because of its 5% butter-fat content. While the 

price I receive is generally higher than that of other producers, the milk price alone 

does not tell the entire story. My farm still lost money. 

My farm is not just a dairy. We also have a road-side stand and a winery. These 

direct-market opportunities add diversity to our operation and certainly keep things 

interesting on the farm. However, diversification was not enough to mitigate our 

risk. Across the entire operation, the farm still experienced a net loss in 2009, despite what would normally be a ‘‘good year’’ for the winery and road-side stand. 

The margin between price received and input costs is critical. One does not need 

an economics degree to understand that milk prices must be higher than input costs 

for farmers to see positive returns. During 2009, as margins were seriously in the 

red, we saw farmers increasing their debt to pay for monthly operating costs—hoping their credit worthiness would last long enough to experience significantly higher 

milk prices and actually see profit margins. 

Today, milk prices are higher than 2009. However we are seeing farmers think 

about selling off their cows, their land and going out of business. This not only has 

consequences on the farmer and his family, but also on the local economy and the 

agricultural infrastructure. The Pennsylvania Farm Bureau has data showing a 100 

cow dairy farm has a local economic impact of $1.3 million. Farmers do business 

50

locally. Keeping dairy farms profitable and in operation keeps the local economy 

moving. In my world, cows equal jobs—cows create jobs—cows keep jobs. 

On my farm, I have seen an average increase of 20 percent in price of alfalfa hay, 

feed concentrate and roasted soybeans per ton when comparing prices between 2007 

and 2009. During the same period, seed prices increased by average of 30 percent, 

fertilizers and chemicals by as much as 125 percent. 

Those increases are even more troubling when considering that the gross value 

of my milk check decreased by 41 percent from July 2008 to August 2009. 

I truly believe that the worst may be yet to come for the dairy industry, unless 

we see some relief in significantly higher milk prices. I’ve read estimates that say 

dairy farmers have lost between $100 and $300 per cow per month in 2009. Based 

on Pennsylvania’s average sized herd of 68 cows, at $100, that’s $6,800 a month for 

a yearly loss of more than $80,000. And at $300, it’s over $228,000 a year. 

2010 is showing a slight improvement in milk prices, but the futures market indicates a significant amount of volatility. Recent projections by Penn State University 

indicate that the price may continue a very slow rise throughout the rest of the 

year. However, the profit margin is not likely to be near enough for dairy farmers 

to pay-off the debt incurred last year. 

I appreciate the House Agriculture Committee examining this issue as a starting 

point for the next farm bill debate, and I also recognize that dairy policy is largely 

complex, divisive and regionally charged. There has been much discussion regarding 

what should be done to help dairy farmers weather this economic downturn. Some 

people have joked that if there are two dairy farmers in the same room, you’ll hear 

three different opinions on national dairy policy. 

While discussing the critical issues of milk price volatility and dairy farmer profitability, I would encourage the Congress to consider the following:

• The Federal Order structure, formulas and prices classes used to compute milk 

prices must better reflect current market conditions and enhance transparency, 

as well as take into account the regional differences in the cost of milk production.

• Changes are needed to ensure the long-term market development of valueadded products, and encourage the domestic production of MPCs—mitigating 

concerns of these products being imported.

• The development of a price discovery method that utilizes more milk and expands mandatory reporting and auditing of prices and inventories, including 

penalties for inaccurate reporting.

• The California standards for solids-non-fat in fluid milk should be implemented 

at a national level.

• Farmers are entrepreneurs who believe that dairy policy should be market oriented and consistent with worldwide trade—afterall, global demand and exports 

contributed to the 2008 prices. In order to see better prices American dairy 

farmers and processors need to be able to move dairy products around the globe. 

Dairy policy is no longer confined to the dairy farm—agriculture also operates 

within a global economy.

• While seeking changes to the Federal Order to reduce price volatility, Congress 

must also ensure that producer safeguards remain in place. Continuation of a 

countercyclical program like MILC, should be a key components to any future 

farm bill discussion.

• Current promotion mechanisms—such as the industry funded ‘‘Got Milk’’ campaign—should continue, and be complemented by an expanded national dairy 

product promotion program.

Current self-help programs for dairy producers show promise, but also have their 

limitations. The Cooperative Working Together (CWT) program is an industry driven (privately-funded) program that culls cows when the supply-demand imbalance 

needs to be corrected. CWT has done a tremendous job in reducing the national herd 

size; however, it is limited in resources as it has about 80% participation by producers. The program would be more effective if more producers were part of the program. However, I don’t believe that the dairy industry is at a point to ask for—or 

even welcome—government intervention in the CWT program. 

On the other hand, a risk management tool is available to dairy farmers, but few 

people use it. Livestock Gross Margin (LGM) for Dairy is a crop insurance tool that 

shows great promise. Unfortunately, the Federal premium subsidy does not apply 

to the very costly price tag. Additionally, the crop insurance ‘‘sticker-shock’’ grows 

exponentially when producers learn that the entire premium for the covered time 

51

period is due up front, in one-lump sum payment. Congress could and should direct 

changes to this product to make it more affordable and user friendly for producers. 

In closing, dairy farmers are not looking for handouts. Producers in this industry 

choose to be dairymen because of a love of the work, the independence, the satisfaction of participating in the life cycle of cattle and putting food on the table in homes 

across the nation. Dairy farmers simply want the ability to continue making an honest living. It would be silly of me to ask for a economic climate within dairy that 

did not have volatility, but I do respectfully ask Congress to help lessen the volatility and help mitigate large swings between market highs and lows. 

Thank you again for the opportunity to testify today. I would welcome any questions.

The CHAIRMAN. Thank you, Mr. Heffner 

Mr. Brandt. 

STATEMENT OF DANIEL BRANDT, VICE CHAIR, CHARTER 

BOARD, DAIRY POLICY ACTION COALITION; PARTNER, 

BRANDT VIEW FARMS, ANNVILLE, PA 

Mr. BRANDT. Good morning. I would like to thank Chairman Peterson and Congressman Holden for the opportunity to address our 

concerns regarding Federal dairy policy. 

My name is Daniel Brandt and I am a partner in Brandt View 

Farms with my brother, Karl, my father, David, my son, Mark, and 

nephew, Nathan will now be the fourth generation. They are just 

graduated and they are the fourth generation to work on our family farm there. We currently have about 370 registered Holsteins 

and market the offspring and embryos worldwide from some of the 

top pedigreed cows in our herd, and we have consistently been fortunate enough to have a top ten herd average in the Commonwealth of Pennsylvania, and we also raise all of our own forage on 

about 155 acres cropland. I am also state director with the Pennsylvania Holstein Association, and a board member of the Lebanon 

County Farm Bureau, and vice chair of the DPAC charter board, 

which is a grassroots coalition of dairy producers in 23 states. 

The past 14 months have been the most challenging of my career 

as a dairy farmer. All farms, regardless of size, have suffered significant losses and show significant decrease in net worth because 

of low milk prices and high input costs. Like most dairy farmers, 

not only is dairy farming my occupation, but my way of life. The 

vast number of skills needed to be a dairy farmer today include 

being an expert in animal husbandry, agronomy, genetics, a mechanic and accountant, and this doesn’t even include the knowledge 

required for the regulations we farm under today to ensure we are 

farming in an environmentally responsible way and producing a 

safe and wholesome product for the consuming public. 

There are many opinions on how to improve our Federal dairy 

policy and make it a better system. The suggestions range from 

supply management, to formula changes and revenue insurance, 

and the industry is divided on many of these issues, and we know 

the frustration this creates in Congress. There is, however, one 

issue all dairy producers agree on, the need for improved price discovery and market transparency. I know our Secretary has touched 

on that and others, and the repetition, going back to that issue, 

helps us solidify the need for it. 

You know, in trying to understand how we are paid for our milk 

is like navigating rapids in muddy water. You know, we can feel 

all the currents taking us but we can’t see what is under the water. 

52

Today’s milk pricing is a bit like the wizard behind the curtain. 

You know, you pull the lever and that lever keeps the people of Oz 

from seeing what was really on the other side, just as an example. 

But, when we pull that back, we can see what value, the true value 

of the products in the marketplace and how is the value of so many 

dairy products being passed back through the system to the farm. 

Dairy farmers are absolutely united on one major point, pull away 

the curtain and introduce price discovery that is simple and transparent so we can be fully informed participants in the market of 

our products. 

On a Federal level, price discovery should include more products 

reported more frequently and without the lag times that are signs 

of an old system long past due for an update. For example, wholesale cheese prices reported on the USDA NASS Survey for the first 

2 weeks of the month are used as a starting point for announcing 

the Federal minimum Class I price for fluid milk sales for the entire month. The NASS Survey includes reported sales transactions 

that were priced up to 30 days before that and now you have a 2 

week lag turning into a 6 week lag. We are seeing this right now 

when you compare the world price for cheese and powder which is 

much higher than the current USDA NASS Survey prices on which 

our milk prices are based. The cheese sales reported on the NASS 

Survey are priced off the Chicago Mercantile Exchange where only 

one percent of the cheese is even traded by a few buyers and sellers, and that drives our farm milk prices. The announced Federal 

minimum fluid drinking milk price for all of May will be based on 

wholesale cheese and powder sales negotiated back as far as early 

March. 

The 2007 Farm Bill allows us to move forward with this critical 

change and improve price discovery and market transparency. We 

need to fund section 1510 of the 2007 Farm Bill. This section was 

included because of the leadership of Congressman Holden and others who realized this basic change must take place before we consider any other changes. We, especially, would like to thank Congressman Holden for pursuing funding and also appreciate the support we received from Congressman Thompson and Congresswoman Dahlkemper. Section 1510 needs to be a priority of the Congress as the 2011 Agriculture Appropriations Bill is written. USDA 

estimates the cost at $600,000 to adapt software already used for 

daily reporting written, daily reporting, excuse me, in the livestock 

and meat industry, along with some additional dollars to educate 

manufacturers on the process and to do the quarterly audits that 

are part of section 1510. This is a very reasonable expense and a 

first big step toward improving price discovery and market transparency in the dairy industry and can make it a reality. 

Once electronic reporting is implemented, we want to see it expanded to include more products. Fresh Italian cheeses, for example, are 40 percent of the cheese market, but this value is not reported or considered in the present pricing formula. Another part 

of price discovery is to implement mandatory reporting of inventory 

with auditing. Every effort must be made to reduce the influence 

of the thinly traded CME which the GAO has determined is vulnerable to manipulation and where only storable commodities are 

traded. 

53

In addition, there are other areas of Federal dairy policy that 

should be addressed. The Dairy Price Support Program could be replaced with a recourse loan program to encourage processors to update their facilities and processes to produce products currently in 

demand in the U.S. and the world and that are not currently being 

manufactured in the U.S. Other areas to look at are the benefits 

of the two class system for pricing milk, the relationship of fluid 

milk to manufacturing use, the function and level of Class I differentials, and the effect of set make allowances on industry decisions to produce more storable commodities that can be sold to the 

government instead of targeting new product development for increased use of dairy products. 

The negative margins and equity losses on our dairy farms 

throughout 2009 are a stark backdrop to the record profits in the 

processing sector and comparatively high prices for dairy products 

paid by consumers at the retail level. This has caused a loss of 

faith in the value and effectiveness of traditional safety nets, as 

dairy farmers see the dollars are there is the marketplace, but they 

are not reaching back to the farm. These are important discussions 

however, it is imperative that an effective of price discovery and 

improved market transparency be the top priority. When a few 

players have the opportunity to move the CME and then that price 

is considered the market factor for determining contracts throughout the supply chain, and those contracts are then validated by a 

weekly NASS Survey for use in Federal Order milk pricing, the 

consensus is that something other than supply and demand often 

dictates the value of milk back to the original producer in the supply chain. Otherwise, there would be a more direct correlation to 

what farmers are paid for their milk and what consumers pay for 

the many dairy products made from our milk. 

I would like to thank all the Committee Members for their time. 

Thank you. 

[The prepared statement of Mr. Brandt follows:]

PREPARED STATEMENT OF DANIEL BRANDT, VICE CHAIR, CHARTER BOARD, DAIRY

POLICY ACTION COALITION; PARTNER, BRANDT VIEW FARMS, ANNVILLE, PA 

Good morning, I want to thank Chairman Collin Peterson and Congressman Tim 

Holden for the opportunity to address our concerns regarding Federal dairy policy. 

My name is Daniel Brandt and I am a partner in Brandt View Farms with my 

brother Karl and father David. My son Mark and my nephew Nathan are the fourth 

generation in our family to work on this farm. We currently have 370 registered 

Holsteins and market the offspring and embryos worldwide from top pedigreed cows. 

We have consistently rated in the top ten herd averages in Pennsylvania and we 

raise all of our own forages on 155 acres of cropland. I am also the state director 

of the Pennsylvania Holstein Association, a board member of the Lebanon County 

Farm Bureau and vice chair of the DPAC charter board, a grassroots coalition of 

dairy producers in 23 states. 

The past 14 months have been the most challenging of my career as a dairy farmer. All farms, regardless of size, have suffered significant losses and show a significant decrease in net worth because of low milk prices and high input costs. Like 

most dairy farmers, not only is dairy farming my occupation, but a way of life. The 

vast number of skills needed to be a dairy farmer today includes being an expert 

in animal husbandry, agronomy, genetics, a mechanic and an accountant. This does 

not include the knowledge required for the regulations we farm under today to insure we are farming in an environmentally responsible way and producing safe and 

wholesome food for the consuming public. 

There are many opinions on how to improve our Federal dairy policy and make 

it a better system. The suggestions range from supply management to formula 

54

changes and revenue insurance. The industry in divided on many of these issues, 

and we know the frustration this creates in Congress. There is, however, one issue 

all dairy producers agree on: The need for improved price discovery and market 

transparency. 

Trying to understand how we are paid for our milk is like navigating the rapids 

in muddy water. We can feel which way the current is taking us but we sure can’t 

see what’s under the water. Today’s milk pricing system is a bit like the ‘‘wizard 

behind the curtain,’’ pulling this lever and that lever to keep the people of ‘‘Oz’’ from 

seeing what’s really on the other side: What is the true value of our product in the 

marketplace? And how is the value of so many dairy products being passed back 

through the system to the farm? Dairy farmers are absolutely united on this one 

major point: Pull away the curtain and introduce price discovery that is simple and 

transparent so we can be fully informed participants in the market for our products. 

On the Federal level, price discovery should include more products reported more 

frequently and without the lag times that are signs of an old system long past due 

for an update. For example, wholesale cheese prices reported on the USDA NASS 

Survey for the first 2 weeks of the month are used as the starting point for announcing the Federal minimum Class I price for fluid milk sales for the entire next 

month. The NASS Survey includes reported sales transaction that were priced up 

to 30 days before that and now you have a 2 week lag turning into a 6 week lag. 

We are seeing this right now when you compare the world price for cheese and powder, which is much higher than current USDA NASS Survey prices on which our 

milk prices are based. The cheese sales reported on the NASS Survey are priced off 

the Chicago Mercantile Exchange, where only 1% of the cheese is even traded by 

a few buyers and sellers, and that drives our farm milk prices. The announced Federal minimum fluid drinking milk price for all of May will be based on wholesale 

cheese and powder sales negotiated back as far as early March. 

The 2007 farm bill allows us to move forward with this critical change and improve price discovery and market transparency. We need to fund section 1510 of the 

2007 farm bill (see attached). This section was included because of the leadership 

of Congressman Holden, and others, who realized this basic change must take place 

before we consider any other changes. Section 1510 needs to be a priority of Congress as the 2011 Agriculture Appropriations bill is written. USDA estimates the 

costs at $600,000 to adapt software already used for daily reporting in the livestock 

and meat industry, along with some additional dollars to educate manufacturers on 

the process and to do the quarterly audits that are part of section 1510. For this 

very reasonable expense a first big step toward improving price discovery and market transparency in the dairy industry can become a reality. 

Once electronic reporting is implemented we want to see it expanded to include 

more products. Fresh Italian cheeses, for example, are 40% of the cheese market but 

this value is not reported or considered in the present pricing formula. Another part 

of price discovery is to implement mandatory reporting of inventory, with auditing. 

Every effort must be made to reduce the influence of the thinly traded Chicago Mercantile Exchange, which the GAO has determined is vulnerable to manipulation and 

where only storable commodities are traded. 

In addition, there are other areas of Federal dairy policy that should be addressed. The Dairy Price Support Program could be replaced with a recourse loan 

program to encourage processors to update their facilities and processes to produce 

products currently in demand in the U.S. and the world that are not currently being 

manufactured in the U.S. Other areas to look at are the benefits of a two class system for pricing milk, the relationship of fluid milk to manufacturing use, the function and level of Class I differentials, and the effect of ‘‘set’’ make allowances on 

industry decisions to produce more storable commodities that can be sold to the government instead of targeting new product development for increased use of dairy 

products. 

The negative margins and equity losses on our dairy farms throughout 2009 are 

a stark backdrop to the record profits in the processing sector and comparatively 

high prices for dairy products paid by consumers at the retail level. This has caused 

a loss of faith in the value and effectiveness of traditional safety nets, as dairy farmers see the dollars are there in the marketplace, but they are not reaching back to 

the farm. These are important discussions; however, it is imperative that an effective method of price discovery and improved market transparency be the top priority. When a few players have the opportunity to move the CME, and then that 

price is considered the ‘‘market factor’’ for determining contracts throughout the 

supply chain, and those contracts are then validated by a weekly NASS Survey for 

use in Federal Order milk pricing . . . the consensus is that something other than 

supply and demand often dictates the value of milk back to the original producer 

in the supply chain. Otherwise there would be a more direct correlation to what 

55

farmers are paid for their milk and what consumers pay for the many dairy products made from our milk. 

I would like to thank the House Agriculture Committee for coming to Pennsylvania and hope that the information presented here today will be valuable as you 

tackle this complex and important issue. 

ATTACHMENT

Sec. 1510. Mandatory Reporting of Dairy Commodities. 

(a) ELECTRONIC REPORTING.—Section 273 of the Agricultural Marketing Act of 

1946 (7 U.S.C. 1637b) is amended—

(1) by redesignating subsection (d) as subsection (e); and

(2) by inserting after subsection (c) the following:

‘‘(d) ELECTRONIC REPORTING.—

‘‘(1) IN GENERAL.—Subject to the availability of funds under paragraph (3), the Secretary shall establish an electronic reporting system to 

carry out this section.

‘‘(2) FREQUENCY OF REPORTS.—After the establishment of the electronic reporting system in accordance with paragraph (1), the Secretary 

shall increase the frequency of the reports required under this section. 

‘‘(3) AUTHORIZATION OF APPROPRIATIONS.—There are authorized to be 

appropriated such sums as are necessary to carry out this subsection.’’.

(b) QUARTERLY AUDITS.—Section 273(c) of the Agricultural Marketing Act of 1946 

(7 U.S.C. 1637b(c)) is amended by striking paragraph (3) and inserting the following:

‘‘(3) VERIFICATION.—

‘‘(A) IN GENERAL.—The Secretary shall take such actions as the 

Secretary considers necessary to verify the accuracy of the information submitted or reported under this subtitle.

‘‘(B) QUARTERLY AUDITS.—The Secretary shall quarterly conduct 

an audit of information submitted or reported under this subtitle 

and compare such information with other related dairy market statistics.’’.

The CHAIRMAN. Thank you, Mr. Brandt. 

Mr. Rutter. 

STATEMENT OF TODD M. RUTTER, PRESIDENT, RUTTER’S 

DAIRY, YORK, PA 

Mr. RUTTER. Mr. Chairman, Congressman Holden and Members 

of the House Committee on Agriculture, thank you for the opportunity to appear before you today. 

My name is Todd Rutter and I am the President of Rutter’s 

Dairy, a family-owned, small to mid-sized processor located in 

York, Pennsylvania. We sell products into four states and next year 

my family will celebrate 90 years of being in the dairy industry. 

I am here today as a representative of my company and of our 

industry as an individual member of it. I am not here today on behalf of any organizational group, therefore, my answers and opinions are purely those of my own beliefs. 

Rutter’s gets the majority of its raw milk from family operated 

farms in Pennsylvania and Maryland and the balancing supply 

comes from a co-op that also buys milk from family farms in our 

region. To my knowledge, the largest farm we get milk from milks 

about 250 cows, but the average farm milks about 110 cows. Most 

of our farms are in the second and third, and some fourth generations of family farms working with us as suppliers. We have not 

had any farms go out of business in the last year, but I know several of them were very close to the brink had the prices not started 

to turn around. 

56

I like to think that the constant coaching we gave them throughout the end of 2007 and 2008 when prices were record high helped 

them. We preached loud and often then that during those record 

high prices they needed to pay off debt, avoid new debt and put 

money in the bank because historical patterns made it very clear 

that the prices were headed for a nosedive. This planning ahead for 

price cycles is what people in the business would refer to as risk 

management, and in dairy we need programs that will help small 

farmers manage this risk. 

I cannot sit here today and tell you that I have a full understanding of all the current Federal dairy policies, or even how all 

the current regulations and programs work. I would like to share 

the experiences I have gained working with local farmers and consumers of milk and dairy. Hopefully, these insights can be of some 

help in your decision making process. 

I believe that American family-owned agricultural businesses are 

very important to our country. I would like the future of dairy policy to help ensure the survival of family-owned businesses in the 

dairy industry to the greatest extent practical, farmers, haulers, 

processors, and distributors and all other businesses that revolve 

around these core groups. Most times processors are made out to 

always be at odds with milk producers, but from my perspective, 

the family farmer and the family processor face and deal with a lot 

of similar issues. Mostly, it is just when the farmer is not happy 

with his milk check, the only person he has to yell at is the person 

that wrote him the check so inherently there is always possible 

friction in that relationship. At least in our case there is just a lack 

of understanding on the farm of how little control the processor has 

over the amount of the milk check, and how often we are audited 

to ensure we are paying properly. We pay what we are mandated 

to pay by state and Federal Programs and we pay premiums that 

are necessary to attract a milk supply. We must balance that 

against our need to keep raw milk cost competitive relative to our 

other processors with whom we compete. 

I do not have a magical solution to the issues, but the fundamentals need to be based on the ability to somehow help stabilize the 

farmers’ income so that they do not have these peaks and valleys 

with their income stream. At the same time, it is critical that the 

Congress recognize that the burden of helping the dairy farmer 

cannot be borne by the Class I processor alone. We have to make 

sure that any policy change is studied to determine what the impact would be on consumers. Everyone in dairy has the same end 

consumer, that being the person in the store picking up the items 

off the shelf. Consumers are very fickle in today’s world and we 

know that they are price-sensitive based on our experience with the 

last period of record high prices. We also know that consumers 

have choices and that they can and will choose alternatives to 

dairy when the prices cross their mental threshold of value. 

I am not here today to support any specific legislation nor any 

specific policy proposals because I have been busy running my family business, and thus haven’t been putting my energy into studying the different ideas that are on the table. But, I very much appreciate that you have taken the time to come to Pennsylvania to 

hear the issues facing members of our dairy industry from PennsylVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00060 Fmt 6633 Sfmt 6601 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
57

vania. Since I operate at the interface between the farmers and 

consumers, and I value both my suppliers and my customers, I 

hope you will consider both when you evaluate future policies. 

One last point and another area of concern I have within the 

dairy industry is the aging infrastructure and access to credit. 

From the farm all the way through to the delivery channels, our 

industry is not investing back into itself, especially at the familyowned business level. Even before the current banking mess, it was 

extremely difficult to talk to bankers about the dairy industry. 

When your sales income fluctuates up and down by as much as 20 

percent per year with the price of milk, it is very hard for bankers 

to understand that you still have a stable business. So loans at 

competitive rates and without unreasonable collateral requests are 

very challenging to get for our industry. I respectfully suggest that 

additional loan money be made available to create loans for family 

businesses across all sectors of the dairy industry to reinvest, upgrade or expand their businesses. This will increase our demand 

for raw milk, help us serve more customers, and if the industry as 

a whole waits too much longer, the cost of upgrading will be so 

steep that it will be unrealistic and small family businesses will be 

forced to close or sell out. 

This is my first time ever participating in something like this 

and I hope that I am able to be a meaningful contributor. I thank 

you for the invitation to participate. I am happy to answer any 

questions you may have. Thank you. 

[The prepared statement of Mr. Rutter follows:]

PREPARED STATEMENT OF TODD M. RUTTER, PRESIDENT, RUTTER’S DAIRY, YORK, PA 

Mr. Chairman, Congressman Holden and Members of the House Committee on 

Agriculture, thank you for the opportunity to appear before you today. 

My name is Todd Rutter and I am the President of Rutter’s Dairy, a family owned 

small to mid-size regional dairy processor located in York, PA. We sell products in 

four states and next year my family will celebrate 90 years of being in the dairy 

industry. 

I am here today as a representative of my company and of our industry as an 

individual member of it. I am not here today on behalf of any organization or group. 

So therefore my answers and opinions are purely those of my own beliefs. 

Rutter’s gets the majority of its raw milk from family operated farms in PA and 

MD and the balancing supply comes from a Co-Op that also buys from family farms 

in the region. To my knowledge the largest farm we get milk from milks about 250 

cows and the average farm milks about 110 cows. Most of our farms are in the second and even third generation of family members working with us as suppliers. We 

have not had any farms go out of business in the last year, but I know several of 

them were very close to the brink had the prices not started to turn around. 

I like to think that the constant coaching we gave them through the end of 2007 

and 2008 when prices were at record highs helped them. We preached loud and 

often during those record high prices that they needed to pay off debt, avoid new 

debt, and put money in the bank because historical patterns made it very clear that 

the prices were headed for a nose dive. This planning ahead for price cycles is what 

people in the business world refer to as ‘‘risk management’’ and I think in dairy we 

need programs that will help small farmers manage this risk. 

I can not sit here today and tell you that I have a full understanding of the current Federal dairy policy or even how all the current regulations and programs 

work, but I would like to share the experience I have gained working with local 

farmers and consumers of milk and dairy; hopefully these insights can be of some 

help in your decisions. 

I believe that American, family owned agricultural businesses are very important 

to our country. I would like future dairy policy to help ensure the survival of family 

owned business in the dairy industry to the greatest extent practical including: 

farmers, haulers, processors, distributors, and all other businesses that revolve 

58

around those core groups. Most times processors are made out to always be at odds 

with milk producers. But from my perspective the family farmer and the family 

processor face and deal with lots of similar issues. Mostly, I think when the farmer 

is not happy with his milk check, the only person he has to yell at is the person 

that wrote him the check. So inherently, there is always possible friction in that relationship. At least in our case there is a lack of understanding on the farm of how 

little control the processor has over the amount of the milk check and how often 

we are audited to ensure we are paying properly. We pay what we are mandated 

to pay by state and Federal programs and we pay premiums that are necessary to 

attract a milk supply. We must balance that against our need to keep our raw milk 

cost competitive relative to other processors with whom we compete. 

I do not have a magical solution to the issues but the fundamentals need to be 

based on the ability to somehow help stabilize the farmers’ income so that they do 

not have these peaks and valleys with their income stream. At the same time, it 

is critical that Congress recognize that the burden of helping the dairy farmer cannot be borne by the Class I processor alone. We have to make sure that any policy 

change is studied to determine what the impact would be on consumers. Everyone 

in dairy has the same end consumer; that being the person in the store picking the 

items off of the shelf. Consumers are very fickle in today’s world and we know that 

they are price sensitive based on our experience with the last period of record high 

prices. We also know that consumers have choices, and that they can and will 

choose alternatives to dairy when the prices cross their mental threshold of value. 

I am not here to support any specific legislation, nor any specific policy proposals 

because I have been busy running my family business and thus have not been putting my energy into studying the different ideas that are on the table, but I very 

much appreciate that you have taken the time to come to Pennsylvania to hear the 

issues facing members of the dairy industry from Pennsylvania. Since I operate at 

the interface between farmers and consumers, and I value both my suppliers and 

my customers, I hope you’ll consider both when you evaluate future policies. 

One last point, and another area of concern I have within the dairy industry is 

the aging infrastructure and access to credit. From the farm all the way through 

to the delivery channels our industry is not investing back into itself, especially at 

the family owned business level. Even before the current banking mess it was extremely difficult to talk to bankers about the dairy industry. When your sales income fluctuates up and down per year by as much as 20% with the price of milk, 

it is very hard for bankers to understand how you still have a stable business. So 

loans, at competitive rates and without unreasonable collateral requests, are very 

challenging to get for our industry. I respectfully suggest that additional loan money 

should be made available to create loans for family businesses across all sectors of 

the dairy industry to re-invest, up-grade, or expand their businesses. This will increase our demand for raw milk, and help us serve more customers. If the industry 

as a whole waits too much longer the cost of up grading will be so steep that it will 

be un-realistic and family business will be forced to close or sell out. 

This is my first time ever participating in something like this. I hope that I am 

able to be a meaningful contributor and I thank you for the invitation to participate. 

I am happy to try to answer any questions you may have for me. Thank you.

The CHAIRMAN. Thank you very much and I thank all the panel 

for your testimony. 

I recognize the Vice Chairman for questions. 

Mr. HOLDEN. Well, thank you, Mr. Chairman. 

Following up on Mr. Rutter’s comments and comments of the 

Secretary, I would like to ask our producers about the credit situation. Are the banks lending or are we depending upon farm credit 

or FSA and it is not just your personal situation just other producers that you have conversations with, anybody. 

Mr. HISSONG. Yes, no, the credit is definitely an issue, equity 

tends to be the big one. It has definitely changed the standards and 

they are against Federal mandates as well, and they are trying to 

protect themselves. So, you understand where they are coming 

from, but we are all kind of in one big mess so I will stand down. 

Mr. BRANDT. Yes, one comment on that is I know some of the 

lenders, what they are doing is that since it is a farmer they have 

had a little bit more on credit then the next farm, maybe using 

59

newer equipment or something. They are working with you on extending some credit but then they want to make the decision on 

whatever your purchases are. It really limits your management 

ability where if you sign on well, we will give you more credit but 

then they want you to come through them on any major purchases 

that you are going to make, and they will say whether you can 

make it or not. So this kind of dictates your farming practice which 

is certainly not what you want to do as a producer. 

Ms. MOSEMANN. I also have a concern that there are less creditors that are familiar with the dairy industry, less that understand 

how the business works, and as a result many of them don’t even 

want to touch dairy just because of the volatility. 

Mr. HOLDEN. Mr. Rutter, do you feel processors could increase 

their reporting to NASS and how would increased reporting impact 

your business? 

Mr. RUTTER. In Pennsylvania, we report just about everything 

there is to report already to the Pennsylvania Milk Marketing 

Board so I don’t know that we could report anymore knowledge 

than we already do. I know the rest of the country probably does 

not report as much as we are but in our world, I don’t know that 

there is much more data that we could report. 

Mr. HOLDEN. Mr. Brandt, in your testimony you mentioned replacing the Dairy Price Support Program with a Recourse Loan 

Program to encourage processors to update their facilities to 

produce products currently in demand in the U.S. but not currently 

manufactured here. Can you explain further why you believe a recourse loan would be better then the existing Price Support Program? 

Mr. BRANDT. Well, it was mentioned earlier by the Secretary, 

and some different people, but what the Price Support Program 

does, it doesn’t encourage any kind of new product development because the processor then realizes, ‘‘Well, if I produce a little extra 

of this product, I have that safety net to go back on a product that 

is not moving in the market.’’ The government is going to buy it 

up and then that is still in inventory and that doesn’t do anything 

necessarily to move product. Unless of course they are giving it to 

a third world country, maybe in Haiti, a situation or something like 

that. But if we replace it with something that is an incentive program like they develop a new product or something like that, that 

will come back. They will be funded in that through this program 

by the government to help them build facility or research new 

product. I mean the MPC is one thing that you can always fall 

back on. We are fussing about it being an import but why couldn’t 

we have developed it here in the U.S. earlier. It is because there 

was no incentive really to go after new product and by doing this, 

it not only helps the processor and the farmer, but it also helps us 

as producers because it moves our product and can also help exports. 

Mr. HOLDEN. Thank you. How many do you milk? 

Mr. HEFFNER. We milk 160. 

Mr. HOLDEN. What do you think the average herd size is in 

Schuylkill County? 

Mr. HEFFNER. In Schuylkill County, the average herd would be 

around 70 cows. 

60

Mr. HOLDEN. And what about Lebanon? 

Mr. BRANDT. I think it is probably similar, 70–80 cows. 

Mr. HOLDEN. Is Berks a little larger? 

Mr. BRANDT. I don’t think there is a whole lot of change between 

the three counties, now. Then towards Lancaster County it is going 

to get less. There are a lot of smaller farms down there. 

Mr. HOLDEN. In Dauphin and Perry it would be about the same? 

Mr. BRANDT. I would think. 

Mr. HOLDEN. Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Texas, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. Hissong, you mentioned in your testimony that basically, ‘‘It 

would be best served if the government just stopped purchasing excess dairy products, many of which are not made to the world’s 

specifications.’’ So if we had the program change to only buy products that meet the world’s specifications so that they would be marketable from an export standpoint, I think I heard some of the witnesses say that there is not the capacity to process that? Would 

that create a problem? 

Mr. HISSONG. Well, somewhat of the MPCs are a big thing that 

people are upset about and it is about the fact that MPCs are not 

the problem. The problem is that we don’t produce many of them 

in the United States. They are produced in other countries that 

rely on their export markets so they invested money in that infrastructure and they produce MPCs. So, U.S. companies, Kraft and 

such have found that, ‘‘Well, I need this product so I will get it 

from New Zealand or whomever.’’ We just haven’t seen, and you 

have heard that theme a few times, that there just hasn’t been that 

investment in innovative products. And so it is not the fact that 

MPCs are out there, it is the fact that if they can produce them 

in New Zealand we can certainly produce them here. I think that 

is the kind of thing that we are talking about, products like that 

that we need to, we produce a lot of powder that is non-fat. We 

produce salted butter and the world wants unsalted butter. Just 

things that seem to me to be fairly simple to say let’s shift a few 

things around here and produce it. It can be easy, as complicated 

as MPCs and as simple as producing unsalted butter. It seems 

pretty logical to me. 

Mr. NEUGEBAUER. And the current policy encourages us to not 

produce those products is what you are saying? 

Mr. HISSONG. Correct, yes, I mean they know that okay, we can 

hold onto this, prices go down, the government is going to buy it 

and they will deal with it. I can basically get rid of whatever I need 

to get rid of. 

Mr. NEUGEBAUER. And, there has been a lot of talk about being 

able to manage your margins and of course margins consist of the 

revenue and the expenses and so the difference between that would 

be your margin. What are producers, obviously we have talked 

about the CME which does not provide a very good opportunity for 

price discovery and isn’t an effective tool for the price side, but 

what about on the cost side? Are producers, are dairymen using futures for grain or other inputs to hedge or to manage the cost side? 

61

Mr. HISSONG. I would say the average producer in Pennsylvania 

probably produces most of their own grain and so in a sense they 

are kind of doing that. In my case, we buy all of our grains so we 

do do that side where we will lock in corn, soybean meal, cotton 

seed, different commodities and try to play that. That is one thing 

that is a little bit more frustrating is those markets are a little bit 

more of a chore and I can lock in my bases and do different things 

that I can’t do on the milk side. And so you look at that and say 

is there some lessons that we can learn there on the milk side to 

make it a reasonable tool. But, you talk about margins, the biggest 

frustration from dairymen, in general, is that we feel like we have 

taken the brunt of this economic downturn, whether it be on not 

necessarily all the processors. You look at lenders. You look at my 

semen company, I go to annually, this is the time of the year that 

you get annual reports and they don’t make money. You know, everybody made money, but the dairymen took the brunt of it, so we 

buy everything retail and sell everything wholesale and that makes 

it tough and you definitely feel the squeeze. 

Mr. NEUGEBAUER. Mr. Brandt, you brought up the discovery 

issue again. If you had one price that you wanted to know today, 

in other words all across the country, what is that one price that 

you would like to know? 

Mr. BRANDT. Well, I guess one price, well, there is the cheese 

price rather than being less than one percent because cheese really 

is the greatest use of our dairy product with peaks and everything 

else. I would like to see a daily report on that cheese price where 

it more reflects what the actual market trade value is. You know, 

you like to see the processor make a little profit, but you see the 

cheese price today is our milk price that gets into our milk actual 

on-farm price is something that is priced 6 weeks ago on the Chicago Mercantile Exchange. That is not a good transfer of price and 

the other thing there is we are not saying that we don’t want to 

make money, but like Rod said we like to see a little bit more of 

a balance between this. You can’t have farmers having record 

losses, and the processor having record profits. 

Mr. NEUGEBAUER. So you want to know what the cheese prices 

are today? 

Mr. BRADNT. Yes, I would like to know how the cheese prices, especially the more popular cheeses are traded daily. It should be a 

daily report just like the beef or the pigs or whatever. 

Mr. NEUGEBAUER. Thank you. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Iowa, Mr. Boswell. 

Mr. BOSWELL. I thank you, Mr. Chairman. 

Mr. Chairman, we have heard over and over the need for transparency and being able to see what the prices are and Mr. Brandt 

is kind of excited about it and I can understand why. What is the 

impact on, any of you, that if you don’t access to it? I think I know, 

but I want you to have an opportunity to express it. What happens 

to you in your operation if you are not aware of the discovery of 

prices as you are trying to do your market buying and actually 

market? Why don’t we start with you, anybody? 

Mr. HISSONG. Well, I think one of the issues I brought up a little 

bit earlier was like on the grain side. I can lock in my bases which 

62

is basically our PPD on milk pricing or our bases between our, 

which makes up our bases when you look at a Class III price versus

my cash price. You know, we are talking about LGM and locking 

in milk and some of that and we had done that several years ago. 

We were burnt pretty bad because we thought we had locked in a 

certain price and our PPD went negative and basically our bases, 

normally which runs $2.50 or so, shrunk to all but nothing. And 

so I thought, I locked in one price and I get my check and it is $2 

lower, and so how can I use that type of product to lock in a margin where I have to wait until I get my check, and low and behold 

it is $2 lower. You know, I can feel like I am doing the right thing, 

but until I get that check, you don’t know, and so that is where 

some of this transparency and some of these products need to be 

more effective. If I lock in a certain price, I need to be sure that 

when that check comes, I am receiving that price. 

Mr. BOSWELL. Thank you. Anybody else? I want to ask you just 

down the line, the one thing that we can do to make your operation 

more viable and the entire industry don’t answer it one side, just 

what is something that you think we could do in the farm bill 

where it could come back to you most and the best? One thing you 

are talking about. Anybody have half-a-dozen just give me your top 

one. Start right down the table. You don’t have to answer. If you 

want to pass if what you want to. 

Mr. FREY. I am not a producer but it would seem to me that the 

whole issue of price discovery would probably be number one right 

now. 

Mr. HISSONG. Yes, I would have to agree with that. Just like I 

mentioned, it is hard to use some of these other tools when we 

don’t know what makes up all of that and things change. It just 

makes it hard to use any of these other tools, so it does seem like 

we probably have to start there. 

Ms. MOSEMANN. It is similar we just need a vehicle to deal with 

this price volatility. We are price takers and I don’t know how that 

can change exactly but that is where it is hitting us the hardest. 

Mr. HEFFNER. I would say the price discovery method, it would 

make us a lot, it would give us a lot more information when we 

go about our daily business and budgeting and just running everyday business. 

Mr. BRANDT. Yes, definitely, it is the same down the line and it 

appears but yes, they do price discovery as the foundation on how 

everything is built. You know, the world dairy, one thing that 

shows how the world dairy pricing can help, the world dairy prices 

are consistently higher then the U.S. prices on the same products. 

One thing, just to use an example of how this daily reporting could 

help, in the past the powdered milk in this reporting that you 

might remember from 2007, the estimated cost to the American 

farmer is about over $50 million. With daily reporting we would 

have discovered those errors much earlier, but they were so far behind with their reporting. They were 6 weeks past with a large 

error like that and it cost us as farmers a lot of money and it just 

would take out some of those errors or manipulations and stuff. 

Mr. RUTTER. Without a good steady source of milk, my world 

pretty much goes away as well so assuming that the price volatility 

can be, the price visibility can be solved, I still think the small, 

63

family farmers have an issue with the market-driven price. I am 

a firm believer of market-driven prices. I am not implying that I 

want to go away from a market price, but the peaks and valleys 

with their income checks is something that they are not all good 

at planning for it, and preparing for it and saving. The history of 

milk—forever always—is a roller-coaster, up and down, and just recently we have seen that roller-coaster go higher and go lower, and 

we always know the higher it goes, the lower it goes. So if there 

are tools to help mitigate the high and lows, or even voluntary 

funds that farmers can participate in that when their price is above 

a certain level that they pay into the fund, and kind of a voluntary 

savings account. Kind of like a Christmas club, so to speak, and 

then when the price goes below the fund pays them back. So, that 

they can have a reasonable level of certainty that for the next 3 

years or however it is, I am going to be at least guaranteed this 

much of a hundredweight for my milk so that I can make a loan. 

I can expand my barn. I can buy more cows. Then I can go to the 

bank and give an intelligent business proposal that says here is 

what I am relatively assured that because I am in this program 

that my income is going to be. I am going to be able to pay you 

back for this loan because I am going to give in when it is high 

and I am going to take back when it is low, so that I have a cash 

flow every month that I can pay my bills with. 

Mr. BOSWELL. Thank you very much. I understand and I agree 

with you, and I thank all of you for giving us your time today and 

just keep in touch and maybe together we can do something real 

good. 

Thank you. I yield back. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Pennsylvania. 

Mr. THOMPSON. Thank you, Chairman. Thanks to the panel for 

taking the time and coming in and on what is absolutely a critical 

issue. 

I want to start with Mr. Frey. Thanks for your leadership at the 

Center for Dairy Excellence. We are just blessed to have that resource here in Pennsylvania. You said that the Northeast Dairy 

Leadership Team has been reviewing policy and pricing proposals 

across the United States to evaluate how each proposal would align 

with your objectives. Have you found any one proposal that would 

help reduce the volatility in the dairy market that your organization supports? 

Mr. FREY. There isn’t one that we have found that we would support at this point, however, there was a policy that was presented 

approximately 6 weeks ago to this group. It was called the Dairy 

Growth Management Initiative. I try to detail just a bit about in 

the back page and what we have done with that is we have supported a comprehensive analysis by Cornell and Cal Poly to study 

that particular proposal and evaluate what the impact would be on 

volatility. 

Mr. THOMPSON. Okay, thank you. 

Mr. Heffner we have heard a lot of discussions from milk protein 

concentrates, MPCs. I hear a lot of those from time to time at home 

as well and I actually have serious doubts about the effect imports 

have on milk prices. As one piece of evidence, I try to look at is 

64

the imports are at a 5 year low, however, you suggested something 

does need to be done to encourage the domestic production. I think 

I take from some of the discussion I have heard here today the current safety net that price supports just really hinders innovation. 

It is safer it seems like to stay the course with what products are 

being supported by government. I don’t know if that is your take, 

but my question is how would you suggest that we encourage domestic production of innovation such as milk protein concentrates? 

Mr. HEFFNER. On that issue I am not real familiar with, however, I am more of a marketer since I deal with direct marketing 

on our farm, and I know people are complaining about the MPCs 

coming in and ruining our milk price. Well, if that is what they are 

doing maybe we should look into this and start producing them 

here. We have the milk. We have the best quality milk anywhere 

in the world. Why aren’t we doing it here? Let’s get out there and 

get in this market and compete, but that is all I can say about it. 

Mr. THOMPSON. Anyone else from the panel have any thoughts 

in terms of why it is difficult to, I guess launch these new innovations, these new dairy products, opportunities to expand our markets? 

Mr. BRANDT. Yes, I think one thing that it has to come through 

the processor. I mean as farmers we don’t have our own processing 

plants. We can’t develop any products and the processors have been 

protecting themselves and until recently most of the farmers have 

been content to farm at their farm and not speak up a little. The 

processors are making a nice profit so why shouldn’t they, and then 

they are protected like you say in support prices if something does 

drop. Their margins haven’t gotten worse. They actually were better in 2009, so I think that is probably one of the big things that 

does not help to develop new product in the United States. The 

processors have been content with the large profits. Why take a 

risk on something when you are already making a nice profit. That 

is why the program that I mentioned there where if we give some 

kind of incentive where if they develop a new product, half funded 

by the government and if this works they get rewarded for what 

they develop. 

Mr. THOMPSON. Okay, thank you. 

Ms. Mosemann, it is good to have another Nittany Lion alumni 

on the panel. I think there are a number of graduates from that 

fine land-grant university here today. Among the key elements that 

National Milk’s proposal is to discontinue the Dairy Product Price 

Support Program and the Milk Income Loss Contract Program and 

instead use a new income protection approach. Is it your view that 

the MILC and the Price Support Program have outlived their usefulness and what are your thoughts in that area? 

Ms. MOSEMANN. In today’s dairy economy, I think it has passed. 

We have obviously stepped beyond that and I think it is holding 

us back now. 

Mr. THOMPSON. Okay, thank you. 

And, Mr. Hissong, the Professional Dairy Managers which I am 

proud to say are also located in the Fifth District, I believe up in 

the Bellefonte area. What do they think that the government 

should focus on, long-term or short-term in terms of dairy farmer 

assistance? 

65

Mr. HISSONG. Well, our organization’s views have always been 

more of a long-term-type approach, I think that the position paper 

states a lot of the short-term band-aids such as direct payments 

and such are not a good long-term solution, and I think that is 

what we have been doing for decades. And not just PDMP, but I 

think that is a general consensus we are hearing from every organization is, ‘‘Now is the time to look at long-term-type fixes to some 

of these problems.’’

Mr. THOMPSON. Thank you. I just want to say thank you to all 

of the panel for your contributions today. 

The CHAIRMAN. I thank the gentleman. 

The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you, Mr. Chairman. 

In dealing with our desire in the next farm bill to put a greater 

emphasis on profitability as opposed to price, first of all, let me ask 

each of you are your operations profiting? 

Mr. HISSONG. If you were to look at a 5 year average on our operations, we are profitable even despite last year, but anything that 

was made in the previous 2 or 3 years was definitely erased last 

year, but it’s a very slim profit thanks to 2009. 

Mr. SCOTT. Is that pretty much the situation facing each of you 

that you may have been profitable 5 years ago but you wouldn’t say 

you are profitable now? 

Mr. BRANDT. Yes, one thing I would say towards that is 2009 was 

definitely a challenge. I mean and this was kind of across the industry. The better managers naturally were making a profit there 

in the previous years and a nice profit, but most of us took on 

about $1,000 a cow debt owed on our credit lines just to make ends 

meet due to 2009. We have started to be able to pay some of that 

back here at the beginning of the year and then the price took another hit here in April, so it is certainly a concern. 

Mr. SCOTT. So would you say then that the price of milk is the 

determinate factor in profitability for you? 

Ms. MOSEMANN. The factor but we really need to start looking 

at the variable input costs. I mean we have to look at fuel feeds. 

It is more emerging now. Now, I just feel like we need to look more 

at what we are long-term. You can’t look at the milk price and say 

oh yes well, $17 sounds good compared to a couple years ago until 

you look at the variable costs going into it. 

Mr. SCOTT. So just going farther as we begin to look far and we 

are looking for new policies for the farm bill, what would be your 

one or two or three top recommendations for this Committee to 

look at that would increase your profitability if it is not the final 

price of milk? That is it? What can we do? What are those points 

that we should consider? What are your recommendations? That is 

you are the ones we are trying to help to become profitable. What 

are the things you would tell us to do? 

Mr. HEFFNER. I would say whatever you can do to move more 

products. New product development, new markets overseas, anything that we can get more milk to the consumer, to the buyers, 

that in turn would increase our profits on the dairy farm. On the 

other hand, we do have the input costs, the fuel, the fertilizer and 

chemical seed prices all went up. A lot of that probably had something to do with the ethanol craze we had a couple of years ago 

66

that those prices seem to be backing off a little bit. Other, well, as 

far as the prices of the inputs, we can’t really do a whole lot about. 

We were just subject to the market. There was a run on the market. Hopefully, they will come down a little bit and stabilize. Other 

than that we have to just learn to be better business managers, I 

guess. But, as far I have always been a big proponent of getting 

out there and marketing your product and that is about all I can 

say. We need to push our product. 

Mr. SCOTT. Well, let me ask you about the do you believe that 

the Federal Milk Marketing Orders, do you believe that they are 

serving their purpose bringing stability? 

Mr. HEFFNER. Well, not being in a Federal Milk Marketing 

Order, I don’t feel that I am qualified to answer that. 

Mr. HISSONG. I am not an expert on it, but I feel a sense that 

they are. The Secretary and Dr. Dunn expressed that pretty well 

that it does, the people that are marketing to a fluid market are 

seeing a little bit of a premium. The ones that are having manufactured products are a little bit different. Should it be separated by 

state or region, I don’t know. I think maybe the classes of milk, 

simplifying them and then not having so many and simplifying 

that a little bit would probably be a better move than the Federal 

Orders. 

Mr. BRANDT. I kind of agree with him there. I think the Federal 

Orders kind of like you were saying, you are from Georgia, that 

area there has a lot higher consumption of fluid milk and you had 

mentioned earlier about just a one Order for the whole nation. I 

think that will definitely affect the farmers in your area. It is a little bit harder to produce the milk with the heat and humidity and 

everything like that. They need the price adjusted for the region or 

the area that you are in and also for demand in their area for fluid 

milk. And another thing with the two class system which I mentioned in my testimony where you would have a manufacturer class 

and a Class I would simplify being able to understand how the 

milk is priced, and that you won’t have the processors which they 

can do now. They can say okay, this milk is Class IV and that is 

how they are paying you and they take it off your farm, and then 

they can move it to a Class II and they can get a better price, and 

that really isn’t, they aren’t regulated in any way in doing that. 

They might be paying you for Class IV and then selling it as a 

Class II and getting a little better price for their product and increasing their margin. That manipulation does happen and if they 

go to a two-price system that will take away that ability for them 

to manipulate that. 

Mr. SCOTT. Yes, this, gentlemen, is the last one, I would like to 

find out if all of the other members of the panel agree with Mr. 

Brandt. In his testimony he mentioned that Dairy Price Support 

Program should be replaced with a Resource Loan Program. Is that 

a consensus with the group that? 

Mr. HISSONG. I agree that the Dairy Support Price Program has 

had its time and it is time for something else. Whether it is replaced by something like that, I think that general thought that 

there needs to be a reinvention and new things out there, cuttingedge stuff to manufacture. Yes, there needs to be some sort—we 

talked about that earlier. I think one of the reasons, to be fair to 

67

the processor, that technology is not cheap and it is expensive to 

reinvest in new capital machinery and things to produce different 

products. Part of some government help to do that and to support 

that innovative approach would certainly be helpful. 

Mr. FREY. Our nation’s Check-Off organization, DMI, recently 

championed a comprehensive review of what international export 

opportunities are for the next 20 years for the dairy industry, and 

to do that they commissioned what they called the Bing Study. And 

the Bing Study clearly indicated that the U.S. dairy industry when 

it comes to our export marketing opportunities has a very narrow 

window of opportunity to take advantage of. So your question about 

the Federal Order System, the Price Support Program, both of 

those to some extent come under attack, particularly the Price Support Program suggesting that we are not innovative. We are not in 

large part because of that support price not taking advantage of 

current and future marketing opportunities. So I would say that 

based on what I have heard from the Bing Report that yes, we 

need to do something differently then the Federal Price Support 

Program. 

Ms. MOSEMANN. On your question about the insurance program, 

I think that is kind of outlined in my testimony, we decided to 

stand behind the National Milk Proposal. That is the worse problem we seem to have in the dairy industry is you put two farmers 

in the room and there are two different ideas on where to go forward. There are so many proposals out there and no one is going 

to be happy with every aspect of it. So we are looking at what we 

think is going to be the best opportunity for our farm to stay in 

business and hopefully be there for the next generations. I would 

say that is the program that would put us there. 

Mr. SCOTT. Thank you. 

The CHAIRMAN. I thank the gentleman. 

The gentlelady from Pennsylvania, Mrs. Dahlkemper. 

Mrs. DAHLKEMPER. Thank you, Mr. Chairman, and thank you to 

the panel, I appreciate your testimony today. 

Mr. Frey, in your testimony in terms of the Center for Dairy Excellence, I know you have a number of resources to help our dairy 

farmers remain competitive and you talked a little bit about some 

of the tools that you have used. Let me ask you just what particular tools you were able to use prior to this past downturn that 

maybe helped some farmers stay more competitive, stay viable in 

their operations? What do you find is working well? 

Mr. FREY. Thanks for the opportunity to answer that question. 

It would seem that the tool that we have used that has been the 

most impactful has been something we call Dairy Profit Team. Essentially, what that is, is in a formal way, pulling the resources 

that consult to a dairy farm family around the table in a formal 

way, provide some funding for that to happen and get that farm 

family in an ongoing mode of business and discussion and decisionmaking. 

Mrs. DAHLKEMPER. Who would be on that team? 

Mr. FREY. Typically, the professionals that serve the farm, the 

veterinarian, a nutritionist, potentially the accountant, potentially 

the consultant and/or lender, someone like those types of folks, 

they have been very impactful and we have had hundreds of farm 

68

families take advantage of those. I would say in addition to that, 

educational programs particularly focusing on business management and risk management have had a big impact, I believe, here 

in the Commonwealth. 

Mrs. DAHLKEMPER. And participation level, what would you say 

of that in terms of farmers turning to you for help in this area? 

Mr. FREY. Farmers turning to us? 

Mrs. DAHLKEMPER. Yes, farmers turning to you for help. 

Mr. FREY. Yes, thank you, the Center has really become the organization. We have a number of employees that are dedicated fulltime to providing resources and when I talk about the Profit Team 

Program, we have had hundreds, almost 300 farm families that 

have used that program. And our educational initiatives, I would 

like to think nearly half of the producers in the state and we have 

about 8,000 producers, have leveraged our educational programs at 

one time or another. 

Mrs. DAHLKEMPER. Do you see a particular population, smaller 

farms, larger or just sort of across the board? 

Mr. FREY. Yes, when I look at who has leveraged the Center it 

is those farm families that are interested in continuing their farm 

business into the coming years and that is, I have to believe, 3⁄4 of 

the farm families in the state. 

Mrs. DAHLKEMPER. Okay, I appreciate that. Thank you. 

Ms. Mosemann, I want to ask you a question. I am a dietician 

by training so and I believe dairy products and milk are an important part of a nutritious diet. In your testimony you talk a little 

bit about some barriers to access, and you talked about nutrition 

programs. So I was just wondering what you were saying, what you 

think those unnecessary access barriers are that was when you 

were talking about the Child Nutrition Programs. 

Ms. MOSEMANN. Okay, oh, in my full testimony? I am sorry. 

Mrs. DAHLKEMPER. Yes, in your full testimony, I am sorry. Yes, 

you talked about the Child Nutrition Programs and you were talking about too many children miss out on those benefits because of 

low participation and unnecessary access barriers. So I guess I was 

wondering what those access barriers are. 

Ms. MOSEMANN. Obviously, I am not the pro on this. 

Mrs. DAHLKEMPER. I am sorry. If you want to get back to me on 

that, you can. As we look at this program, I just want to have an 

idea of what that is so that we can address that. 

Ms. MOSEMANN. She is talking about higher reimbursement 

rates that I am just now getting involved in the Fuel Up to Play, 

that kind of thing. I am just now starting to get involved in our 

school and getting interested in the Nutrition Program so I am 

honestly not familiar with that. 

Mrs. DAHLKEMPER. Okay, well, if you know, if anybody has any 

information on that as we deal with this reauthorization I would 

like to know what kind of access barriers that might be needing to 

look at so I appreciate that. I am sure somebody can probably get 

back to me. 

Ms. MOSEMANN. Okay, and we can get that to you. 

Mrs. DAHLKEMPER. And then I guess my last question just for all 

of you, I know we have a supply and demand problem, and as you 

retire a part of your herd, what happens to that cow? Where does 

69

that cow go to and is there any issue in terms of the beef markets 

regarding that? 

Ms. MOSEMANN. She doesn’t go to the pool. 

Mrs. DAHLKEMPER. She what? 

Ms. MOSEMANN. She doesn’t go to beef or the pool. 

Mrs. DAHLKEMPER. No, I figured not but I mean is there any 

problem though in terms of the beef markets? Is there any push 

back, I guess? 

Ms. MOSEMANN. It is actually in a month’s time, it is actually 

less than one percent of the beef that goes to slaughter so in the 

grand scheme of things over and how CWT has spread it out it 

really is not that huge of an impact on the beef industry. 

Mr. BRANDT. And the beef price is rather strong right now for the 

cows. It is as good as it has been in the last 3 or 4 years. 

Mrs. DAHLKEMPER. Okay, thank you. Thank you, all, very much. 

I yield back. 

The CHAIRMAN. I thank the gentlelady and thank the panel for 

being with us today, and for your patience and answers that were 

very helpful, and so you are dismissed and we appreciate everybody being here today. I think we received some great information 

and we will take that back in our deliberations in what we do not 

only on the farm bill but in the long-term. We will be having many 

more discussions on this issue and other issues as we move toward 

the next farm bill. 

I recognize the Ranking Member of the Livestock, Dairy, and 

Poultry Subcommittee, Mr. Neugebauer, for any closing remarks. 

Mr. NEUGEBAUER. Well, Mr. Chairman, I just want to thank you 

for having this hearing and I want to thank the panel. I want to 

thank the people that came to this hearing, as well. This is very 

important. This is the way that this democracy is supposed to 

work, is that you the people and you have selected some of the 

folks on this dais to represent you. I think that it is very important 

that we get this right as we embark on a new farm bill. I think 

it is valuable input but I would also encourage you to keep thinking about it. We have heard some good ideas today, but if there are 

other good ideas out there, we certainly want to incorporate those 

into the farm bill because long-term what we are all trying to do 

is provide for a long-term, stable agricultural economy in this country, and try to avoid the zigs and the zags, and actually provide 

the forum where producers can plan, and make business plans, and 

execute those plans, and be profitable for the long-term, so I thank 

all of you for being here. 

The CHAIRMAN. I thank the gentleman. I thank all the Members 

for their involvement here today, as well. Thank you, Mr. Holden, 

for helping us put it together and hosting us here in his district. 

Mr. HOLDEN. Thank you all for being here. 

The CHAIRMAN. And under the rules of the Committee, the record 

of today’s hearing will remain open for 30 calendar days to receive 

additional material and supplementary responses from the witnesses to any questions posed by a Member. And this hearing of 

the Committee on Agriculture is adjourned. 

[Whereupon, at 11:57 a.m., the Committee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

70

71

SUBMITTED STATEMENT BY GERALD CARLIN, DAIRY FARMER, MESHOPPEN, PA 

Why We Need a New Milk Pricing System 

Since the early days of a commercial dairy industry in the United States, there 

has been a recognition that because milk is highly perishable and has to be marketed on a daily basis, that there was a need for government oversight to provide 

some sort of minimum pricing structure, in order to protect dairy farmers. Cost of 

Production is not a new concept. The only time that dairy farmers have thrived has 

been when cost of production or parity pricing was enforced. 

For nearly 30 years, the ‘‘Free Market’’ has determined the milk price. The major 

problem with this concept is that competition has decreased in the marketplace with 

fewer players and collusion has increased, while at the same time it is illegal for 

dairy farmers to unionize. Dairy farmers have no power on their own to set a fair 

milk price. At the same time, the Chicago Mercantile Exchange (CME) trading on 

a thin speculative market, with no outside oversight has been setting the milk price 

for all U.S. dairy farmers. Secrecy, self-policing, and small volume of trading, as 

well as manipulation and corruption on the CME have rendered it completely unreliable as a means of establishing a real value for milk. The National Agricultural 

Statistics Survey (NASS) merely reflects the CME prices on a delayed basis. This 

does not constitute a Free Market. The resulting rural decay is self evident. 

The Supply Management we have had under this system has been to run farmers 

out of business through low milk pricing. The result has been a financially anemic 

dairy farm sector with those who ‘‘survive’’ being virtually slaves to the dairy industry. 

There are basically two entities that can set a fair milk price. One entity is the 

Co-op structure that was set up to work in the best interest of its membership. For 

the most part, this entity has long since departed from its original purpose and now 

works on behalf of the processors. The other entity that has the power to set a fair 

milk price is the Federal Government if it has the will to put America’s farmers first 

and exercise food sovereignty which is well within the rights of a sovereign nation, 

trade agreements notwithstanding. 

The Federal Government is faced with a clear choice to either put the needs of 

dairy farmers first by ensuring that they are justly compensated, from the marketplace, for their work and investment, or continue to pander to the interest of corporations and the global free traders at the expense and ultimate demise of U.S. 

dairy farmers. 

Farmers don’t need or want more schemes, scams, and band aids. We need cost 

of production and inventory management to make it work. The Federal Milk Marketing Improvement Act of 2009 (S. 1645) is the only legislation/proposal that provides real solutions to the very real crisis being experienced by dairy farmers today. 

Induded are reasons why the Federal Milk Marketing Improvement Act of 2009 

would better serve dairy farmers and also answers to a National Milk Producers 

Federation (NMPF) questionnaire. 

ATTACHMENT 1

Reasons Why the Federal Milk Marketing Improvement Act of 2009 (S. 

1645) Would Better Serve U.S. Dairy Farmers if Passed by Congress 

Authored by LoriJayne M. Grahn, Pelican Rapids, MN and Gerald Carlin, 

Meshoppen, PA, 3/13/10

• S. 1645 WILL value manufactured milk based on 100% of the national average 

total economic cost of production as determined by the Economic Research Service (ERS) of the United States Department of Agriculture (USDA). This data 

has been collected for years. Class I differentials would remain the same in all 

Federal Orders. All manufactured dairy products would be classified as Class 

III. The milk pricing system would be greatly simplified. This pricing system is 

superior to the target price to cover operating expenses as determined by the 

board in the Dairy Price Stabilization Program (DPSP) proposal which would 

continue to rely on the current flawed price discovery system. Supply management alone does not assure fair milk pricing as demonstrated in California in 

2009.

• S. 1645 WILL establish accountability in regard to the volume of dairy imports 

and exports and the amount of milk that they represent. This accountability extends to casein and Milk Protein Concentrate (MPC). No supply management 

program can be implemented unless U.S. dairy exports exceed imports by both 

milk displacement and dollar value. The purpose is to insure that dairy imports 

do not undercut our dairy farmers prices or their ability to provide for our doVerDate 0ct 09 2002 11:58 Jul 15, 2010 Jkt 041481 PO 00000 Frm 00075 Fmt 6621 Sfmt 6621 I:\DOCS\111-47\56430.TXT AGR1 PsN: BRIAN
72

mestic markets. Imported dairy products will not be allowed to destroy domestic 

farm prices. Neither the DPSP proposal nor the Dairy Producer Income Protection Program (DPIPP) addresses import issues.

• S. 1645 provides for a guarantee of at least 971⁄2% of the total economic cost 

of production for those who do not increase production. No farmer that maintains production at or below the previous years level will be assessed more than 

the possible 21⁄2% from the national average total economic cost of production. 

The DPSP and the DPIPP do not guarantee fair milk prices and still rely on 

the CME to determine the value of milk.

• S. 1645’s supply management program is funded by farmers. The funds would 

be used to remove excess product from the market. Hopefully this food would 

go to those who really need it. This program will work well if the government 

and industry want it to work and let it work. The DPSP supply management 

program is also farmer funded with money going back to farmers. The DPSP

does not address removing excess product from the market, thereby possibly 

leading to low milk prices and the need for CWT or MILC payments.

• S. 1645 would save taxpayers the most money of the three ideas. S. 1645 

uses existing entities including ERS, FSA, Foreign Agriculture Statistics (FAS) 

and Market Administrators to collect data. Little additional overhead expense 

should be required. The MILC and price support programs would be unnecessary.

• S. 1645 does not interfere with existing state or Federal Orders nor does the 

DPSP.

• S. 1645 could be implemented as stand alone legislation without opening the 

farm bill. The DPSP and DPIPP have not been introduced as bills. The 

DPIPP is likely to pop up in the next farm bill and would only add another burden to dairy farmers without solving any problems.

• If an amendment to a given Federal Milk Marketing Order (FMMO) receives 

a negative vote during the referendum process, S. 1645 protects the continuation of the FMMO and will not allow the negative vote to terminate the 

FMMO. Neither the DPSP nor DPIPP address this issue.

• S. 1645 encourages new producers by allowing new farmers to produce up to 

3 million pounds of milk during the first year of operation without penalty. The 

DPSP imposes penalties on up to all milk produced by a new farmer in the first 

year. This will make It even more difficult for new farmers to start up.

• S. 1645 eliminates Make Allowances. The DPSP and DPIPP do not.

• S. 1645 is not a government takeover. It merely sets a reasonable price 

much like they did prior to 1981. No farmer will be told that he/she can not 

expand. However, if there is too much milk on the market, those who increase 

production could receive less money (maybe much less) for the portion of milk 

production that exceeds the previous years production. The integrity of the program would be maintained by those who have the responsibility of collecting 

cost data (ERS), production data (Market Administrators or FSA), and import/

export data (FAS). 

ATTACHMENT 2

Answers to NMPF Strategic Planning Task Force Advance Questionnaire 

Prepared by Gerald Carlin at the request of Pennsylvania Farmers Union, 6/30/09

I. The Basics With Respect to the ‘‘Federal Milk Marketing Improvement Act 

of 2009’’ formerly S. 889 now re-introduced as S. 1645. 

S. 889 Objectives:

1. S. 889/S. 1645 would stabilize farm milk prices at a level that will provide 

dairy farmers with sufficient income to cover the national average total economic cost of production.

2. Create price stability for processors and consumers.

3. Create stability for lenders and revive a dying rural infrastructure.

4. Create official transparency in regard to the amount of milk represented by 

imports and exports and encourage domestic milk production sufficient to meet 

domestic demand.

5. Allow for dairy farmer-funded domestic supply management sufficient to 

maintain a supply and demand balance and maintain a fair price to farmers.

73

6. Create accountability in the Federal Order amendment process by allowing 

proposed amendments to fail without eliminating the Federal Orders.

How would it work? 

The Economic Research Service (ERS) of the United States Department of Agriculture (USDA) already collects cost information for producing milk. The national 

average cost of production would become the minimum farm price for manufactured 

milk which would all be classified as Class II. This price would be in effect for all 

48 contiguous states. The Secretary of Agriculture would announce the minimum 

Class II price by November 1st for the following year based on the national average 

cost of production from data collected by the ERS. The price would be adjusted quarterly. This price would include operating cost and allocated overhead. Class I differentials would remain the same. The Secretary would also be required to report 

on import/export volume, milk displacement and dollar value. The Secretary would 

be authorized to implement a supply management program only when dairy exports 

exceed dairy imports by both the amount of milk represented and by dollar value. 

The first phase of supply management would affect all dairy producers by reducing the Class II price by up to 50 percent on up to five percent of production. This 

could be seen as a signal to hold production down. 

Under the second phase when the Secretary would announce a reduced price on 

all-milk production that is in excess of the producer’s preceding year’s production. 

A 3,000,000 pound exemption would apply to new start-up producers for the first 

12 months of operation. The funds collected from the supply management assessments would be transferred to the Commodity Credit Corporation (CCC) to be used 

to remove excess product from the market. Essentially, the Secretary would be using 

producer money to purchase dairy products at full market value. The support program would be superseded by the farmer-funded program. These funds may also be 

used to export product. 

Would it require government authorization or would it operate without government 

oversight? 

S. 889/S. 1645 would require government authorization. 

Would participation be voluntary or would it be a mandatory program? 

Participation would be mandatory. 

How, and by whom (e.g., producers, government, government-appointed body) would 

key operating decisions be made? 

The Secretary of Agriculture would announce the minimum Class II price based 

on the national average cost of production data collected by the ERS. The Secretary 

would also be responsible for implementation of the supply management when proper criteria is met. 

How would S. 889’s/S. 1645’s participation be maintained? 

This is a mandatory program and all farmers would participate. 

How would S. 889’s/S. 1645’s integrity be maintained? 

The integrity of the program would be maintained by those who have the responsibility of collecting cost data (ERS), production data (Market Administrators or 

Farm Service Agency (FSA), and import/export data (Foreign Agriculture Service 

(FAS)). 

How would the cost of S. 889/S. 1645 be determined? 

The cost of S. 889/S. 1645 would be minimal since it would use existing entities 

such as ERS, Market Administrators, FSA and FAS. Much of the required data collection is already being done or could be done with little additional expense. 

Who would pay for the cost of S. 889/S. 1645? 

Farmers would pay for the cost of S. 889/S. 1645 through supply management provisions. Tax payer dollars would not be necessary for Milk Income Loss Contract 

(MILC) program or price support program. 

II. The Impact of S. 889/S. 1645 on Producers 

Would it apply to all producers the same? 

Yes, the program would apply to all existing producers the same. There is a provision for new producers to produce up to 3,000,000 pounds in the first year without 

penalty. 

74

Would all farms of all sizes be treated the same or would S. 889/S. 1645 affect varying farm sizes differently? 

All size farms would be treated equally as per the answer to the preceding question. 

Would producers in different geographic regions be treated the same or would S. 889 

affect various regions differently? 

Producers in all geographic regions would be treated the same. 

What limits, obligations, costs, or burdens would S. 889/S. 1645 impose on individual producers? Processors? 

All farms would be affected by the first phase of supply management by a reduced 

price on up to five percent of their milk production. Any increase in production from 

the previous year may also be assessed if phase two of supply management is implemented. There are no production limits. Any cost of the program is offset by a fair 

base price for raw milk. Thus, we would not consider this plan to be a burden on 

producers. 

Processors would be obligated to pay the announced Class II price plus any applicable Class I differentials. However, this price would be far more stable and predictable than the current pricing formula and would finally provide a fair base price 

for farmers. 

If S. 889/S. 1645 provides for potential assessments or rewards for every producer 

based on their individual milk production or milk marketed, relative to a production history (e.g., last year’s production): 

a. Describe how that history (past production) would, or would not become capitalized (monetized) into the value of each affected operation. 

There would be no monetary value placed on production history. Production history (base) cannot be bought or sold. The production history is used solely to determine what production is valued at full price and what production would be eligible 

for assessment. 

b. Describe how S. 889/S. 1645 might help or hinder new producers from entering 

the industry. 

S. 889/S. 1645 does not hinder in any way new producers who produce up to 

3,000,000 pounds of milk in the first year. Production over 3,000,000 pounds is eligible for assessment. 

c. Describe how S. 889/S. 1645 might help or hinder producers from operating their 

businesses in an efficient manner. 

With a fair price producers will be enabled to operate in an efficient manner with 

less stress and with greater financial efficiency and accountability within their rural 

business economic infrastructure. 

III. S. 889/S. 1645 In Practice 

Describe in detail how S. 889/S. 1645 would have operated during this period and 

how milk prices and dairy farm incomes would have been different under S. 889 

from those actually experienced in the industry. 

S. 889/S. 1645 would have provided a stable price to dairy farmers and a stable 

cost to processors and consumers. There would have been less incentive to import 

dairy products since doing so could not have reduced the domestic price. The export 

market could have remained viable if farmer funds from supply management would 

have been used to export dairy products. However, from 2000 to 2006, the United 

States had a significant negative balance in dairy trade. The primary objective of 

S. 889/S. 1645 is to ensure a fair price for milk used for domestic use and to discourage disruption of milk prices by imports being used to create an appearance of overproduction. Farm milk prices would not have been as high under S. 889/S. 1645 during the summer and fall of 2007 but would have been higher most of the rest of 

the time in the last decade. Dairy farm incomes would have been stable and much 

more acceptable. 

More specifically, one of the reasons why milk prices were high in 2007 and 2008 

was the export market because we exported in excess of 10% of our domestic production. 

How would S. 889/S. 1645 affect the competitiveness of the U.S. dairy industry in 

the world market? 

The Chicago Mercantile Exchange (CME) tends to be a trend setter in world dairy 

prices. It is our belief that each nation has a right and indeed a moral obligation 

75

to ensure a strong and sustainable domestic agricultural infrastructure. Imports of 

food should be driven by need not by greed. Providing bottom dollar exports is not 

in the best interest of farmers regardless of the volume of product exported. However, the U.S. could be competitive in the world marketplace under this legislation. 

How would S. 889/S. 1645 affect the export of U.S. dairy products when world prices 

are high and when they are low? 

When world prices are high exports may increase. We hope that S. 889/S. 1645 

will be a trend setter that farmers around the world be treated fairly and that the 

world prices would not reach deep lows. 

How would the operation of S. 889/S. 1645 be affected when world prices are high 

and when they are low? 

The operation of S. 889/S. 1645 would not be affected by world prices. 

IV. Political Considerations Regarding S. 889/S. 1645

If S. 889/S. 1645 requires Congress to enact legislation to provide potential assessments or rewards for every producer for taking specific production decisions, do 

you believe S. 889/S. 1645 can be accepted by the necessary majority of producers and other interested parties to achieve political consensus nationally. 

What opposition do you see, If any, with respect to gaining widespread support 

for S. 889/S. 1645? 

We believe this legislation would be widely accepted by farmers who understand 

it. The main roadblocks would be put forth by those who believe that cheaper is better regardless of the human or environmental cost. Those who see the farmer’s labor 

as a way to increase their own profits will oppose this legislation. The global free 

trade crowd that sees people as economic pawns will oppose this legislation. 

Is S. 889/S. 1645 consistent with the U.S.’ WTO obligations? 

Since supply management is farmer-funded, the main target is domestic supply 

and demand and the legislation does not rely on government subsidies, we believe 

it is consistent with the U.S.’ WTO obligations. 

Will S. 889 require changes to the current tariffs and quotas pertaining to imports 

of dairy products into the U.S.? 

No changes in current tariffs and quotas would be required under this legislation. 

How would the proprietary processor sector view S. 889/S. 1645? 

We believe that the proprietary processor sector would view this legislation favorably since they will have consistent cost and farmers would be responsible for curbing oversupply. 

How would the public (i.e., taxpayers and consumers) view S. 889/S. 1645? 

Taxpayers should view this legislation favorably since it is not taxpayer funded. 

If consumers are properly educated to realize that the current farm milk price volatility keeps ratcheting retail prices higher and that a stable, fair, farm milk price 

does not have to mean excessive retail prices, they will view this legislation favorably. Without a system that pays farmers fairly for their milk very few farmers will 

remain in business to provide fresh local milk, dairy products and beef for our domestic communities. 

SUBMITTED MATERIAL BY BRYAN GOTHAM, DAIRY FARMER, ST. LAWRENCE COUNTY, 

NY 

Simple Dairy Policy Goals for Farm Bill 2012

• New price discovery rather than Chicago Mercantile Exchange (CME) driven. 

The CME only sells surplus cheese. Why is the average cheese price based off 

the surplus?

• Provide a milk price that is adequate and supports the ‘‘Average’’ sized farm. 

Without this, any policy is not sustainable without extreme government subsidies, such as those we have today. With adequacy, the MILC program can be 

eliminated.

• Remove make allowance and support price. Processors and need more responsibility for the burden of the oversupply with financial signals of their own. Farmers also need to be more responsible; they should not be able to market every 

drop of milk that they want.

76

* The testimony is supported by Progressive Agriculture Organization, Meshoppen, Pennsylvania; Pennsylvania Farmers Union, Millville, Pennsylvania; New York Chapter, National 

Farmers Organization; National Family Farm Coalition, Washington, D.C. 

• The USDA inspects 1% of imported food for quality, but 100% of domestic food 

is tested and sampled for quality. Imported food needs to meet the same standards and regulation as domestic food. If imported dairy products cannot meet 

domestic standards, they should not be put into our food.

• Provide quality incentives in the Federal formulas.

• Class I fluid prices need to be paid on regional cost of production factors to truly 

reflect the real value of producing fresh, local milk.

• Reporting of cheese inventory needs to be mandatory.

• The value of cheese needs to be determined by the entire market from high 

value to low value cheese. The value needs to be broad based and electronically 

driven.

• All dairy products wholesaled need to be included in the pricing of manufactured dairy products for dairy farmers.

• If the burden for the oversupply is completely placed onto the farmer through 

a supply management system than a financial allowance for this financial burden needs to be in the Federal formulas for farmers. This would remove the taxpayers’ financial responsibility today. 

SUBMITTED STATEMENT BY ARDEN TEWKSBURY, MANAGER, PROGRESSIVE

AGRICULTURE ORGANIZATION * 

April 20, 2010

Hon. COLLIN C. PETERSON,

Chairman,

Committee on Agriculture, 

U.S. House of Representatives; 

and Members of the Committee.

Mr. Chairman,

My name is Arden Tewksbury. I reside at [Redacted]. 

I have been a dairy farmer all of my life. Since 1991, I also have been the manager of the Progressive Agriculture Organization located at [Redacted], Meshoppen, 

Pennsylvania. In the past, I also have done a substantial amount of work for the 

Pennsylvania Farmers Union, and I have been a member of the Dairy Committee 

of the Pennsylvania State Grange. In addition, I was a member of the Board of Directors of the Regional Cooperative Marketing Agency (RCMA) and a member of the 

Board of the Regional Cooperative Bargaining Agency, a subsidiary of RCMA. 

I was a member of the Board of Directors of the former Eastern Milk Producers 

for 9 years, serving as Vice President for 2 years and President for 5 years. One 

of our foremost accomplishments was to bring Leprino Foods into South Waverly, 

Pennsylvania, near Waverly, New York, in a joint venture with Eastern Milk Producers. This mozzarella cheese plant ended up providing a market for the milk of 

hundreds of dairy farmers. The need for this milk plant became necessary when 

many proprietary milk handlers went bankrupt and other milk handlers terminated 

a marketplace for hundreds of other dairy farmers. 

However, entering into a joint venture with Leprino Foods and full supply contracts with other milk handlers never caused me to lose sight of the main objective 

of a dairy cooperative, and that is to obtain a fair milk price for dairy farmers. 

This is what is bringing us to the table today: the need for a fair milk price for 

all dairy farmers.

Many dairy farmers have been on a collision course with financial disaster since 

April 1, 1981. This is the date on which the United States Congress froze the support price on manufactured milk products. In addition, Congress prohibited any further upward adjustment on the milk support price. Previously, the U.S. Secretary 

of Agriculture was required to adjust the support price twice a year. 

Through the 1980’s and 1990’s, the U.S. Congress made several attempts to resolve the dairy crisis. Such programs, such as the Dairy Herd Termination Act, the 

Milk Diversion Program, and the Gramm-Rudman-Hollings Balanced Budget and 

Emergency Deficit Control Act of 1985, only added additional turmoil on many dairy 

farms across the United States for two main reasons:

77

1. The lack of a milk pricing formula that accounted for the cost of producing 

milk on our farms.

2. The lack of a true inventory management program, which could be funded 

by dairy farmers to be sure the production of milk stayed in line with the domestic needs for milk.

In the late 1990’s, milk hearings were held in Alexandria, Virginia, to consider 

a new milk pricing formula for paying dairy farmers. Some of us testified vehemently that a new pricing formula was needed to enable dairy farmers to cover their 

cost of production. 

However, our voices were drowned out by those who insisted that the dairy industry must impose a product pricing formula which contained the infamous ‘‘make allowance’’ for milk processors that would allow the processors the opportunity to 

cover their cost of operations. What a great idea!! But, what about the dairy farmers’ cost of operations????

I have written hundreds of editorials in my lifetime, but the one I am proudest 

of was written after ‘‘Order Reform’’ was implemented on January 1, 2000. The title 

was: ‘‘ORDER REFORM: A Processor’s Dream and a Dairy Farmer’s Nightmare.’’ Now, today, many of the people who disagreed with us in the late 1990’s are clamoring for changes in the milk pricing formula. Certainly, a change is needed and 

needed immediately. 

In January 2009, we estimated that dairy farmers across the United States would collectively lose nearly $15 billion. Unfortunately, this figure proved to be correct. 

Now we are almost through a third of 2010 and still nothing substantial has been 

done to correct the serious financial inequities facing dairy farmers from California 

to Vermont. We are seeing dairy farmers continually going out of business. We are 

witnessing the dairy infrastructure of rural America on the verge of final destruction. Dairy farmers in many areas are unable to receive credit for their needs. Many 

dairy farmers cannot repay loans they obtained during 2009. 

The dairy farmers’ crisis must be addressed NOW. Dairy farmers cannot wait for 

the next farm bill to solve their immediate crisis. Actions can and must be taken 

now. The original RCMA proved that there were more funds in the marketplace than 

what dairy farmers were receiving. The Northeast Interstate Dairy Compact proved 

that there was more money in the marketplace for dairy farmers than what they 

were receiving. 

Consumers are paying an additional nearly 30¢ per gallon for milk as a result 

of actions taken by the Pennsylvania Milk Marketing Board (PMMB). This equates 

to about $3.00 per cwt on milk used for fluid purposes (not milk used for manufacturing purposes). While many dairy farmers are wondering where all this extra 

money goes, it does prove that the marketplace can absorb a much greater price

than what the present pricing system allows. And, finally, a milk handler in the 

Northeast is paying his shippers an unqualified premium on all the milk they ship 

which again proves that there is substantial room in the marketplace to pay all 

dairy farmers much needed funds. 

Immediate emergency action must be taken for a SHORT-TERM resolution to the 

current crisis.

1. Either the U.S. Secretary of Agriculture or the U.S. Congress must raise the 

support price of manufactured milk products up to $18.00 per cwt. OR

2. Either the U.S. Secretary of Agriculture or the U.S. Congress must establish 

a floor price under all classes of manufactured milk at a level between $18.00 

and $20.00 per cwt. Existing Class I differentials must be added to the manufactured milk price to determine the value of Class I milk.

3. If needed, the U.S. Congress could use the milk supply management program 

contained in ‘‘The Federal Milk Marketing Improvement Act of 2009’’ (S. 1645) 

to deal with any fear of overproduction.

These steps or other comparable steps must be taken immediately for the sake 

of our dairy farmers and their dairy support businesses. 

For a LONG-TERM solution to the problems overwhelming the majority of dairy 

farmers, we strongly urge that the U.S. House Agriculture Committee give serious 

and much-needed consideration to a companion bill to ‘‘The Federal Milk Marketing 

Improvement Act of 2009’’ (S. 1645) as a reasonable cure for the ruinous low raw 

milk prices dairy farmers have been subjected to over the past many years. 

S. 1645 would price manufactured milk on the national average cost of production. 

Existing Class I differentials would be applied to the manufactured price which is 

basically the current practice now being used to determine the value of fluid milk 

for bottling. 

78

S. 1645 contains an inventory management program which would be funded by 

dairy farmers. S. 1645 also calls for the U.S. Secretary of Agriculture to be sure that 

imports of dairy products do not exceed the amount of exported dairy products. No 

longer should imported dairy products be allowed to depress milk prices paid to 

American dairy farmers. 

S. 1645 mandates that the U.S. Secretary of Agriculture must adjust the raw milk 

prices on a quarterly basis. 

S. 1645 also eliminates processor ‘‘make-allowances’’ which are currently being deducted from the value of milk products before dairy farmers are paid. 

S. 1645 also calls for the continuation of the Federal Milk Marketing Orders in 

the event that a proposed Amendment to the Order is rejected. 

However, the most important item in S. 1645 is the realization that the dairy 

farmers’ pay price will have a direct relationship to their cost of production for the 

first time since the early 1980’s. 

The pricing formula in S. 1645 will be supported with a true milk supply management program which will not cost the taxpayers any direct money for payments. 

All the meetings we have held recently with nearly two thousand dairy farmers 

indicate that they support S. 1645. During the last year, we have collected signatures from over 2,000 dairy farmers and consumers in support of a new pricing formula for dairy farmers based on the dairy farmers’ cost of production. 

However, even more dramatic is the fact that during the last 10 years, we have 

had over 150,000 consumers profess to us that they are deeply concerned about the 

demise of the countless number of family dairy farmers who have been pushed out 

of business by years of low raw milk prices. These consumers always claim with conviction that they would be willing to pay more for milk if the dairy farmers received 

the additional funds. 

It is time for the dairy farmers to receive a fair price from the marketplace. Dairy 

farmers do not want Milk Income Loss Contract (‘‘MILC’’) payments, and, contrary 

to the message delivered by some people, I have found no dairy farmers who believe 

that they should be compelled to buy into some highfalutin insurance program to 

compensate for inadequate raw milk prices. 

Let’s give dairy farmers a fair price from the marketplace. Dairy farmers will 

then have an adequate cash flow to do their part and plays major role in revitalizing 

rural America. 

Thank you. 

ATTACHMENT 1

Accessed 8/13/2009 from http://thomas.loc.gov/cgi-bin/query/z?c111:S.1645:

S. 1645 IS

111th CONGRESS

1st Session 

S. 1645

To amend the Agricultural Adjustment Act to require the Secretary of Agriculture 

to determine the price of all milk used for manufactured purposes, which shall be 

classified as Class II milk, by using the national average cost of production, and for 

other purposes. 

In the Senate of the United States 

August 6, 2009

Mr. SPECTER introduced the following bill; which was read twice and referred to 

the Committee on Agriculture, Nutrition, and Forestry 

A Bill 

To amend the Agricultural Adjustment Act to require the Secretary of Agriculture 

to determine the price of all milk used for manufactured purposes, which shall be 

classified as Class II milk, by using the national average cost of production, and for 

other purposes.

Be it enacted by the Senate and House of Representatives of the United States 

of America in Congress assembled, 

Section 1. Short Title. 

This Act may be cited as the ‘Federal Milk Marketing Improvement Act of 2009’. 

79

Sec. 2. Prices Received for Milk Under Milk Marketing Orders. 

Section 8c(5)(B) of the Agricultural Adjustment Act (7 U.S.C. 608c(5)(B)), reenacted with amendments by the Agricultural Marketing Agreement Act of 1937, is 

amended—

(1) in the first clauses (i) and (ii), by inserting ‘(based on the blended price 

of all milk covered by the order)’ after ‘uniform prices’ each place it appears; 

and 

(2) in clause (b) of the matter following the first clause (ii), by inserting ‘and 

the component value’ after ‘quality’. 

Sec. 3. Class II Milk Pricing. 

Section 8c(5) of the Agricultural Adjustment Act (7 U.S.C. 608c(5)), reenacted with 

amendments by the Agricultural Marketing Agreement Act of 1937, is amended by 

adding at the end the following:

‘(P) CLASS II MILK PRICING.—

‘(i) MINIMUM PRICE.—The Secretary shall base the minimum price for 

Class II milk on the average cost of producing all milk in the 48 contiguous 

States, as determined by the Economic Research Service of the Department 

of Agriculture in accordance with clause (ii) (referred to in this subparagraph as the ‘national average cost of production’). 

‘(ii) NATIONAL AVERAGE COST OF PRODUCTION.—For purposes of this subparagraph, the national average cost of production shall equal the national 

average of the operating cost and the allocated overhead cost of producing 

all milk. 

‘(iii) SURVEY.—For purposes of clause (ii), the Secretary shall survey producers and associations of producers subject to Federal and State milk marketing orders and in all unregulated areas applicable to all milk. 

‘(iv) PRICE ANNOUNCEMENT.—

‘(I) IN GENERAL.—Not later than November 1 of each calendar year, 

the Secretary shall announce the minimum price for Class II milk for 

the next calendar year, as determined in accordance with clause (i). 

‘(II) ADJUSTMENTS.—Using the most currently available national average cost of production, the Secretary shall adjust the price announced 

under subclause (I) for a calendar year on April 1, July 1, and October 

1 of the calendar year.

‘(v) BASIC FORMULA PRICE.—

‘(I) IN GENERAL.—The Secretary shall use the Class II milk price announced under clause (iv) as the basic formula price for all Federal and 

State milk marketing orders and all unregulated milk production areas. 

‘(II) CLASS I MILK.—

‘(aa) IN GENERAL.—The price of Class I milk in all Federal and 

State milk marketing orders and all unregulated milk production 

areas shall be equal to—

‘(AA) the basic formula price under subclause (I); plus 

‘(BB) the applicable Class I milk differential under Federal 

and State milk marketing orders.

‘(bb) UNREGULATED AREAS.—For purposes of item (aa)(BB), the 

Secretary shall assign comparable Class I milk differentials to each 

unregulated area.

‘(vi) ESTIMATION OF ANNUAL MILK PRODUCTION AND DOMESTIC CONSUMPTION.—Not later than November 1 of each calendar year and taking into 

consideration the import projections and export projections for all milk 

products, the Secretary shall estimate the quantity of all milk to be produced in the 48 contiguous States and marketed by producers for commercial use during the next 12 months. 

‘(vii) INVENTORY MANAGEMENT PROGRAM.—

‘(I) IDENTIFICATION AND DETERMINATION OF DAIRY PRODUCTS.—

‘(aa) IN GENERAL.—Not less frequently than once each quarter, 

the Secretary shall—

‘(AA) identify all dairy products (including cheeses, curds, 

butter, butterfat, butter oil, buttermilk, anhydrous milk fat, 

80

dairy spreads, milk, cream, concentrated milk, condensed milk, 

nonfat dry milk powder, whole milk powder, skim milk powder, all other forms of powdered milk, yogurt, ice cream, whey, 

whey powder, dried whey, whey protein concentrate, all other 

forms of whey products, milk protein concentrate, milk protein 

isolate, casein, caseinates, lactose, food preps containing milk, 

and milk chocolate) imported into, or exported from, the 

United States; and 

‘(BB) determine the quantity of raw milk contained in each 

such product.

‘(bb) INCLUSIONS.—In identifying dairy products under item 

(aa)(AA), the Secretary shall include any current or projected future imports or exports of a product used for dairy, a dairy substitute, or ingredient, including any product that does not have the 

status of ‘generally recognized as safe’, as determined by the Commissioner of Food and Drugs.

‘(II) MILK PRODUCTION TOTALS.—Not later than February 1 of each 

calendar year, the Secretary shall determine the total quantity of all 

milk produced by each producer or farming operation during the preceding calendar year. 

‘(III) EXCESS PRODUCTION DETERMINATION.—Not more than once 

every 2 months, if the Secretary, acting through the Commodity Credit 

Corporation, has purchased the maximum quantity of milk and milk 

products as required by law to administer programs including child nutrition programs (as defined in section 25(b) of the Richard B. Russell 

National School Lunch Act (42 U.S.C. 1769f (b)), feeding programs administered by the Secretary of Defense, institutional programs, and any 

other mandated Federal food or feeding programs, the Secretary shall 

determine whether an excess quantity of milk and milk products is 

being produced for the national domestic market. 

‘(IV) REDUCTION IN PRICE RECEIVED.—

‘(aa) IN GENERAL.—Subject to item (bb), if the Secretary determines under subclause (III) that there is excess production, the 

Secretary may provide for a reduction in the price received by producers for not more than 5 percent of all milk produced in the 48 

contiguous States and marketed by producers for commercial use. 

‘(bb) LIMITATION.—The Secretary shall not provide for a reduction in the price received by a producer under item (aa) unless the 

Secretary determines that there exists a positive trade balance in 

dairy products described in subclause (I)(aa)(AA) that are imported 

into, or exported from, the United States, based on—

‘(AA) dollar value; and 

‘(BB) the quantity of milk represented by imports and 

exports, as determined under subclause (I)(aa)(AA).

‘(V) AMOUNT.—The amount of the reduction under subclause (IV) in 

the price received by producers shall not exceed half the minimum 

price of Class II milk. 

‘(VI) ADDITIONAL REDUCTION.—If the Secretary determines that the 

reduction described in subclause (IV) is insufficient to reduce excess 

production, subject to subclauses (VII) and (VIII), the Secretary may reduce the price received by any producer or farming operation that has 

increased the production of all milk in a calendar year, as compared to 

the immediately preceding calendar year. 

‘(VII) APPLICATION.—A reduction in price under subclause (VI) shall 

apply only to the quantity of milk produced in excess of the quantity 

of milk produced during the previous calendar year. 

‘(VIII) NEW PRODUCER EXCEPTION.—A new producer, as defined by 

the Secretary, shall—

‘(aa) during the 1 year period beginning on the date on which the 

new producer commences operation, be exempt from any applicable 

price reduction relating to the first 3,000,000 pounds of milk produced by the new producer; 

‘(bb) in the case of any milk produced in excess of 3,000,000 

pounds during that 1 year period, be subject to each price reduction 

described in subclauses (IV), (V), and (VI); and 

81

‘(cc) after that 1 year period, be subject to each price reduction 

that applies to existing producers.

‘(IX) APPEALS.—

‘(aa) IN GENERAL.—A producer subject to an additional reduction 

under subclause (VI) may appeal to the Federal or State milk marketing administrator to provide evidence that the producer did not 

increase production in the calendar year that the reduction was in 

effect when compared to the immediately preceding calendar year. 

‘(bb) SUBMISSION OF APPEAL.—A producer that ships to an unregulated milk handler may submit any appeal of the producer to 

the Secretary or to the designated representative of the Secretary.

‘(X) EXTRAORDINARY CIRCUMSTANCES.—In deciding an appeal submitted by a producer under subclause (IX), a Federal or State milk 

marketing administrator (or, in the case of an appeal under subclause 

(IX)(bb), the Secretary or the designated representative of the Secretary) shall take into consideration production losses due to, at a minimum, fire, severe weather conditions, or severe disease outbreaks. 

‘(XI) COLLECTION.—Except as provided in subclause (XII), reductions 

in price required under subclause (IV) or (VI) shall be collected by Federal and State milk marketing administrators and timely remitted to 

the Commodity Credit Corporation to offset the cost of purchasing excess milk products. 

‘(XII) COLLECTION IN UNREGULATED AREAS.—Reductions in price required for unregulated areas under subclause (IV) or (VI) shall be collected by the Secretary and timely remitted to the Commodity Credit 

Corporation to offset the cost of purchasing excess milk products.

‘(viii) PROHIBITION ON CERTAIN CHARGES.—In carrying out this Act, the 

Secretary shall not impose charges on producers for the cost of the conversion of raw milk to manufactured products. 

‘(ix) RESPONSIBILITIES OF MILK PURCHASING HANDLERS.—A milk handler 

that purchases milk from a producer shall assume title for the milk at the 

time at which the milk is pumped into a milk truck provided by or otherwise delivered to the milk handler. 

‘(x) APPLICABILITY.—This subparagraph applies to all producers and handlers of milk in the 48 contiguous States.’. 

Sec. 4. Amendments to Federal Milk Marketing Orders. 

Section 8c(17) of the Agricultural Adjustment Act (7 U.S.C. 608c(17)), reenacted 

with amendments by the Agricultural Marketing Agreement Act of 1937, is amended by adding at the end the following:

‘(H) ORDERS COVERING MILK AND MILK PRODUCTS.—In the case of an order 

covering milk or milk products, disapproval of an amendment to the order shall 

not be considered to be disapproval of—

‘(i) the order; or 

‘(ii) other terms of the order.’. 

ATTACHMENT 2

Estimated Pay Price to Dairy Farmers Under the Federal Milk Marketing 

Improvement Act of 2009 (S. 1645) 

Federal Order 

Class II 

Basic

Formula 

Class I

Differential Class I Price Paid to Dairymen 

Class I

Utilization 

1—Boston $22.00 $3.25 $25.25 $23.51 46.5%

5—Appalachian $22.00 $3.10 $25.10 $24.05 66.3%

6—Florida $22.00 $4.00 $26.00 $25.36 84.0%

7—Southeast/Atlanta $22.00 $3.10 $25.10 $23.83 59.3%

30—Midwest/Chicago $22.00 $1.80 $23.80 $22.28 16.0%

32—Central/Kansas City $22.00 $2.00 $24.00 $22.63 31.4%

33—Mideast/Cleveland $22.00 $2.00 $24.00 $22.77 38.4%

124—Pacific NW/Seattle $22.00 $1.90 $23.90 $22.56 29.5%

126—Southwest/Dallas $22.00 $3.00 $25.00 $23.09 36.4%

131—Arizona $22.00 $2.35 $24.35 $22.88 37.5%

82

Estimated Pay Price to Dairy Farmers Under the Federal Milk Marketing 

Improvement Act of 2009 (S. 1645)—Continued

Federal Order 

Class II 

Basic

Formula 

Class I

Differential Class I Price Paid to Dairymen 

Class I

Utilization 

California $22.00 $1.90 $23.90 $22.34 18.0%

* This revised formula was compiled by Arden Tewksbury, Manager, Progressive Agriculture 

Organization to more effectively equalize the prices paid to dairy farmers in the United States. 

Figures used are 2009 figures. 

Pro Ag can be reached at (570) 833–5776 or proagorg@yahoo.com. 

ATTACHMENT 3

The Following Is a Summary of the Specter-Casey Dairy Bill S. 1645 ‘‘The 

Federal Milk Marketing Improvement Act of 2009’’

(1.) ALL milk produced in the United States will be priced on the national average cost of producing milk on the dairy farms. 

(2.) ALL milk used for fluid purposes will be classified as Class I. 

(3.) ALL milk used for manufacturing purposes will be classified as Class II. 

(4.) The Class II price will be the national average cost of production. This price 

will be uniform in all Federal and state Orders as well as unregulated areas. The 

Class I price will be determined by using the Class II price plus the existing Class 

I differentials that are currently in place in each Federal Order. The State of California and other unregulated areas will be assigned a Class I differential by the 

U.S. Secretary of Agriculture. 

(5.) ALL Federal and State Milk Marketing Orders will remain intact. Each Milk 

Marketing Order will be responsible for determining the component value of milk. 

(6.) S. 1645 prohibits any cost of operating milk manufacturing plants (commonly 

called ‘‘Make Allowance’’) to be levied on dairy farmers. 

(7.) The U.S. Secretary of Agriculture will adjust the value of milk four times a 

year. 

(8.) S. 1645 calls for an inventory supply management program. The program is 

aimed at preventing a build up of domestic milk products and prevents foreign milk 

products from destroying dairy farmer prices. 

(9.) The inventory management program can not be implemented unless the imports and exports of dairy products are in balance. 

(10.) ALL dairy farmers will fund the inventory management program. If and only 

if the program is necessary then all dairy farmers will receive a lower price on up 

to 5% of their production. This price will be 1⁄2 of the value of manufactured milk. 

However, the dairy farmers will receive the correct price on 95% of their milk. 

PIease remember if the inventory management program is not implemented, then 

the dairy farmer’s will receive the full price. Also, the U.S. Secretary of Agriculture 

may decide that only a reduction of one or two percent of total production may be 

sufficient. 

(11.) If this reduction is insufficient to reduce excess production, the Secretary 

may reduce the price for producers who have increased production over the previous 

year. This reduction only applies to the volume of increased production. 

(12.) A new producer may produce milk up to 3 million pounds in theMilk Marketing Order he is regulated under before he is subject to the provisions of the inventory management program described in point ‘‘11.’’ This relates only to his first 

year. 

(13.) The intent of S. 1645 is not to tell dairy farmers how much milk they can 

produce. However, over-production will be addressed in the inventory management 

program. 

(14.) An inventory management program is necessary to prevent a small amount 

of milk from forcing $20.00 per hundredweight milk down to $12.00 per cwt. 

(15.) The beauty of S. 1645 is that this bill will be farmer-funded and will NOT

cost the USDA any direct cost. The dairy farmer’s reward for funding the bill (if 

necessary) is for the first time the dairy farmers will receive fair/stable prices for 

his/her efforts. 

(16.) Rejection of proposed FMMO amendments will not result in the elimination 

of the FMMO. 

(17.) S. 1645 allows milk hauling charges to be levied on dairy farmers. The cost 

of production figures by the USDA pick up the hauling charges. Again, the dairy 

farmers’ hauling costs are in the cost of production figures. 

83

SUBMITTED STATEMENT OF RALPH E. MOYER, DAIRY PRODUCER, MYERSTOWN, PA 

You have heard all the numbers, seen the research, and are aware of questionable 

practices at the Chicago Board of Trade. You have also heard how Dean’s Foods, 

and other dairy processors, have had record profits this past year. I’m not going to 

bore you with more of that; I want to make it more personal. I want to share a little 

about how dairy pricing affects a family run dairy farm, the local community, and 

the country. 

My name is Ralph Moyer. My wife, Crystal, and I own and operate Mor-Dale 

Farms, a dairy and crop farm in Berks County, Pennsylvania. We have three adult 

children. My parents and our family moved to Berks County in 1967. Through many 

years of hard work and sacrifices, my family built a successful dairy and crop farm. 

Crystal and I worked into the business and have spent 30 years improving and 

growing our family-owned business. Five years ago we started to look at our options. 

We had old dairy facilities that would be costly to renovate. We looked at options 

for new facilities that would provide a long term, viable business that would appeal 

to future generations. We also provide school and community educational events and 

this was important for us to consider in our decision. 

In the spring of 2009, we started construction on a new, four-unit, Lely robotic 

milking facility that will milk up to 250 cows. This includes increased feed storage 

to provide year-long storage of livestock feed. A new manure storage and biogas digester system is being completed this summer. This will turn methane gas into electric to run our operation, with an added benefit of providing extra energy for our 

community. This will create a long-term, environmentally sound, community friendly, family-owned business. 

This construction job created many jobs for local businesses over the last year and 

a half and will continue to provide a significant influence on the local economy in 

service, equipment and supply purchases. 

We used a conservative $16.00/cwt for our milk price while doing our budgeting 

and feasibility study. This past year has been and continues to be a serious financial 

struggle with no real end in sight. When I was in high school in the late 1970’s my 

parents were receiving over $15.00/cwt for their milk, that’s more than we averaged 

for the last year on our farm. Agriculture in general and dairy farming in particular, 

is different than many other businesses. We buy most of our inputs and supplies 

at retail prices. We then grow or produce a product, in this case milk, and sell it 

at wholesale prices. 

We pay for the hauling for almost everything we buy, and then when we sell our 

milk, we are charged the hauling cost to deliver it to the processor. A make allowance, or the amount the processor needs to produce the end product, like cheese, 

is taken out of our price. The advertising of milk and related products is deducted 

from the amount we receive. 

We contribute to the CWT program, which is designed to remove product from the 

market to improve our prices. The problem is, as we remove safe, locally produced 

milk; then imported, unregulated, questionable-quality products are brought in to 

replace them. The United States does not produce a surplus of dairy products; the 

last number I heard was that we produce a deficit of about 1 billion pounds. The 

worst part is that a large percentage is being replaced with products like Milk Protein Concentrates and other ingredients that do not need to meet our quality standards. Some are not approved to be used in food, but are allowed into the United 

States for glue or construction use. This is why a quota or supply management program will not be successful in this country. Many articles have been written about 

how milk pricing is unfair and the ability of a few large buyers to control the price 

in their favor. 

One of the most important things we can do for the strength and security of our 

country is utilizing locally produced food. We must keep our dairy farms profitable 

in order for our country and economy to prosper. Dollars generated by dairy farms 

are multiplied several times over by being reinvested back into other local businesses. The amount of other businesses that are impacted by dairy farms in a community is astounding. To list a few we personally deal with; bank, equipment dealer 

for purchases and service of farm equipment or milking equipment, trucking, custom operators, feeds purchased, veterinary services, nutritionist, and accounting. 

Many are quality, well paying jobs, creating tax revenues to provide for our schools, 

roads, and other necessary services in our communities. We would like to provide 

the opportunity for a young person or couple to be part of our business but unless 

the financial picture improves that will not be possible. 

84

SUPPLEMENTAL MATERIAL SUBMITTED BY LAUREN MOSEMANN, DAIRY PRODUCER, 

MISTY MOUNTAIN DAIRY LLC 

In response to Rep. Kathy Dahlkemper’s question for Lauren Mosemann regarding the barriers to access in the Child Nutrition Reauthorization, NMPF is submitting the following for the record: 

The three most recognized barriers to participation in federal child nutrition programs are restrictions on eligibility, excessive paperwork, and the stigma associated 

with being a public assistance recipient. The child nutrition bill currently making 

its way through Congress offers an excellent opportunity to address all three barriers. 

Eligibility Expansion 

The Senate-passed bill expands afterschool meals from 13 states to all 50 states, 

making 140,000 more at-risk kids eligible for meals—as opposed to snacks—after 

school. The Senate bill also loosens restrictions on children participating in the 

Summer Food Program, includes $10 million to establish more local Summer Food 

Programs, and requires schools to promote the availability of Summer Food Program sites. All these provisions expand eligibility for child nutrition programs. Not 

in the bill but supported by the School Nutrition Association is expanding free meals 

to all kids in families with incomes below 185 percent of poverty. Also not in the 

Senate bill but supported by USDA and SNA is providing commodity support for 

school breakfasts. A third of the children who participate in the school lunch program do not receive a school breakfast. Federal commodity support would be an incentive for schools to offer breakfasts. 

Paperwork Reduction 

The Senate bill includes a number of provisions that simplify or eliminate paperwork requirements for child nutrition programs. Among them, the bill allows schools 

in high-poverty areas to offer free school meals to all students without applications, 

expands automatic certification for free school meals to kids whose families receive 

Medicaid, offers bonuses to states that improve direct certification programs, and 

adds foster children to the list of those who are automatically eligible for free meals. 

The bill eliminates the need for day care centers and their sponsors to submit duplicative paperwork to participate in the Child and Adult Care Food Program (CACFP) 

and allows the WIC program to share educational materials with CACFP, reducing 

the administrative burdens on CACFP. 

Stigma Reduction 

The Senate bill transitions from paper coupons to electronic benefits in the WIC 

program, as has already been successfully done for food stamps. EBT is one proven 

way to reduce the stigma of public assistance programs. Another is to make all children eligible for school meals. The Senate bill expands ‘‘universal’’ school breakfast 

programs—in which all kids in a school are eligible for a free breakfast—and encourages innovations in offering breakfast, including breakfast-in-the-classroom. 

These programs expand eligibility while they reduce the stigma of participating in 

federal assistance programs.

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