U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

53–102 PDF 2009

HEARING TO REVIEW ECONOMIC CONDITIONS 

FACING THE DAIRY INDUSTRY

HEARINGS

BEFORE THE

SUBCOMMITTEE ON 

LIVESTOCK, DAIRY, AND POULTRY

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

JULY 14, 21, 28, 2009

Serial No. 111–24

(

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 

ERIC J.J. MASSA, New York 

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 

ROBERT E. LATTA, Ohio 

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 

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY

DAVID SCOTT, Georgia, Chairman 

JIM COSTA, California 

STEVE KAGEN, Wisconsin 

FRANK KRATOVIL, JR., Maryland 

TIM HOLDEN, Pennsylvania 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

BETSY MARKEY, Colorado 

SCOTT MURPHY, New York 

WALT MINNICK, Idaho 

RANDY NEUGEBAUER, Texas, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

K. MICHAEL CONAWAY, Texas 

ADRIAN SMITH, Nebraska 

DAVID P. ROE, Tennessee 

CHANDLER GOULE, Subcommittee Staff Director 

(II) 

(III)

C O N T E N T S 

Page 

Thursday, July 14, 2009

Murphy, Hon. Scott, a Representative in Congress from New York, submitted 

statement .............................................................................................................. 99

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

statement .............................................................................................................. 2

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 22

Prepared statement .......................................................................................... 4

Scott, Hon. David, a Representative in Congress from Georgia, opening statement ...................................................................................................................... 1

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

Submitted letters .............................................................................................. 89

Thompson, Hon. Glenn, a Representative in Congress from Pennsylvania, 

submitted letter .................................................................................................... 98

WITNESSES

Courtney, Hon. Joe, a Representative in Congress from Connecticut ................ 5

Prepared statement .......................................................................................... 6

Welch, Hon. Peter, a Representative in Congress from Vermont ........................ 7

Prepared statement .......................................................................................... 10

Submitted statements ...................................................................................... 101

Miller, James ‘‘Jim’’ W., Under Secretary for Farm and Foreign Agricultural 

Services, U.S. Department of Agriculture, Washington, D.C. .......................... 14

Prepared statement .......................................................................................... 16

Kruse, Paul W., President and CEO, Blue Bell Creameries, L.P.; Chairman, 

International Dairy Foods Association, Brenham, TX ...................................... 43

Prepared statement .......................................................................................... 45

Wakefield, Tom, Member, Board of Directors, National Milk Producers Federation; Co-Owner, J.T.J. Wakefield Farms, Inc., Bedford, PA ....................... 52

Prepared statement .......................................................................................... 54

Bouma, Brad, President, Select Milk Producers, Inc., Plainview, TX ................. 58

Prepared statement .......................................................................................... 59

Souza, Ray, President, Board of Directors, Western United Dairymen; Operator, Mel-Delin Dairy, Turlock, CA; on behalf of California Daries, Inc. ........ 63

Prepared statement .......................................................................................... 66

SUBMITTED MATERIAL

Dairy Farmers of America, submitted statement ................................................. 104

Etka, Steven, Coordinator, Midwest Dairy Coalition, submitted statement ...... 106

National Farmers Union, submitted statement .................................................... 108

Tuesday, July 21, 2009

Baca, Hon. Joe, a Representative in Congress from California, prepared statement ...................................................................................................................... 118

Kagen, Hon. Steve, a Representative in Congress from Wisconsin, prepared 

statement .............................................................................................................. 119

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

statement .............................................................................................................. 116

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 117

Page

IV

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

Prepared statement .......................................................................................... 117

Thompson, Hon. Glenn, a Representative in Congress from Pennsylvania, 

prepared statement .............................................................................................. 119

Scott, Hon. David, a Representative in Congress from Georgia, opening statement ...................................................................................................................... 115

WITNESSES

Welch, Ed, President and CEO, Associated Milk Producers Inc., New Ulm, 

MN; on behalf of Midwest Dairy Coalition ........................................................ 120

Prepared statement .......................................................................................... 122

Plourd, Philip G., President, Blimling and Associates, Inc./Roger W. Blimling, 

Inc., Cottage Grove, WI ....................................................................................... 125

Prepared statement .......................................................................................... 126

Williams, J. Everett, President, Georgia Milk Producers, Inc., Madison, GA .... 131

Prepared statement .......................................................................................... 132

Supplementary material .................................................................................. 171

Rozwadowski, Paul J., Chairman, Dairy Subcommittee, National Family 

Farm Coalition; Dairy Farmer, Stanley, WI ...................................................... 134

Prepared statement .......................................................................................... 136

Hoese, Scott, President, Carver County Farmers Union; Dairy Farmer, Mayer, 

MN; on behalf of National Farmers Union ........................................................ 140

Prepared statement .......................................................................................... 142

DeJong, Donald A., Owner and Manager, Northside Farms, LLC; Owner 

and CEO, AgriVision Farm Management, LLC; Owner and Manager, Natural Prairie Dairy Farms, LLC; Owner and Manager, DJ Farms, Ltd., 

Dalhart, TX ........................................................................................................... 150

Prepared statement .......................................................................................... 151

SUBMITTED MATERIAL

Submitted questions ................................................................................................ 171

Tuesday, July 28, 2009

Baca, Hon. Joe, a Representative in Congress from California, prepared statement ...................................................................................................................... 177

Costa, Hon. Jim, a Representative in Congress from California, submitted 

material ................................................................................................................. 243

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

statement .............................................................................................................. 174

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, opening statement ........................................................................................................ 175

Prepared statement .......................................................................................... 176

Scott, Hon. David, a Representative in Congress from Georgia, opening statement ...................................................................................................................... 173

Prepared statement .......................................................................................... 174

WITNESSES

Lang, Craig, President, Iowa Farm Bureau Federation; Member, Board of 

Directors, American Farm Bureau Federation, Brooklyn, IA .......................... 178

Prepared statement .......................................................................................... 179

Bostwick, W. Anthony, CEO, Braum’s Ice Cream and Dairy Stores, Oklahoma 

City, OK; on behalf of American Independent Dairy Alliance ......................... 185

Prepared statement .......................................................................................... 186

Contente, Joaquin, President, California Farmers Union, Hanford, CA; on 

behalf of National Farmers Union ...................................................................... 188

Prepared statement .......................................................................................... 190

Guterbock, D.V.M., M.S., Walter M., Livestock Manager, Columbia River 

Dairy and Sixmile Land and Cattle Company, Boardman, OR ....................... 195

Prepared statement .......................................................................................... 197

Hughes, J.D., Melissa L., General Counsel, CROPP Cooperative (Coulee Region Organic Produce Pool), LaFarge, WI .......................................................... 201

Prepared statement .......................................................................................... 203

Page

V

Cook, Jr., Gordon M., Member, Board of Directors, Holstein Association USA, 

Inc.; Dairy Producer, Hadley, MA ...................................................................... 207

Prepared statement .......................................................................................... 208

Suber, Thomas M., President, U.S. Dairy Export Council, Arlington, VA ......... 212

Prepared statement .......................................................................................... 214 

(1)

HEARING TO REVIEW ECONOMIC 

CONDITIONS FACING THE DAIRY INDUSTRY 

TUESDAY, JULY 14, 2009

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY, COMMITTEE ON AGRICULTURE, Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:10 a.m., in Room 

1300, Longworth House Office Building, Hon. David Scott [Chairman of the Subcommittee] presiding. 

Members present: Representatives Scott, Costa, Kagen, Kratovil, 

Holden, Boswell, Cardoza, Markey, Murphy, Minnick, Peterson (ex 

officio), Neugebauer, Goodlatte, Conaway, Smith, Roe, and Thompson. 

Staff present: Alejandra Gonzalez-Arias, Chandler Goule, Tyler 

Jameson, John Konya, Scott Kuschmider, James Ryder, Rebekah 

Solem, John Goldberg, and Jamie Mitchell. 

OPENING STATEMENT OF HON. DAVID SCOTT, A 

REPRESENTATIVE IN CONGRESS FROM GEORGIA 

The CHAIRMAN. Good morning, everybody. This hearing will come 

to order. 

The gentleman from Pennsylvania, Mr. Thompson, is not a Member of the Subcommittee but has joined us today. I have consulted 

with the Ranking Member, and we are pleased to welcome Mr. 

Thompson to have him join in the questioning of witnesses. 

Good to have you, Mr. Thompson, thank you. 

I would like to first of all state how important this hearing is, 

how timely it is, and how badly we want to help our dairy farmers 

in an extraordinary time of great need. And I would like to welcome everybody to the Subcommittee on Livestock, Dairy, and 

Poultry. 

I very much appreciate each of you taking time out during a very 

busy week to help us examine the economic conditions facing the 

dairy industry, for they are very, very severe, and we certainly 

want to help in every way we can. 

I welcome all our panelists to the Subcommittee, and in particular, our colleagues Joe Courtney and Peter Welch. Good to have 

you with us, and we look forward to hearing your thoughts on the 

issues before us today. 

In my years of service on the Agriculture Committee, I have been 

more of an observer than an active participant on some of the 

many issues under our Committee’s jurisdiction, with the exception 

of perhaps poultry issues, which are near and dear to the hearts 

2

of all of us, and, especially, my State of Georgia. So needless to say, 

I was not quite prepared for all the complexities of the issues surrounding the dairy industry. 

But I have learned very quickly. I have studied the issues very 

diligently, and I have found out that there was no issue in Congress that Members felt as strongly about, or were as willing to 

bend my ear about, than the dairy policy. 

So I wanted to hold this hearing to serve as a forum for all of 

our Members to air their concerns, for us to really examine the 

depth and the breadth of policy issues surrounding the dairy industry. World wholesale dairy prices have reached their lowest level 

in 5 years. Make no mistake, I do not intend to say that we can 

solve all of the problems facing the dairy industry in the course of 

this one hearing. There are going to be other hearings. Indeed, that 

would be a Herculean feat of strength. 

Instead, it is my intention that we begin to closely examine both 

the short-term problems, the short-term patches, and the long-term 

adjustments that are needed to bring the whole of the dairy industry, from the farm to the table, back to profitability. That is our 

aim. 

And as I alluded to earlier, there is no shortage of opinions on 

how to do this, but I hope to examine most if not all of them today. 

The dairy industry deserves this and the American people deserves 

this. 

[The prepared statement of Mr. Scott follows:]

PREPARED STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN CONGRESS FROM

GEORGIA

I would like to welcome everyone once again to the Subcommittee on Livestock, 

Dairy, and Poultry. I very much appreciate you all taking time out during a very 

busy week to help us examine the economic conditions of the dairy industry. I welcome all of our panelists to the Subcommittee and in particular our colleagues Joe 

Courtney and Peter Welch, and I look forward to hearing their thoughts on the 

issues before us today. 

In my years of service on the Agriculture Committee, I have been more of an observer than an active participant on some of issues under this Subcommittee’s jurisdiction; with the exception perhaps of poultry issues, which are near and dear to 

the heart of Georgians. So needless to say I was not quite prepared for the complexities of issues surrounding the dairy industry. I found out very quickly that there 

was no issue in Congress that Members felt as strongly about, or were as willing 

to bend my ear about, as dairy policy. So I wanted to hold this hearing to serve 

as a forum for Members to air their concerns and to examine the width and breadth 

of policy issues surrounding the dairy industry. 

Make no mistake; I do not intend to solve all of the problems facing the dairy 

industry in the course of this one hearing. Indeed that would require Herculean 

feats of strength. Instead it is my intention that we begin to more closely examine 

both the short term problems, short term patches and long-term adjustments that 

are needed to bring the whole of the dairy industry, from farm to table, back to profitability. As I alluded to earlier there is no shortage of opinions on how to do this, 

and I hope to examine most if not all of them today.

The CHAIRMAN. I yield to my Ranking Member, Mr. Neugebauer. 

OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A 

REPRESENTATIVE IN CONGRESS FROM TEXAS 

Mr. NEUGEBAUER. Well, thank you, Chairman Scott, for calling 

this timely and important hearing to review the current economic 

conditions in the dairy industry. 

3

My district in west Texas is one of the fastest growing dairy regions in the country. Large and mid-sized dairies have found west 

Texas to be very suitable for milk production. Many of these producers have contacted me and explained the current economic conditions that they face. 

Today, we will be hearing from one of the producers in my district. He is Mr. Brad Bouma, who operates a dairy in Plainview, 

Texas. He also serves as President of Select Milk Producers, Inc., 

a dairy cooperative serving Texas, New Mexico, Oklahoma, Colorado and Kansas. Mr. Bouma is the owner and operator, with his 

family, of a five generation dairy farm. 

I asked Mr. Bouma to come today and talk about how producers 

in my district are doing with the current economic conditions. I am 

sure his story will be similar to many of the producers in the country who are trying to ride out the current economic conditions that 

include low farm prices for milk, high feed costs and fuel costs. 

I wonder if the dairy farmers are excited about our new cap-andtax bill passed last month to bring higher fuel and energy costs 

their way. 

I look forward to hearing from USDA Under Secretary Jim Miller. Specifically, I would like to ask about the Dairy Export Incentive Program, which has been reactivated, and the Dairy Product 

Price Support Program, which also likewise falls under his jurisdiction. 

I understand that other countries are also taking actions to keep 

their respective dairy industries competitive in international markets, and I hope he will give us some perspective on what actions 

they are taking. Likewise, I would like to hear the Administration’s 

perspective on export subsidies, in general, and how we will deal 

with this issue moving forward. 

In a recent event in New Hampshire, I believe that Secretary 

Vilsack stated that in the next 10 days he will present a plan to 

allow cashed-strapped dairy farmers to take out loans with low interest rates and flexible payback plans. He also said he is putting 

together a commission to review the Federal milk pricing system. 

I am interested in hearing more details from Under Secretary Miller regarding that statement. 

The third panel of this hearing should be equally insightful, as 

we will hear from various industry representatives. I am particularly interested in their views and hope they will give a perspective 

on how current policies are working. Hopefully they will help us 

determine how we got here and what actions should legitimately be 

considered, moving forward, to help the industry. 

Thank you again, Mr. Chairman, for calling this hearing. I am 

certain that my colleagues will have many other questions, and I 

will look forward to those discussions today. 

The CHAIRMAN. Thank you very much, Ranking Member. I appreciate that. 

At this point, the chair would like to enter three letters for the 

record concerning the domestic dairy industry that the Committee 

on Agriculture has sent to Secretary Vilsack, and I would like to 

insert them for the record in today’s hearing. 

The first letter is from the Family Farm Coalition and other organizations on dairy concerns. The second letter is from the ConVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
4

gress to USDA, and the third letter is to the Honorable Tom 

Vilsack, Secretary of Agriculture, from the Committee on Agriculture. 

[The documents referred to are located on p. 89.] 

The chair would also like to request of our Members that they 

submit their opening statements for the record so the witnesses 

may begin their testimony, and we want to ensure that there is 

ample time for questions at that time. 

[The prepared statement of Mr. Peterson follows:]

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

CONGRESS FROM MINNESOTA

I want to thank Chairman Scott and Subcommittee Ranking Member Randy 

Neugebauer for their work in calling today’s timely hearing and for their leadership 

on this Subcommittee. This is one of several hearings this Committee will call on 

the dairy industry. Today we will examine the current economic conditions that 

have placed severe financial pressures on many producers, as well as recent responses and what we might see in the future. 

Dairy farmers across the country are struggling to survive because of low prices 

and too much product on the market. The prices they are receiving for milk are not 

keeping up with ever-increasing production costs. The all-milk price peaked just 

above $22 per hundredweight in the fall and early winter of 2007, and then began 

a period of decline before bottoming out around $11 in the very early months of 

2009. However, during this time, feed costs rose rapidly and kept climbing. While 

feed costs have started to fall, they have not done so fast enough to offset the drop 

in the price of milk. 

Weak demand, particularly in the export market, and an expansion of supply due 

to high prices in 2008, are the prime causes of the glut of milk on the market. The 

result is the loss of some small to medium sized farms, leaving many to wonder if 

only the largest farms will have the ability to get through the tough times. 

This fall, the combination of slowing feed prices and an increase in the milk price 

is expected to get dairy farmers to a break-even milk price. USDA’s Farm and Foreign Agricultural Services Under Secretary Jim Miller is here to get into the specifics of the market situation as well as the Department’s responses to the situation, 

and I welcome him before this Committee today. 

In that vein, I want to thank Secretary Vilsack and the Administration for the 

steps they have taken to support U.S. dairy farmers. In May, the Secretary announced his decision to use the Dairy Export Incentive Program (DEIP) to assist 

U.S. dairy farmers who are up against heavily subsidized foreign producers. 

The $110 million worth of DEIP purchases will help manage the surplus and continue to develop markets for U.S. dairy products abroad. 

Likewise, in March, the USDA announced plans to purchase about 200 million 

pounds of nonfat dry milk for domestic feeding programs. This action was an obvious win-win situation for producers and consumers alike, given the record number 

of Americans who have qualified for nutrition program benefits because of the challenging economic times of the last year. 

I strongly encouraged USDA to take both of these actions, and I want to thank 

them for their responsiveness. I made clear during regular conversations with Secretary Vilsack that these actions to help struggling dairy farmers would have strong 

bipartisan support here on the Hill, and I’m glad he took our suggestions to heart. 

So it should be no surprise to the Secretary that we have additional thoughts for 

action. Yesterday, our Committee sent USDA a letter to improve the Dairy Product 

Price Support Program to temporarily raise Commodity Credit Corporation purchase 

prices and to harmonize standards with those used in commercial sales on the Chicago Mercantile Exchange. These steps will help bolster and stabilize the price of 

milk. 

I look forward to hearing from our colleagues, Representatives Joe Courtney of 

Connecticut and Peter Welch of Vermont, about steps they have tried to take to help 

their dairy farmers weather the storm. 

And I also look forward to the testimony from groups representing the supply 

chain. 

Thank you again, Chairman Scott and Ranking Member Neugebauer for your 

leadership. I yield back my time.

5

The CHAIRMAN. So without delay, we will get started with our 

first panel. We would like to welcome our first panel of witnesses 

to the table. 

First we have the Honorable Joe Courtney. He is a Member of 

Congress from the Second District of Connecticut. Good having you 

here, Joe. 

And we have the Honorable Peter Welch, who is a Member of 

Congress from Vermont at large. 

Mr. Courtney, we will begin with you. 

STATEMENT OF THE HON. JOE COURTNEY, A 

REPRESENTATIVE IN CONGRESS FROM CONNECTICUT 

Mr. COURTNEY. Thank you, Mr. Scott, and thank you, Mr. 

Neugebauer, for holding this hearing. Obviously, it is another example of your commitment and leadership in terms of dealing with 

the challenges that face dairy in the U.S., and that commitment actually extended back last year. When the farm bill was put together this Committee led the way, with Mr. Peterson’s assistance, 

to extend the MILC subsidy program, which obviously was a high 

priority for dairy farmers all across the country, and, for the first 

time, included input costs in terms of calculating the formula 

which, again, coming from a high-cost part of the country in the 

Northeast, it was an important modification to the program. Congresswoman Rosa DeLauro, obviously, was working hard from the 

appropriations side to make sure that that formula was better in 

tune with the challenges that, again, face different regions in the 

country. 

I would actually note that when the farm bill was passed, we 

were at a point in the U.S. economy where farms, where dairy was 

bringing in about $18 per hundredweight. Obviously, the world has 

changed dramatically since enactment of the farm bill. The prices 

have collapsed, as was indicated in your opening statements. 

Exports have collapsed. Again, at the time the farm bill was 

passed, ten percent of America’s dairy products were being exported abroad. That has fallen by half. Only five percent of U.S. 

dairy is now being exported. And the combination of the world 

economy falling, the national economy being in recession, has been 

a perfect storm for dairy farmers all across the country. 

Peter and I come from the Northeast, but we have had many 

conversations with Members from California to Maine who have 

dairy in their district, this is a national problem, and it is a national crisis. 

As the Chairman indicated, there are definitely lots of ideas out 

there and lots of solutions. What I would just say is that clearly 

some of these are long-term structural changes about whether we 

need to have some form of a price support system for dairy. That 

obviously is an interesting and important issue that we need to debate as a country. 

But the fact of the matter is, we are at a point today, July 14th, 

where dairy farmers are out there borrowing money to pay operating costs for their farms. And that is a death spiral for a lot of 

farms, particularly small farms. We have lost ten percent of our 

farms in the State of Connecticut, again, not a state usually associVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00011 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
6

ated with dairy, but the fact is eastern Connecticut is a part of our 

state which retains its rural and dairy heritage. 

But it is at grave risk today because, as I said, these folks are 

in a death spiral. And offering more loans, low-interest loans, really is not a solution for these folks who are facing this type of death 

spiral. 

Again, they are selling milk today at $12 a hundredweight compared to $18 when the farm bill was passed. And the MILC subsidy 

program is just incapable of dealing with that large of a spread in 

terms of their costs and the price that they are taking in. 

Again, we have been trying, Peter and I, over the last few 

months, through the stimulus bill, the 2009 Agriculture appropriations bill, and through the 2010 Agriculture appropriations bill to 

see if there is an avenue to get temporary relief, whether it is increasing the amount of support on a temporary basis in the MILC 

Subsidy Program, whether the Department of Agriculture would 

consider raising some of the basic support prices. 

But the fact is that we need to have a short-term answer to what 

people are facing today as they get up. Peter can describe the grave 

problem that exists in the State of Vermont where the Department 

of Agriculture actually has a suicide hotline for dairy farmers who 

are facing, again, these almost unbearable stresses and challenges. 

I would conclude by saying that in this morning’s news, there are 

press reports that Goldman Sachs is reporting close to $4 billion 

quarterly profit. People are very excited and happy about that, and 

certainly we like to see success. 

But I think it is important for this Congress to recognize that 

that would not have happened if there had not been massive government intervention from the last quarter of 2008 through the 

first quarter. They received TARP funds, they received derivative 

payments from AIG—who also received TARP funds—and they received massive help from the FDIC. 

It is a hard argument, and it is a hard situation for us to go back 

to districts, where dairy farmers have been rebuffed at every attempt to try and get that same type of short-term relief, and for 

them to see this sort of entity that received massive government 

help now taking a victory lap. The dairy industry of this country 

is really shut out in terms of being able to get that same type of 

response and action from Washington, D.C. 

I hope, again, with your leadership and this Committee’s long 

record of support and commitment to dairy farmers that we are 

going to see that type of action and that type of help for a critical 

part of the American economy. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Courtney follows:]

PREPARED STATEMENT OF HON. JOE COURTNEY, A REPRESENTATIVE IN CONGRESS

FROM CONNECTICUT

Chairman Scott, Ranking Member Neugebauer, I want to thank you for holding 

these hearings today on the crisis that is occurring in our dairy industry. This is 

a crisis that affects all of us, not just our dairy farmers. While they feel the brunt 

of the sharp decline in dairy prices, our constituents from all walks of life are not 

immune to its effects. 

As many of you know, I introduced a resolution last month in support of the goals 

of National Dairy Month. The point of this resolution was not only to support our 

7

dairy farmers and the dairy industry during national dairy month, but to raise 

awareness about the state of our nation’s dairy industry. 

As the Committee is aware, dairy farmers are in crisis mode. A perfect storm has 

hit the industry. Exports are down, feed and fuel costs are skyrocketing and prices 

are plummeting. While we accomplished a great deal in the passage of the 2008 

Farm Bill, and much credit is due to Chairman Scott, Chairman Peterson and the 

rest of the Agriculture Committee for their hard work, we have seen prices for dairy 

drop off significantly since that time. In May 2008, when the farm bill became law, 

the all-milk price in the Boston zone was $18.18 per hundredweight. One year later, 

in May 2009, the price was $12.18. I don’t need to tell the Committee what they 

already know—dairy farmers can’t survive with prices that low. 

Like farmers in all industries, dairy farmers are also coping with tighter credit 

markets, infrastructure that is crumbling and becoming more expensive to repair or 

replace, and an economy that is unforgiving. The economic downturn has hit dairy 

in many ways. A sharp decline in the disposable income of families across the country has led to less family outings for ice cream and less pizza deliveries. While this 

may seem trivial to you or I, it is no laughing matter for our farmers who provide 

the milk that makes ice cream or the cheese used by the local pizza place. 

In my State of Connecticut, dairy farmers are a dying breed. Since 2007 we have 

lost well over 10% of our dairy farms. The loss of these farms not only hurts the 

families that for generations have owned and operated these farms, it hurts everyone. It hurts the communities where these farms operated. It hurts the truckers 

who deliver the milk to the processors and then on to the market. It hurts the companies that bottle this milk and it hurts average citizens who have come to rely on 

locally produced milk. 

In Connecticut we have a cooperative known as the ‘‘Farmer’s Cow’’, a group of 

local dairy farms that have banded together to market their milk and other products. People in my district know these farmers personally. They go to church with 

them, their children go to school and play little league together and they have come 

to rely on the milk they produce. I’ve met with these farmers on numerous occasions, visited their farms and listened to their struggles. I want them to survive, 

but unless we provide additional support to these farmers 

As many of you may know, Connecticut is a state where open space comes at a 

premium. However, my district is home to a region known as the QuinebaugShetucket Heritage Corridor. This area is better known as the Last Green Valley, 

the last undeveloped region of the East Coast between Boston and Washington D.C. 

Why is that the case—dairy farms. Dairy farms make up 70% of Connecticut’s open 

space. They ensure that the rural character of New England is something that is 

not just read about in history books, but is something that is enjoyed for generations 

to come. 

There is some good news. Secretary Vilsack has used his authority to make bulk 

purchases of dairy products for use in Federal nutrition programs. He has also recently used the Dairy Export Incentive Program which provides incentive payments 

to U.S. dairy exporters to counter foreign dairy subsidies and to develop markets 

for U.S. dairy products abroad. These actions are important and help to reduce the 

surplus that is helping to drive prices down, but direct aid is necessary. 

I urge the Committee to consider all options with regards to providing support 

for dairy farmers. This means looking at direct support through increases in Milk 

Income Loss Contract (MILC) payments, supply management, adjustments to the 

Federal milk marketing order, export assistance and reconsideration of our trade 

policies with regards to casein and milk protein concentrates. We need not only the 

short term solutions that will provide immediate relief, but long term solutions that 

will ensure the viability of this industry for years to come. As I have stated, many 

dairy farmers have not been able to survive this crisis, and each day that passes 

without action by Congress will lead to more farms closing their barn doors. Before 

an entire industry and way of life disappears, we must act. 

I want to again thank the Chairman and distinguished Members of this Committee for holding this hearing.

The CHAIRMAN. Mr. Welch. 

STATEMENT OF THE HON. PETER WELCH, A REPRESENTATIVE 

IN CONGRESS FROM VERMONT 

Mr. WELCH. Thank you very much, Chairman Scott and Ranking 

Member Neugebauer, for inviting Joe and I to testify before your 

Committee. I want to thank the Committee Members. This hearing 

8

indicates that you recognize the great peril that is facing the dairy 

industry. 

In Vermont our dairy farmers are the best among us. And 

throughout Vermont’s history, dairy has played a vital role in shaping our state’s economy, its infrastructure, its culture and its landscape. And for just as long, dairy farmers in Vermont have labored 

in an incredibly challenging industry with extraordinary economic 

risk and uncertain reward. 

We know the volatility in milk prices has long plagued our farmers, but today the crisis is like it has never been before. The prices 

have fallen to record lows, even as production costs, as you know, 

have risen to record highs and is pushing scores of farms out of 

business. 

In the past 5 years alone, Vermont has lost 250 dairy farms; 32 

of those farms have been shuttered since the start of this year 

alone. The depth of the crisis in Vermont cannot be understated, 

and I share that with Representatives in dairy districts across the 

country. 

Our state’s dairy industry is literally on the brink of collapse. 

With dairy representing 70 percent of Vermont’s agricultural economy, we could very well see a wholesale failure of our entire ag infrastructure, forcing out of business feed dealers, equipment suppliers, processing plants, farm creditors and many more. 

The human cost of this economic tragedy can be seen in the faces 

of folks like Bob and Beth Kennett. They purchased Liberty Hill 

Farm in Rochester, Vermont, a little ways from where I live in 

Hartland. They bought it 30 years ago, and they have watched as 

neighbor after neighbor has shuttered their farm and sold off their 

herds. Fifty farms populated the upper White River Valley community by the Kennetts in 1960; eleven remained in 1979, and today 

the Kennetts are the only family still left in business. 

Like many Vermont families, the Kennetts had hoped to pass 

their farm on to their kids, Tom and David, who were raised at 

Liberty Hill. Both earned college degrees in agriculture before moving back to Rochester to raise their own families on the farm. Together the Kennetts expanded their operation from 50 to 120 cows 

and pursued innovative opportunities. They are very, very smart, 

like opening an agri-tourism guest lodge. But despite their efforts, 

their hard work, their know-how, the family now finds itself saddled with loans and losing money with, literally, every passing day. 

They just don’t know how much longer they are going to be able 

to hang on. 

Unfortunately, Vermont is awash, Mr. Chairman, with stories 

like the Kennetts. And as farmers cope with mounting losses, the 

psychological impact is beginning to show. And as Joe just said, we 

have a hotline, literally, in Vermont to help farmers who are just 

dealing with this extraordinary pressure of seeing their life of work 

go down the drain. And beyond the tremendous suffering borne by 

farmers themselves, the impact of closing a farm on its surrounding community and local economy is very significant. 

Vermont businesses, with a stake in dairy, reported $426 million 

in sales in 2001, employed 7,800 workers. And according to the 

Vermont Department of Agriculture, 96 percent of supplies used on 

9

dairy farms are purchased locally. It is the way we are going to get 

our economy going again. 

Saving Vermont and New England’s dairy industry will require 

immediate action and long-term reforms. The most immediate assistance we can provide dairy farmers to survive the current crisis 

is a Milk Income Loss Contract increase. And this program, in this 

Committee of course, was instrumental, very instrumental in getting it passed. It helps provide a cushion when the price of milk 

goes way down. And with farmers now spending about $19 in Vermont to produce a hundredweight, getting paid less than $12 for every hundredweight, MILC payments of between $2 and $3 are simply not 

enough to keep them afloat. 

I have been working with many of my colleagues, including Mr. 

Courtney, about seeking an increase in MILC payments to get us 

through this temporary crisis. The Northeast Association of State 

Departments of Agriculture wrote to Congress in April asking that 

we raise the MILC payment from 45 percent to 79 percent and revisit the current cap of 2.9 billion pounds of annual production. 

I support this proposal as a short-term solution to help put 

money back in the pockets of farmers until prices increase. 

But as we treat the short-term symptoms of price volatility, we 

must develop a long-term solution to the problem, one that works 

in west Texas as well as in the northeast kingdom of Vermont, one 

that works for a 5,000 cow farm as well as a 100 cow farm. We 

have to find what is common in the interest of these farmers in its 

price stability. Last year producers were paid an average of $18.09; this year the price is down to $11.06. These constant price swings make 

dairy farming a challenging and sometimes impossible enterprise. 

And most producers I have spoken with have candidly told me that 

they would rather make less during the boom years in exchange for 

price stability. 

And the question many of us asked was posed by Mr. Courtney. 

If our ag folks, working in dairy and in other agriculture sectors, 

producing local food—which this country needs—producing food 

that we can export—which our economy needs—why is it we can’t 

have a policy that helps them succeed? Why is it that we can’t have 

a policy where we provide short-term aid when, through no fault 

of their own, these are the hardest working people among us, when 

through no fault of their own, they get savaged by the collapse in 

the price. 

And if we can do it for Wall Street—and we should, when that 

is necessary—to keep the economy going and to protect the middle 

class, we can certainly find a way to do it for our farmers. 

Once again, I thank this Committee for holding this hearing. I 

really do. This is the most important hearing that is occurring this 

day in Congress. 

And, Mr. Courtney and I want to work with you and Mr. Peterson to see what it is we can do to help our farmers, our dairy farmers get through the short-term crisis, and then have a policy for the 

long term that is going to make it possible for our dairy farmers 

large and small to be successful. 

[The prepared statement of Mr. Welch follows:]

10

PREPARED STATEMENT OF HON. PETER WELCH, A REPRESENTATIVE IN CONGRESS

FROM VERMONT


11124030
11


11124031
12


11124032
13


11124033
14

The CHAIRMAN. Well, let me thank the both of you for your expert testimony. You have done an extraordinarily good job of accurately describing the urgency and, unfortunately, the desperation 

that many of our farmers and milk producers find themselves in. 

And I can assure you that I have been moved by your testimony, 

and we are going to do something to help. We have to find a way 

in which we can respond quickly, as well as put things in motion 

that can help over the long term. 

I was particularly interested in your Milk Income Loss Contract 

idea, Mr. Welch. I think that is something we certainly can look 

at, but we do want to get to price stability. 

So, Mr. Courtney and Mr. Welch, we thank you very much. You 

have been very helpful to the Committee. Thank you. 

Now we are going to move to our next panel, and we will welcome James Miller, who is the Under Secretary of Agriculture, 

Farm and Foreign Agriculture Services for the United States Department of Agriculture. 

Mr. Miller, we will begin when you are ready. 

STATEMENT OF JAMES ‘‘JIM’’ W. MILLER, UNDER

SECRETARY FOR FARM AND FOREIGN AGRICULTURAL 

SERVICES, U.S. DEPARTMENT OF AGRICULTURE,

WASHINGTON, D.C. 

Mr. MILLER. Thank you very much, Chairman Scott, Ranking 

Member Neugebauer, Members of the Subcommittee. It is a pleasure and a great opportunity to be with you today to discuss the 

dairy situation, and the many USDA programs we are utilizing to 

respond to the sharp downturn in the milk and dairy product markets. 

I am going to summarize the written statement that we submitted to the Subcommittee. I will note that we have revised some 

of the data points in that, based on the most recent world agriculture supply-and-demand estimates that were issued just last 

Friday, but those estimates were made after we submitted the testimony. And as I said, I will try to keep my testimony brief so we 

have the maximum amount of time for discussion of these serious 

issues. 

As you are all very much aware, the dairy industry has been one 

of the hardest hit sectors in agriculture this past year. Producers 

have been caught between very high input costs and, certainly, 

very depressed market prices. 

So to begin, I would like to provide a brief economic backdrop to 

the dramatic downturn that we are seeing in the dairy sector. 

The monthly all-milk price peaked in the third quarter of calendar year 2007 at a record $21.70 per hundredweight. Through 

2008, milk prices remained relatively strong, averaging $18.41 per 

hundredweight, which is the second highest annual average price 

on record. However, as you all are well aware, this spring many 

dairy producers were receiving less than $12 per hundredweight. 

Meanwhile, over the first two quarters of 2009, the milk-to-feed 

price ratio, which is a measure of the profitability of producing 

milk, was the lowest in over 25 years. USDA’s most recent world 

agriculture supply-and-demand estimates, the WASDE, project that 

the 2009 all-milk price will decline by 34 percent compared to 2008, 

15

to an average of about $12 per hundredweight, the lowest annual 

price increase for milk since 1979. 

Further, the Economic Research Service data indicates that dairy 

farmers are among the most highly leveraged. Across all agricultural sectors, dairy ranks third in the average debt-to-asset ratio 

behind poultry and hogs. 

In response to record high milk prices in 2007 and 2008, our 

dairy sector expanded its herd size by over 200,000 cows from the 

end of 2006 through the second quarter in 2008. 

However, by the end of this year, we expect a reduction in total 

dairy herd size of about 138,000 head. This reduction in herd size, 

when coupled with the actions we are taking under the 2008 Farm 

Bill programs for dairy, will help balance supply and demand. 

The July estimate for the 2010 production year project an aver- age all-milk price of about $15.35 per hundredweight for next year, 

so we are projecting that we will gradually begin to work our way 

out of this very serious price program. 

In terms of exports, an issue that was raised by your colleagues 

just a few moments ago, dairy exports, as they noted, have declined 

very sharply in recent months after reaching a record $4 billion in 

Fiscal Year 2008. For 2009, the value of U.S. dairy product exports 

are forecast to drop by over 40 percent to about $2.3 billion. 

Now, there are many factors that affect our dairy exports and 

contribute to the current low export demand, and these include, 

certainly, the global economic recession. But they also include the 

reactivation of the European Union’s export subsidies that began 

last January, and also the increased value of the dollar in overseas 

markets. 

Let me now turn to the safety net programs that we have in 

place to help our dairy producers. In addition to our FSA loan programs, the Livestock Gross Margin Insurance program for Dairy 

and the Federal Milk Marketing Order, which is a marketing program administered by the Agricultural Marketing Service, USDA 

administers three key safety net programs that are providing assistance to our dairy producers. I would like to spend a couple of 

minutes discussing these programs in greater depth. 

First, the Dairy Product Price Support Program: This program 

supports the prices of nonfat dry milk, cheddar cheese, and butter 

as specified in the 2008 Farm Bill. From October 1, 2008 to date, 

USDA has purchased 272 million pounds of nonfat dry milk and 

4.6 million pounds of butter under this program. 

Since the first day of this calendar year, we have purchased 170 

million of that 272 million pounds of nonfat dry milk. We expect 

through the rest of this fiscal year to purchase an additional 40 to 

50 million pounds of nonfat dry milk. 

On March 26, Secretary Vilsack announced that approximately 

200 million pounds of nonfat dry milk would be further processed 

or bartered for dairy products to be used in our domestic and international feeding programs. 

This is just one example of USDA fulfilling its dual mission of 

supporting our producers, while at the same time working domestically and globally to help alleviate hunger. 

The 2000 Farm Bill also modified and reauthorized the Milk Income Loss Contract Program, which provides countercyclical payVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00021 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
16

ments to producers in times of low dairy price and high feed costs. 

The MILC payments began in April to compensate producers for 

the low prices and high feed costs that occurred in February. MILC 

payments have continued each month since that point, and we expect to continue making MILC payments through the balance of 

this fiscal year. As of July 10th of this year, over $511 million has been issued 

to dairy producers through the MILC Program. We expect total 

outlays through Fiscal Year 2009 will be about $900 million under 

this program alone. 

A question was raised concerning the Dairy Export Incentive 

Program. On May 22nd of this year, USDA announced a reactivation of the Dairy Export Incentive Program, known as DEIP, to 

help regain U.S. market share and challenge the subsidized competition from the European Union in many of our key markets 

overseas. 

For the 2008–2009 WTO year that ended on June 30, USDA 

awarded export incentives for over 20,000 metric tons of nonfat dry 

milk, nearly 1,900 metric tons of butter fat and nearly 152 metric 

tons of cheese, at a cost to the Treasury of just over $4 million. 

We have announced our intention to continue this program. And 

just last evening, I approved a new DEIP sale for about 500 metric 

tons of nonfat dry milk. These exports will be consumed overseas, 

while the purchases under our Price Support Program may, in fact, 

continue in storage at government expense. 

I recognize that the decisions that we make here in Washington 

affect the livelihood of America’s farmers and ranchers, and I am 

committed to working with Members of this Subcommittee and 

your colleagues to help ensure that we meet the needs of U.S. dairy 

producers. 

I really appreciate the opportunity to testify before the Subcommittee today, and I am willing to respond to any questions that 

the Members may have. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Miller follows:]

PREPARED STATEMENT OF JAMES ‘‘JIM’’ W. MILLER, UNDER SECRETARY FOR FARM

AND FOREIGN AGRICULTURAL SERVICES, U.S. DEPARTMENT OF AGRICULTURE, 

WASHINGTON, D.C. 

Chairman Scott, Ranking Member Neugebauer, and distinguished members of the 

Subcommittee, I appreciate the opportunity to discuss the dairy market and programs delivered by my mission area in the U.S. Department of Agriculture (USDA). 

As Under Secretary for Farm and Foreign Agricultural Services (FFAS), I oversee 

three agencies: the Farm Service Agency (FSA), the Foreign Agricultural Service 

(FAS), and the Risk Management Agency (RMA). I would like to take this opportunity to provide you an update on the dairy market situation, our forecasts for the 

dairy market through the end of the calendar year, and my mission area’s response 

to the sharp downturn in milk and dairy products markets. I will also provide information on the activities of our sister agencies, the Food and Nutrition Service and 

the Agricultural Marketing Service. 

The Dairy Market Situation 

The dairy industry has been one of the hardest hit sectors in agriculture in the 

past year, with producers caught between high feed and other costs and depressed 

output prices. We have heard many personal stories from dairy producers who are 

in desperate financial straits. The Secretary’s office alone has received hundreds of 

letters and calls from dairy producers who are in need of help. The Secretary has 

personally discussed with numerous dairy farmers the poor dairy situation and lisVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00022 Fmt 6633 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
17

tened as they related the fears they have about the loss of their way of life. He has 

traveled to many states to hear directly from dairy farmers, implemented a series 

of policies to assist these producers, and made efforts to communicate what help is 

available from USDA. 

Prices, Input Costs, and Income 

I’d like to provide a bit of an economic backdrop to the dramatic downturn in the 

dairy sector. The monthly all-milk price peaked in the July–September period of 

2007 at a record $21.70 per hundredweight (cwt) and averaged a record high of 

$19.21 for all of 2007. In 2008, the farm-level milk prices remained strong with the 

all-milk price averaging $18.41 per cwt, the second highest on record. However, average feed costs increased about 35 percent in 2008, and energy costs increased by 

30 percent. This spring, producers were receiving less than $12 per cwt. Meanwhile, the milk/

feed price ratio, a measure of the profitability of producing milk, was the lowest in 

over 25 years in the first and second quarters of 2009. Feed costs which traditionally have comprised about 1⁄2 of variable operating costs, are expected to decline 

about 15 percent in calendar 2009. At the same time, USDA projects that the allmilk price will decline by 34 percent in calendar 2009, to an average of $12.15 per 

cwt—the lowest average annual price received by farmers for milk since 1979. Cash receipts from milk marketings jumped to a record $35.5 billion in 2007, dropping slightly to $34.8 billion in 2008. While cash receipts remained relatively 

steady in 2008, USDA’s Economic Research Service (ERS) reported this past December that high feed costs reduced net cash income for dairy producers by an estimated 40 percent. For 2009, cash receipts are expected to fall by over 1⁄3 to $23 billion. With feed costs now accounting for 70 to 80 percent of variable operating costs 

in recent months, dairy producers are facing financial hardship. 

Further, ERS data indicate that dairy farms are among the most highly leveraged 

in U.S. agriculture: about 70 percent of dairy farms use debt, compared to about 

30 percent of beef and 50 percent of cash grain farms. Some of the largest dairy 

farms are the most heavily indebted. Across all sectors in agriculture, dairy ranks 

third in the average debt to asset ratio, behind poultry and hogs. The financial crisis 

has made the credit needs of dairy producers all the more pressing. 

Herd Size 

In response to record high milk prices and above average returns in 2007 and 

2008, the U.S. dairy sector expanded rapidly through the second quarter of 2008 to 

accommodate growing domestic and foreign demand for dairy products. Cow numbers increased from 9.13 million at the end of 2006 to a peak of 9.34 million in July 

2008. Cow numbers remained steady during the second half of 2008 despite the deteriorating market outlook, as above average returns in previous months led farmers to bring additional heifers into the breeding herd. 

Producers are responding to the current depressed market situation by reducing 

herd numbers. Cow numbers dropped below a year ago in March 2009 and are expected to average 145,000 lower in 2009 than in 2008. Much of the recent reduction 

in cow numbers has come in the far western states, where producers tend to have 

lower overall costs but higher feed costs per cwt of milk produced because they are 

farthest from major grain producing areas. ERS publishes milk cost of production 

estimates by state. As an example, for May 2009, California costs for feed were 

$12.19 per cwt of milk produced. In contrast, the California all-milk price reported 

by the National Agricultural Statistics Service (NASS) for May was $10.53 per cwt. 

In a relative sense, New York and Wisconsin fared somewhat better. In New York, 

feed costs were $10.67 per cwt, while the all-milk price was $11.90. In Wisconsin, 

feed costs in May were $8.38 per cwt, while the all-milk price there was $11.60. 

Demand 

Dairy product exports have declined sharply in recent months after reaching a record $4 billion in FY 2008. In FY 2009, the value of U.S. dairy product exports 

is forecast to drop to $2.3 billion. Cheese exports in April 2009 were down nearly 

1⁄2 from their April 2008 peak. Butter exports have fallen more than 80 percent from 

their August 2008 peak, and nonfat dry milk/skim milk powder exports are off more 

than 70 percent from their May–June 2008 peak. 

There are many factors contributing to lower demand and the decline in farmlevel milk prices. Drought in New Zealand and Australia contributed to record high 

international prices for dairy products in 2007 and 2008, boosting U.S. dairy product 

exports. More normal weather has returned to both of those countries leading to increased milk production globally. The global recession, the melamine scare in China, 

European Union export subsidies, and increases in the value of the dollar have also 

lowered the demand for U.S. dairy products in world markets. At home, the ecoVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00023 Fmt 6633 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
18

nomic crisis and, until recently, record high retail dairy product prices, have curtailed domestic demand for dairy products. 

Outlook for 2010

Milk production is forecast to fall by 1.3 percent in 2009 and an additional 0.6 

percent in 2010. Cow numbers are forecast to drop to 8.89 million by December 

2010. Reduced production, an improved economy, and lower retail dairy product 

prices are expected to lead to a gradual increase in milk prices and improved returns later this year and into next year. USDA is currently forecasting the all-milk 

price to average $11.60 per cwt in the third quarter and $13.10 in the fourth quarter. For all of 2010, we are projecting an all-milk price of $15.60. 

USDA Safety Net Programs 

USDA is currently operating four safety net programs that provide assistance to 

help producers through this difficult time. 

Dairy Product Price Support Program 

I’d like to first discuss the Dairy Product Price Support Program (DPPSP), which 

helps support prices and farm incomes. The Food, Conservation, and Energy Act of 

2008, commonly referred to as the 2008 Farm Bill, requires the Secretary to operate 

the DPPSP in a fundamentally different manner than under the 2002 Farm Bill. 

Under the new farm bill, the Commodity Credit Corporation (CCC) now supports 

the prices of cheddar cheese, butter, and nonfat dry milk by purchasing these products per minimum price levels for each commodity that are set in the 2008 Farm 

Bill. In contrast, the 2002 Farm Bill required the Secretary to support the price of 

milk at $9.90 per cwt by purchasing butter, cheese, and nonfat dry milk. To fulfill 

this mandate, the CCC established purchase prices for butter, cheddar cheese, and 

nonfat dry milk. 

From October 1, 2008 to date, USDA has purchased 272 million pounds of nonfat 

dry milk and 4.6 million pounds of butter under this program thus far. During the 

first six months of 2009, USDA has purchased 170 million pounds of nonfat dry 

milk, the equivalent of about 30 percent of production. USDA expects CCC to be 

offered an additional 40 million pounds of nonfat dry milk during the remainder of 

calendar 2009. We have not purchased any cheese at this time. The wholesale prices 

for cheddar cheese and nonfat dry milk are near support levels of $1.13 per pound 

(40 pound blocks) and $0.80 per pound, respectively. The wholesale price of butter 

is currently about $0.15 per pound above the CCC purchase price of $1.05. 

As many of you are aware, the Secretary announced on March 26, 2009 that approximately 200 million pounds of nonfat dry milk would be further processed or 

bartered for dairy products for use in domestic and international feeding programs. 

The nonfat dry milk is being further processed or bartered into value-added products, such as instantized nonfat dry milk, ultra high temperature milk, cheese, and 

ready-to-eat milk-based soups. To date, the Food and Nutrition Service (FNS) has 

received orders for approximately 30 million pounds of ultra high temperature milk 

for the National School Lunch Program and the Emergency Food Assistance Program, and has bartered for over 22 million pounds of assorted cheeses. These foods 

will go a long way towards feeding American school children and alleviating the difficulties of those affected by the economic crisis. 

This is just one example of USDA fulfilling its dual-mission of supporting American agriculture—in this case, the dairy market—through market support programs, 

and working to alleviate hunger by distributing those same dairy products through 

domestic and international nutrition assistance programs. In fact, in Fiscal Year 

2008, approximately $9.6 billion in USDA funds were spent on dairy products ultimately used in the United States, through a combination of purchases made 

through, or used for, programs such as the Supplemental Nutrition Assistance Program (formerly the Food Stamp Program), the National School Lunch Program, and 

the Supplemental Nutrition Assistance Program for Women, Infants and Children. 

Milk Income Loss Contract Program 

In order to provide assistance as quickly as possible to dairy producers, FSA published regulations re-authorizing the revised Milk Income Loss Contract (MILC) program on December 4, 2008. The 2008 Farm Bill modified and re-authorized the Milk 

Income Loss Contract (MILC) program which provides countercyclical payments to 

producers in times of low prices. Under the MILC program, direct payments are provided to dairy producers in all states if the monthly Class I price in Boston is below 

$16.94 per cwt. The 2008 Farm Bill increased the payment trigger of $16.94 during 

January 1, 2008 through August 31, 2012 if the National Average Dairy Feed Ration Cost exceeds $7.35 per cwt. In addition, the farm bill increased the annual production eligible for payment from 2.4 million pounds to 2.985 million pounds during 

19

October 1, 2008 through August 31, 2012, and increased the payment factor from 

0.34 to 0.45. The Farm Service Agency (FSA) began sign-up for the new MILC program on December 22, 2008 and sign-up will continue through the program’s expiration date, September 30, 2012. 

Declining milk prices caused the Boston Class I price in February 2009 to fall 

below $16.94, triggering MILC payments. USDA began distributing MILC payments 

in early April after the information needed to adjust the $16.94 trigger price for feed 

costs became available and the final payment rate was calculated. The MILC payment rate, including the feed cost adjuster, is set at $1.51 per cwt for milk marketed 

in February, $2.01 for milk marketed in March, $1.59 for milk marketed in April, 

and $1.47 for milk marketed in May. The MILC payment rate, unadjusted for feed 

costs, for milk marketed in June is $1.62 per cwt and for milk marketed in July 

is $1.54 per cwt. For the February through May period, the feed cost adjuster added 

about $0.15 per cwt, on average, to the MILC payment rate. 

MILC payments are likely to continue for the next several months. If current futures price levels are realized in cash markets, MILC payments will be triggered 

for the months of August through November. Futures suggest that milk prices will 

be strong enough to avoid triggering MILC payments in December and succeeding 

months. As of June 30, 2009, over $450 million had been issued to dairy producers 

through the MILC program. During FY 2009, USDA expects to issue about $900 

million in MILe payments. 

Dairy Export Incentive Program 

On May 22, 2009, USDA announced the reactivation of the Dairy Export Incentive 

Program (DEIP) with allocations for the export of 68,201 metric tons of nonfat dry 

milk, 21,097 metric tons of butterfat, and 3,030 metric tons of cheese. The above 

quantities reflect the maximum volume of dairy products the U.S. is allowed to export with subsidies consistent with the U.S.’s World Trade Organization (WTO) commitments. The DEIP, reauthorized under the 2008 Farm Bill, helps U.S. exporters 

meet prevailing world prices and encourages the development of international export markets in areas where U.S. dairy products are not competitive due to subsidized dairy products from other countries. As of June 30, USDA had announced 

awards for 20,025 metric tons of nonfat dry milk, 1,862 metric tons of butterfat, and 

152 metric tons of cheese under the 2008/2009 DEIP allocations announced on May 

22. Although these awards are less than the quantities that were allowed under 

WTO commitments, they are largely reflective of the trade opportunities that existed during the five weeks that the program was in operation for the 2008/2009 

year. The Foreign Agricultural Service (FAS) awarded bonuses for 97 percent of the 

nonfat dry milk volume submitted by exporters. 

On July 6, 2009, USDA announced the initial tranche of DEIP allocations for the 

July 2009–June 2010 year. This initial tranche was announced at quantity levels 

equivalent to the uncommitted balances remaining as of June 30, 2009. Those quantities are 48,176 metric tons of nonfat dry milk, 19,235 metric tons of butterfat and 

2,878 metric tons of cheese. These quantities will count against the 2009/2010 U.S. 

WTO commitment levels. 

As I indicated earlier, a sharp reversal has occurred in the outlook for global dairy 

markets. The volume of U.S. exports of nonfat dry milk during the January to April 

2009 period dropped by 52 percent in comparison to the same period last year. Further, the value of U.S. dairy exports in FY 2009 is expected to fall by 43 percent 

to $2.3 billion. In addition, there is no indication that the European Union (EU) is 

prepared to stop providing export subsidies for its dairy products. In fact, the EU 

has been progressively increasing its subsidy rates since reactivating export subsidies in January 2009. 

As of June 30, total subsidy obligations for nonfat dry milk totaled just over $4 

million to support 20,000 metric tons of exports under DEIP. We have calculated 

that to remove the same quantity from the domestic market under the Dairy Product Price Support Program would cost over $35 million. In addition, our exports will 

be consumed while DPPSP purchases may continue in storage. Thus, as intended, 

DEIP is reducing costs to the U.S. Government while providing assistance to the 

U.S. dairy industry, which has seen its international competitiveness continue to be 

adversely impacted by the use of direct export subsidies by the EU. 

Liyestock Gross Margin-Dairy 

In addition to these programs, the Livestock Gross Margin-Dairy insurance program, or LGM-Dairy, protects dairy farmers against loss of gross margin, which is 

the market value of milk minus feed costs. This new insurance program, which was 

approved by the Federal Crop Insurance Corporation board of directors in mid-2007, 

uses the Chicago Mercantile Exchange Group futures prices for corn, soybean meal, 

20

and Class III milk to determine the expected gross margin and the actual gross 

margin. The indemnity paid to the policyholder at the end of the 11 month insurance period is the difference between the gross margin guarantee and the actual 

gross margin (if the difference is positive). 

The LGM-Dairy insurance policy is customizable to fit any size farm. LGM-Dairy 

is also considered a bundled-option insurance, like buying both a call option to limit 

higher feed costs and a put option to set a floor on milk prices. The policy capacity 

is up to 240,000 hundred-weight per year. Dairy producers in 36 states are eligible 

for LGM-Dairy insurance. 

The Federal Milk Marketing Order System 

I would also like to talk briefly about the Federal Milk Marketing Order (FMMO) 

program administered by USDA’s Agricultural Marketing Service. The FMMO program, is not a price or income support program, but a marketing program that helps 

establish a competitive balance between the many dairy farmers and the relatively 

few buyers of their basic commodity—raw milk. The FMMO program sets up a classified pricing system, establishes minimum class prices, and pools all revenues within the defined regional area. The primary objective of the program is to assure that 

fluid milk processors (bottlers) have an adequate supply at reasonable prices to 

meet their needs. 

In 2008, about 61 percent of U.S. milk marketings were sold to handlers regulated 

by FMMOs, and less than 40 percent of that is used by bottlers and classified as 

Class I. A major milk market outside of the Federal order system is the State of 

California, with its own regulatory system similar to a FMMO. Other unregulated 

western states include Idaho, Montana, Nevada, Wyoming, and Utah. Like California, Montana and Nevada also have state programs. 

It has been suggested that the FMMO program has the authority (specifically 7 

U.S.C. Section 608c(18)) to raise minimum milk prices when feed prices rise, regardless of other factors. FMMOs cannot set minimum prices and have above the relative market value of the products of milk. FMMOs have no mechanism to provide 

additional dollars to handlers above those received from the market in order to pay 

farmers more than the minimum market value of milk. Thus, raising minimum milk 

prices above market-justified levels would likely result in fluid milk processors taking less milk or reducing over-order premiums. It would also result in manufacturing milk plants withdrawing from FMMO pools to avoid paying prices they cannot recoup from the marketplace. 

Section 608c(18) has long been viewed by the courts as the procedure by which 

the Secretary establishes and adjusts minimum prices. Through a public hearing, 

the Secretary evaluates the marketing conditions in an area and considers the price 

of feeds, the available supply of feeds, and other economic conditions that affect the 

market supply and demand for milk and its products in the marketing area. Based 

upon these factors, the Secretary sets milk prices that are reflective of all the economic inputs to ensure a sufficient supply of milk. 

Moving Into the Future 

I recognize the decisions that we make in Washington affect the livelihood of 

America’s farmers and ranchers and we are committed to ensuring that we work 

together to help meet the needs of U.S. dairy producers. As I indicated earlier in 

my remarks, the plight of dairy producers is very serious. 

I appreciate the opportunity to testify before this Subcommittee today, and I look 

forward to working with you, Mr. Chairman, Mr. Ranking Member, and all the 

Members of this Subcommittee as we continue our hard work to ensure that USDA 

is responsive to the needs of the dairy sector. This concludes my statement. I will 

be glad to answer questions you may have.

The CHAIRMAN. Thank you, Mr. Miller, I appreciate your testimony. 

I will start the round of questioning off. 

My first question is, many producers feel that milk protein concentrates are entering into this country and are a main cause for 

our lower dairy prices. 

Can you tell us how much milk protein concentrate comes into 

this country each year and how does that affect the overall dairy 

price for domestic producers? 

Mr. MILLER. Well, so far for 2009—and this is from January 

through May of this year—U.S. imports of milk protein conVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00026 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
21

centrates are up about 3.1 percent and totaled about 20,600 metric 

tons. However, that needs to be put in the context of the overall 

importation of both MPCs as well as casein and caseinates, which 

are other dairy proteins. And over that same period, the imports 

of the total complex of those proteins are down about 16.7 percent. 

So MPCs have gone up, but the overall level of imports have gone 

down. 

Given the wide range of moves for MPCs, we believe that it is 

not only difficult, but questionable, to argue that MPCs, at least by 

themselves, are having a significant impact on dairy prices, and 

particularly for this year, where we are expecting an overall reduction of imports in that protein complex from the dairy industry. We 

believe that that direct impact on dairy prices is probably not the 

significant cause for the very steep reduction that we have seen in 

dairy prices and the economic distress that the industry is facing. 

The CHAIRMAN. Let me ask you this as a follow-up. You have 

heard the testimony of our two colleagues that were just before us 

from Vermont and Connecticut, Mr. Courtney and Mr. Welch. And 

they were very descriptive in terms of the desperation of these 

farmers. 

Do you agree with their assessment of how bad the situation is? 

Mr. MILLER. Mr. Chairman, I do. This has been devastating to 

farmers, dairy farmers all across the country. The Secretary has 

personally spoken with a number of dairy producers on a variety 

of occasions, both when he is here in Washington and they have 

come to town, as well as during his travels out into the countryside. And I can certainly convey to you that I am concerned, and 

the Secretary is significantly concerned about the state of the dairy 

industry. And, as I indicated, we certainly look forward to working 

with you to find some way to provide both a relief in the shorter 

term for that industry, as well as work with you, as was indicated 

by your colleagues, to see if there is a more appropriate longerterm solution to the situation that confronts this industry. 

The CHAIRMAN. And what do you recommend as the most significant thing we can do short term, right now, to help dairy farmers? 

Mr. MILLER. In the immediate term—and the Secretary alluded 

to this during one of his trips out into the countryside—first of all, 

in terms of the three support programs or safety net programs that 

I discussed, I believe we have been extremely aggressive in trying 

to utilize those programs to help alleviate the stress, and I believe, 

in fact, that that has helped. 

Having said that, we know that dairy prices remain depressed 

and the economic stress continues in the dairy industry. But certainly our purchases under the Dairy Product Price Support Program have been significant, and we expect that they will remain 

significant down the road. 

We have fully implemented the MILC program as it was designed in the 2008 Farm Bill, and we are expecting to continue to 

make MILC payments throughout the rest of the year, and they 

will continue to make a significant amount of infusion of cash into 

the dairy industry. 

And as I have indicated, we have continued to reactivate the 

DEIP program. And while that is undergoing a rather constant review, we will continue to utilize that program. 

22

Also, the Secretary has indicated that we are going to look at all 

of our authorities in terms of trying to find a way to help provide 

additional credit, or relieve some of the credit problems, that are 

faced by this highly leveraged sector of American agriculture. 

The CHAIRMAN. All right. Let me just ask you this, because the 

Secretary has the authority—does he not, under the 1937 Agricultural Marketing Act—to institute an emergency floor price, if necessary, to take into account farmers’ cost of production? Farmers 

are currently seeing prices below cost of production for their milk. 

So is the USDA, the United States Department of Agriculture, considering using this existing authority? 

Mr. MILLER. Mr. Chairman, the authority that you are referencing deals with the Federal Milk Marketing Order, which is 

generally viewed as a marketing program. And if, in fact, USDA 

was to establish under that program a different floor price for milk, 

it could be very disruptive to the operation of the Federal Milk 

Marketing Order Program in terms of the stability that that provides for producers and processors, and, in fact, could drive some 

entities out of Federal Milk Marketing Order. 

In addition, I think we have to recognize that a very significant 

number of dairy production states do not participate in the Federal 

Milk Marketing Order, which creates some additional difficulties in 

that regard. 

Having said that, we do have other programs that are in place, 

including the Dairy Product Price Support Program, in which we 

can in fact purchase products. As I noted we have been doing this, 

which may be a more appropriate program to utilize if we are looking to support the basic prices of the dairy products consistent with 

the 2008 Farm Bill. 

The CHAIRMAN. Thank you very much. We have our Chairman 

with us, Chairman Peterson, and I would like to recognize you for 

an opening statement at this time. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. Thank, Mr. Chairman, thank you and the Ranking Member for your leadership in calling this hearing. 

I thank you, Mr. Miller. I haven’t seen you since you have been 

elevated to your position. We appreciate having you over there, and 

I want to have you tell the Secretary we have been appreciative of 

him being responsive to the requests that we have made of the Administration to help us with this dairy situation where they can. 

So we recognize that. 

I have had lots and lots of discussions with Members of Congress 

and people in the industry over the last number of months. It is 

a tough time in dairy all over the country, and I appreciate the 

Chairman having this hearing today. 

But I would respectfully suggest to the Chairman that I think 

that, in my opinion, this should just be the start of us looking into 

this situation. I would like him to look at his schedule and see if 

there is a possibility of doing maybe a couple more hearings before 

we leave in August, so we could bring in all the national groups 

and all the different folks that are involved in this to look at the 

23

issues and to see if people have solutions that might be viable, and 

if there is something we can rally around. 

Although, having served on this Subcommittee for a long time, 

and struggling to understand this issue, it is complicated and very 

regional, and it has been made worse by these trade agreements 

that we have entered into that have tied our hands, so we can’t do 

maybe what we should do. And I think all of these things need to 

be looked at. 

But I would suggest that, first of all, we try to get all the general 

farm groups in here and have them, as a representative of a national constituency, see if they have something where they have 

come together. I think we should examine all these trade agreements and how this is impacting prices. You know, we should look 

at the order system and how that is impacting the situation. And 

potentially, the question I get all the time: Why, when milk prices 

have collapsed, haven’t we seen a corresponding reduction in retail 

prices? 

So there is no end of things that could be looked at here. But I 

would suggest that we try to get as many people involved in this 

as possible, try to have this as open as possible. 

We have had a lot of discussions. You have been in those discussions with me and others. But, it is more important we have this 

out in public, so people can be involved and see what is going on 

and understand that this Committee has been engaged, and will 

stay engaged and try to figure out some way to help the people in 

this industry. 

Again, I appreciate your having this hearing today. 

The CHAIRMAN. I thank you so much, Mr. Chairman. 

And as we speak, we are already moving to get a couple of more 

hearings before we get to the break. 

And you can see by the Chairman’s comments how serious we 

take this issue. And this Subcommittee and the whole Agriculture 

Committee and the Congress, for that matter, is determined to get 

help to our dairy farmers as quickly as we possibly can. And in 

order to do that, we have to get all the players here before the 

Committee so we can hear from everybody, so we can make the 

most intelligent and the most impactful decisions and get the help 

to the dairy farmers as quickly as we can. 

Thank you very much, Mr. Chairman. Now we turn to our Ranking Member, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Chairman Scott. Mr. Miller, thank 

you for being here. I enjoyed our visit recently. 

You heard a number of my colleagues talk about, and you are 

going to hear other panelists talk about, the cost of the inputs in 

relationship to the cost of the product. The inputs are rising and, 

unfortunately, the price of the milk has been falling. 

And so, given this current economic environment for the milk industry and really all across agriculture, recently the Speaker insisted that this body take up a bill that some would say would dramatically increase the cost of energy in this country, thereby increasing the cost of inputs for farmers and dairy farmers and, really, businesses all across America. 

24

What is the position of the USDA? Is this a good time for Congress to be raising the cost of energy and inputs for the dairy industry? 

Mr. MILLER. Mr. Neugebauer, certainly the dairy industry has 

been faced with significantly increased cost. A big part of the current issue that they are facing in terms of those costs have been 

the costs of purchased feed ingredients. Naturally, that also does 

in some way reflect energy costs. 

In addition, dairies are big consumers of energy as well. But the 

real challenge is finding a balance between the prices received in 

the marketplace and stimulating growth in that marketplace in a 

way that those costs, whatever they may be, can be fully covered, 

and hopefully that the dairy industry can return to profitability as 

soon as is possible. 

I think we would expect that while we look at issues concerning 

climate, as well as the President’s initiatives concerning a rapid expansion of renewable energy, that is going to create significant opportunities in production agriculture. Through those opportunities, 

we believe that all sectors of agriculture, including the dairy industry——

Mr. NEUGEBAUER. Mr. Secretary, I have a limited amount of 

time. 

Mr. MILLER. Sure. 

Mr. NEUGEBAUER. But I am going to ask you, yes or no, is this 

a good time to increase the cost of energy for dairy? 

Mr. MILLER. Well, I don’t expect that the legislation is going to 

be passed immediately. 

Mr. NEUGEBAUER. Just yes or no, is it a good time to increase 

the cost of energy——

Mr. MILLER. We would prefer to see more consistent energy 

prices, certainly. 

Mr. NEUGEBAUER. I am going to take that as a no. 

I want to move forward on something about the Dairy Export Incentive Program and, really, 5 months before the USDA began to 

revive that process, the European Union had already begun to subsidize many of their producers. 

And I guess the question I have is, are we about to enter into 

a war here where we are going to see the European Union increase 

their subsidies, and are there limits in our WTO agreement as to 

how far those countries and the European Union can continue—or 

the maximum amount that they can subsidize those. 

Mr. MILLER. Under the WTO, both the United States and the 

European Union have limits in both the tonnage and the amount 

of funding that can be spent on those programs. 

Unfortunately, in terms of our ability to go head to head with the 

European Union, the commitments for the United States are significantly smaller than they are for the Europeans. 

So in terms of a trade war, as you characterized it, Congressman, 

we do not have the same capacity to continue to provide that assistance to our export market that the Europeans do in fact have. 

But I can assure you we were very aggressive in the 5 weeks or 

so that we operated the DEIP program in the 2008–2009 year. And 

as I indicated, we are continuing the program now as we move into 

the next WTO year under the subsidy program. 

25

Mr. NEUGEBAUER. I understand you have allocated the remaining 2009 to 2010; is that correct? 

Mr. MILLER. What we are doing, because this program is constantly under review with the Administration, is there has been an 

agreement of the various departments and agencies that have an 

interest in our Dairy Export Program to continue the program, 

allow us to utilize up to the amount that was available in 2008 and 

2009 that we did not utilize, as we go through the review to determine what the outcome of DEIP will be, going forward. 

So the program is still operational. And, as I said, we are aggressively seeking those markets where we can challenge the Europeans to regain market share in our key markets overseas. 

Mr. NEUGEBAUER. Do you think that there are some ways that 

we can work with the European Union to begin to minimize—it 

sounds like we got out-traded on all these support tariffs. Is there 

a way for us to enter negotiations where we don’t, in fact, end up 

in some kind of a trade war over milk? 

Mr. MILLER. We have certainly indicated our willingness to discuss with the European Union the possibility of both the U.S. and 

the EU backing off of the export subsidy issue. Obviously, a number of our trading partners and trade competitors also would like 

to see that action and, of course, the whole issue of export subsidies 

is a key issue in the WTO negotiations. 

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

We will now hear from the gentleman from California, Mr. Costa. 

Mr. COSTA. Thank you very much, Chairman Scott. I want to 

thank you for holding this very important hearing, and I want to 

thank Chairman Peterson for his earlier comments. 

The dairy industry in the United States is in meltdown, let’s 

make no mistake about that. It began first in California last fall, 

and it has spread throughout the entire country. 

To follow up on Chairman Peterson’s suggestion with Chairman 

Scott, I do urge both of you that we follow up, and this be the beginning, as was stated, of a continuum of hearings to really look 

at not only the fact-finding on what we do in the near term to bring 

relief—I have had two suicides in the San Joaquin Valley and 

areas among dairymen that Congressman Cardoza, Nunes and I 

represent, and we have no outlook for how it can improve. So I 

would suggest that we, Mr. Chairman, follow up and continue to 

work on this, because the long term is essential for the vitality of 

the dairy industry in the United States. 

The CHAIRMAN. Well, I can assure you we would definitely be 

doing that, Mr. Costa. It is a very serious problem. We take it seriously, and we are going to get the dairy farmers’ help as quickly 

as we can. 

Mr. COSTA. I would like to submit comments by the California 

Dairies Inc., and the Milk Producers Council, as well as the Dairy 

Disaster Resolution that was approved in Kings County, in my district and neighboring Tulare County, and similar resolutions adopted by Merced County in Congressman Cardoza’s district, and the 

City of Hanford, also in my district, for the record. 

[The document referred to, California Dairy Resolution, is located 

on p. 193.] 

The CHAIRMAN. Yes. Without objection, we accept that. 

26

Mr. COSTA. Thank you very much, Mr. Chairman. I have a lot 

of questions, I want to go quickly here. 

I have asked a number of dairymen—I meet with dairymen a 

couple of times a month. And it is a very difficult challenge that 

they are facing, input costs at $9 to $10 per hundredweight in California. I mean, the costs they are receiving for their milk at $9 to 

$10 per hundredweight and their input costs are $17Ò per hundred 

weight, you can’t stay in a business like that very long. 

From Mr. Watt, he asked me to ask you, Mr. Miller, with what 

the cost of production for the operations of the dairies going broke, 

your moving product into the CCC forces costly repackaging of 

product from commercial packaging, none of which is accounted for 

in the support price. 

Do you agree that a better Federal Dairy Price Support Program 

should be updated to account for the production costs? 

Mr. MILLER. Well, production costs are certainly a key issue in 

this problem. But looking at the packaging issue, USDA has explored whether our purchases should be repackaged in a different 

format in order to make those products that we are storing more 

comparable to what happens in the commercial market. 

Our review of that situation, because in fact we are storing these 

products, some of which will likely store for a significant amount 

of time, do not really lend themselves to changing the packaging 

because of the deterioration of the product itself and that potential 

high cost to the government. 

Mr. COSTA. Well, I would suggest we follow up on that. 

Let me move over to another area that is troubling. The Chicago 

Mercantile Exchange Program, there was a CAO report in 2007 

that says only a few players sell cheese on the market, and there 

really is belief that it is prone to price manipulation. That the price 

discovery mechanism should be reformed so that it is more effective 

and transparent. 

Do you agree, and is the Department taking a look at this? 

Mr. MILLER. Well, the issue there is really not one that is fully 

under the jurisdiction of the Department. However, having said 

that, I think it is in all our best interests that these markets operate in the most transparent fashion possible, and that we try to ensure that there is no way for those markets to be manipulated. And 

certainly in our conversations with the Commodity Futures Trading Commission, which does regulate those markets, we certainly 

do encourage them to see that we do not have manipulation. 

Mr. COSTA. Well, I think more needs to be followed up in that 

area. 

But let me move to the longer term, thinking out of the box, because some of us are trying to work with reforming the Federal 

Order and looking at whether or not a state like California, which 

is the number one dairy producing state in the nation—a lot of people don’t think of California as a dairy state, but we are and we 

are the largest—on how we could make the Federal Order and 

maybe provide incentive for California to join the Federal Order to 

think out of the box. 

Mr. Steve Maddox, who is a very effective producer in my area, 

says we need a new out-of-the-box look for long-term corrections in 

dairy policy to ensure our industry’s survival. Stalling for better 

27

days and cutting around the edges and arguing that the replacement—rearranging the chairs on the Titanic, so to speak, is not 

going to be a solution. 

Every program that you have stated in your testimony that we 

have implemented has done nothing to change the prices from the 

$9 to $10 per hundredweight. What is your suggestion on the long 

term? 

I know my time has run out, Mr. Chairman. 

Mr. MILLER. Well, let me respond just briefly, Mr. Costa. I think 

the Secretary would agree with you and your constituents that we 

probably do need to take a longer term view of what isn’t appropriate and what can be an effective dairy policy in the United 

States. The farm bill provided for a commission to review the Federal Milk Marketing Order system subject to the availability of 

funding, which we have yet to see. 

However, in addition to that, the Secretary has announced that 

he is very interested in doing the kind of review that you may be 

suggesting, both in terms of what we may be able to begin to do 

internally, and then the prospect of broadening that to be able to 

entertain ideas from the widest possible number of stakeholders. 

The CHAIRMAN. Thank you very much. 

Mr. COSTA. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Costa. 

Now, the gentleman from Pennsylvania, Mr. Thompson. 

Mr. THOMPSON. I want to thank the Chairman and the Ranking 

Member and all the Members of the Subcommittee for participating 

in this Committee. I am a Member of the full Agriculture Committee. I, unfortunately, don’t sit on this Subcommittee. I am 

pleased for a chance to weigh in. 

Agriculture is my home State of Pennsylvania’s number one industry and dairy is a leading sector. And, frankly, like probably 

most Members here, I am contacted regularly by dairy farmers in 

my district who are struggling just to break even. 

And I want to share just a very quick note that I received just 

at the end of last week that came from my district here to my attention, from Diane Heckman. Jim and Diane Heckman are dairy 

farmers, lifelong dairy farmers in one of the valleys I represent. 

And it says, ‘‘June 22, 2009, GT, while it has finally come to almost the end of the farm, we had a small amount of money back, 

and we have been using that to help pay the bills. But it is now 

gone. There is nothing left. And if something isn’t done about the 

milk prices, we are going to have to sell the cows and the farm. 

I haven’t told Jim yet, and I don’t know how I am going to tell him. 

I am sitting here crying as I write this letter.’’

‘‘Please, please, do what you can to help with the damn milk 

prices. I am just sick that it has come to this, and this has hit 

many, many family farms.’’

And it is signed Diane Heckman. 

So certainly I really appreciate this hearing. 

I think in terms of dairy and our food, our greatest—we have a 

lot of threats to our national security, but keeping our dairy farmers, keeping our family farms is what we can do most about our 

national security in terms of food security. 

28

Mr. Under Secretary, I really appreciate you being here. I wanted to—there has been a lot of pieces of legislation that have been 

introduced over the years, aiming to implement a mechanism for 

mandating supply. There is a bill in the Senate right now; it is 

very similar to the Canadian dairy system, and I wanted to see 

what your view was on the kind of system that implements a 

mechanism for mandating supply. 

Mr. MILLER. Again, you are looking at something that probably 

should be part of a longer-term solution to the dairy situation that 

we face currently; and that would be a very significant departure 

from the types of dairy policy that we have had historically in this 

country. 

Again, I understand that legislation has been introduced. It is 

quite likely it is something that should be part of an agenda to discuss how we move forward with dairy policy and what is appropriate. So we certainly would welcome the opportunity to continue 

to engage in the discussion of that idea, as well as many others 

that have been proposed, and see if we can find an appropriate policy for the dairy industry in the United States. 

Mr. THOMPSON. Well, I appreciate your opening comments, really 

laying out kind of a beginning road map on a short term to address 

the crisis that we are in right now; because if we lose farms, to get 

them back will be next to impossible. So I appreciate that. 

I wanted to focus just my final question on that long term that 

you alluded to. I am amazed at a lot of contrasts. One of the contrasts, like the bottled water industry which—they are a free market-driven system that flourishes. Very profitable. People are getting very wealthy and very successful. 

Then we have the poverty of the dairy industry which has been 

weighted under this pricing system that I am still struggling to 

fully understand it. And I wanted to see, what long-term focus 

thoughts do you have on milk pricing for changing that? 

Mr. MILLER. Well, there are a number of opportunities out there 

to discuss longer-term changes in our dairy policy. Mr. Costa and 

I were discussing just prior to the hearing—and this is just a personal comment, but it seems to me that what we have seen in the 

dairy industry has not only spread between the highs of the dairy 

market which we experienced only a short time ago, a matter of 

months ago, and the lows that we are experiencing now have gotten to be more extreme with greater volatility. And the period of 

time which we have relatively good price or good returns to the 

dairy industry versus those periods of time when the returns may, 

in fact, be inadequate seem to be compressed. 

So we have both greater price volatility, it seems, as well as a 

situation where we move through those periods of volatility much 

more quickly. That makes it extremely difficult for farmers and 

ranchers and dairy producers to plan on anything. It also makes 

it difficult for the processors, many of which are cooperatives and 

owned by those same dairy farmers, to plan effectively into the future. 

So we certainly welcome the suggestion of Chairman Peterson 

and Chairman Scott to begin a dialogue about a—what might be 

a more effective, long-term dairy policy and certainly would offer 

29

to participate in that dialogue as the Members would deem appropriate. 

Mr. THOMPSON. Thank you, Mr. Secretary. 

Mr. Chairman, with your indulgence, I would like to enter into 

the record the letter that I have read. 

[The document referred to is located on p. 98.] 

The CHAIRMAN. Yes. 

Mr. THOMPSON. Thank you. 

The CHAIRMAN. The gentleman from California, Mr. Cardoza. 

Mr. CARDOZA. Thank you, Mr. Chairman. I really appreciate the 

fact that you have had this hearing today—held it. I appreciate 

your commitment, along with Chairman—Mr. Peterson to continue, 

and not just to stop today, but really get to the bottom of what is 

going on here. 

If I could, Mr. Chairman, I would like to submit for the record 

my opening statement and I will save everybody from having it 

read. 

Mr. Miller, thank you for being here and thank you for helping 

us as you have been able to do. Obviously, the price of pork program isn’t working as it was intended. 

We never anticipated that there would be these catastrophic 

losses that are affecting our dairymen. Certainly farmers are used 

to boom-and-bust cycles; but this one seems to be so profound that 

it can just put vast numbers of the dairy industry out of business. 

And I specifically want to talk, that even though when cheese 

prices have been below support prices for weeks now, I don’t believe that the Administration has purchased—or the CCC has purchased any cheese. 

Several industry organizations have offered a few suggestions 

and put them in writing to the Secretary on how to address this, 

ranging from raising purchase prices, to loosening grading and inspection standards to that of commercial trade, and that of using 

product immediately in food aid programs. 

From your perspective, sir, what changes are needed to make the 

program better in order to ensure that the safety networks work 

as intended? And then I will follow up with some other questions. 

Mr. MILLER. Well, thank you, Mr. Cardoza. 

In terms of the dairy product price support system, it is certainly 

working in terms of the actual administration of the program. We 

have been buying significant quantities of nonfat dry milk from the 

market because prices have been depressed. We have found ways 

to move a fairly significant quantity of that into our domestic nutrition and international food assistance programs, as a way to take 

some of that stock that we would otherwise be storing actually off 

the market and have that product consumed in a way that does not 

compete directly with commercial sales. 

So, the issue is not whether the program can work, but really the 

issue is one of—is that, in and of itself, adequate to solve the dairy 

cost price squeeze that we are facing currently? I don’t think we 

have any particular estimates of what would happen if we had not 

had that purchase program in terms of dairy prices. But we have 

done a significant amount with that program, and as I indicated, 

we have also expended millions of dollars and expect that by the 

30

end of the fiscal year we will have expended about $900 million in 

our countercyclical support program. 

So in that regard, I think the programs are working. But I probably would agree with many Members of the Committee who suggested at the time that these programs were put into the 2008 

Farm Bill that we weren’t expecting this kind of situation to hit 

this sector of agriculture. 

Mr. CARDOZA. Certainly not with the rapidity in which it took 

place. 

Mr. MILLER. No. But—I also think we all have to put this somewhat in context and it difficult to do during these very difficult 

times. But we also have to weigh what are going to be the budgetary costs of modifying the current program either in the short 

term or the long term, and that is obviously a consideration that 

weighs on the minds of everyone in this room. 

Mr. CARDOZA. There are 27 Blue Dogs on this Committee, and 

it certainly does weigh on this Committee when we talk about the 

financial situation. I notice that the Administration has not purchased any cheese. As I recall from my days in California as Chairman of the Agriculture Committee, the cheese price has a very big 

determining effect of what the price of milk ultimately is. 

Can you tell me what the impediments are for purchasing of 

cheese and why the Administration hasn’t purchased any to date? 

Mr. MILLER. I guess the simple answer to that difficult question 

is, we are not being offered cheese to purchase even though, as you 

indicate, in some instances the price of cheese may be below the 

purchase price. It was the minimum purchase price that was established in the 2008 Farm Bill. 

Others have suggested that part of the issue there is a packaging 

issue, which I discussed briefly earlier in the question-and-answer 

period, and that is a difficult issue for USDA because when we purchase any of these products, we are not expecting that we are going 

to be able to immediately turn those around and put them back 

into the commercial market. So we need to package things in ways 

that we can store them, potentially, for several years. 

One final comment in terms of the issue on cheese, and it goes 

back to converting the nonfat dry milk that we have purchased 

under the Dairy Product Price Support Program, as we are looking 

to move some of that product into our Domestic Nutrition Program, 

we are bartering certain amounts, quantities of nonfat dry milk, for 

specialty cheeses. So in that regard, indirectly we are, in fact, taking some cheese off the market. 

Mr. CARDOZA. Thank you, sir. I look forward to working with you 

more on that question. 

The CHAIRMAN. Thank you very much. 

Mr. Conaway, you are next—from Texas. 

Mr. CONAWAY. Thank you, Mr. Chairman. I don’t have a lot to 

contribute to the solution side. 

Mr. Miller, what is the shortfall if we take total milk produced 

versus the $7 or $8 per pound differential between feed costs and 

what I heard talked about, $17 versus the sales price of $10? How 

much money are we talking about if we had to come up with that 

to make all these dairy farmers whole on the decisions they made 

31

to leverage at 70 percent, to increase the herd sizes during good 

times? 

What is the nut for 2009? 

Mr. MILLER. Let me consult with some of my experts here just 

a moment. 

Mr. CONAWAY. While that is going on—they will give you an answer. 

Mr. MILLER. Just a rough, back-of-the-envelope estimate, somewhere probably around $7 billion. 

Mr. CONAWAY. It is $7 billion? Okay. Mr. Cardoza, that had to 

get your attention. 

What—prices are in the $3.20 per gallon at retail; what would 

that translate to if we were to get milk prices up and—assuming 

all of that translated into money going directly to the farmers as 

opposed to throughout the train, what would a gallon of milk cost 

to maybe everybody whole without Federal intervention? A gallon? 

While they are coming up with that, I will finish off. 

Go ahead. Do you have a number? 

Mr. MILLER. About $1.20 a gallon. That is to get a producer price 

of around $14, $15 a hundredweight. So if the producer price was 

going to need to be higher, then the price per gallon of milk would 

have to rise as well. 

Mr. CONAWAY. So to get up to the $17 or $18 of input——

Mr. MILLER. It would be significantly higher. 

Mr. CONAWAY. Why have alfalfa costs gone up so high? Alfalfa 

is the main food input for dairies, I guess. 

Mr. MILLER. Why have the feed costs gone up so high, sir? 

I think what we saw last year—and we have to recognize that 

increasingly dairies are not raising the same level of their own individual farm feedstocks as they have in the past, so a lot of that 

was being purchased. In the last year we saw record high prices 

for many of the feed ingredients that go into the dairy ration of 

corn, soybeans, for example. 

Interestingly, many dairy producers now contract for several 

months in advance for their feed inputs. Some of that could be done 

even a year in advance, either through cash contracts or futures 

contracts, and they were doing that when commodities, feed commodities, were extremely high priced. So many of them—even 

though feed commodities have now come down somewhat, they are 

still experiencing the results of actually trying to hedge their feed 

costs with an expectation that those prices could go higher. 

Mr. CONAWAY. All of those sound like traditional business risk 

decisions that every business has some similar kind of exposure to, 

that sometimes you are on the right side of a price going up and 

sometimes you are on the wrong side. 

Any of those things that are going on in the arena that are exacerbated by public policy that we need to look at? None of us are 

prophetic enough to know when prices are going to go up or down. 

Is there anything in the system that means that the policy that we 

are operating under makes those circumstances worse? 

Mr. MILLER. Well, we do need to explore some new ideas in 

terms of public policy, given the volatility that we are seeing not 

only in the dairy industry, but in the grain markets. 

32

Mr. CONAWAY. One of the frustrations I have with all the soul 

searching is, we all talk about new ideas and a better way forward, 

and long term and short term. We are all talking at about 50,000 

feet, and there is no specificity to anything that is being suggested 

at this point in time. So I would hope to be a part of the process 

that actually gets to the specifics, as opposed to just swapping slobber back with each other about how wonderful we are, about how 

much we care and all those kinds of things, and we don’t do anything. 

I am a CPA by trade, and so I pretend to get to numbers, as opposed to just bragging on the Chairman as we should, and bragging 

on the Ranking Member as we should, and bragging on each other 

as we should, and bragging on you and all that kind of stuff. It is 

very frustrating, I suspect, to the guys out there, like the lady in 

the letter from GT, that hear all this pontificating and no action. 

So I look forward to yielding back my time. Pardon my rant. 

The CHAIRMAN. Thank you so much. 

We will now hear from the gentleman from—Mr. Minnick of 

Idaho. 

Mr. MINNICK. Mr. Miller, my state, Idaho, became the third largest dairy state last year. Many farmers, dairymen moving from Mr. 

Costa’s, Mr. Cardoza’s and other California districts because of the 

cost of feed. And these same folks are now in the same desperate 

shape my colleagues have described because of feed costs relative 

to the price of, primarily, milk. 

I was curious. In your written statement, you estimated that 

about—the average herd’s size—not the average herd size, but the 

total number of dairy cows were going to go down 145,000 this year 

on average. I am curious as to what the impact of that at year-end 

is going to be on milk costs as you and your economists have looked 

at it. 

What is the reduction going to be from the beginning of the year 

to the end of the year, and what do you think that reduction is 

going to do to the average cost of milk? 

Mr. MILLER. Well, first of all, we do have a revised number. I believe my submitted statement suggested that the size of the dairy 

herd had declined about 145,000 head; the most recent data indicate it is about 138,000 head nationally, just a small adjustment. 

Obviously, by reducing the size of the dairy herd, that will help 

bring back a better supply and demand balance to the market, and 

we believe that that, coupled with other activities that we are engaged in, such as the Dairy Product Price Support Program such 

as the use of our Dairy Export Incentive Program, that we will 

next year see gradually improving prices and returns to dairy producers. 

I don’t think at this point, while we have projections of what 

prices might be for the various feed crops that are a key part of 

the dairy price structure, that is going to vary significantly from 

one part of the country to another and, obviously, can very significantly even from one dairy farm to another. 

Mr. MINNICK. Like Mr. Conaway, I believe in free market solutions. And if part of the solution is to reduce the size of the—the 

herd size, is that going to be enough by itself by year-end to make 

the production of milk at least a break-even proposition? Because 

33

a lot of my farmers don’t have another 12 months; they may have 

6 months, but if the price does not rise to the point where they can 

afford to feed their herds by year-end, a lot of them are going to 

be out of business. 

So I am really interested in the next 6 months and what your 

estimate at that point in time might be, given the dynamic of rapidly reducing herd size. 

Mr. MILLER. Our estimates currently are that we will, particularly as we get into the early part of 2010, begin to see improving 

returns to dairy producers. I think the question is, how quickly will 

those dairy prices respond, and how high will they go so the producers can begin recovering their cash cost of producing milk. And, 

again, reduction in herd size will help in achieving that balance in 

the short term. Hopefully, that, coupled with the tools that we do 

have available and that the Department is implementing, will provide some additional economic security to those dairy producers. 

But make no mistake, this is an extremely difficult time. While 

we would like to believe that the dairy market situation has bottomed out—and we believe that we have or are close to it—it is 

going to take some time for these markets to recover, for prices to 

get to the levels where dairy producers are, first of all, covering 

their cash costs and, second, returning to profitability. It is not 

going to happen immediately and the reduction in herd size is not 

going to happen immediately. 

Mr. MINNICK. So you are not estimating we are about to break 

even by year-end? 

Mr. MILLER. No, sir, I am not at this point. 

Mr. MINNICK. Then I would suggest that we need to do something, because our dairymen are not going to survive until the 

gradual improvement in market conditions sometime in the next 

year that you are prophesying solves the problems. So we had better come up with some additional measures in the interim. 

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

Now, Mr. Roe of Tennessee. 

Mr. ROE. Thank you, Mr. Chairman. 

I met with a group of dairy farmers not long ago in my district, 

about 60 of them; and 2 decades ago, we had 50 in one county, we 

have one now. The largest population county in my district, Sullivan County, we four dairy farmers. I don’t think we will have any 

if this keeps on much longer, and certainly by the end of the year. 

One of the things that you and I have talked on the phone about 

and my concern—Mr. Chairman, you brought out a very, very important point a minute ago that this can’t go on. We have all 12 

counties in my district that are certified as droughts, and right 

now—the farm bill was passed last year, and I know Mr. Miller has 

been working hard on this, but we have farmers that might survive 

if they can get the funds from the drought insurance that they 

have. 

That might not happen until 2010. We don’t know when that will 

happen, and they are desperate right now for that. They have already paid the insurance for it. My concern is, if we don’t do something very quickly, we are going to wipe out the dairy industry in 

this country. 

34

I think you made one of the best points so far. And so what do 

we do on, for instance, being able to implement? The government 

moves so slow and these folks are running out of money. If you are 

running a dairy farm at a negative $25,000 a month, you are not 

going to go very long. 

I think our small farmers—certainly in Tennessee where we are, 

what they see is that the larger ones are going to put them out of 

business, have deeper pockets. 

Mr. MILLER. Congressman, as we have discussed, we have taken 

steps to expedite the implementation of the disaster programs, and, 

particularly, the disaster programs that affect the livestock industry. 

We have just begun this week the sign-up for the Livestock Indemnity Program. The Livestock Forage Program, which is a 

drought-related feed assistance program, and the Emergency Livestock Assistance Program are both currently being reviewed by the 

Office of General Counsel at USDA. 

So, again, we are moving ahead as expeditiously as possible to 

make those programs available. And part and parcel of this issue—

while, certainly, these programs have been delayed far longer than 

I would have preferred in terms of implementation, we need to 

move ahead. We certainly need, once we have these regulations 

cleared, to ensure that farmers and their creditors know what 

these programs may provide, so even prior to being able to make 

payments—which is a challenge that we face at USDA because of 

our IT systems—at least make information available to producers 

so they can begin estimating what their benefits might be. 

Mr. ROE. You and I have talked about that. I think if you and 

I made a salary that we made in 1979, today we couldn’t pay our 

bills. That is what these farmers are faced with, a price that these 

dairymen are faced with, a price from 30 years ago, trying to pay 

bills today. And it is impossible. 

I think as we reduce herd size, the dairymen gets about 40¢, 

maybe 45¢ on a good day, per pound. Would it make sense to look 

at subsidizing that? I know the cattlemen might not like that, because the cattlemen are also worried about dumping all this dairy 

herd and lowering the price of their product. What do you do with 

that? They sell those cattle, those 144,000 you talked about, basically at a loss, and then you just lose less money. You don’t make 

any money doing that. 

Mr. MILLER. I think you raise a very serious issue. There really 

is a dilemma that confronts the dairy industry and, more broadly, 

the beef cattle industry because most of these cows that are being 

taken out of production are going to find their way to the slaughterhouse. So that is, in fact, a dilemma that this Committee has 

faced in the past when there were policies to begin reducing dairy 

herd size. And it is somewhat of an issue that is faced currently, 

although the scale at which the dairy herd size is being reduced 

and the speed with which that reduction is occurring, there probably is a better opportunity to gradually feed those surplus milk 

cows into the market than if there was just a wholesale program 

to take significant numbers of cows out of dairy production and, in 

effect, drop them into the beef market. 

35

Mr. ROE. Just very quickly. If you were the dictator, if you were 

the czar, what would you do right now? 

Mr. MILLER. I would have higher prices for milk and lower consumer prices. 

Mr. ROE. That sound goods. Thanks. So would everybody. 

And I would like to win the lottery. How do you do that? 

Mr. MILLER. It is difficult. I know it is frustrating for dairy producers. It is certainly frustrating for us at USDA and, I know, 

equally frustrating for you as policymakers to end up in this situation. It is dire. 

And we are using the tools that we have available to us in the 

2008 Farm Bill. I believe we are using them aggressively, and unfortunately, the problem would be worse, probably, if we weren’t 

doing this. 

But that isn’t an answer to the question. 

Mr. ROE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Now the gentleman from New York, Mr. Murphy. 

Mr. MURPHY. Thank you, Mr. Chairman. And thanks for having 

this hearing. I want to stay on the same topic we have been talking 

about with Mr. Conaway, and Mr. Roe, and with Mr. Minnick. 

Where is the equilibrium point right now? It sounds like we have 

about 9.2 million cows in the herd. We peaked at 9.35, and you say 

we are down 150,000. Is that about where we are, about 9.2 million? 

Mr. MILLER. That is where we will be, we believe, at the end of 

the year. 

Mr. MURPHY. Where are we right now? 

Mr. MILLER. We are at about 9.2 now. We will be down around 

a little closer to nine at the end of the year. 

Mr. MURPHY. Where do we think the equilibrium is? We have a $7 billion differential this year between costs and revenues. Where 

is the equilibrium for the herd? 

Mr. MILLER. We think we will be closer to equilibrium at the end 

of the year. Once we get around nine million, we are going to start, 

we believe, seeing prices improve. And while it takes time for these 

things to work themselves through the marketplace, we believe 

that the average price for milk next year is going to be in excess 

of $15 in terms of cash costs. Assuming we don’t see a significant 

shock in the input markets, then we think we are going to be fairly 

close to that equilibrium. 

Mr. MURPHY. But if we had nine million herd—nine million head 

today, we would have, roughly, equilibrium today? 

Mr. MILLER. We would be moving toward equilibrium much more 

quickly. 

Mr. MURPHY. How many head of cattle are slaughtered in the 

beef industry every month? Any idea? 

Mr. MILLER. My experts tell me about 600,000. 

Mr. MURPHY. So if we took 200,000 head out now, that would be 

material. But if you took it out over 3 or 4 months, it is fairly immaterial. 

What can we do? Because, to me, price supports for $7 billion 

seems like a crazy idea to leave us in the same place we are in 

right now. We may have to do some of that in this emergency, but 

36

if 200,000 head of cattle coming out is enough to get us to equilibrium, where my farmers can do their work and break even, they 

would be very happy with that. 

Is there a mechanism that we can activate now to start taking 

those 200,000 head of cattle out? Because that seems like a pretty 

simple solution, something we could do fairly quickly over a few 

months. 

Obviously, we don’t want to destroy the beef cattle industry. But 

it is a small number in the great scheme of things, and I can’t 

imagine that is anywhere near $7 billion and then let the market 

balance itself out. 

Is there a mechanism out there for us to do that? 

Mr. MILLER. USDA has very limited authority in terms of being 

able to do that. But I am not saying that we are completely without 

authority. 

The big issue with any sort of dairy herd buyout is, first of all, 

the impact that you have directly on the dairy industry, which we 

are suggesting would be positive by reducing the——

Mr. MURPHY. We think it is going to happen anyway by the end 

of the year. 

Mr. MILLER. And it is happening and there are programs to encourage—the CWT Program is running, and I would have to assume that it is at least one significant factor in the reduction of 

herd side in addition to just the general economic situation. But we 

do have to be cognizant of how that does affect the beef market. 

I think we are all aware, while dairy is in a very serious situation, the livestock sector in this country is not extremely healthy 

to begin with. We have significant problems in hogs and poultry, 

and I don’t think beef producers are just jumping up and down and 

thrilled with what they are receiving. 

So it is a delicate balance. It is a question of finding the appropriate authorities if you wish to do this. And then, certainly, again 

it is a question of the cost. 

Mr. MURPHY. What are the authorities we would use to do that 

in the short term? 

Mr. MILLER. In terms of USDA, we have very limited authority 

to actually engage in that type of a purchase program. However, 

in consultation with a number of people, there may—and I am saying ‘‘may’’—be able to provide at least some financial assistance 

through credit programs that could potentially augment the efforts 

of others to reduce the herd size. 

Mr. MURPHY. Is there anybody besides the CWT Program out 

there kind of orderly reducing the herd size? 

Mr. MILLER. Not that I am aware of, sir, in terms of an organized 

effort. Obviously, the market situation is causing a number of dairy 

producers to begin liquidation of their herds, whether it is through 

the CWT Program or otherwise. 

Mr. MURPHY. I would love to work with you more on this, because we should be more orderly about it and get it done sooner, 

so that we don’t just wait to see everybody starve to death across 

the whole country. Instead, we can be more orderly about it and 

get it done in a fashion that is going to be more humane to everybody. It doesn’t seem like very far to go to get us back into balance. 

And thank you, Mr. Chairman. 

37

The CHAIRMAN. I thank the gentleman. 

The gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. And I want to thank 

you for holding this hearing. It is a very important issue for not 

just dairy farmers in my district and elsewhere around the country 

who are suffering, but good dairy policy is important for hundreds 

of millions of consumers in the country as well. 

I want to follow up on a question that Mr. Roe asked and ask 

you why it is taking so long for the Department to make some of 

the payments that need to be made? For example, on drought disaster losses that occurred last year and the year before—thankfully, we are out of that situation right now in the East, but we 

went through a few years where we had some serious problems and 

some of our farmers still haven’t been paid. 

Mr. MILLER. Quite frankly, Congressman, the effort to draft the 

regulations for the Livestock Forage Program, which is the drought 

feed assistance program for the livestock industry, really only 

began in earnest earlier this spring, even though the farm bill was 

passed a year ago. 

What we have done in terms of trying to expedite——

Mr. GOODLATTE. Go ahead. You were getting right to my question with what you are doing to speed that up. 

Mr. MILLER. In terms of trying to expedite the implementation 

of the disaster program, we took action to divide it into its components, so we could move each component through the USDA process, and the rest of the Administration’s process more quickly, 

rather than trying to package the bundle of five programs together. 

As I indicated, the Livestock Feed Program is currently under review by our Office of General Counsel. It will move from there to 

our budget and policy——

Mr. GOODLATTE. When do you think you could expect——

Mr. MILLER. We expect we will have it out of the Department 

sometime this summer. We will then go to OMB for their review, 

and hopefully, if that——

Mr. GOODLATTE. Is anybody talking to OMB about how urgent it 

is? 

Mr. MILLER. We have conversations with OMB on a regular 

basis. 

Mr. GOODLATTE. Is there any way we can begin their process in 

terms of ramping up, so as soon as you have your report to them, 

they can take it and run with it and get it done in a few days? It 

is ridiculous to recognize a disaster and then have a bureaucratic 

process that goes on for, now, nearly a year after the farm bill was 

passed and still nothing for farmers. 

Mr. MILLER. Well, as you are aware, I cannot commit to what 

OMB’s schedule might look like. But we do have——

Mr. GOODLATTE. The Department has held it to this point. And 

at this point, we are many, many months into addressing something that the Congress voted to address a long time ago. 

Mr. MILLER. No. I understand and appreciate that. 

We are having conversations with OMB. They are aware it is 

coming. They did expedite consideration of the Livestock Indemnity 

Program and actually got that program approved in what I think 

is probably very quickly by OMB standards. 

38

So, hopefully, we can continue——

Mr. GOODLATTE. Let me just urge you to continue down the track 

as quickly as you can, and go to another subject that was raised 

by the Ranking Member. And I want to express great concern. 

We have in this country a dairy policy that is badly in need of 

overhaul. The changed conditions that this industry faces, milk can 

be preserved longer and transported, as a result, greater distances, 

and the traditional way of looking at the markets and so on is a 

problem. 

I have struggled with that with my dairy farmers in Virginia, 

who ship their milk greater and greater and greater distances primarily because of the nature of this policy and the way it works. 

I believe that needs to be overhauled. 

But I am also very concerned about the direction that our government is taking in terms of increasing the input costs to dairy 

farmers. By far, the two largest input costs they face are feed and 

fuel. And those two things are being very detrimentally influenced 

by policies that—as you correctly noted, some won’t take effect for 

a while. But nonetheless, the effect that they will have is not good 

for the long-term future of dairy farmers and others that could be 

in effect right now that aren’t—for example, a national energy policy that would cause increased domestic production of all sources 

of energy. 

We want to develop new technology, but the cap-and-tax legislation that the Congress passed a few weeks ago, I think ignores the 

need to increase domestic production of oil and natural gas and nuclear power and so on. And that is a problem. 

But something of even greater immediate concern is the fact that 

the Administration is considering increasing the ethanol mandate 

for gasoline to 15 percent, and that will also be of grave concern 

to dairy farmers and anybody else who has livestock that they have 

to feed. It is going to increase what the government is mandating 

goes to other sectors, and that means they are going to have to pay 

higher prices for their corn and other feed. 

Is the Department of Agriculture taking any steps to communicate with these other agencies to attempt to get some sanity in 

terms of what price effect this is going to have for our livestock producer, especially dairy farmers? 

Thank you, Mr. Chairman, for your forbearance. 

The CHAIRMAN. Very quickly, if you can, Mr. Miller. 

Mr. MILLER. Yes, we constantly are having dialogue with other 

agencies and Departments concerning the implications and decisions that are made in other parts of Washington, D.C., how those 

affect American agriculture. And I can assure you that Secretary 

Vilsack is not at all shy about discussing agricultural issues with 

his counterparts and colleagues. 

Mr. GOODLATTE. What is he telling them? 

The CHAIRMAN. The gentleman from Iowa, Mr. Boswell. 

Mr. BOSWELL. Thank you. Thank you very much. I appreciate 

you being here, and what you bring to the table. 

A lot of discussion, a lot of questions about responses. Why don’t 

you just, the best you can—I will give you 2 minutes to turn 

around and talk to your experts. 

39

What can we do here to help expedite getting some relief out to 

our dairy farmers? What can we do? What tool do you not have in 

your toolbox, Mr. Under Secretary, that you can put the bee on—

and I think you get a lot of support from everybody in this room—

what can we do that would get some relief out there really quick? 

Mr. MILLER. I think in the short term, and one of the efforts we 

are undertaking in the very short term—and it is not a long-term 

solution, but that is to review the full range of creditor options that 

we have not only with FSA, the credit programs that are administered within my mission area, but also looking throughout other 

agencies within the Department to see if they have programs that 

we could either utilize or adapt to help resolve this current situation. 

As I indicated, the dairy industry is very highly leveraged. That 

is creating a significant amount of stress on dairy farmers currently. Anything that we can do to help address that, both with our 

direct borrowers, as well as others. 

Mr. BOSWELL. I understand that, Mr. Secretary, and I have confidence in you, and I have a lot of confidence in your boss. I hope 

you are actually on 24/7 down there. 

What can we do that is already here? I hope you are already 

doing that. And only you would know that. But I still think there 

could be—maybe there is not—there could be something, and you 

could say if this Committee would get something going. And we 

surprise ourselves around here sometimes; sometimes we can pass 

something pretty quick. 

And there is desperation out there. When there is desperation 

out there, if there is a desperate move we can do, I say, do it. And 

those of you who are working with it the closest—we have heard 

this testimony. I go back and I talk to my people. 

But it is a desperate situation, and you know it is. 

Mr. MILLER. We agree it is an extremely difficult situation. We 

believe we are utilizing the authorities that we have that were provided to us in the 2008 Farm Bill. And as I indicated, we certainly 

are willing to collaborate with the Committee in terms of any other 

legislative authorities they may wish to consider. 

Mr. BOSWELL. We are ready to consider anything. We would like 

to get some relief out there. We are asking our experts from your 

shop to help us if you can. 

I don’t want to just persist on that, Mr. Chairman. But I think 

there is a real willingness here. And I think the Chairman said in 

his opening remarks and the Chairman of the full Committee, everybody. So if we can, tell us, and we will try. Thank you. 

The CHAIRMAN. Thank you so much. 

We will now go to the gentleman from Wisconsin, Mr. Kagen. 

Mr. KAGEN. Thank you, Mr. Chairman, for calling this very important and critical hearing today. 

Thank you, Mr. Miller, for attending and bringing to the table 

what you can. 

Wisconsin is the dairyland of America, and we hope to—intend 

to succeed. But it is very tough to succeed when our feed costs from 

May of this year, $8.38, and we are getting paid about $11.60. So 

70 to 80 percent of our income goes to just feeding the animals. So 

40

many of our farmers in Wisconsin, like across the country, are 

going under water. 

They are paying off their bills today with money they made 5 or 

10 or 15 years ago. So the young startup, the young farmers, who 

don’t have a lot of capital reserves, are going to be the first to go. 

So in January, I had a conversation with the Secretary and we 

had a conversation about whether or not the herd should be 

thinned. It was a strategic decision by the Department not to thin 

the herd, not to seek a reduction of 200,000 or 300,000 head. Instead, the DEIP Program, the Dairy Export Incentive Program, 

was being promoted. I think, to a degree, that program has not succeeded thus far. 

You also just testified that the credit market, the overarching 

problem we have globally with our global recession is part of the 

problem. 

So let me ask you this. Isn’t it time that the dairy producers of 

this country began to have a compensation method that somehow 

tied itself, not to the cost of feed or not to the cost of Class I Boston 

milk, but rather the cost at the grocery store? Because somebody 

is still making money, it is just not the dairy farmer. 

Mr. MILLER. Well, sir, that is certainly an interesting idea; and 

again I would indicate that as Congress wants to consider a new 

approach to dairy policy, we are certainly willing and would be 

happy to collaborate with you and any other Members of the Subcommittee that would like to discuss these options, going forward. 

I think it is obvious to the Secretary that we do, in fact, need 

to have that type of a discussion. 

Mr. KAGEN. A previous question was posed to you about the purchase of cheese on the CME and other dairy products: Is the Secretary ready to pull the trigger and purchase some cheese to absorb 

some of that material, and also boost the price? 

Mr. MILLER. That offer under the Dairy Product Price Support 

Program is out there. And so, to the extent that cheese manufacturers would wish to sell cheese inventories to USDA, we are certainly in the position, at the prices that are identified in the 2008 

Farm Bill, to make those purchases. And as I indicated, quite likely 

those purchases may, in fact, be required to remain in storage for 

some period of time until we can find adequate avenues to remove 

them—hopefully, in a way that is not directly competing with the 

commercial market, or at least not until the commercial market recovers to the extent that we are not only exacerbating the current 

situation. 

Mr. KAGEN. Is it correct, then, that it would be your testimony 

that until the global demand, the foreign demand, for dairy products increases, that the price will continue to be where it is? 

Mr. MILLER. We expect that with the adjustments that have been 

made, including the projected reduction in the dairy herd, the activities that we have been utilizing to remove product from the 

market and move it into basically noncommercial chains, the activities of the Dairy Export Incentive Program, will, in fact, result next 

year in an improved market price situation for dairy producers. 

What we are looking at is probably something in the range of 

around a 25 percent improvement in the dairy market, something 

41

projected now at over $15 a hundredweight. So that is a pretty significant improvement. 

Would we like to see improvement occur sooner? Would we like 

the dairy situation to be resolved earlier? Of course, we would. I 

think everyone in this room would like to see that happen. But, 

again, we do have a limited range of tools; but, we are aggressively 

using those tools that we have. 

Mr. KAGEN. Well, the dairy farmers of Wisconsin appreciate your 

effort, and they would also appreciate it if this Congress would 

work together, across party lines, to succeed in fashioning a health 

care reform legislation that would lower the cost of health care because the two costs—the two costs that are most at producing the 

overhead on the farm today are not just energy, but also health 

care—not the subject of this hearing, however. 

And I yield back my time. 

The CHAIRMAN. Thank you, Mr. Kagen. 

Now I would like to recognize the gentleman from New York. 

Mr. MURPHY. Thank you, Mr. Chairman. I just wanted to, for the 

record, add a letter from the New York State Department of Agriculture and Markets with respect to the dairy crisis. 

The CHAIRMAN. So moved and so accepted. 

The CHAIRMAN. Let me just conclude the questioning. I have just 

a couple of questions. 

Mr. Miller, can you tell us about any specific plans that you and 

the Department have to ease the operating credit crunch for dairy 

farmers? And specifically, what safeguards are you considering to 

keep any action you take from delaying the supply correction that 

needs to occur? 

Mr. MILLER. Well, Mr. Chairman, through the supplemental appropriations bill, we did finally receive an additional infusion of 

capital that we are able to use for the credit programs that are administered by the Farm Service Agency. 

We are aggressively engaging in an effort with our borrowers to 

make sure that they understand the complete range of opportunities that are available to them as they go through these stressful 

times. That can involve some restructuring of loans, it can involve 

some adjustment of interest rates and a number of things. So we 

are aggressively doing an outreach program that we hope to be 

able to communicate with them directly in the very near future. 

We will also be communicating with our county FSA offices and 

do as much as we can to make sure that dairy farmers and others 

that are eligible to consider these options are fully apprised of what 

they can do. 

We are also beginning to work with the private sector lender, the 

Farm Credit System and commercial bankers to see how we may 

work together, because we also do loan guaranty programs with 

many of those lenders. We may work together to also provide some 

relief to these farmers that really are up against the wall in terms 

of their ability to borrow money to get through this period of time. 

So, again, it could be an extension of the credit terms. It could be 

adjustments in interest rates. It could be taking a look at the principal. 

The CHAIRMAN. Can funds from section 32 be used for dairy 

farmers? 

42

Mr. MILLER. Typically, section 32 funds have been utilized to 

provide support for those sectors of agriculture that are not eligible 

for price support activities. So they have been used for pork and 

a number of specialty crops. 

The CHAIRMAN. Let me just ask you this in concluding, because 

I am sure you ascertain that there is a sense of urgency on this 

Committee to do something quickly to help the dairy farmers; I 

would like to know your opinion. 

Do you think we can accomplish that strictly by—administratively, or do you see a need for legislation? 

Mr. MILLER. As I indicated, we have been very aggressive at utilizing the tools that we have at our disposal, that were provided 

by the farm bill, in terms of the safety net operations, as well as 

in terms of pursuing additional sales that do not compete in the 

available commercial market for U.S. dairy producers. 

So we do need to consider, are these authorities going to be adequate to address this situation both in the short term and looking 

forward? 

The CHAIRMAN. So, let me be clear, you are saying in your opinion that we do need a legislative package? 

Mr. MILLER. I think we need to sit down and consider what else 

could be done to help address this situation, with the goal also to 

reducing the types of volatility that have gotten us into this position to begin with. 

The CHAIRMAN. Mr. Miller, thank you very much. You have been 

very helpful. We appreciate your expert testimony. I am sure you 

realize the seriousness of this issue, and our desire on this Committee to move quickly, as quickly as we can, to get assistance to 

our dairy farmers. 

Mr. COSTA. Mr. Chairman? 

The CHAIRMAN. Yes. 

Mr. COSTA. I know we are moving on to the next panel, but hopefully, other questions that we have we can submit to Secretary Miller for follow-up. And, to your point about raising the question; because clearly, the tools that they have at hand are not working. 

And with your leadership and with Chairman Peterson on how we 

move forward is going to be critical. 

And we certainly want Secretary Vilsack—I know he is coming 

out with an announcement later this week on some additional actions that include the commission that we created last year in the 

2008 Farm Bill, that I initiated, to look at overhauling the entire 

Federal order and how we make it relevant to the current market 

pricing in this country. It is something that we are all going to be 

very interested in. 

So I thank the Chairman. And we look forward to you answering 

those questions that we submit to you in a timely fashion. 

Mr. MILLER. Mr. Costa, we will be pleased to respond to any 

questions that you or your colleagues will submit, and will try to 

get a response back to just as quickly as we can. 

The CHAIRMAN. Thank you so much, Mr. Miller. 

The CHAIRMAN. And now we will hear from our third panel of 

witnesses and our final panel. 

43

And we are very pleased to welcome you. Thank you all very 

much for coming. We are very pleased to have you, and let me introduce each one of you. 

First, we have Mr. Paul Kruse, the CEO and President of Blue 

Bell Creameries on behalf of the International Dairy Foods Association of Brenham, Texas. 

Welcome, Mr. Kruse. Glad to have you. 

Mr. KRUSE. Thank you, Mr. Chairman. 

The CHAIRMAN. We have Mr. Tom Wakefield, the National Milk 

Producers Federation of Bedford, Pennsylvania. 

Welcome, Mr. Wakefield. 

Mr. WAKEFIELD. Thank you, Mr. Chairman. 

The CHAIRMAN. We have Mr. Brad Bouma, President of Select 

Milk Producers, Inc., of Plainview, Texas. 

Good to have you, Mr. Bouma. 

He is not here yet? 

Mr. CONAWAY. He went to the bathroom. 

The CHAIRMAN. We will welcome him when he returns. Thank 

you.

And we have Mr. Ray Souza, President of the Western United 

Dairyman, Turlock, California. 

Mr. Kruse, we will begin with you. 

STATEMENT OF PAUL W. KRUSE, PRESIDENT AND CEO, BLUE 

BELL CREAMERIES, L.P.; CHAIRMAN, INTERNATIONAL DAIRY 

FOODS ASSOCIATION, BRENHAM, TX 

Mr. KRUSE. Thank you, Mr. Chairman and Members of the Subcommittee. I appreciate the opportunity to be here today. I am Paul 

Kruse and I am CEO of Blue Bell Creameries, which is based in 

Brenham, Texas. We are an ice cream producer and we distribute 

over the southern part of the United States. 

I am proud to have a facility in your district, Mr. Chairman, as 

well as the Ranking Member’s district. 

As Chairman of the International Dairy Foods Association, I am 

speaking on behalf of its 220 dairy processing members. They represent about 85 percent of the milk, cultured products, cheese and 

frozen desserts that are produced and marketed in the United 

States. Our members employ around 120,000 employees. 

Very clearly, we are aware dairy farmers have been hit hard by 

this economy. This concerns us greatly. The partnership that the 

dairy farmers have with us as milk manufacturers is critical to the 

overall success of the industry. 

The policies you create here affect this partnership in good ways 

as well as bad ways. I know we are talking a lot about short-term 

assistance, and that is probably necessary, but we think it is vital 

to look at whether our existing, outdated programs that we are living under contributed to the financial problems the dairy farmers 

are experiencing today. 

You know, the U.S. is a very efficient dairy-producing place. Production has grown from around 120 billion pounds in 1975 to right 

at around 190 billion pounds in 2008. We are good at that, and we 

do it very, very well. 

You know, if you go back 70 years when the Federal order system kind of kicked in: 4.6 million dairy farms, today 67,000; there 

44

were 22,000 dairy plants, today there are 1,200 in the United 

States. 

On the demand side, 45 percent of the domestic milk goes into 

cheese; about 30 percent goes into the bottled milk as fluid milk; 

about ten percent goes into my favorite, which is ice cream; and the 

remaining 15 percent goes into butter and, typically, powder. 

We have seen the population in the U.S. drinking less and less 

fluid milk, but on the other side we have seen demand for cheese 

up strongly, and that is where the big growth has been in the use 

of milk. 

We feel, as an industry, we can capture more of this growth and 

increase the demand for milk if we avoid the temptation to put a 

Band Aid on an old system and consider—we need to look and consider long-term approaches that will allow us to innovate and grow 

as an industry. 

It has been talked about here: Our industry has a long history 

of price volatility. Five years ago, farm milk prices and dairy product prices were at record highs. Then we got around to record low 

prices in 2006. Then, obviously, in 2007 and into 2008, very, very 

historic high prices; and now we have dropped off to some of the 

lowest farm milk prices in recent history. 

Price volatility makes it very difficult for folks in our industry to 

plan any long-term investments. It makes it difficult to capture any 

new markets for dairy products and hold on to them, or to compete 

with other commodities in foods that have less volatility. Unlike 

virtually all the other commodity groups, dairy lacks adequate 

price discovery and risk management tools. 

I am aware that the dairy farmers are locking in their feed 

costs—or many of them should be—but obviously not locking in 

their milk price. Why, for instance, can I, as an ice cream producer, 

lock in numerous years of fixed pricing on vanilla flavoring, forward contracting for that, but yet my biggest input cost, milk, is 

not forward contracted? 

We would like to examine why USDA’s wide array of risk management products, such as the Livestock Gross Margin Insurance 

Program, is underutilized in the dairy industry. There are some 

calls in the industry to manage the supply or to limit milk production, even suggesting a new tax on milk. These programs have the 

potential to artificially raise the domestic price, drive people away 

from that to other options that they have, and really limit our industry’s ability to modernize, innovate and grow. 

IDFA believes that increasing demand for dairy products, not decreasing production, is the best way to maintain a healthy dairy industry. Before the economic downturn, we were great at exporting; 

about ten percent of the milk went out of the country, about five 

percent came in as imports. When the world economy turns 

around—I think we produce more milk from cows than any other 

country, and we are very well suited to take advantage of that. 

New products that have come onto the market, we need to respond to. There are protein-enhanced waters, sports drinks, power 

bars, coffee drinks, cake mixes, just to name a few, crackers that 

are utilizing a lot of the MPCs. We need to change our approach 

to that. 

45

The Dairy Product Price Support System encourages, for instance, plants to produce the nonfat dry milk, and it is not really 

the big thing in demand. These milk protein concentrates are probably something that are going to continue and are ending up in a 

lot of food. There are huge investments to be made in doing that, 

and a lot of the programs work against stability so that these people know where they are at. 

Really, this Subcommittee will and can have a profound influence 

on the future of our dairy industry. On behalf of all the IDFA members, I would ask you to make some forward-looking changes to our 

regulations that allow for investment and innovation. This will ensure a healthy and expanding dairy industry both for the dairy 

farmers and the processors. And we are in the boat together. 

Thank you. And I will be happy to answer any questions if possible. 

[The prepared statement of Mr. Kruse follows:]

PREPARED STATEMENT OF PAUL W. KRUSE, PRESIDENT AND CEO, BLUE BELL

CREAMERIES, L.P.; CHAIRMAN, INTERNATIONAL DAIRY FOODS ASSOCIATION, BRENHAM, TX 

Mr. Chairman and Members of the Subcommittee, thank you for the opportunity 

to appear before you today. I am Paul Kruse, the CEO and President of Blue Bell 

Creameries based in Brenham, Texas. We have facilities across 18 states in the 

South and Southeast United States including the districts of Chairman David Scott, 

and Subcommittee Ranking Member Randy Neugebauer. Blue Bell has been in business since 1907. Today the company manufactures a full line of ice cream products 

and is recognized as the third largest ice cream brand in the United States. 

I am speaking today as Chairman of the International Dairy Foods Association. 

IDFA’s 220 dairy processing members run more than 600 plant operations, and 

range from large multi-national organizations to single-plant companies. Together 

they represent more than 85 percent of the milk, cultured products, cheese and frozen desserts that are produced and marketed in the United States. 

Today I would like to discuss the status of the dairy industry in the United 

States, some the trends that have brought us to where we are today and our industry’s enormous opportunity for growth. 

Many in the dairy industry are facing some very difficult times. Yet, we urge this 

Committee to avoid establishing new programs that will limit our industry’s ability 

to grow. It is more appropriate to first examine our existing dairy programs. Are 

these outdated programs actually contributing to the problem? Can we find some 

better long term programs that help farmers and that will help our industry to meet 

its potential for growth? 

Dairy remains a key component of our nation’s agriculture industry. Nationwide, 

the dairy industry employs hundreds of thousands of people on farms, in processing 

plants, through marketing and transportation, in retail stores and in companies 

that supply inputs to the dairy industry. Dairy processors are in the middle of this 

equation. We depend on our dairy farmers and cooperatives for a reliable and highquality milk supply to make our products. We have developed tremendous trust and 

reliance in these relationships. At the same time, our customers depend on us to 

deliver the nutritious and delicious products they want. 

There is not a dairy product manufacturer in this country who takes for granted 

the great resource we have in our U.S. milk supply or the dairy farmers and their 

families and cooperatives that make it possible. This partnership between milk producers and milk manufacturers is critical, and the policies and programs that you 

consider here on Capitol Hill can affect that partnership in both positive and negative ways. 

Today’s Dairy Industry 

There are different ways of measuring how farm milk is used, but roughly 45 percent of domestic milk production is used for cheese; 30 percent for fluid, or beverage 

milk and ten percent for frozen products like my favorite dairy product, ice cream. 

The remaining 15 percent is used for butter, nonfat dry milk and other products. 

Although nearly every state, including Alaska and Hawaii, has at least a few 

dairy farmers, nearly 3⁄4 of our nation’s milk production currently comes from the 

46

top ten dairy states of California, Wisconsin, Idaho, New York, Pennsylvania, Minnesota, Michigan, Texas, New Mexico and Washington. 

Dairy processors, as one would expect, are clustered in these same areas. As an 

industry, dairy processors directly employ over 120,000 people. Regional growth in 

milk production is now most often driven by a dairy processor’s decision to build 

a new plant or increase capacity in an existing one. 

Decades ago, most dairy products were only marketed locally or regionally, but 

with advances in transportation and efficiencies in production, most of our dairy 

products are now marketed regionally and nationally. In addition, a growing global 

market has increased demand for products such as milk powders that can be easily 

incorporated into many other food products. 

The dairy industry is defined by a few fundamental trends that often explain governmental policy towards the industry.

• The number of dairy farms has decreased dramatically over the last several decades. When Federal dairy programs were first established some 70 years ago, 

there were over 4.6 million dairy farms and 22,000 dairy plants to serve our 

population of 132 million people (1940 data). We now have around 67,000 dairy 

farms, and about 1,200 dairy plants to support nearly 300 million people. Most 

states have witnessed a constant and steady decline in the number of dairy 

farms and dairy plants over several decades.

• The majority of milk production has moved from small dairy farms to large 

ones. In 2008, almost 59 percent of farm milk production came from only five 

percent of our dairy farms, those with over 500 cows. In 1940, less than one 

percent of farms had 30 or more dairy cows, and over 90 percent of milk production came from farms with fewer than 30 cows. The rapid growth of the nation’s 

dairy industry over the past few decades, especially in the Western states but 

a trend everywhere in the country, is almost entirely due to the development 

of very large dairy farms of 5,000, 10,000 or even 15,000 cows. 

Number of Dairy Farms by Herd Size

Source: USDA, NASS.

• For decades, these changes in the dairy farm sector, combined with an overall 

decline in per capita consumption of all milk and dairy products, limited overall 

growth in the industry. Total U.S. milk production was held to around 120 billion pounds between 1940 and 1975. Since then, milk production has soared and 

continues to grow annually. 


11124001
47

Total Milk Production

Source: USDA, NASS.

• While farm milk production has increased dramatically, the percent used in 

fluid dairy products fell from nearly 49 percent in 1973 to barely 30 percent in 

2007. Annual fluid milk consumption has fallen from 30 gallons per person in 

the early 1970s to barely 20 gallons per person today. With population growth, 

this means that total fluid milk sales in the United States have been stagnant 

for decades. 

Percent of U.S. farm milk production sold as fluid dairy products

Source: USDA, NASS.

• Cheese sales, however, have significantly increased and accounted for nearly all 

of the growth in total dairy sales over the past few decades. Per capita frozen 

dairy product production has declined over the past 15 years, from nearly 30 

pounds in 1994 to around 24 pounds today, but total production has remained 

relatively steady in recent years thanks to population growth. 


11124002 11124003
48

Dairy Lacks Risk Management Tools 

This is a difficult time for many in the dairy industry, and I would urge this Committee to avoid quick fixes and consider longer term approaches to address our current situation. Here’s why. 

Milk price cycles are not unexpected. In fact, the U.S. dairy industry has a long 

history of price cycles. Agricultural price swings are nothing new for any commodity, 

but other sectors have well established risk management tools that are used frequently by all market participants. The same cannot be said for dairy. 

Just 5 years ago, farm milk and dairy product prices soared to then record-high 

levels where they stayed throughout 2004 and 2005. But that 2 year period of high 

prices was followed by low prices in 2006. Starting in 2007, the pattern repeated 

itself. The record high prices in 2007–2008 have been followed by the low farm milk 

prices seen so far this year. 

All-Milk Price Since 2000

Source: USDA, NASS.

Without adequate price discovery and risk management tools, every segment of 

our industry suffers through the price swings, especially the small producers and 

small processors. Price volatility makes it very difficult to plan for long term industry infrastructure investments, to capture and keep new markets for dairy products, 

and to compete with other commodities and foods that have less volatility. Unfortunately, milk price regulations inhibit the use of risk management tools in dairy. 

IDFA recognizes that price volatility is a serious problem for everyone in the dairy 

industry. We salute the Obama Administration for developing credit programs that 

can assist dairy farmers through downward swings and expanding insurance programs like the ‘‘Livestock Gross Margin Insurance Program’’. We recommend that 

this Committee formally review how extensively this program and other risk management tools are utilized by the dairy industry. 

IDFA also supports providing dairy farmers with risk management tools such as 

the forward contracting program that was reinstated by the 2008 Farm Bill. Forward contracting is one of the most important tools that dairy farmers, processors 

and manufacturers can use to mitigate price swings. This chart, which uses data 

that the United States Department of Agriculture collected during the forward contracting pilot program, illustrates how risk management tools can be effectively 

used. 

Some segments of the industry have offered options to address price volatility that 

will ultimately compound the negative aspects of our current dairy policies rather 

than eliminate fundamental weaknesses. The Holstein Association USA, for example, has proposed limiting milk supply by taxing increases in production. This proposal would not only penalize many dairy producers all over the country, it will also 

artificially raise domestic milk prices and make U.S. dairy products less competitive 

on world markets. 


11124004
49

Market Based Risk Management

Source: USDA, AMS Dairy Forward Pricing Pilot Program: Information for 

the Complete Program Periods, September 2000 through December 2004.

Taxing new milk production also will limit the industry’s ability to modernize, innovate and grow. Dairy manufacturing facilities have been built and modernized in 

many parts of the country where dairy production is growing. Taxing increased milk 

production will limit investments into new plants anywhere in the country because 

the infrastructure investments require increased milk supply. Instead of rising to 

the challenge of capturing new domestic and international markets, the Holstein Association USA plan will penalize areas of the country that are increasing production 

and those areas that are attempting to revitalize their dairy sectors. 

Programs that manage supply or limit milk production would raise milk and dairy 

product prices and drive domestic consumers to less costly and often less nutritious 

foods. Propping up domestic milk prices to levels above world market prices surely 

would cause the U.S. dairy industry to lose enormous opportunities for export 

growth and to open our markets to increased imports. Jobs that could be created 

here in the United States would be going elsewhere. At IDFA, we believe that increasing demand for dairy products is the best way to maintain a health dairy industry. 

Consumers Are Buying Less Dairy, Export Sales Are Off 

Although too much supply has been tagged by many as the root of our current 

low farm milk prices woes, it is more complicated than that. The current economic 

downturn has greatly affected domestic and global demand for dairy products. 

The chart below shows that demand for dairy products started to slow down in 

2008 and actually decreased in the fourth quarter compared to the same period a 

year earlier. This decrease has continued so far in 2009. 


11124005
50

Percent change in total dairy solids vs. same period 1 year ago

(sum of milkfat and nonfat solids)

Source: USDA, Economic Research Service.

The same negative economic forces we see in our domestic markets have led to 

the decline this year for U.S. dairy product exports. Our dairy exports increased to 

record levels in recent years, but have since dropped precipitously. The volatile and 

complicated pricing system, and the standards of identity that are outdated and not 

in sync with international demand, will continue to stymie our ability to retain and 

capture even larger segments of the growing international market. 

In 2003, the United States imported a greater quantity of dairy products than we 

exported, and much of those exports were only possible due to subsidies under the 

Dairy Export Incentive Program. By 2008, the total quantity of U.S. dairy product 

exports had more than doubled, without any export subsidies. The U.S. Dairy Export Council estimated that in 2008 the United States exported more than ten percent of its milk production as dairy products, while imports have remained around 

five percent of domestic dairy product demand in recent years. 


11124006
51

Import/Export Quantity (billion lbs)

Source: USDA, FAS, Through April 2009. 

Potential for Growth—Focus on Demand for Dairy 

There is good news on the horizon, however. Once the economy begins to rebound, 

expanding middle-class populations in many nations, particularly in Asia, will help 

to increase worldwide demand for dairy products. The United States, which already 

produces more cow milk than any other country, is uniquely positioned to capture 

these rapidly growing markets. Other major dairy exporting areas, such as the European Union, New Zealand and Australia, are held back in some way. Relatively 

new entrants to the world’s dairy markets, such as Argentina, Paraguay and the 

Ukraine, are still in the early stages of growing their industries. 

Innovative dairy companies around the world have developed new dairy ingredients that are increasingly used in popular products, such as protein enhanced waters, sports drinks, power bars, coffee drinks, cake mixes and crackers, to name a 

few. Even traditional dairy products are diversifying to meet consumer demand for 

non-traditional attributes, such as new sizes, flavoring, shelf stability and 

functionality. Although it is important to the health of consumers, as well as the 

industry for Americans, to increase consumption of milk and our traditional dairy 

products, it is equally as important for our industry to meet the growing consumer 

demand for new and enhanced dairy products. While our U.S. industry has begun 

this process, our new products lag behind other countries. 

Current Dairy Programs Limit Growth and Investment 

In many ways, our existing dairy programs stand in the way of our industry’s 

ability to fully take advantage of our trading opportunities and to respond to our 

competition for new food products here in the United States. Most current dairy programs significantly distort the market for dairy products and limit our industry’s 

growth. At the same time, our existing dairy programs have done nothing to smooth 

the volatility of milk prices. 

Our current policies encourage plants to produce nonfat dry milk, even as few 

food processors want to use that product. On the other hand, there is growing demand for products like milk protein concentrates which many food processors now 

source from other countries because the United States does not produce near 

enough. This Committee should consider the reasons why we see continued investment in plants to produce nonfat dry milk and not the specialized milk proteins demanded by today’s marketplace. Another problem with the Dairy Product Price Support program is that it has the unintended consequence of making our products less 

competitive on world markets. 

There is a growing consensus in the dairy industry that the Federal Milk Marketing Order system needs to be significantly overhauled. The rigid, complex forVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00057 Fmt 6633 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN

11124007
52

mulas used to determine minimum milk prices are the source of a long list of egregious problems, such as preventing milk from moving efficiently to its highest value. 

By that I mean, we should respond to consumer demand, not the artificial price formulas, to determine how milk is valued. 

The Federal orders limit new investments into the dairy industry by creating unnecessary financial risks for many dairy manufacturing plants. By limiting the returns on investment through the pricing structure, the Federal orders have a major 

impact the location of plant infrastructure, and the type of dairy products that are 

manufactured. There is a built-in disincentive to manufacture high-value dairy protein ingredients, such as whey protein isolates and milk protein concentrates that 

are increasingly being used in cutting-edge domestic consumer products like energy 

bars and sports drinks. The pricing formulas require manufacturers of these new 

products to pay prices that are based on the wholesale prices of dry whey and nonfat dry milk, completely different products with a different value in the marketplace 

compared to dairy protein ingredients. 

To emphasize this point, there is potential for significant new demand for milk, 

if dairy plants invest in the infrastructure to make the innovative, value-added, 

dairy ingredients that are so much in demand today. But because of our regulated 

pricing system that uses nonfat dry milk and other products to set prices, the return 

on the investment in the processing technology is very risky. Innovation is stymied 

by our system of milk price regulations. The result is less milk demand, less domestic milk used and lower prices to farmers. 

It’s Time for Change 

The policies being considered by this Subcommittee have a profound influence on 

the future of our dairy industry. If you choose to limit supply and guarantee high 

farm milk prices, our dairy industry will likely stop growing and slowly decline as 

domestic and world markets are captured by our competitors. On the other hand, 

if you choose to review and reform the current outdated dairy programs, you can 

provide the environment for a healthy and expanding dairy industry, for both dairy 

farmers and processors. 

With the right policies and programs in place, the dairy industry will be able to 

retain and gain customers, both here and abroad, by providing traditional and innovative products that address nutritional needs, meet changing consumer lifestyles 

and plumb new purchasing power.

The CHAIRMAN. Thank you, Mr. Kruse. And I agree with you. Ice 

cream is my favorite and Blue Bell is a wonderful ice cream. I love 

it. 

We will now have a—I missed your introduction, Mr. Bouma. I 

hope I pronounced that correctly. If not, please correct me. 

Mr. BOUMA. It is Bouma, sir. 

The CHAIRMAN. Bouma, thank you—President of Select Milk Producers, Inc., from Plainview, Texas. Welcome. 

Now we will hear from Mr. Wakefield, National Milk Producers 

Federation of Bedford, Pennsylvania. 

STATEMENT OF TOM WAKEFIELD, MEMBER, BOARD OF

DIRECTORS, NATIONAL MILK PRODUCERS FEDERATION; COOWNER, J.T.J. WAKEFIELD FARMS, INC., BEDFORD, PA 

Mr. WAKEFIELD. Mr. Chairman, Ranking Member and Members 

of the Committee, thank you for the opportunity to testify on the 

critical state of America’s dairy industry. 

My name is Tom Wakefield, and I am a dairy farmer from Bedford, Pennsylvania. I serve on the board of directors for my cooperative, Land O’ Lakes, and for the National Milk Producers Federation. It is as a representative of National Milk that I appear today. 

First, I would like to express our deep appreciation to the many 

Members of this Committee for working with the Administration by 

urging the effective use of the 2008 Farm Bill tools at USDA’s disposal for assisting dairy farmers. We are fortunate to have many 

53

great allies in Congress, as well as a good friend in Secretary 

Vilsack, as we work to combat this terrible time in our industry. 

Dairy farmers are currently experiencing unprecedented financial catastrophe. The sudden loss in late 2008 of a large portion of 

our export market has thrown our industry into a supply-demand 

imbalance of a magnitude never before experienced. 

From January through May of this year, the U.S. all-milk price 

averaged almost $5 per hundredweight, below the U.S. average 

cash cost of milk production. This cost dairy producers billions in 

lost equity in just those 5 months alone. It is widely recognized 

that we need a combination of approaches to deal with the current 

situation in the future for our industry. 

We need to address not only the underlying problems that caused 

this crisis, but also the many factors that have contributed to its 

depth and duration to avoid a recurrence in the future. 

Towards that end, as the only organization representing dairy 

producers from coast to coast, National Milk has created a strategic 

planning task force. The goal of this task force is to develop a longterm strategic plan for consideration by the National Milk Producers Federation board of directors, which will have a positive impact on the various factors influencing both supply and demand for 

milk and dairy products. Our desire is to build a consensus across 

the country about the underlying factors affecting producer prices, 

and to examine ways in which the producer community can realistically work to address those factors. 

The task force is getting input from a wide range of producer 

groups as well as from dairy farmers directly. We believe this is 

the best way for the producer community to develop a plan for the 

future which can be embraced across the many dairy-producing regions of America. While the long-term planning process is underway, actions are needed to try to deliver short-term relief to dairy 

producers to see them through the current crisis, and to bolster demand domestically and internationally for U.S. dairy products. 

To do our part to address the immediate crisis, National Milk 

has been attacking the supply-demand imbalance directly at its 

roots by removing dairy cows from the national herd through the 

CWT program. More than 150,000 producing cows have been removed through the two most recent rounds of CWT herd retirements. Subsequent rounds will follow soon. 

Given the magnitude of this problem, however, we also need continued active involvement from the Administration. 

We ask for this Committee’s support in urging USDA to employ 

three important tools at its disposal to address the current situation. 

One, USDA should temporarily increase the CCC purchase prices 

for cheese and nonfat dry milk under the Dairy Product Price Support Program and offer to purchase cheese that meets the commercial standards. 

Number two, we greatly appreciate the recent USDA DEIP announcement making sufficient quantities for the 2009–2010 allotments available for use. Swift action to use the remainder of the 

current year’s permitted quantities is needed to minimize the maximum impact. 

54

And, finally, continued usage of the Food and Nutrition Service 

and section 32 funds to purchase dairy commodities for use in feeding programs is needed. These useful tools help identify much 

needed support to dairy producers while also helping to feed the 

many hungry families throughout our country. 

We hope that through continued industry self-help actions such 

as CWT, we can bolster the effectiveness of the tools USDA can 

bring to bear on the problem to jointly address the suffering in the 

dairy producer community. 

National Milk looks forward to working with the Members of this 

Committee on best use of existing USDA programs and authority 

to address this crisis in the near term. 

We also would be pleased to provide additional information at a 

later date regarding the producer-driven outcome of our strategic 

planning task force once it develops a longer term plan to help ensure that we do not find ourselves back in this similar situation 

any time soon. 

Thank you. 

[The prepared statement of Mr. Wakefield follows:]

PREPARED STATEMENT OF TOM WAKEFIELD, MEMBER, BOARD OF DIRECTORS,

NATIONAL MILK PRODUCERS FEDERATION; CO-OWNER, J.T.J. WAKEFIELD FARMS, 

INC., BEDFORD, PA 

Mr. Chairman, Ranking Member and Members of the Committee: thank you for 

the opportunity to testify on the critical state of America’s dairy industry. My name 

is Tom Wakefield and I am a dairy farmer from Bedford, Pennsylvania. My brother, 

Jim, and I own and operate J.T.J. Wakefield Farms, Inc. with the help of family 

members. My nephew, Scott, works full-time on the farm and my sons, JT and 

Thad, work part-time, as they are a junior and freshman respectively at Penn State 

University. We milk 150 cows and crop a total of 600 acres, which includes corn, 

soybeans, alfalfa and barley. 

I am on the Board of Directors for my cooperative, Land O’ Lakes and I also serve 

on the Board of Directors for the National Milk Producers Federation (NMPF). 

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, and I am offering this testimony on their behalf. 

First, I would like to express the dairy producer community’s strong appreciation 

to the many Members of this Committee, as well as several other Members of Congress who have been devoted to the health of the dairy industry in their district or 

state, and who have worked with the Administration to try to effectively use the 

tools at USDA’s disposal in an effort to preserve our nation’s dairy farms during 

this period of widespread economic hardship. Congress put in place several measures in the 2008 Farm Bill that USDA has the authority to use to try to address 

this problem. We have been fortunate to have good partners in many in Congress 

and in Secretary Vilsack in trying to find ways to best utilize those programs during 

this historically trying time for our industry. These very useful measures have 

helped to blunt the impact of the crisis currently facing U.S. dairy farmers. 

Economic Crisis: 

U.S. dairy farmers are currently experiencing an unprecedented financial catastrophe. The sudden loss in late 2008 of export market-based demand equivalent to 

about three percent of domestic milk production has thrown the industry into a supply-demand imbalance of magnitude never before experienced. During January 

through May this year, the U.S. average all-milk price reported by USDA/NASS has 

averaged $4.80 per cwt. below the U.S. average cash cost of milk production, as reported by USDA/ERS. As a result, approximately $3.9 billion of dairy producer equity has been lost during these 5 months. More recently, the milk-feed price ratio 

for both May and June (which remained the same for both months) was at its lowest 

level since the current form of that calculation was created in 1985. The chart below 

55

demonstrates visually just how extreme the discrepancy between milk prices and 

input costs is currently and in comparison to recent years.

The primary cause for the severely challenging situation facing America’s dairy 

producers is the abrupt decline in export market demand beginning last fall. That 

was brought on due to an ill-fated combination of the onset of the global economic 

crisis, combined with a resurgence of milk supplies in Oceania once New Zealand 

and Australia’s recent drought problems abated. This combination of events contributed to a sudden imbalance whereby global demand fell significantly short of available supplies. Because the U.S. market had gradually increased production to respond to the international market signals being sent in recent years that indicated 

higher demand for U.S. dairy products, U.S. producers found the rug pulled out 

from under them when such a significant portion of the market for U.S. milk evaporated in the latter part of 2008. 

Some have claimed that the problems we face are a result of a surge in unrestricted imports, particularly Milk Protein Concentrates (MPCs) and casein products, two tariff loop-hole avenues that importers have made strong use of in recent 

years. NMPF has long called for establishing tariff-rate quotas on MPC and casein, 

in keeping with our WTO rights and obligations. However, it is important to set the 

record straight regarding the cause of the problem we are now facing in order to 

develop the best response tools to address it in both the short and long term. 

The truth is that we have not seen a significant surge in imported dairy products 

into the U.S. Imports of MPCs through April are up slightly at 3% over last year, 

although this is a small change. By the official import data, imports of caseins are 

actually down somewhat from the same period in 2008. Imports of other notable 

dairy products such as butterfat (up 40% from a relatively small 2008 volume) and 

cheeses (down 7%) face limitations due to existing tariff-rate quotas. NMPF continues to support the creation of TRQs for loop-hole products such as MPC and casein and it is essential that we zealously enforce importers to comply with U.S. 

standards and trade obligations; however imports are not the cause of the problem 

we are facing. Stepping blindly back from active engagement in trade and from the 

global market would do more to harm the future prospects for our industry than 

to help them. 

The chart below depicts the U.S. dairy trade balance on a milk solids basis as 

a percentage of U.S. milk production. The chart shows that on a total milk solids 

basis in 2009 year-to-date, imports of dairy products are actually down compared 

to recent years. What is particularly notable—and the largest cause of the current 

economic crisis facing our industry—is the steep drop in exports from 2008 to 2009, 

driven by a much lower global demand and larger supplies from exporters that are 


11124008
56

moving aggressively to push their own products off their shores at whatever price 

necessary.

Response to Situation: 

What is widely acknowledged within the dairy producer community 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 the present milk pricing dilemma in the future. 

These dire conditions have caused many in our producer community to begin to 

cast about for various solutions to this problem. As a national organization representing dairy producers throughout America, NMPF is keen to ensure that we 

spend our industry’s and our government’s valuable time and energy pursuing only 

realistic and rational proposals that would appropriately address the situation we 

are now facing. 

Towards that end, NMPF has created a Strategic Planning Task Force to build 

consensus across the dairy producer community with respect to the underlying factors affecting producer prices and to examine ways in which the producer community can realistically work to address those factors. The goal of this Task Force is 

to analyze and develop a long-term strategic plan for consideration by the NMPF 

Board of Directors which will have a positive impact on the various factors influencing both supply and demand for milk and dairy products. 

Through a round of listening sessions, the Task Force will bring in organized producer groups representing different segments and constituencies all across the country to obtain widespread input and access to the best ideas. Individual cooperatives 

have also been invited to provide proposals to the Task Force for consideration and 

review. Following its meetings with the various dairy producer organizations, the 

Task Force will analyze and discuss the many proposals and options, and ultimately 

develop recommendations for the NMPF Board of Directors. We believe this is the 

best way to get input from the producer community in order to develop a plan for 

the future which can be embraced across the many dairy-producing regions of America. 

While that long-term planning process is underway, however, actions are needed 

in the interim to address the significant economic plight of dairy producers on an 

immediate basis. A combination of several measures is needed to try to deliver 

short-term relief to dairy producers to see them through the current crisis and to 

bolster demand domestically and internationally for U.S. dairy products. 


11124009
57

To do our part to address the immediate crisis facing the industry, the National 

Milk Producers Federation, through its CWT program, has been attacking the supply-demand imbalance directly at its roots, by removing dairy cows from the national herd. Dairy producers have spent $115 million of their own hard-earned 

money this year on our most recent herd retirement program, the largest one in 

CWT’s history, and are prepared to spend up to $160 million more in subsequent 

rounds of our program in the near future. More than 150,000 producing cows have 

been removed through the two most recent rounds of CWT dairy herd retirements, 

and subsequent rounds will follow soon. 

Given the magnitude of this situation, however, we also need continued active involvement from the Administration to help see America’s dairy farmers through this 

crisis in the short-term so that our industry can make better and more sustainable 

plans for the future. It is because of this that NMPF has recently asked USDA to 

temporarily increase the CCC purchase prices for cheese and nonfat dry milk under 

the Dairy Product Price Support Program and that USDA offer to purchase cheese 

that meets commercial standards (Chicago Mercantile Exchange or NASS reporting 

standards), which could be immediately used in food assistance programs. 

Mindful of the budgetary pressures facing our nation, we proposed that the higher 

CCC purchase prices be put in place for only 3 months and be set at the levels 

NMPF originally proposed for the DPPSP program in the 2008 Farm Bill: $1.19 per 

pound for block cheese, $1.16 per pound for barrel cheese, and $0.84 per pound for 

nonfat dry milk. As this Committee is well aware, such an action is expressly authorized by the 2008 Farm Bill which merely directs USDA to purchase those products at prices ‘‘not less than’’ those specified in the legislation. We are thankful that 

Congress had the foresight to allow USDA the leeway to set higher purchase levels 

if they were determined to be necessary. If both the price increases and the equally 

important commercial cheese standard proposal were put in place during July 

through September, they would prevent the loss of approximately $235 million in 

U.S. dairy producer income during that period. 

An equally important measure is the use of our WTO-authorized, Dairy Export 

Incentive Program (DEIP). NMPF is urging USDA to build on the positive step 

taken in May to announce the 2008–2009 Dairy Export Incentive Program (DEIP) 

by moving quickly to open the 2009–2010 DEIP year for bidding. We are appreciative of the step USDA took early last week to announce the full allocations for 

the current DEIP year and hope to see the critical next step of opening the bidding 

process to use the entire amount of the allocations soon thereafter. Full use of 

DEIP, which would be facilitated through allowing the maximum time period possible for submission of bids in the current 2009–2010 marketing year, has the potential to move the equivalent of more than 1.5 billion pounds of milk to overseas markets. This would be a strong positive step towards alleviating considerable pressure 

on U.S. markets and the DPPSP. 

In addition, we applaud the steps that USDA has taken to use Food and Nutrition 

Service funds to purchase dairy commodities for use in the feeding programs so 

much in demand in these currently challenging economic times. This is a useful tool 

to help provide much-needed support to dairy producers while also helping to feed 

the many hungry families throughout our country. The use of Section 32 funds, once 

they are provided to USDA through the current appropriations process, would also 

help significantly to achieve these same goals. 

We ask the Members of this Committee to join with us and our fellow dairy farmers across this country in calling on USDA to use those tools already at its disposal 

in order to help dairy men and women make it through this historic economic catastrophe. We hope that through continued industry actions such as CWT, we can bolster the effectiveness of the programs USDA can bring to bear on the problem to 

jointly address the suffering in the dairy producer community. 

NMPF looks forward to working with the Members of this Committee on the best 

use of existing USDA programs and authority to address this crisis in the nearterm. We also would be pleased to provide additional information at a later date 

on the producer-driven outcome of our Strategic Planning Task Force once it develops a longer term plan for how to help ensure that we do not find ourselves back 

in a similar situation any time soon. 

Thank you.

The CHAIRMAN. Thank you. 

Mr. Bouma. 

58

STATEMENT OF BRAD BOUMA, PRESIDENT, SELECT MILK 

PRODUCERS, INC., PLAINVIEW, TX 

Mr. BOUMA. Thank you, Mr. Chairman, Ranking Member. I appreciate the opportunity to be here today. I represent Select Milk 

Producers. I am the President of the Board of Directors of Select 

Milk Producers. I am a member of Continental Dairy Products in 

the Upper Midwest in Indiana and Michigan. And I serve on the 

Greater Southwest Agency, which markets all of the milk in Texas 

and New Mexico combined. 

I am a fifth-generation dairy farmer. My sons are at home in 

Texas today taking care of the farm, and my partner is in Indiana 

taking care of that one. 

We find ourselves in a perfect storm in this industry. And it has 

been alluded to by numerous testimonies prior to mine, so I won’t 

spend a lot of time going there. But with the reduction of five or 

six percent of our export market, along with the strengthening of 

the U.S. dollar and many factors that play into consumption—of 

the worldwide consumption of dairy products, that, alongside high 

input costs, have created a perfect storm in our industry. 

We fully believe, and I fully believe, that our support price system as we know it today is antiquated. I agree with Mr. Kruse’s 

comments. We create a powder today that can’t be sold in the 

world market as it is. Mr. Costa alluded to it. We alluded to the 

cheese specifications that can’t be marketed in the world market 

today. 

We have a make-allowance system within this that takes into 

consideration the cost to produce cheese or the cost to produce powdered milk that goes into this price formula, which allows older, 

antiquated processing facilities to still be profitable in this country, 

and is a detriment to newer, more innovative processing facilities 

being built. 

Our actual cash support price for powder today is stated as $9.90 

by the Secretary. Our actual returns are about $9.35, if you look 

at the make-allowance and the adjustments that have been made 

in it in the last couple of years. If we are looking for immediate 

relief as far as dollars are concerned, within the realm of what the 

Secretary can do, $9.90 would be an immediate—that stated support price would be immediate in that respect. 

The truth of the matter is the world market for powder is 65¢ 

or 70¢ today, maybe 75¢ on its best day. It is rising a little bit. 

Whey proteins are rising. But we still subsidize our product 90¢ in 

this country, and we wind up taking this product and storing it in 

warehouses all over the country. 

We store the butter in caves all over the country, while the rest 

of the world puts its product out there and clears its market. We 

have become the balancer for the world’s commodity products in 

cheese and butter and powder, while our competitors in the world 

market are keeping their markets cleared at 10¢ or 15¢ below ours. 

What happens in this process is now that once we do make this 

recovery and once these 150,000—which we really believe needs to 

be 300,000—cows are ultimately out of the herd, that when we do 

make this recovery, we as a country now have to chew through this 

balancing process that has been stacked up and others have alluded to. And this will wind up back in the cheese vat, and it will 

59

wind up back in the processing of American cheese products, and 

it will continue to inhibit the recovery of the farm price on the farm 

milk products. 

We firmly believe that if the Administration and this Congress 

wants to be involved in that, then create a program of insurance 

or create a program comparable to corn and beans that allows 

those prices to fluctuate with seed and meat prices and world 

prices and be cleared. And instead of using the dollars to store 

powdered milk in warehouses and butter in caves, put the program 

back into an LDP program, or some type of insurance program, 

back to the dairy industry. 

For us to compile these massive inventories during this time is 

just a detriment to us on the backside of this bell curve as we come 

out of these times, and will be in this case as well. 

Second, folks talk about supply management. Our friends in Canada’s system has been brought up. Supply management works in 

Canada because they are neighbors of the United States of America, and we are a free market. 

We can’t send milk there. They send their excess dairy cattle and 

heifers here. We purchase them. 

If we have a free market trader next door, we can balance on 

them, then supply management will work here. 

If we can restrict this market to a domestic market only through 

some supply management vehicle, everybody in this room will be 

back here asking for tariffs against MPCs and caseinates and 

things that are now working their way, at a world market price, 

back into our domestic market. 

The crisis in the country today is human. It doesn’t make any difference if you milk 100 cows or 3,000 cows. At $100 plus a cow 

month in losses cannot be tolerated by this industry. But putting 

temporary Band-Aids on long-term problems on how we price milk 

in this world, and how we continue to access our portion of the 

world market is not a solution to what we are after today. 

We need long-term solutions for our industry to be viable and 

continue. Thank you. 

[The prepared statement of Mr. Bouma follows:]

PREPARED STATEMENT OF BRAD BOUMA, PRESIDENT, SELECT MILK PRODUCERS, INC., PLAINVIEW, TX 

Mr. Chairman, on behalf of Select Milk Producers, Inc. and Continental Dairy 

Products, Inc., thank you for giving us this opportunity to discuss with you the economic conditions that face dairy today with a focus on the opportunities and challenges ahead for this industry. 

My name is Brad Bouma. I and my wife Barb live in Plainview, Texas where we 

operate an integrated dairy farm. With the addition of our sons Brandon and Brent 

to the management team, we represent five generations of dairy farming that began 

in The Netherlands. I also partner in a dairy farm in NW Indiana and am the operating partner in a commercial dairy heifer feedlot in Hale Center, Texas. 

I serve as President of Select Milk Producers, Inc., my marketing cooperative and 

as a Member of the Board of Directors of Greater Southwest Agency. I am a member 

of Continental Dairy Products which markets my Indiana farm milk. I also serve 

on the Board of Directors of First National Bank, El Paso. 

Select Milk is a milk marketing cooperative with members in New Mexico, Texas, 

Oklahoma, and Kansas. The Greater Southwest Agency is a cooperative of four cooperatives—Dairy Farmers of America, Lone Star Milk Producers, Zia Milk Producers, and Select. The annual deliveries by members of GSA would qualify it, if 

a state, as the third largest milk producing state after California and Wisconsin. 

What makes it unique is that virtually all of the milk produced in that region is 

60

jointly marketed in a highly coordinated fashion so as to deliver milk to the customers in the most cost effective manner and provide benefits to the producers supplying that market. 

GSA has brought producers less costs in marketing their milk through greater efficiencies in hauling, testing, and pricing. By working with other producers and 

gaining the trust of our buyers, GSA has succeeded in managing the milk marketing 

in that region for a decade without the need for a single milk marketing order hearing for Southwest Milk Marketing Area issues. No other order can say that. 

GSA balances the milk in the region and fairly handles the details associated with 

allocating the costs of such balancing. GSA is a partner in one of the largest cheese 

plants in the world, Southwest Cheese located in Clovis, New Mexico. We continue 

to research new plant and partnership opportunities that will make our co-ops more 

efficient and competitive in the world market. 

Continental Dairy Products, Inc. is a milk marketing cooperative with members 

in Michigan, Ohio, and Indiana. The milk of Continental’s members supplies customers in the Mideast, Appalachian, and Southeast marketing orders. Due to its 

high quality feed, abundant fresh water, good dairying climate, and proximity to the 

major markets of the United States, that region of the country along with the Upper 

Midwest are poised for further growth. 

Though using different legal entities to maximize tax, estate planning, and other 

business goals, all of the farms that are part of Select and Continental are owned 

and operated by families just as I and my family do. 

The farms in the SW are typically some of the largest in the world. However, the 

size of the farm will not define the successful dairies of the future. As we discuss 

the future we all must get away from the ‘‘large and small’’ debate. Rather we must 

channel our resources in the direction of what it takes to compete in today’s world 

market. Farmers, regardless of size, in the USA can and must produce the highest 

quality milk possible. We have been the World’s leader in high quality, affordable 

food stuffs and we must enhance this position. Size of dairy farm does not change 

that. 

With the goal of moving as a world leader here some of the challenges facing the 

dairy industry. 

Animal ID is important. The degree of traceability from farm to the store must 

be transparent to assure our customers that we provide the safest food available. 

We support animal ID. 

We must engage in on-farm energy audits and research all alternative on-farm 

energy sources available. Members of our cooperative have invested heavily in and 

currently are operating numerous methane digesters powering electric generators 

for use on our farms in Indiana; they are studying a solar alternative in Texas; and 

are very close to successfully compressing methane gas into compressed natural gas 

(CNG) that will power our truck fleets. 

By employing these technologies and recycling the by-product of the manure processing we are able to shrink our carbon footprint tremendously. 

This combination of harvesting energy from the farm and use of the remaining 

nutrients as fertilizer, we will create a ‘‘sustainability model’’ that is world class. 

The size of the dairy farm has no effect on the above opportunities if we as a nation 

put in place the proper incentives. 

The current economic depression in dairy farming will result in major changes in 

the location and method of dairy farming. The business model that called for only 

owning the dairy and buying inputs, one of the most popular in the West, is failing 

those who relied upon it. This crisis has proven that successful dairymen must be 

further integrated with their feed supply. The owners and operators of these farms 

and their successors will necessarily have to be more efficient and located more strategically to sources of feed, water, and markets. 

As serious as this economic situation is, and it is very serious, there is little than 

can be done now to alleviate it. It simply must pass. At the same time we certainly 

appreciate the efforts of the Secretary to increase purchases of dairy products. Realistically we do not see that as a long term program. There is only so much domestic 

demand whether through government or consumer purchases. It is the drop in exports which has reduced demand below our supply. It is increasing exports that 

promises a brighter future. 

This crisis has shown the need for better price risk management by dairy farmers. 

Those dairymen who weather this storm the best will be, for the most part, those 

who had the foresight to manage their price risk before the markets failed. Though 

such practices did not ‘‘lock in a profit’’ in every case, each of them certainly were 

able to fix their losses to a level which could be weathered. As the industry moves 

forward the need for and use of the price risk management tools will increase. 

61

There are other changes occurring in the dairy industry not driven by the depression. One of those is the growth in consumption of organic milk. The USDA’s organic certification program has been a major boost to this sector by assuring consumers that the organic label means that the products contained in the package are 

produced in a way that minimizes or eliminates pesticides, herbicides and other 

chemicals in the food supply. 

Select and Continental members with farms in Texas and Indiana are one of the 

major suppliers of organic milk. Though not at the steep curve experienced in recent 

years, we expect this sector to continue to grow. Some of these sales are additional 

milk sales and, as such, increase demand for dairy products. 

To further increase demand, Select has invested millions of dollars over the last 

decade to develop innovative products which would increase sales of dairy products, 

not cannibalize other milk sales. Through patented technology, Select has developed 

the means to create ‘‘designer milks’’. High quality milk fresh from the farm goes 

through several filtration processes separating the fat from the protein from the 

sugars from the calcium and other solids from the water. These then are recombined 

in different ratios to provide a different profile of milk. The double sugar, lactose, 

is converted to two simple sugars, glucose and galactose. These sugars are sweeter 

than lactose and thus the carbohydrates in the drinks can be reduced while maintaining the same sweetness of milk. 

For 5 years HEB has been marketing one such milk in Texas This designer milk, 

called Mootopia, has more protein and more calcium (all fresh from cow’s milk) but 

with fewer carbohydrates. This lactose free milk still tastes the same sweetness as 

regular milk. 

We have also recently introduced a new designer milk called Athlete’s Honey 

Milk. This product delivers more milk protein with natural honey added. The result 

is a restorative drink with natural carbohydrates and proteins to aid individuals 

after biking, running, rowing, or other physical activities. With our food scientist in 

Idaho we continue to look for other ways to provide quality food products for consumers using milk. 

Without doubt the single most important Federal program in dairy today is the 

milk marketing order program. Since its inception, this program has succeeded in 

developing a great industry. 

The fundamental part of the FMMO program is minimum pricing. Since the late 

1990’s USDA has relied in part or in whole on product formulas for pricing milk. 

These product to price formulas prices use surveyed commodity product prices, 

make allowances, and yields to determine the milk value. 

Despite this long term use of such formulas, there has not been the kind of on 

going systematic research and study of what the yields and make allowances should 

be to derive a fair price. Instead the Department has relied upon public testimony 

from those who would benefit the most from lower milk prices. The result is a 

hodgepodge of a system that surveys product prices of one subset of the commodity, 

uses make allowances from plants making other products, and yields which have 

never been supported in any study. 

More importantly, this pricing method has had the effect of forcing prices down 

on dairymen. The current make allowances reward plant inefficiencies by shifting 

them to producers. It is ironic that at this time when many dairy farmers receive 

less money for their milk than the cost of the feed that went into them, plants that 

use that milk remain profitable. Considering the formulas are designed to do this, 

it is not surprising, nor is it consistent with the spirit of the AMAA. 

A recent decision on make allowances shows the Department’s refusal to even 

think in terms of what it costs a dairyman to produce milk. In the recent farm bill, 

the Secretary was required to determine cost of production in the marketing areas 

and consider these factors in changing make allowances. The Department failed to 

do any of that when it substantially reduced producer milk prices. This is unfortunate. While we certainly do not want prices for milk linked to cost of production, 

certainly the Department must show that it knows whether or not current price levels are sufficient for a significant portion of dairy farmers to profitably produce 

milk. Complying with the law would be the first step. 

In any event, this end product pricing must end and end soon. The four classes 

of milk need to be replaced with a much simpler one price discovery system with 

two classes of milk-bottled and everything else. The system would allow plants and 

producers negotiate competitive prices for milk used in manufacturing. These prices 

would be surveyed and used to establish minimum prices for Class I. Plants in combination with their producer suppliers would be free to price and market dairy products to the world. 

62

We are working with NMPF and IDFA and others to develop a competitive pricing 

series that lets the market place tells us the value of milk. This will bring an end 

to the product formulas and the contentious hearings that they bring. 

The farm bill also modified procedures for amending marketing orders. The first 

hearing after these took effect was one involving a few changes to some Class I pricing in southern counties of the Mideast Order. It was a very simple issue with a 

few players and took a few days. The new rule changes worked fine in that environment and successfully brought a rulemaking proceeding within a tolerable time 

frame. 

Broader, national hearings, do not easily fit into the strictures of these new mandated time lines. Select and Continental recently participated in the first national 

hearing called under these new rules. The producer handler hearing was held to 

consider twenty-nine proposals which requested 159 amendments to the marketing 

orders. 

To meet the hearing deadlines imposed by the farm bill, the hearing on producer 

handler exemptions was held in one location, Cincinnati, and went 12 long days, 

some of them until 9 p.m. The transcript is nearly 4,000 pages with over 100 plus 

official notice of numerous other collections of dairy statistics. The witnesses numbered over forty. 

The hearing was handled superbly by ALJ Jill Clifton and Dairy Programs provided responses to large data requests by the participants. The transcript, professionally done, is among the best of any FMMO hearing in memory. Briefs are due 

this Friday. 

Such mandated compression of a formal rulemaking of such a magnitude has not 

come without cost. First, for the participants, not just the professionals, but witnesses, affected dairy farmers and processors, and government employees it required 

nearly 3 week absences from families and jobs. The speed at which the hearing was 

called and held also impaired the ability to provide the kind of testimony and evidence that would help in making the decision better founded. Having it in only one 

location, made necessary because of the time limits, denied some parties the opportunity to participate because of distance. 

In the past, during the time leading up to the hearing and during the hearing 

itself, parties begin to compromise positions and coordinate and coalesce around just 

a few proposals. This assists everyone in making much more focused record, briefs, 

and decision. The short time frame made that opportunity unavailable. The intense 

hearing schedule left little time to prepare witnesses and even less time for participants to discuss compromise. 

For the Department to meet its own deadlines, it has restricted public participation by denying the use of e-mails or faxes to present positions and has effectively 

shut off the use of the Postal Service to deliver comments. In the past e-mailed or 

faxed comments or comments postmarked on the due date were timely. For this 

hearing only physical copies delivered to the hearing clerk in D.C. will be timely. 

This can be accomplished only by having someone physically come to D.C. to make 

the filing or rely on expensive delivery services. While for the professionals involved 

in this process, it is an inconvenience, for producers and consumers it is a barrier 

to participation that is simply unacceptable. This should not happen in the future. 

One thing that did assist the industry and the Department in holding this hearing 

in the short time frame was that the issue was well understood by the industry, 

long debated, and all parties could marshal the resources necessary quickly. In future hearings involving novel issues or facts, this may not be the case. Under the 

new regime it is possible for a party to do massive research and preparation for 

major proposals and wait until it is ready to make that presentation. While it was 

able to dictate the time, the Department and all of the respondents will be forced 

to do so with immovable deadlines ahead. The potential for serious sandbagging is 

now present. 

Overall the changes are beneficial by providing the industry with timely decisions. 

The Department is committed to complying with the law. On the other hand, we 

would recommend that the Department be given some ability to exercise discretion 

for cause in adjusting the deadlines to adapt to the nature and magnitude of the 

issues being addressed at the hearing. In the case of major rule changes, such as 

proposals for competitive pricing, it will be necessary to allow greater preparation 

time for all participants as well as response by the Department. 

Another long time dairy program is the Dairy Price Support Program. It has outlived its usefulness. The current method of marketing NFMP by large co-ops has 

made CCC the price support program for the rest of the world. It keeps U.S. powder 

in the United States at higher than market prices allowing other world players to 

grow demand for their products. The large inventories of powder will dampen prices 

63

for dairy farmers for some time. The program also takes away market signals to 

producers to produce less. 

In connection with the FMMO pricing, we need to replace both the DPSP and end 

product pricing. It creates unneeded incentives to build plants and make product for 

which the demand is cyclical. 

The protection that DPSP used to provide can be done with new programs such 

as non-recourse loans, expansion of the Livestock Gross Margin program, or a loan 

deficiency payment program for dairy. 

In response to today’s crisis there is a call for the U.S. to implement some form 

of supply management. We oppose that. Base programs and production controls 

have not worked anywhere else in the world. Europe’s base plan is in shambles and 

on farm prices are the lowest in decades, with farmers protesting all over the Continent. Canada’s system keeps production volumes matched with domestic usage. 

This only works if you have in place tight tariff controls on imports. If we attempt 

to shrink U.S. milk production to equal domestic consumption, imports of MPC, 

caseinates, and milk fat will pour into our country further eroding our own internal 

market. We will not only lose our place in the world market, we’ll lose more and 

more of our market at home as well. 

The issue of climate change legislation is challenging. We do not have any answers but would note that we have been working for years to reduce our carbon 

footprint through innovative methods of handling and using our manure. We appreciate the Chairman’s successful efforts in protecting early innovators and leaving 

the oversight of agriculture under the USDA. 

As this Committee knows, high prices for corn and soybeans as well as fuel further reduce margins already low due to the low milk prices. A significant part of 

these higher commodity prices are due to excessive speculation in the exchanges. 

We applaud Chairman Peterson and the Committee’s efforts at working to reign in 

this improper speculation. 

As populations grow, the need grows to move more and more product. The time 

has come to increase the size of trucks hauling milk to reduce fuel usage, reduce 

emissions and meet the needs of a growing market for food and other products. We 

ask the Members support for changes in the Federal Highway Reauthorization Act 

to allow states to authorize the use of six-axle, 97,000 pound tractor semi-trailers 

on the Interstate Highway System. We commonly move milk in the Southwest to 

the fluid markets in eastern and southern Texas over 500 miles. Giving states like 

Texas the option would reduce fuel consumption and costs for producers, processors 

and consumers. 

The need for a comprehensive change in immigration to allow a guest worker program usable by dairy farmers is long overdue. Any help by this Committee and its 

Members in that regard would be appreciated. 

America has historically been the world’s source of high quality affordable, accessible food. If we are to maintain this position we must do the following things:

A. We must create incentives for our farmers, large and small, through performance based tax incentives to develop and implement the technologies create energy on farm. These include capturing methane gas that powers generators that 

create the electricity for the farm or nearby communities, converting excess 

methane to CNG to power farm machinery and transportation of milk, implementing wind and solar power options. Good old American ingenuity will create 

the most sustainable and competitive dairy industry in the world if we put our 

ag dollars to work in the right areas.

We must overhaul our pricing and safety net systems to allow our industry to 

compete on the world stage.

We must let market forces work. Less, not more, government involvement is 

needed to make the dairy industry the best in the world.

Thank you.

The CHAIRMAN. Thank you, Mr. Bouma. 

Now, Mr. Ray Souza, President of Western United Dairymen. 

STATEMENT OF RAY SOUZA, PRESIDENT, BOARD OF

DIRECTORS, WESTERN UNITED DAIRYMEN; OPERATOR, MELDELIN DAIRY, TURLOCK, CA; ON BEHALF OF CALIFORNIA 

DARIES, INC. 

Mr. SOUZA. Good afternoon. Thank you, Chairman Scott, Ranking Member Neugebauer, and the rest of the Members of the ComVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00069 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
64

mittee. I appreciate this opportunity to testify before you here 

today. 

My name is Ray Souza. My wife and I have operated Mel-Delin 

Dairy for over 40 years. The milking herd today is about the size 

of the average size dairy in California. 

I am currently the President of Western United’s Board of Directors, representing 1,100 of the 1,700 dairy families in California. I 

am also a member of CDI, California Dairies, Inc., which is the second largest cooperative in California. 

We have heard a lot of testimony today, and I wanted to put 

things in more of a personal level and give you an example of two 

different dairy families. 

The Linhares family has been in the dairy business for over 100 

years. They were recently recognized by our city during the centennial as the oldest continuing agricultural operation in our region. 

Three weeks ago they were milking cows. The three most recent 

generations are still active in the dairy farm. Of course, the previous have passed on, with the grandson hoping to take over the 

operation. 

At a meeting they had between the family, they came to the conclusion that they were weeding through their equity so quickly that 

they could no longer sustain their operation. They felt they had to 

dissolve their operation so that they would have something to pass 

on to the next generation. That farm is now out of business. 

The other example is a young man who, through hard work with 

his family a year ago, was able to raise enough capital to be able 

to buy a dairy farm. He entered in that dairy farm with a 50 percent deposit on the farm, half of the cows paid for the day he entered. Of course, the banks were lined up and everybody wanted 

to do business with the young man. 

In the last 10 months, his equity has evaporated to nothing. 

Today he is insolvent after working all those years to put that kind 

of a deposit on that kind of a herd. He also will soon be out of business. 

We have had a record fall in prices. I have had heard $12 milk 

today, and I have heard $10 milk. I wish we were that fortunate. 

We have been dealing with an all-milk price in the $9 range since 

the first of the year, and there doesn’t appear to be much of a 

chance for a short-term recovery. 

The value of our herd is diminished now. We have lost in the 

value of the herd $2.6 million, and that is just the dairy herd in 

California alone. 

Our equity has dropped by half, and yet we continue to borrow 

and to continue to leverage on the remaining half at the cost of 

nearly $100 per cow per month. That is a cash cost of $100 per cow 

per month. 

These long-term negative prices have us to the point where it is 

not only affecting the dairy farmers, our ag lenders are now beginning to feel the crunch. They are having their own problems. Our 

feed companies are beginning to be denied credit. And in San Joaquin Valley, most of the milk in California is produced in San Joaquin Valley, we have a 20 percent, nearly now 20 percent unemployment. These are jobs not only for the dairymen, but for the 

65

residents of our valley that are highly critical. They are highly necessary. We thought 2006 was a bad year when we lost $3.36 a hundred- weight. Today we are at a $9 loss per hundredweight. High feed 

costs—all of you have heard all of this before—continue to create 

problems for the dairy business. There is very little good news. 

So what we did in December as an organization, we formed a 

task force to look at some of these problems. We put together three 

different groups. It is a comprehensive group representing producers, processors, cooperatives and their accountants. 

We have had a number of meetings to address some of these 

issues, and some of the things that we have come up with is that 

we also believe we need a short-term solution. As someone said in 

that meeting, when your house is in on fire it is not time to cut 

the lawn. 

We do have a long-term goal in mind, too, including once we get 

past this crisis, because we think it is going to take time, study and 

analysis to put long-term programs together. 

We have looked at and I will talk about some of the existing programs. The Dairy Price Support Program: Today’s price actually 

paid to farmers of this program is about 20 percent less than it was 

25 years ago. We must ask ourselves: Is it even relevant any 

longer? 

The members of our group—of this task force that have met have 

also felt that we need to do something regarding the grading system either through moving to a CME grading system, a commercial 

grade, or to increase the support to at least cover the costs of the 

additional requirements for the CCC purchase grading requirements. 

The Dairy Export Incentive Program: We would like to thank the 

Members of this Committee that worked so hard in getting that 

program back in place and making it active. It has also provided 

a significant savings. We shouldn’t forget that. It is much better to 

pay 10¢ for the DEIP than it is to put 80¢ of that product in the 

CCC. 

The issues before us are critical, and we need to move quickly. 

The working group supports the DEIP. CDI is one of the—we are 

also working with CDI and the CWT program. CDI, we do belong 

to CDI and support the work of the CWT and feel that that is held 

at wholesome near-term potential. We applaud USDA’s efforts to 

address the credit barrier, but we recognize that additional debt 

without price recovery will provide very little benefit to the producers without some type of program to bring the price back to the 

producers. 

I see I am running out of time, so I will cut my testimony short. 

I will conclude. I want to thank, again, the Committee for having 

this meeting, this hearing, and we will certainly work with all the 

Members on anything we can do. 

I do want to suggest one more thing, our support program that 

has been working, we do support the idea of expanding some of the 

Feeding and Nutrition Programs. We think that probably has the 

greatest potential of a quick recovery for our price as we can move 

some cheese into the direct market. Over the short-term program, 

a 60 day program we think, with proper funding, I think it has a 

66

couple of benefits. One, it could also provide some savings to the 

Federal Government in the near term as well. So I would be glad 

to talk to you about that at a later date. 

With that, I will conclude my testimony. 

[The prepared statement of Mr. Souza follows:]

PREPARED STATEMENT OF RAY SOUZA, PRESIDENT, BOARD OF DIRECTORS, WESTERN

UNITED DAIRYMEN; OPERATOR, MEL-DELIN DAIRY, TURLOCK, CA; ON BEHALF OF

CALIFORNIA DARIES, INC. 

Good morning. Thank you Chairman Scott, Ranking Member Neugebauer and the 

rest of the Members of the Subcommittee for holding this hearing. I appreciate the 

opportunity to provide testimony regarding the current state of the economy for 

dairy producers and to add some thoughts on potential short- and long-term solutions for our industry. 

My name is Ray Souza, and my wife Lynette and I have operated Mel-Delin Dairy 

outside Turlock, California for more than 40 years. I started as a teenager with a 

4–H cow I purchased at the local auction and my family and I have made our living 

milking cows ever since. The milking herd today is roughly the average size for the 

state of California at about 900 head. 

I currently serve as President of the Board of Directors of Western United Dairymen. Western United represents 1,100 of the 1,700 dairy farm families in the state 

of California. And I want to emphasize that word family. Even though we are 

known as a large herd state, I can’t think of a dairy that isn’t owned and operated 

by a family. 

We are members of the second-largest milk marketing cooperative in the country, 

California Dairies, Inc., and with our emphasis on purebred cattle I am a member 

of the Holstein Association of America for more years than I care to think about 

going back to that original 4–H cow. We have been fortunate to have some success 

in breeding registered Holsteins and merchandising genetics that have been in demand in the breed. 

Today’s economic situation in the dairy industry in California is, in a word, dire. 

In fact, I’ll go back to that point about dairy families. A fifth-generation dairy farm 

family, my neighbors the Linhares, just sold their cows in the last round of CWT 

herd retirement. Just a few days ago, three generations were operating that farm. 

Today, after cows have been milked on that farm for 112 years, that family has left 

the business saying there is simply no way they could justify continuing to erode 

the equity they have built through five generations of caring for cows and working 

the land.

I. An economic snapshot of the California dairy industry.

A. Ruinous negative operating margins.

• Farm milk prices and feed commodity prices tend to be cyclical in nature. 

However, producers have never witnessed such dramatically low milk prices 

combined with skyrocketing production costs. The milk price/feed cost ratio is 

the lowest in history.

• The price paid producers for milk has been half what it costs to produce the 

milk for nearly 6 months. Dairy families are losing what took them years and 

even generations to build.

• The industry has experienced periods of low prices before. However, production costs (especially for California dairymen) have been on a steady upward 

climb—up 37% in California in just the last 3 years.

• The following chart, compiled with data from the California Department of 

Food and Agriculture, compares net operating margins from 2001 through 

2008 and year-to-date for this year. While the last really bad year on the 

dairy farm, 2006, showed margins resulting in a loss of $3.30 per hundredweight, the negative margins year-to-date in 2009 are nearly three times larger.

67

• Productivity gains on U.S. dairy farms are nothing short of astonishing. Previous low price cycles have taken their predictable toll on operations that did 

not control costs relative to their competing farmers serving the same markets. This cycle, however, is different. These ruinously negative margins are 

hurting everybody, including the most efficient. All producers will be higher 

cost producers in the years to come as a result of the additional debt load, 

loss of capital, etc.

B. Monthly milk price v. input costs 2008–2009 and near-term projections.

• The dramatic increase in feed prices has propelled dairy production costs to 

record levels and we expect this trend to continue.

• Production costs posted a slight decrease from 4th qtr 2008 to 1st qtr 2009 

due to a slight decrease in feed costs. However, COP figures are not expected 

to decline by any significant amount as we move forward. Even though feed 

commodity prices have come down a bit in the last week or so, prices are still 

far above historic averages.


11124010 11124011
68

• California producers typically do not grow all their feed and have to pay additional transportation costs to haul in feed for their cows.

• At the same time, all other costs of doing business in California have increased. Additional environmental costs are mounting each year as producers 

work to meet new waste discharge requirements, for example.

C. The crash came earlier to California.

• The California milk pricing system responds more quickly to current market 

conditions because it corresponds to the Chicago Mercantile Exchange. In contrast, price reporting procedures for the Federal Milk Marketing Orders usually result in a 1 or 2 month delay.

D. Outlook for the remainder of 2009.

• Producers had been holding out hope that the lowest point was reached in 

May. However, prices have since moved even lower.

• Futures prices have also moved much lower over the last month or so. While 

some recovery is expected by the end of the summer, very few analysts expect 

a significant improvement in prices.

• Prices are not expected to rebound until 2010. At the current negative margins, a significant number of producers will go out of business before that 

point.

• Those left standing will have a huge debt load to work through. It may take 

years of higher prices for the industry to recover.

E. The dairy economic safety net is stretched flat on the ground.

• The Dairy Product Price Support Program (DPSP) is a long-standing program 

that is intended to benefit both producers when prices are declining and consumers when prices are rising. It also benefits all producers in the country 

equally without regard to herd size or farm location. Yet at its current product purchase price levels the program is wholly inadequate considering the 

dramatic rise in input costs for farmers in the past 3 years. Prices have also 

fallen below support due to lack of flexibility in the program. USDA must be 

provided the authority to increase prices at least temporarily to cover the initial costs associated with processing to Commodity Credit Corporation (CCC) 

standards. For example, cheese has been below support on and off (and continuously since mid-June) yet not a pound of cheese has been sold to the CCC. 

Manufacturers participating in the California industry working group have 

pointed to inspection and grading standards as the major obstacle. USDA 

could address this by aligning their product standards with those of the commercial market. The industry working group has also written a letter to SecVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00074 Fmt 6633 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN

11124012
69

retary Vilsack in support of an increase in purchase price levels as proposed 

by National Milk Producers Federation.

• Milk Income Loss Contract (MILC) Program—while the payment helps pay 

some bills, the program will delay the supply reduction that must come since 

signs of a recovery in the worldwide economy, and the return of export demand for U.S. dairy products that will accompany it, have not yet appeared 

on the near-term horizon. Unfortunately, the annual production cap of 2.985 

million pounds of milk eligible for payment results in a program with only 

regional benefits. And the duration of this milk price crisis has turned what 

is intended to be a temporary life jacket for producers in rough economic waters into a long-term program with market-distorting effects that continue to 

delay the recovery that is so desperately needed by all dairy producers in all 

regions of the country.

• Dairy Export Incentive Program (DEIP)—I’d like to thank the many Members 

of the House Agriculture Committee for their help in securing implementation 

of the DEIP by USDA. I would also like to point out, the DEIP program is 

a good deal for the Federal treasury. A 10¢ bonus to move a pound of nonfat 

dry milk to a foreign customer sure beats an 80¢/lb CCC purchase.

II. Steps the industry has taken to address the crisis.

A. Western United Dairymen organized and hosted three industry listening sessions earlier this year. The purpose was to identify both short- and long-term 

solutions to the economic conditions in the industry. All producers in the state 

were invited and more than 200 took advantage of the opportunity at each 

meeting to provide input on issues such as supply management, Federal and 

state milk marketing regulatory policy and global markets and industry innovation.

B. At the conclusion of the series of three meetings, an industry working group 

was formed to analyze the ideas presented and provide recommendations going 

forward. Two meetings have already been held, with the working group taking 

the lead on requesting economic analysis of a supply management plan and 

agreement on recommendations for additional ways to address the milk price 

crisis.

C. Since early January, California dairy producers and their organizations have 

worked hard and have had the support of nearly every other dairy producer 

group in the country as well as many Members of the California Congressional 

delegation in helping to persuade the USDA to implement the DEIP. Again, we 

say thank you to all the industry partners in that successful effort and to the 

Secretary, the Chairman and Ranking Member of this Committee as well as the 

many Members of the Agriculture Committee for your help.

D. Supported the industry push to have the new Agriculture Secretary use all 

existing authority to increase demand for dairy products—that effort has shown 

some success, as well, as donations to domestic and international feeding programs were announced very quickly after the crisis began.

E. Cooperatives Working Together (CWT)—California dairy producers have 

been early and consistent supporters of the industry-directed and -funded supply balancing program managed by National Milk Producers Federation. California Dairies, Inc. is a funding organization in CWT on behalf of its entire 

membership and Western United Dairymen continues promoting the program 

to individual dairy producers whose milk marketing organizations are not members. The high percentage of milk produced in California that is covered by contributions to CWT demonstrates the commitment of our producers to the concept of a progressive industry supply-balancing self-help program.

III. Additional suggestions for short-term action.

A. DEIP—the Secretary has announced allocations for the new program fiscal 

year in amounts equal to the unused allocations from 2008–2009. That is a 

helpful start and for that we say thank you again to the Secretary and to all 

those who helped make the case. Invitations for offers must still be announced, 

however, and dairy farmers look forward to that in the very near future. It also 

looks relatively sure that the remaining allocations for this fiscal year will be 

helpful and the organizations I represent here today look forward to working 

with the Committee and the Secretary to make that happen.

B. Farm Credit—dairy farmers find themselves in a no-win situation in which 

they are unable to do the very thing that usually helps reverse a period of negative operating margins—they need to cull cows. But their lenders are operating 

70

in a new day as well and there isn’t the flexibility the banker once had to stick 

with even their best customers during a period of losses. The fact is, cows are 

worth about 1⁄3 less than they were a year ago and that erodes a financial statement in a hurry. And if a dairyman culls cows in order to pay bills, that can 

have a negative effect on the ability to borrow operating capital. I am happy 

to hear from several USDA officials that the Department is looking for ways 

to temporarily ease the dairy farm credit crunch. Cows, facilities and land are 

a dairy farmer’s 401(k) plan. The value of cows on dairy farms has dropped by 

more than 1⁄3. Cows and bred heifers are worth $1,000 less than just 6 months 

ago. Newborn calves have dropped in value by $400 per head. The decline in 

the value of cattle amounts to a drop in dairy farmer equity of $2.6 billion in 

California alone. The farmers who do survive must borrow against that remaining equity. That additional debt load will reduce the competitiveness of U.S. 

dairy farmers in global markets for the next several years.

IV. Potential long-term solutions.

A. Supply Management Proposals—the industry task force that was appointed 

to examine producer input from the three listening sessions held earlier this 

year has received and reviewed a proposal for a legislated supply management 

proposal known as the Holstein Association Dairy Price Stabilization Plan. The 

task force acknowledged the significant producer interest in a supply management plan and listed some questions to be addressed. The Western United 

Dairymen Board of Directors extended an invitation for, and received, a briefing 

on the plan from leading proponents. The Western United Board has endorsed 

the concept and joins the task force members in posing some questions that 

must be addressed if producers are to be brought together to pursue legislation.

B. Fluid Milk Standards—several organizations offered a proposal during the 

last farm bill debate to raise nutrition standards in fluid milk nationwide. Interest in that proposal remains, due to the potential impact it could have on the 

need to balance supply and demand. This would benefit consumers by helping 

alleviate the calcium crisis, it would reduce CCC expenditures in the DPSP and 

the improved price stability would benefit farmers.

C. Industry Self-Help—California dairy producers look forward to participating 

in a nationwide effort to identify long-term solutions to the current economic 

crisis. There may be much more that could be done in producer-funded and directed efforts at demand building and market balancing, for example.

Again, Mr. Chairman, thank you for holding this hearing and for extending an 

invitation to hear from a California farmer. I am aware, and our organizations have 

worked hard to inform other dairy producers in the state, that you have been hearing often and loud from the Members of this Committee who come from California. 

I thank them for their persistence and I thank you for listening to them and working with them. I look forward to answering your questions.

The CHAIRMAN. I thank you very much. 

I thank each of you for your testimony. I will begin the first 

round of questioning here. 

Mr. Souza, you had mentioned in your testimony a moment ago, 

$100 per cow per month. 

Mr. SOUZA. Yes. 

The CHAIRMAN. What does that constitute, again? That cost, a lot 

of that cost goes to——

Mr. SOUZA. That is actual cash loss. By the time you pay the 

feed, the vet, the labor, your facility, operating your facility, it is 

about $100 per cow short per month. I personally have talked to 

a dairyman who is milking 1,000 cows, and he tells me he is actually going into his credit line, taking out $100,000 a month just to 

meet his obligations. 

The CHAIRMAN. That is an amazing figure there. It is $1,200 per 

year per cow that they are losing every year. And how many 

cows—I mean, was this gentleman——

Mr. SOUZA. Well, he is milking 1,000 cows so it would be $1.2 

million by the end of the year. But I don’t want to overlook the fact 

71

that already in equity loss in my particular herd, I am down about 

$1.5 million. So you add that on to the cash loss, and you can see 

that you are not going to be in business very long. 

The CHAIRMAN. Let me just ask the entire panel, you may each 

want to weigh in on this, if you have a different opinion than the 

others. But there has been a lot of discussion lately about supply 

management that different dairy organizations have proposed. 

What is each of your opinions on this option as a management 

tool to help stabilize prices? 

Mr. KRUSE. I am obviously very negative on it. I think it doesn’t 

allow increases where industry is located to process milk. A lot of 

times they will go there when you are looking for additional milk, 

but yet there is going to be in essence a penalty or cap. 

It also stymies production in states where we need production; 

I mean in smaller states or the southeastern states. So I do not 

foresee that as an advantage of something that is forward-looking. 

The CHAIRMAN. Mr. Wakefield, do you agree with that or have 

another opinion? 

Mr. WAKEFIELD. If you listen in the country to the producers, 

there are a larger number of producers today looking at that as an 

option. However, National Milk will have a task force put together 

to look at the various options. There are a lot of questions that 

need to be answered as in exports, imports, and some of the workings. We are not prepared to be in favor or against the program 

at this time. 

The CHAIRMAN. So you are neutral. Okay. 

Mr. Bouma. 

Mr. BOUMA. As per our testimony, sir, we are very opposed to 

any supply management concepts. One, again, we feel that we will 

again have imports on our shores as we constrict ourselves to a domestic market. 

And, second, I will allude to Mr. Kruse’s statement. For instance, 

the Southeast, your great State of Georgia, we supply a lot of milk 

in west Texas that winds up in Georgia every day—140, 150 loads 

of milk a year during late summer and fall—and have an ongoing 

agreement with the Southeast, with the cooperatives in the Southeast, to supply that milk because of the shrinking number of dairy 

cows and the growing population. 

And supply management around the country over that will make 

it harder and harder for us to transport milk where it is needed, 

and where it is short in this country. 

The CHAIRMAN. Yes. Mr. Souza. 

Mr. SOUZA. Yes, our organization has taken the position that we 

support the concept of supply management. But we feel, as other 

members feel, that it requires further analysis. I think with our 

trade issues and the trade loss that we deal with today that it 

poses real challenges to a supply management program. 

Our concern is we feel we have to be very cautious in our approach here. If we are to legislate something, it should be very detailed. We are concerned that we could enter into an agreement 

that could have unintended consequences. 

Without addressing the import situation, we could simply just 

not—if we replace the reduction in supply with imports, we won’t 

substantially raise the price, but we could possibly be giving away 

72

our market share. I think it is important that we consider our market share when we are looking at any type of supply management 

program. 

The CHAIRMAN. Let me ask you about this, each of you. Do you 

think that moving towards a single nationwide marketing order 

could help create some stability in the dairy industry? 

Mr. BOUMA. Sure. I believe that definitely could help. I believe 

that we need to move towards a two class system of milk in this 

country: one being fluid milk that is put into a bottle and consumed in ice cream and soft products and things on a daily basis; 

and a second one being cheese, butter and powder, which our Federal Government participates in allowing them to work at world 

prices and. If need be, develop some other type of safety net for the 

industry so that we can get our product offshore and compete in 

the world market. 

But to do what we did today with a four class system and store 

the product and restore the balance in the world will not work out 

for the long term. 

The CHAIRMAN. All right. Anyone else have a difference of opinion? 

Mr. WAKEFIELD. Currently we are not in favor of the one working 

system. However, we are working with the Federal Orders to make 

changes within the Federal Orders in the different regions, because 

there are many regions that are different and need to be addressed 

as a region. 

The CHAIRMAN. Okay. Very fine. 

Mr. KRUSE. I would say, as to what Mr. Bouma said, it has been 

discussed in our organization and there is considerable support for 

going, perhaps, to a two class system, a Class I and a manufacturing milk class. 

The CHAIRMAN. One, all right. Mr. Souza. 

Mr. SOUZA. We have had long discussions regarding this, as you 

probably know. At our task force meetings, we feel that the Federal 

Orders, as are currently written, certainly wouldn’t do anything for 

California. We also have the problem within the Federal Order system of folks not joining the Orders or, as we say in California, 

depooling and pulling out of the system. I think it addresses two 

things. The Federal Order system obviously needs to be looked at 

again. We need to keep people in the Federal Order system. 

It has to be attractive enough to keep those people, who are not 

currently regulated, in their regulated system and also attract 

enough to draw California into that same system. And it currently 

doesn’t meet those challenges. 

The CHAIRMAN. Thank you. We will now turn to the gentleman 

from Texas, the Ranking Member, Mr. Neugebauer. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. One of the things 

that we have heard repeatedly this morning is we have too much 

milk now, and the price is low. And supply management has been 

brought up, reducing the number of herds. 

And one of the things that kind of makes me begin to wonder is 

the current way we do milk, encouraging oversupply and overproduction in some periods of times, and then that is causing the 

market to have these wide swings, and then we have a period 

where the prices are low and that hurts everyone. 

73

I believe that the market, the free market system basically is 

supply management if allowed to perform in an open and transparent way. 

I guess the question I have to the panel: Are the current policies 

that we have for milk now contributing somewhat to these wide 

vacillations in prices, and should we really rethink the way we are 

doing that? 

Mr. Bouma. I would start with you. 

Mr. BOUMA. It does, and especially when milk is short. Milk is 

short worldwide. Our support program has no bearing on the value. 

When Class III, when the equivalent of CME price for cheese milk 18 months ago was $17 or $18, $1.14 pound of cheese—$9.90 

or $9.40 Class IV powder price had no effect on it. 

As we swing down here in this perfect storm to these extremely 

low prices where we are putting product into support, we will definitely lengthen the bottom of this economic trough, this economic 

bell curve that we are in, with our support price balancing the 

world’s powder market. 

Our competitors in Australia, New Zealand and Europe are getting their product out of their countries. And as soon as this thing 

turns, they will be in a much better position to take advantage of 

the economic turn that the Secretary was talking about. 

Whereas in this country, we put all this product back, we have 

to chew through it before the producer is going to realize it. So definitely more of a down cycle of the economic bell curve than the upside. 

Mr. NEUGEBAUER. Mr. Wakefield. 

Mr. WAKEFIELD. I agree, it is more on the downside than the upside. 

As far as overproduction, we were not in an overproduction 

mode. We were merely mirroring the export market and supplying 

an export market that when the economy went south, we got 

caught in it. It is no fault of any American farmer that we are in 

the position we are in. 

It just happens that the world economy went south and so did 

our market. And so now we are dealing with extra milk on the 

market that we had a market for. 

And so in this business—in a factory you can turn off the lights 

and shut down the electricity for a couple of weeks and wait for 

things to happen, and then start back up. This is a 24/7 job and 

you can’t sort of turn it off and then hope that in 2 weeks it is 

going to be better. It just doesn’t work that way. 

Mr. NEUGEBAUER. Mr. Kruse. 

Mr. KRUSE. The volatility in price is good for no one. It really 

creates problems. And we have seen it over the history, just as long 

as I have been in the dairy business, just the ups and downs. You 

know, that is an excellent argument for using risk management 

tools and flatten this thing out if that is what it takes. 

That is what we did when we were able to—for all of our major 

ingredients is manage that risk. We look for win/win situations 

with suppliers. I don’t want an advantage for any one of them, because it is not going to last. And so you work out what is equitable 

for them and for us. And if you are both efficient, that relationship 

works and it works long term. 

74

So in some form or fashion, we are going to have to get into that 

risk management to knock this out. 

Mr. NEUGEBAUER. And I like the risk management better than 

the subsidy piece of it, because then that allows people to take 

whatever share of the risk they want to take. 

Whatever kinds of tools would be better or what kinds of tools 

for risk management aren’t available now that could possibly—

need to be looked at? 

Mr. KRUSE. I think in the written testimony, there is talk about 

this gross margin, the livestock matter. But we had forward-contracting in dairy from 2000 to 2004. There was a lot of consternation about it, but apparently it averaged—it pretty much approximated the price that was out there or what was contracted for. 

And so I know in the 2008 Farm Bill we are looking at it again. 

It does not cover Class I, which is the bottled milk. But we have 

to investigate why there is not good price discovery in the dairy 

markets. 

Mr. NEUGEBAUER. Mr. Bouma. 

Mr. BOUMA. If I might, the price Mr. Kruse alluded to is exactly 

it. And when we create this economy we have in these surpluses 

we have with a product that we can’t even sell overseas, with respect to what is made, we taint the price discovery process. 

The CME works fine. I hedge corn, I hedge beans, and I actually 

hedge milk. But the milk part of this price is skewed by the economic obstacles that we put within the system. And if we cleared 

that and truly had an economic system that sent clear price discovery signals to the marketplace, we should be able to use the 

CME to hedge milk just as well as any other product. 

The CHAIRMAN. Thank you, Mr. Bouma, Mr. Neugebauer. Now 

Mr. Costa from California. 

Mr. COSTA. Mr. Chairman, with your permission I would like to 

defer to my colleague, who has another committee meeting, Mr. 

Cardoza, and then I will take my subsequent turn. 

The CHAIRMAN. So recognized. 

Mr. CARDOZA. Thank you, Mr. Costa and Mr. Chairman. I appreciate your indulgence. 

Mr. Souza, thank you for traveling here. The plight of California 

dairy farmers has been well documented, and you have been working diligently with your organization to try and correct it. 

I would like to point out for the Committee that they may not 

know, because the California Order changes more rapidly than the 

Federal Order, that California has actually been in crisis for a 

longer period of time than the rest of the country has. In fact, when 

I saw this coming, I went—and Mr. Costa as well—went around to 

a lot of our colleagues to warn the rest of the country that this was 

going to be coming down the pike. In fact, we were accurate in that 

assessment, to no one’s good fortune. 

Mr. Souza, I understand that California dairymen are going to 

have a difficult time taking advantage of the conservation and renewable energy incentives that we have worked so hard to put in 

the farm bill this past year when the Committee did its work. And 

so if you could comment on why that is and what the relationship 

is between farmers and those programs, and the problems that the 

dairy subtitle is causing the farm bill. 

75

Mr. SOUZA. Unfortunately, with the current prices we are suffering, we are having to make choices with what we are going to 

do and what we are not going to do. As you know, Mr. Cardoza, 

California is the most highly regulated state when it comes to environmental regulations. Those funds are very, very important to us 

in California for our existence. 

The problem is there simply isn’t enough money. The EQIP Program is a matching fund program. Even at 50 percent, you still 

have to come up with the other 50 percent to access those programs. And, currently I know that I have talked to many, many 

dairymen that are going into their offices and talking to their conservation people and asking them how they can extend the implementation of their programs, because they can simply not afford to 

pay the half that they need to pay to use those programs. 

Mr. CARDOZA. Mr. Chairman, if we could communicate with our 

colleagues on the Committee, the bigger Committee, about this 

question, I think it is something that our greater Agriculture Committee is going to have to examine, because it is certainly not the 

intention, when we passed the farm bill, of not allowing them to 

comply. This is one of the most important areas that a lot of us 

fought for in the farm bill, and it needs a lot more examination. 

The CHAIRMAN. That is a very good point, Mr. Cardoza. We will 

certainly do that. 

Mr. CARDOZA. Thank you. 

Mr. Souza, the Department has a set of plans to offer assistance 

to dairy farmers with difficulty obtaining operating credit. Do you 

have any thoughts on the potential for that kind of program along 

those lines? 

Mr. SOUZA. Well, we certainly do applaud the Department’s efforts. But to simply continue to extend credit to an industry that 

is not able to pay their bills now would just simply create a problem where we are digging ourselves in a deeper hole. I think the 

idea of extended credit is fine, but it needs to work in conjunction 

with some type of price recovery program at the same time. 

Mr. CARDOZA. I totally agree. That is why I raised the issue. 

Mr. SOUZA. One of the concerns I have is just down the road, just 

to create additional debt, we are really creating a less efficient industry. We heard a lot of talk about competitive and international 

competition. As our farmers increase their debt, increase their 

leveraging, increase the amount of money they have to pay to the 

bank to become a less efficient industry, and at some point in time 

we will become—we are less competitive today than we were a year 

ago. 

Mr. CARDOZA. Mr. Souza, Mr. Conaway mentioned earlier there 

was a total aggregate deficit of a $7 billion loss. One of the things 

that I think I would like to have all of the panelists talk about is 

how just a little bit of a supply increase—when we saw exports fall, 

the prices plummeted—and just a little bit of an expansion of 

shortage will make prices go up, quite volatile. 

So $7 billion may not really—a little bit of purchasing, a little 

bit of adjustment can have a big impact on dairy farmers’ profits. 

And I would like to open that up for the panel. Mr. Souza, if you 

would start. 

76

Mr. SOUZA. We agree. There was a discussion earlier on the supply management program. And we actually contracted with Dr. 

Rich Sexton, who was an economist at Cal Davis, University of 

California at Davis, to do some of that work. And he talks about 

exactly what you are talking about. 

A one percent change in the supply can create a dramatic difference in the price. So I think that your point is well taken. It 

doesn’t take a lot of milk to turn this thing around. 

The problem that we have now is that we have an unusual situation. This is historic. This is an anomaly. We have had—our markets crashed so quickly, we as an industry don’t have the ability 

to react as a fellow that is selling bottled water. It takes 2 years 

to get a calf into that milking barn. We create a huge inertia; and 

to slow this bus down, it takes time. We don’t have that capability. 

And with the rapid loss of the markets, we built up some surpluses. We need to get rid of that surplus to get a response in the 

price system. 

Now we have talked about powder a lot, but we need to be talking about cheese as well. There seems to be a significant number 

in cheese that is being reported, and there are rumors that there 

are maybe additional amounts of cheese out there. We need to get 

our arms around that and respond to that cheese problem we have 

right now as our industry is slowing down. 

California’s production—you must remember, California’s production has dropped now, what, 8 of the last 9 months. And we are 

substantially below where we were a couple of years ago, so we are 

responding. 

Mr. CARDOZA. Thank you, Mr. Souza. I would love to hear from 

the other panelists, but I am going to let the Chairman decide how 

to handle that. Thank you. 

The CHAIRMAN. Thank you. Mr. Conaway, the gentleman from 

Texas. 

Mr. CONAWAY. Thank you, gentlemen, for being here. Dennis, I 

think the net would be more like nine million. If we have nine billion cows and collectively are losing $1,000 a year per cow, that 

would be about $9 billion short. 

Mr. CARDOZA. However you slice it, Mr. Conaway, it is a bad situation. 

Mr. CONAWAY. Yes. Intuitively I am struggling with a small drop 

in demand having this dramatic of an impact on the price and 

what factors make that happen. I was interested in Mr. Wakefield 

and Mr. Souza both saying that your trade organizations have task 

forces in place. 

What is the time frame for completing the work that you might 

bring—that you hopefully would present some new ideas for policymakers to consider? 

Mr. WAKEFIELD. I am not sure of the time frame, but we will be 

meeting—the task force will be meeting next week in Chicago to 

get started. There is a 2 day session then to meet with other organizations. Sometime in the fall we hope to have everything put together. 

Mr. CONAWAY. Mr. Souza, how about your task force? 

Mr. SOUZA. As I mentioned earlier, we have a pretty much broadbased task force. And two of the members of the task force are havVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00082 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
77

ing their own private meetings, and we expect them to come to our 

next meeting, which we think will be in about 3 weeks, to report 

on what they are doing in their meetings. 

We hope to have something—we are right today, as we speak, we 

are primarily focused on this current crisis of what we can do so 

we can have some members left to talk about a long-term program. 

Mr. CONAWAY. What is it about the dairy industry that contributed to this, to the heavy debt load? Why is it that you have—you 

are more leveraged than other aspects of the agriculture business, 

70 percent leveraged. What is it about the dairy that does that? 

Mr. Bouma. 

Mr. BOUMA. First of all, all animal production agriculture carries 

a greater leverage than just average agriculture, whether that is 

pork, or cattle, or poultry. The leverage this time around is created 

by the anomaly that Mr. Souza alluded to. 

And to go back to a typical sweat, boom, and bust cycle like Mr. 

Kruse talked about, we typically talk about 1.5 percent to two percent milk in this nation being in surplus that will drive a price up 

or down. That is typical. We have to deal with—and there is a 6 

to 8 month period of time when that will correct itself in that 1.5 

percent. 

Today, by losing five percent of our export market, five or six 

percent, we tripled or quadrupled the typical surplus. 

Mr. CONAWAY. Is it five percent of the export market or five percent total that is exported today? 

Mr. BOUMA. No. We were exporting 11 percent of our product a 

year ago. We are exporting five percent today, so there is six percent additional milk in the United States today. 

Mr. CONAWAY. Okay. Thank you. 

Mr. BOUMA. Which goes back to this 300,000 cows that I think 

we need to get rid of, and that is what has created this crisis. 

Now the leverage side that created this perfect storm of $100 a 

cow a month, which you did the math on correctly, is the erosion 

of our balance sheet. You had a Holstein dairy cow that was worth 

$2,000 12 months ago, she is worth $1,200 today. 

In these small cycle cyclical swings of 1.5 percent or two percent, 

our balance sheet erosion was not that significant. And as we turn 

back out of these cycles, you would again gain some equity in your 

balance sheet and be able to operate through this. But this mass 

erosion of the balance sheet within the industry is unprecedented 

today. 

Mr. CONAWAY. I am sympathetic to the idea that you can’t—that 

cow has to be milked every day, whether you sell the milk or not. 

She is going to get milked every day. 

The industry I am most familiar with, the oil and gas business, 

this time last year we had over 1,900 rigs running in the United 

States. Today there are less than 670 rigs running today—what the 

price has done from the peaks last year to where they are right 

now. 

So their circumstances are difficult and hard, and they have stories, Mr. Souza, very similar to yours, where folks have lost everything they had because they took business risks that they believed 

were appropriate at the point in time they had to take it. 

78

Knowing that you had that inertia or that momentum built up 

about the cycle, how you bring new cows into the production 

stream, how does the system protect itself? Are there some tools 

that you need that we could help with that would allow you to recognize that you aren’t particularly responsive in the short term, 

given that you have a herd, and it has got to be milked, and that 

milk disposed of in some fashion. 

Is there something that can be done to acknowledge that and 

deal with that reality? 

Mr. SOUZA. As Mr. Bouma mentioned, something that is this 

quick and this dramatic, we need to get rid of cows. We need to 

reduce the cows, and the CWT program certainly has helped. 

That is, at this particular point, we have no history with this. We 

have never dealt with anything like this before. So it is pretty difficult to come up with a short-term program. We do know—I do believe, though, that we need something to bridge the cows we leave. 

We need a bridge to get there. 

The biggest impact we have right now, as production is beginning to stabilize, and actually drop off in certain regions, we have 

this surplus of cheese out there that the buyers simply don’t feel 

that they need to buy because they see this large cloud looming 

over our head. 

That product, that cheese product, has to be removed. That has 

to get into the market system, and there are ways of doing it. 

Mr. CONAWAY. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. And thank you. The gentleman from 

California, Mr. Costa. 

Mr. COSTA. Thank you very much, Mr. Chairman. Mr. Ray 

Souza, you and I have known each other for over 20 years, about. 

Mr. SOUZA. I am only 19. 

Mr. COSTA. Well, we are not that old. But your family and my 

family have been in the California dairy business for three generations. 

Mr. SOUZA. Yes. 

Mr. COSTA. Have you ever seen it this bad? 

Mr. SOUZA. Mr. Costa, I have never seen anything even close to 

this. I thought 2006 was the end of the world and that was a $3.30 

loss. Today is triple that. 

Mr. COSTA. I mean, we could lose 20 or 25 percent of the dairy 

industry in California—I don’t know what the estimates would be 

nationwide—if we are not able to respond in the short term and in 

the longer term, in my view. 

Let me ask you a couple of questions as it relates—California, 

our export market—our largest is Mexico and, of course, Asia was 

a growing market until the economic downturn prior to the melamine scandal in China. 

What do you think we need to do to try to regain those markets? 

Mr. SOUZA. Well, part of it is just the world economy that is 

going to need to recover to some degree. But I do believe in California we need to become more innovative. The markets are there. 

It is clear to us, the McKenzie Report told us—the McKenzie Report was a report that was developed by the California Milk Advisory Board to kind of give us an idea of what the future looked like. 

79

Because of our position on the West Coast, we are going to become 

an exporting state. 

Our markets are going to be Mexico and the Asian market. We 

need to get more involved, we need to become more innovative, and 

we need to put people there in order to open up those markets. 

Mr. COSTA. But it is just not California. And of course the DEIP 

program, we are going to extend that another quarter. But our exports were 11 percent of our total production just a while ago, and 

now it is down to seven percent. I mean, that is a significant swing 

when you look at the total production. 

Mr. SOUZA. Right. 

Mr. COSTA. So that is an area we are going to have to focus on. 

But how to compete with countries like New Zealand that are able 

to produce milk at $9, $10 a hundredweight is very problematic 

when you look at the trade agreements that we have that Chairman Peterson mentioned earlier. 

Mr. SOUZA. I agree with you, Mr. Costa. One of the things hopefully that will come out of our group and National Milk’s group is 

how we better access those markets. 

Mr. COSTA. We talked about this earlier, and I want some of the 

gentlemen to comment on this because I am puzzled. I think we 

have to restructure the entire Federal Order. I think we have to 

put in incentives. I would like to see California join the Federal 

Order if the incentives are put in place, because it is the largest 

milk production area. 

But explain to me equilibrium. We talked about equilibrium. We 

want to get down below nine million milking cows in the country. 

But we have over four million replacement heifers with same-sex 

semen. I mean, explain to me how this is going to—how we are not 

going to be back within the box within a period of 2 years. 

I mean, you can’t cull enough of your older cows to put you back 

in the same box that we are in today in overproduction. 

Anyone got an answer? 

Mr. BOUMA. That certainly is a dilemma, sir. Whether we export 

those heifers, a good number—we are the largest exporter of dairy 

cattle in the world as well. I don’t know if we can export our way 

beyond that system. 

I would guess that we are going somewhat by 8.8 or nine million 

cows before this crisis is over, just due to economic attrition. So 

some of those——

Mr. COSTA. But do you agree with the four million replacement 

heifers as an accurate number? 

Mr. BOUMA. That is the number that is being professed around 

the country at this time. So I have no reason to——

Mr. COSTA. The two other gentlemen, before my time is up, got 

any answers to this? 

Mr. KRUSE. Well, I am not a dairyman, but earlier in this year, 

the predictions that I was reading, we needed to lose 500,000 cows. 

And that is assuming things kind of settle down. But I don’t know 

that the economy has gotten any better. But I just think we are 

just milking too many cows. 

Mr. COSTA. No. Let me suggest to you, because you all talked 

about your task force—I know there are a lot of things going on 

regionally around the country, but dairy producers have to get toVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00085 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
80

gether. I mean, we can take action, and we can make a big difference here in terms of legislation, as the Chairman suggested. 

But, frankly, if we are going to continue to have the infighting take 

place in the dairy producers around the country and on a regional 

basis, I don’t have to tell any of the four of you, it is going to be 

darn difficult—my father would have a different term back home—

to get anything done. You understand that? 

Mr. WAKEFIELD. Absolutely. And that is the goal of the task force 

that we have put together: to bring unity and to bring one message 

to your group as we try to fix this situation. 

Mr. COSTA. I mean, this is equivalent maybe, Mr. Chairman, to 

trying to achieve peace in the Middle East. I am not sure. But it 

is a difficult task and you dairymen, producers and the processors, 

need to come together. 

The CHAIRMAN. Thank you, Mr. Costa, I appreciate it. 

Now, the gentleman from Pennsylvania, Mr. Thompson. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

A question for the whole panel. Five months prior to USDA reviving the Dairy Export Incentive Program, the European Union 

began subsidizing their dairy exports. Is there any reason to believe that if the U.S. were to make a good-faith offer to cease our 

use of this export subsidy tool, that the EU would take similar action? Any thoughts? 

Mr. SOUZA. I will start off, I suppose. I don’t believe, based on 

history, we could expect that. As you know, the Europeans are having their troubles as well. They are driving their tractors under the 

Arc de Triomphe. I think there is enough political pressure that 

they wouldn’t—I don’t think you would see them respond in that 

way. 

Mr. BOUMA. The European Union has lowered their subsidies 

through the past years through trade agreements and through 

things that have come down online. But they have been much more 

heavily subsidized than the U.S. industry. And immediately—like 

you say—5 months prior to us, went back into the subsidy level to 

even a greater than our DEIP program allows us. So I would find 

that very hard to believe that we would sit down and be able to 

negotiate some equivalent in that. 

Mr. THOMPSON. Thank you. Okay. For the three dairy farmers, 

USDA and the Under Secretary, we talked about a lot of ideas, but 

the primary relief, it sounded like, was extending temporary credit, 

essentially helping our family farmers go further into debt. And I 

don’t know how much relief that is in the big picture. The biggest 

problem our family farms are facing is that negative balance sheet 

financially. 

You know, just recently, with Speaker Pelosi’s leadership, we 

rammed through legislation that would dramatically increase energy costs for all Americans. Now, considering the current economic 

conditions facing dairy farmers, do your representative organizations believe that Congress should enact legislation that further increases input costs to dairy farmers, keeping in mind it is that balance sheet that they are struggling with? 

Mr. BOUMA. No, sir, we don’t. We are very happy or very thankful that we were able to keep the agriculture portion of that under 

the guidance of Mr. Peterson’s Committee and your all’s ComVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00086 Fmt 6633 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
81

mittee. We see that as a real victory for agriculture in this. But the 

long-term ramifications today indicate that increases, our input 

costs, are going to detrimental to us. 

Mr. THOMPSON. Any other opinions? 

Mr. SOUZA. I would mirror Mr. Bouma’s comments, I agree with 

them entirely. Our membership absolutely would not stand for the 

additional increase. They cannot handle the costs they have now. 

Mr. WAKEFIELD. I agree. 

Mr. THOMPSON. Mr. Wakefield, it is good to have a Pennsylvania 

dairy farmer here. I want to thank the whole panel, but I want to 

thank you for making that trip from Bedford down to Washington. 

I wanted to seek your opinion on how could the current situation 

of low prices be corrected? 

Mr. WAKEFIELD. What it comes down to is getting supply in correction with demand, and creating more demand for our products, 

not only here but around the world. 

As you know, we have the CWT program which has helped. 

When it comes down to it, the American public is not going out for 

dinner today at restaurants. Restaurant sales are off. That affects 

our business as far as cheese and sauces and dairy products. 

So we have a problem not only of an exporting situation, but also 

within our own country we have people that do not have the 

means, or feel they don’t have the means, to go out for dinner as 

they did in the past, which is hurting another industry. 

So it isn’t—this situation has affected everybody. How we can improve it, I guess only the Lord knows, more than I do. 

Mr. THOMPSON. Just real quick, I only have about 30 seconds 

here, what has your experience been in terms of the market response to the DEIP program, or the food programs using surplus 

supply? 

Mr. WAKEFIELD. It is on the short term—we have to understand 

that the program has only been in effect for, what, 2 months now. 

It has moved, it has dumped—it is the beginning and it is definitely going to be a help. I see no reason not to continue it. 

However, it isn’t a quick fix. It isn’t going to change the market 

real fast. But something has to happen to change the market, and 

this program will help start the change. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. Mr. Murphy, the gentleman from 

New York. 

Mr. MURPHY. Thank you, Mr. Chairman. 

Mr. Bouma, I apologize, I had to step out and take another meeting. But you were commenting as I walked in that you thought we 

might need to take out about 300,000 cows to reach equilibrium. 

Mr. BOUMA. Yes, sir. I think my colleagues from California would 

agree with me as well. 

Mr. MURPHY. So if that is the order of magnitude—and to me I 

like market solutions to most problems. It seems like our problem, 

as Mr. Wakefield was saying right now, is we have more milk than 

we have people to buy it. So we would like to reduce that supply, 

but it is a tricky thing to get any one person to act to take out a 

few cattle out of their herd. 

82

But what would it cost us to take 300,000 cows out of the herd 

right now? What is the rough cost for something like that? I heard 

you reference earlier $1,200 a head? 

Mr. BOUMA. Yes, probably $1,000–$1,200 a head. 

Mr. MURPHY. Is what a cow is worth right now? 

Mr. BOUMA. Right. 

Mr. MURPHY. And you would have slaughter costs that would offset some of that? 

Mr. BOUMA. It would offset it about $400–$500 a cow. 

Mr. MURPHY. So something less than $1,000. 

Mr. BOUMA. Somewhere in that general range, $800 to a $1,000 

a cow, which is what the CWT bids work out. 

Mr. MURPHY. That is what it works out to be. 

Mr. BOUMA. Right. It should work out to $1,300 or $1,400 a cow. 

Mr. MURPHY. So does that seem like a reasonable solution to the 

three of you for how to get out of this mess that we are in right 

now? 

Mr. WAKEFIELD. I think it is a short-term solution to a long-term 

problem. 

Mr. MURPHY. Okay. That is a short-term solution. And the longterm problem is people are just going to bring those cows right 

back on and we are going to have too many again? 

Mr. WAKEFIELD. I would hope not. You know, as was mentioned 

earlier about these same sex-semen heifers, same sex-semen is a 

good technology, and it is a tool, and it needs to be used as a tool 

and not just to run rampant. 

Mr. COSTA. If the gentleman would yield, you should explain. I 

am not sure everybody understands what same-sex semen is as a 

genetic tool. It is amazing. 

Mr. WAKEFIELD. Basically by using the technology, the rate of 

having heifer calves goes from basically 50 percent to 90 percent, 

so you can increase a herd really fast, your genetics in a very short 

time, guaranteeing that you will basically get 90 percent heifer 

calves. 

It is a technology that you should use on your best animals and 

heifers. And it is a good way to grow your business internally. That 

way, you know what your genetics are. As I said, it is a great technology. 

And as we go down the road another 40 or 50 years, I won’t be 

here, but the world population is going to double, and we are going 

have to feed that population. And that technology will help do that. 

And there are other technologies that are out there that are available to the dairy industry. 

We have been a very—an industry that has used technology. We 

have been very efficient and our efficiency is probably one of the 

detriments as to why we are here. We are too efficient, if that is 

possible. 

Mr. MURPHY. Mr. Souza or Mr. Bouma, on the issue of doing a 

herd culling right now, your thoughts? 

Mr. BOUMA. You know, any—I hate to say this at the stake of 

dairymen that are leaving the industry every day, and we are all 

losing a lot money. But as we have these conversations, and as the 

financial industries within this country to lend us money hear at 

these hearings and these discussions, they say well, if we keep this 

83

guy around a month or 2 longer, he will wind up on this program 

that is being talked about. 

And what we do is extend the bottom of this economic bell curve, 

even having these discussions today. And as we extend that bell 

curve, those of us that hopefully do survive this downturn chew up 

a couple more million dollars. 

Mr. MURPHY. So you think it is going to happen naturally. Let 

some people go out of business and it will settle itself. 

Mr. BOUMA. CWT is working, and the more that we leave the 

market to the market, the better off we will be. 

Mr. MURPHY. I follow that. 

Mr. SOUZA. Okay, I will take a shot at that. 

Mr. MURPHY. Thank you. 

Mr. SOUZA. There are many, many dairymen today that are looking for a way out. There is no way out. They don’t have enough equity except to pay the bank that they owe now. A program like that 

would have the potential of helping those people exit the business 

with some dignity and with the ability of leaving, at least, with no 

debt. 

I think it would help move the program quicker. I think we can 

get back into alignment quicker. And I agree with Mr. Wakefield 

that it is a short-term solution. But right now we need a short-term 

solution. To do a long-term policy change, we need an analysis and 

plenty of industry input to make a major policy shift into this industry. 

Mr. MURPHY. Okay. I am intrigued by your answer, because it 

makes perfect sense. And I guess my goal in doing something like 

that would be to accelerate the bottom so that everybody doesn’t 

bleed to death before we finally get to the bottom and reach equilibrium. But it is interesting that you would actually go the opposite direction and keep people bleeding for longer, which is clearly 

an unintended consequence, so something to keep in mind. Thank 

you. 

Mr. BOUMA. And even DEIP and some of the programs that we 

have implemented now, if they are implemented on the back side 

of the curve, they will get you out of the curve much quicker. If 

they are implemented on the front side of the bottom curve, they 

will just extend the curve, because folks continue to think there is 

some hope. 

Mr. SOUZA. Can I go to that point just quickly? An example that 

Mr. Bouma has been talking about, the CWP program has been 

very successful, but it took some time to get it to move. To do that, 

if you follow the cull numbers, the cow slaughter numbers, they actually flattened out for a time while everybody was waiting for the 

CWP program to be used. 

The CHAIRMAN. All right. Mr. Roe, the gentleman from Tennessee. 

Mr. ROE. I am sorry I missed some of the testimony for another 

meeting. But just a couple of questions that I think the farmers in 

my area are going to ask is that, with a comment we have just 

heard here, is that it looks like the big producers are able to hang 

on with more equity. The smaller producers, like in my area, are 

going to go out, because they don’t have the deep pockets, and the 

small guy will go. 

84

Just a comment about that. I mean, from what I heard, that is 

sort of what I heard you all saying. 

Mr. BOUMA. If I may, I don’t believe I said that. Actually there 

are a lot of small producers in the country today that are in a better position to withstand this downturn than the large producers, 

solely because they typically have a larger landmass per cow than 

do a lot of large dairies in the West. They are all losing $100 to 

$150 a cow a month. I don’t care if you are in Pennsylvania, Tennessee, Texas or California, that is going on. 

But as we cycle back out of this crisis, those with larger 

landmasses of production, agriculture, growing their own crops, 

better diversification, which historically has been the small producer, he is in a position to recover out of this better than the large 

producers who have eroded their cow balance sheet because all 

they have is cows. 

Mr. ROE. Do you have any—just a comment—I don’t really know 

the answer to this either. What is the reason, do you think, that 

milk consumption has gone down? I have read all of your all’s testimony. And it was clear it dropped 30 to 40 percent in the last few 

decades. Any comments about that? 

Mr. SOUZA. He is talking about fluid milk? 

Mr. ROE. Fluid milk. 

Mr. SOUZA. Or total dairy products? 

Mr. ROE. Fluid milk. 

Mr. SOUZA. The total dairy products have actually been reasonably stable. The fluid milk consumption has dropped in certain regions. Actually in California, fluid milk consumption is up this year 

nearly five percent. And again, this is social changes. Restaurants 

typically don’t serve milk, don’t serve lower-fat milks. There are 

other beverage choices. And as more and more people eat out, that 

consumption has probably trailed right along with that about the 

same percentage. 

Mr. ROE. It is just cultural is what you are saying? 

Mr. SOUZA. Yes. 

Mr. KRUSE. I think there is tremendous competition for that customer. There are many more things out there that people can drink 

now as opposed to milk. When I was growing up, that was one of 

the things that we did drink. 

Mr. ROE. And this may have been answered earlier, but what 

percent—and I never did get the answer from Mr. Miller. I don’t 

think it was ever specifically asked. But in the EU, what subsidy 

per hundredweight do they have for their milk as opposed to what 

we have in this country? There seems to be in Europe, France, Germany and the EU more of a subsidy on the exports. Is that correct 

or not? I may be wrong. 

Mr. BOUMA. Historically there has been considerably more. They 

have actually reduced their subsidy levels over the past 4 or 5 

years as the EU has evolved. They were the first to jump back and 

raise those subsidy levels here 6 or 8 months ago, ahead of our 

DEIP program and things, to try to move their surplus product offshore. To be able to tell you the exact ratio compared to ours is—

I don’t know the number, but I do know the number per hundredweight—the value per hundredweight of milk in the EU today is 

the cheapest it has been since the 1960s or 1970s as well. 

85

Mr. ROE. Same ratios we have here. I appreciate your testimony. 

We have, as you do in your areas—and I read with great detail Mr. 

Wakefield’s testimony. And it very much mirrored all of the farmers in our area. And we appreciate anything, any help or advice 

you all can give us to help these farmers right now. They are in 

desperate shape. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Roe. And let me just—as we prepare to conclude—did you have another question, Mr. Neugebauer? 

Mr. NEUGEBAUER. Mr. Chairman, I think a good point was made; 

that we had a MILC hearing with no milk. So I would suggest, as 

Chairman Peterson indicated and you indicated, we are going to 

have more MILC hearings in the future, and maybe a little ice 

cream as well to go along with that, so we can really fully debate 

and discuss this very important issue. 

I am being somewhat facetious and this is a serious problem. I 

think we had some great testimony today. And I think that we 

need to continue that because one of the things that I think we all 

want to do is bring some permanent solutions to make the system 

better, make it work for everybody in the chain from the producer 

to the consumer. 

So I look forward to having future discussions and I want to 

thank our panelists. I think we had some very good panelists. I 

found it very informative and I learned a lot more today. I thank 

you for your leadership in calling this hearing. 

The CHAIRMAN. Well, thank you. And while I appreciate the 

whole Committee’s involvement in this, the real urgency that we 

have in this—but just before we close, I wanted to get a clearer understanding of what the CWT, this Cooperative Working Together 

Program. It would be helpful if we knew exactly how does it work, 

because there has been some criticism saying that it doesn’t really 

help because producers just buy more cows and start over after 

being bought out. Is that an accurate criticism? 

Mr. Wakefield, would you respond too that? 

Mr. WAKEFIELD. The program is set up and it is supported by the 

dairy producers, and the only way that you can participate in the 

CWT program is to support the program at 10¢ per hundredweight. 

You can participate in the program, be selected, and you can go 

back into the program in previous buyouts. 

The current buyout has stipulated that anyone who has participated in the past cannot participate in the future; that is, you cannot be in the program, sell your animal, go back in the business, 

and then get back in the program and be bought out again. You 

cannot do that. 

So anybody that is in the program currently, if they went back 

in the business, they would have to have rocks in their head, the 

way the situation is now. I was born and raised on a dairy farm, 

went to college, and have been involved since the early 1970s. And 

I have never seen it this bad, ever. And it is not pleasant to go 

home and talk to your neighbors. And we are all in the same boat. 

In fact, one of my friends from California, I talked to him the 

other day and he said the new term out there is burnout—what is 

your burn rate, how fast are you burning through your equity? So 

you call your bank and say, how many more days do I have left? 

86

The CWT program, as I stated, is—the cooperative is working together. Two-thirds of the members of the cooperative, which is basically 70 percent of the MILC, are participating in the CWT program. It is run by a very small staff and it has been effective. Mr. 

Scott Brown has done work with this Committee from the University of Missouri. He has done studies for the CWT program and it 

has been effective. 

The CHAIRMAN. Thank you. 

One final thing for you, Mr. Bouma. You mentioned that the 

Greater Southwest Agency has succeeded in managing milk marketing in their region without the need for MILC marketing or a 

hearing for southwest MILC marketing area issues. Do your members supply-manage on the side to help keep their supply and demand in balance? 

Mr. BOUMA. No, sir. We actually have been in the forefront of developing plants, profitable plants, cheese plants. We have a new facility on a drawing board that should be on line, hopefully, in 2011. 

And we have been working to develop our markets which works in 

your part of the country. 

We work very closely with all of the cooperatives in the area. We 

all sit in the same room on a monthly basis, and we understand 

what our production coming at us is, and how we need to work 

through the marketplace to manage that production. We have no 

supply management, but we are definitely in the market development business, and we are working diligently to create products 

that will work in the world market and can be marketed as such. 

When you have complete cooperation of producers from Florida, 

all the way back to the Texas, New Mexico State line, you can sit 

in the room and discuss how this milk needs to move versus having 

Federal Order hearings and trying to find ways to raise differentials, or put in hauling credits, or do different things. And we have 

been very successful in doing that and also in working with our colleagues in the Southeast as we have accomplished that. 

The CHAIRMAN. Very good. Listen. Let me thank everyone. This 

has been an extraordinary hearing. We have spent over 3 hours in 

this hearing today, uninterrupted too. But this is very, very serious, very urgent. We are committed to getting help to the dairy 

farmers and the entire dairy industry as quickly as we can. 

We will be having other hearings within the coming weeks. As 

the Chairman said, both he and I are working cohesively together 

to try to get all of the actors, all of the participants, all of the 

voices heard, so that we can then take this information and move 

forward. And I do believe it will be both administratively with the 

Obama Administration and the Department of Agriculture increasing their efforts, and there is more I feel that they can do. 

And, of course, there is certainly a movement to get legislative 

remedies as well. But whatever it takes, this Committee is devoted 

and committed to bringing help to our dairy industry. It needs it 

badly and we are committed to doing so. 

And with that, this hearing is adjourned. Under the rules of the 

Committee, the record of today’s hearing will remain open for 10 

calendar days to receive additional material and supplementary 

written responses from the witnesses to any questions posed by a 

Member to the panel. 

87

This hearing of the Subcommittee on Livestock, Dairy, and Poultry is adjourned. Thank you. 

[Whereupon, at 1:15 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

88

89

SUBMITTED LETTERS BY HON. DAVID SCOTT

July 13, 2009

Hon. TOM VILSACK,

Secretary,

Department of Agriculture, 

Washington, D.C.

Dear Mr. Secretary:

Thank you for your efforts this year to help alleviate the effects of the continuing 

dairy crisis. The Department of Agriculture dairy product purchases along with the 

utilization of the Dairy Export Incentive Program (DEIP) have been necessary and 

appreciated. 

However, since January of this year, dairy product prices have continued to decline, and at times dropped below price support levels, directly affecting the milk 

prices paid to dairy farmers. 

We urge you to take all steps at your disposal to improve the effectiveness of the 

Dairy Product Price Support Program (DPPSP) to bolster the price of milk. In authorizing the program, Congress provided flexibility to allow the USDA the leeway 

to set higher purchase price levels when necessary: Using the farm bill authority, 

we encourage you to temporarily raise Commodity Credit Corporation (CCC) purchase prices, in a manner consistent with pay-as-you-go policies, for the DPPSP. 

In addition, we urge you to take all practical steps to harmonize CCC dairy product packaging and grading standards with those used in commercial sales on the 

Chicago Mercantile Exchange (CME). Differences between CCC and CME standards 

make dairy product manufacturers reluctant to sell surplus product to the CCC, 

even when such sales would help stabilize milk prices. 

As you know, a new World Trade Organization (WTO) accounting period begins 

on July 1, 2009. We understand that due to the short time frame between when 

DEIP became operational and June 30, 2009, the full allocation for the year just 

ended wasn’t able to be used. However, the complete allocation allowed under WTO 

obligations for the trade year that began July 1, can be fully utilized to help the 

domestic dairy industry if an announcement is made soon. 

Additionally, food banks, feeding programs and other domestic nutrition programs 

continue to run short on dairy products. We urge you to use the Department’s available authorities to address these enduring needs. 

Should you have any questions please do not hesitate to contact Chandler Goule, 

Staff Director, Subcommittee on Livestock, Dairy, and Poultry at [Redacted] or [Redacted]. 

Sincerely,

90


11124034
91


11124035
92


11124036
93

July 21, 2009

Hon. TOM VILSACK,

Secretary,

Department of Agriculture, 

Washington, D.C.

Dear Mr. Secretary:

A serious imbalance in the domestic dairy industry presents an imminent threat 

to the economic stability and welfare of American dairy farmers. In spite of industry-led efforts to balance supply, the overall state of the economy has reduced demand for dairy foods, resulting in an estimated 2009 surplus of 6.5 billion pounds. 

Exacerbating product surpluses is a price-cost squeeze, with milk prices declining 

and feed costs rising. The all-milk price received by farmers averaged $15.90 per 

hundredweight in December, down more than 25 percent from a year earlier nationwide, and 33 percent lower in California, according to USDA data. Milk prices will 

likely be considerably below these levels in the coming months in the Northeast, 

Northwest, Southeast, Upper Midwest, and Southwest as well, if no action is taken. 

During the same period, feed costs jumped. The price of alfalfa, for example, rose 

15 percent to $155 per ton. Feed costs have moderated in recent months, but not 

enough to offset the drop in milk prices. 

Simultaneous to low prices and the national economic recession, federal feeding 

and nutrition programs are at record-high enrollments. As you know, more than 31 

million people qualified for benefits under the Supplemental Nutrition Assistance 

Program (SNAP) in the latter part of 2008. In addition, free and reduced-price 

school lunch program participation is an unprecedented 18.4 million children. 

In light of the disturbing evidence, and consistent with the authority granted the 

Secretary under Section 5 of the Commodity Credit Corporation Charter Act and 

Section 32 of the Act of August 24, 1935 (P.L. 74-320 as amended), we respectfully 

urge you make generous purchases of dairy products as soon as possible for use in 

federal nutrition programs. As we work to address long-term solutions to overproduction, your quick action to remove surpluses from the market is critical to ease 

the immediate crisis and continue to provide wholesome and nutritious products for 

school children, the elderly and others in need. 

Thank you for your prompt attention and consideration of this request. 

Sincerely,

94


11124037
95


11124038
96

July 13, 2009

Hon. DAVID SCOTT, Chairman,

Hon. RANDY NEUGEBAUER, Ranking Minority Member,

Subcommittee on Livestock, Dairy, and Poultry, 

Committee on Agriculture, 

Washington, D.C.

Dear Representative:

America’s dairy farmers are facing an unprecedented economic crisis. 

Tens of thousands of independent producers are at risk of losing their livelihoods if this crisis remains ignored, while consumers across the country 

risk having no local sources of fresh dairy.

Dairy farmers are losing an estimated $200 per cow each month. Producers are receiving as little as $9 for a hundredweight (cwt) of fluid milk, while their cost of 

production ranges from $18–$27 per cwt. If trends continue, we may immediately 

lose up to 20,000 of our nation’s 60,000 family dairies and billions of dollars from 

our rural economies, which are already hurting during this economic recession. 

Today’s dairy crisis is not just the result of overproduction or a sudden decline 

in demand spurred by the global recession. Dairy farmers have been hit with a disastrous combination of factors beyond their control. The price of milk paid to farmers collapsed a record 30 percent in January 2009 alone and 50 percent since July 

2008, the result of a volatile pricing system that is easily manipulated by a few corporate players. Meanwhile, farmers are struggling to pay bills from record high production costs, adequate credit is increasingly difficult to access, milk substitute imports are rising without regulation, and catastrophic drought and other natural disasters are devastating many areas of the nation. 

For the imperative survival of tens of thousands of dairy farmers, the price of 

milk paid to farmers must be changed to reflect their cost of production. At a minimum, a floor price of $18 per cwt should be instituted immediately. Under Section 

608c(18) of the Agricultural Marketing Agreement Act of 1937, the Secretary of Agriculture is required to adjust farm milk price to ‘‘reflect the price of feeds, the available supplies of feeds, and other economic conditions which affect market supply 

and demand for milk and its products.’’ Congress must urge the Secretary of Agriculture to use this authority now. 

Not only are farmers missing out but consumers are, as well. Since the early 

1980s, the spread between farm milk price and retail milk price has steadily widened without any public benefit. Despite today’s unprecedented collapse in farm 

milk price, the retail price for consumers has barely budged. To make matters 

worse, the 2009 first quarter earnings by the top dairy processors showed a substantial increase in profits over the same period in 2008. 

If the crisis continues, we risk the dire situation of entire states devoid of a single 

dairy, therefore forced to rely on factory farms and imported milk substitutes and 

dairy products that compromise public and environmental health and safety. A stable network of local dairy farms is essential for communities to provide their residents with access to safe, healthful food. Furthermore, local dairies are a productive 

and beneficial way to preserve farmland and open space. Fighting on behalf of 

America’s dairy farmer is a matter of food security, farm security and, ultimately, 

national security. 

The crisis in dairy is not about farmers producing too much milk; it is about unregulated and unnecessary imports. This crisis is not about a decline in demand; 

it is about ineffective policies leading to unfair, easily manipulated pricing formulas 

and extremely volatile, unpredictable markets. We know that setting an emergency 

floor price for farm milk will not address all the problems that led to the current 

crisis, but it may be the only way to keep thousands of dairy farmers on the land 

this year. 

You have the power and the responsibility to lead Congress in changing the fate 

of countless hardworking men and women for a better system and a fair deal. The 

situation is dire, the impacts are widespread, and farmers and consumers need you 

to do the right thing right now. 

Sincerely,

American Agriculture Movement Inc.; 

American Agriculture Movement of Arkansas; 

American Corn Growers Association; 

Alabama Sustainable Agriculture Network; 

97

Alaska Farmers Union; 

American Corn Growers Association; 

California Dairy Campaign; 

California Farmers Union; 

Community Alliance with Family Farmers (CA); 

Community Farm Alliance (KY); 

Family Farm Defenders; 

Farm Aid; 

Farmworker Association of Florida; 

Federation of Southern Cooperatives/Land Assistance Fund; 

Food & Water Watch; 

Food Democracy Now!; 

Food First/Institute for Food and Development Policy; 

Iowa Citizens for Community Improvement; 

Iowa Farmers Union; 

Land Stewardship Project; 

Michigan Farmers Union; 

Minnesota Farmers Union; 

Minnesota Food Association; 

Missouri Rural Crisis Center; 

Montana Farmers Union; 

National Family Farm Coalition; 

National Farmers Organization; 

National Farmers Union; 

National Latino Farmers & Ranchers Trade Association; 

Nebraska Farmers Union; 

Nebraska Women Involved in Farm Economics; 

New England Farmers Union; 

New Entry Sustainable Farming Project (MA); 

North Dakota Farmers Union; 

Ohio Ecological Food & Farm Association; 

Ohio Farmers Union; 

Operation Spring Plant (NC); 

Oregon Farmers Union; 

Organic Consumers Association; 

Pennsylvania Farmers Union; 

Pennsylvania Association for Sustainable Agriculture; 

Physicians for Social Responsibility, Oregon Chapter; 

Rocky Mountain Farmers Union; 

Rural Advancement Fund (NC); 

Rural Coalition/Coaliciθn Rural; 

Rural Vermont; 

Seven Generations Ahead (IL); 

Slow Food USA; 

Soybean Producers of America; 

Sustainable Food Center (TX); 

Texas Farmers Union; 

The Cornucopia Institute; 

The Rodale Institute; 

The Second Chance Foundation (NY); 

Washington Farmers Union; 

Women Involved in Farm Economics; 

World Hunger Year.

For more information, please contact Hilde Steffey at 617–354–2922 or 

hilde@farmaid.org.

CC: Members of House Agricultural Committee.

98

SUBMITTED STATEMENT BY HON. GLENN THOMPSON; ON BEHALF OF DIANE HECKMAN


11124039
99

SUBMITTED STATEMENT BY HON. SCOTT MURPHY; ON BEHALF OF PATRICK HOOKER, 

COMMISSIONER, NEW YORK STATE DEPARTMENT OF AGRICULTURE AND MARKETS


11124040
100


11124041
101

SUBMITTED STATEMENT BY HON. PETER WELCH; ON BEHALF OF ROGER ALLBEE, 

SECRETARY, VERMONT AGENCY OF AGRICULTURE, FOOD AND MARKETS

July 17, 2009

Honorable Congressmen Peterson and Scott,

Thank you for accepting written testimony on the situation of the dairy industry 

in the nation. As Secretary of Agriculture for Vermont, I am deeply concerned for 

our state’s dairy farm families and the rural communities and economies of our 

state. I would like to reference the accurate and excellent testimony of Congressman 

Welch from Vermont to this Subcommittee on the dairy situation—I will echo Congressman Welch and provide further information for your consideration. 

Vermont’s dairy farms are an economic engine for our state. Vermont is a milk 

exporting state due to our relatively small population, fewer than 675,000 people, 

and large number of dairy farms—1,046 as of July 1, 2009. Vermont is an exporter 

of unprocessed fluid milk and fully processed dairy products to southern New England and many other East Coast states. The sale of unprocessed milk brings over 

$1 million per day into the State of Vermont. These funds are spent by dairy farmers in their rural communities and provide jobs in transportation and processing in 

Vermont. Due to extremely low milk prices our rural communities are suffering 

right along with our dairy farm families. 

With the decline in milk prices, the average size Vermont dairy farm is receiving 

over $100,000 less income this year. Multiplied by Vermont’s total number of farms, 

the decline in income projected for Vermont dairy farms in 2009 is over $116 million. This represents money that will not be circulated in local economies—the vet 

will go unpaid, the feed dealer will go unpaid, the fertilizer dealer will go unpaid, 

no new equipment can be purchased and so on. Farmers are proud and want to pay 

their bills but the deep decline in milk prices is making that impossible at this time. 

Added to this issue is the current credit crisis. Many of Vermont’s agriculture related businesses, such as feed and fertilizer dealers, are unable to extend the same 

credit terms to dairy farmers that they have in the past. These related businesses 

are unable to obtain credit from their primary lenders to be able to extend credit 

to dairy farmers. One fertilizer dealer in Vermont had to go from 12 months for repayment with interest to 90 days for repayment in 2009 due to a lack of credit from 

their lending institution. When the extension of credit to dairy farmers from these 

businesses ends, large numbers of dairy farmer operations will be forced to cease 

operating, changing forever the working landscape. 

Many in our state have concluded that Vermont’s dairy farmers need to diversify 

their operations to be less reliant on the price of milk for their livelihood. I have 

been contacted by a dairy farmer that also raises 500 turkeys for Thanksgiving and 

produces 1,000 gallons of maple syrup a year, harvests trees for lumber and pulp 

wood from the farm’s woodlot as well as milking 65 cows—a truly diversified operation. This farmer is extremely concerned. Due to the overall economic downturn, 

many avenues used to generate additional income have dried up. Sales of maple 

syrup are flat, sales of logs and pulp wood are non-existent and this farmer is worried that the turkeys he is raising for Thanksgiving will not sell due to the overall 

poor economy. Many dairy farmers are diversified but even with this diversification, 

it’s the low price they are receiving for their milk that could very possibly put them 

out of business. This particular farmer estimates that he needs $5 to $6 more dollars per hundredweight to break even. Work harder. be more efficient and diversify 

is still no guarantee of success when milk prices tumble to rock bottom. 

Saving Vermont’s and New England’s dairy industry will require both immediate 

action and long-term reforms. The most immediate assistance we can provide dairy 

farmers to survive the current crisis is an increase in Milk Income Loss Contract 

(MILC) payments. While MILC has helped ward off full-scale disaster so far, the 

disparity between the price of milk and the cost of production warrants a reevaluation of its payment formula. With farmers spending nearly $19 and earning back 

less than $12 for every hundredweight they produce, MILC payments between $2 

and $3 are simply not enough to keep them in business. 

I and several of my colleagues have been advocating for an increase in MILC payments since this crisis began. The Northeast Association of State Departments of 

Agriculture wrote to Congress in April asking that the MILC payment rate be 

raised from 45 percent to 79 percent and to revisit the current cap of 2.95 billion 

pounds of annual production. I support this proposal as a short term solution to help 

put money back in the pockets of producers until prices recover. I realize there is 

a reluctance to re-open the 2008 Farm Bill, but I would urge the Chairman and the 

Committee to recognize the extreme nature of this crisis and to make an exception. 

102

Secretary of Agriculture Tom Vilsack is considering increasing the Dairy Price 

Support Program from its current level of $9.90 per hundredweight. In the last farm 

bill, the Dairy Price Support Program was changed to allow adjustment of individual prices for products involved in the program under Authority of the Secretary. 

Increasing the Dairy Price Support Program to $12 equivalent price as suggested 

by Senators Leahy and Kohl (and other Senators) would bring immediate relief to 

dairy farm families across the nation. 

I would like you to consider working with USDA through the Federal Order System to increase Class I differentials. Class I Differentials have not been raised, in 

the majority of Federal Orders, since the year 2000 when the new system of milk 

pricing was introduced. Congress was intimately involved in the reforms to the Federal Order System that were implemented in 2000. The current Class I differentials 

do not take into account the rapid increase in transportation costs due to increased 

fuel costs or the affect of the ethanol boom on dairy grain costs. These increases 

in fuel costs have been directly bourne by dairy farmers through fuel surcharges 

from haulers that are not covered by the purchasers of the milk in many cases. Increased feed costs due to the increased use of corn for ethanol production has also 

hit dairy farmers hard. Increasing the Class I differentials in all Federal Orders 

would assist in covering the increased cost in fuel, offsetting or eliminating fuel surcharges to dairy farmers and providing an enhanced milk check to assist in covering 

increased feed costs. 

I would like to encourage the House Agriculture Subcommittee on Livestock, 

Dairy, and Poultry to consider setting a floor under the Class I mover as a method 

to increase income to dairy farmers. The floor under the Class I mover, at a minimum, should equal the current trigger price for the MILC program at $13.69/cwt. 

This figure was set in 2001 when the MILC was enacted and has not been adjusted 

for inflation. The rate of $13.69 should be indexed to the rate of inflation since 2001 

and then used as the Class I Floor for the MILC program. 

The Northeast states began working jointly on dairy issues with the formation of 

the Northeast Dairy Leadership Team through an MOU between New York, Pennsylvania and Vermont. All Northeast states work together through the Northeast 

Association of the State Departments of Agriculture. There may be several opportunities for the states across the country to work together more closely on dairy pricing issues but authority is needed from Congress on this issue. I would encourage 

you to consider the potential of regional food security by the states working together 

to set milk prices that could reflect supply and demand in their regions. 

I would like to thank you for the opportunity to provide testimony to the House 

Agriculture Subcommittee on Livestock, Dairy, and Poultry on the current dairy crisis in the State of Vermont and some possible short-term solutions to this devastating issue. 

Sincerely,

ROGER ALLBEE, Secretary,

Vermont Agency of Agriculture, Food and Markets. 

SUBMITTED STATEMENT BY HON. PETER WELCH; ON BEHALF OF KYLIE QUESNEL, 

PERRY BROOK DAIRY, ORLEANS, VERMONT

Our parents started farming soon after high school. They left our grandfathers 

farm and went on their own renting stalls from a local farmer to gain equity and 

cow numbers until they could rent their own facility. In 1988, with our cow numbers 

at 300, we had outgrown the rented facility. My Dad and Mom (Lorenzo and Amy) 

purchased Perry Brook Dairy. They took out a loan to build a new state of the art 

barn and milking parlor. Our family moved and started on a journey that would 

eventually lead to the three of us children returning to the farm. 

In 2003, Kylie graduated from Cornell with seven great job offers but after careful 

thought, decided to return home to the farm. With a degree in animal science and 

half of my credits in business I decided that joining the family business would be 

the best use of my degree and allow me the greatest speed for advancing my own 

career. In 2004, Kirstin graduated from Cornell and took a job with Elanco and 


11124015
103

worked in the Midwest until she decided to return home in 2007. Also in 2007, Jed 

returned home to join the business with a degree from Northwestern. All three of 

us decided that we had different interests within our business and felt that we 

would have a better chance at success if we farmed together versus separately. 

While this has been a good decision for managing our dairy, it has limited us and 

forced us to assume at times greater risk because when milk price has dropped, we 

are only eligible for MILC for 6 weeks of production because of our size. We currently milk 950 high production cows with nearly 2,000 total head. 

Last March, I applied for a young farmer loan through FSA and purchased the 

farm next door on my own. This purchase allowed us to bring our heifer’s home from 

the heifer grower to save some expense. I had hoped to milk cows on that dairy as 

well. As the milk price plummeted, my business plan changed and now my farm 

only houses heifers. 

At this time our dairy is highly leveraged. We are just coming off from a new purchase that required large amounts of capital. As milk price has dropped our goals 

and plans have been put on the back burner and we now sit waiting for this storm 

to change. Our gross income is down nearly $1 million in the first part of the year. 

The average cost of production in our area is $17.88/cwt and our last advance check 

was $10.50/cwt. We received $51,000 through the MILC program to compare with 

a loss of $1mil or .20/cwt annual production. 

We have worked so hard this year to hold onto our business. We have sold two 

of our farms this spring at a loss to reduce our monthly payments to keep the heart 

of our farm going. We have sunk below the equity level acceptable for Farm Credit 

to continue to extend us operating money. We have concern about where our relationship with Farm Credit is going although we have always made our payments 

they have made us aware that we are a concern for them. With FSA not having 

money at this time, we have found ourselves unable to borrow money to keep our 

business afloat. Obtaining credit is essential for our business and at this time we 

struggle to find where that credit will come from. 

We are working with the power company each month to keep the power on in the 

barns and in all of the farm housing. Our family has not taken a paycheck from 

the dairy since last fall and has been forced to discontinue our health insurance because of the lack of dollars to pay for it. We do not qualify for the state health insurance at this time either. In order to qualify we must go without insurance for a complete year and then reapply. We have had to let three employees go and cut costs 

everywhere. We want to farm, we believe in producing a healthy product for consumers. We are one of the largest employers in our town and have forsaken our own 

income to keep our employees wages as steady as possible. Our industry needs a 

lifeline. Our family contributes to our community through volunteering as 4–H leaders and hosting non-farm children through the summer on the dairy, we are on the 

Otter Creek Conservation Board, are on the farm bureau board and have a progressive summer internship program for college students. In our industry we serve on 

many different boards and young farmer groups and are well regarded among our 

peers. We also are proud to keep our land open to VAST trail system and hiking/

ATV trails. Our success helps our community and we are playing with all chips in. 

We are at a critical breaking point and the toll that this stress is playing on us personally is very difficult. We watch our dad’s health deteriorate. The stress of our 

situation has caused depression and anxiety in our family. Each day that goes by 

we continue to navigate through these difficult times and rely on a failing market 

we are less sure about our future. In our situation, liquidation is not possible. We 

would not likely receive enough money through liquidation to cover our expense and 

walking away would leave all five of us along with ten employees homeless and with 

no savings or retirement. We have discussed all possibilities and feel that the consequences of bankruptcy for our community and our family would be devastating. 

We feel that our business ceasing would consequently mean the elimination of one 

of the vets in our county and potentially have a terrible affect on the local feed companies and suppliers that we have worked with for many years. 

My siblings and I would like the opportunity to purchase the remainder of our 

parents business but without major change in income, we would never make it. We 

share with you our story but recognize that our story is being repeated all across 

our country and we send a desperate cry to leadership, please help our industry, 

we are the fabric of the American dream and such an important part of our great 

country’s landscape. We need safe food in America and our family wants to be a 

there to meet that need! 

If you have ideas for our personal situation, please feel free to share them with 

802–989–0400! We will also continue to share our ideas for industry solutions with 

your office. 

104

SUBMITTED STATEMENT BY DAIRY FARMERS OF AMERICA

Thank you for the opportunity to submit comments. Dairy Farmers of America is 

a national cooperative owned by nearly 18,000 dairy farm members in 48 states. 

The members of DFA produce approximately 20 percent of the nation’s milk supply. 

The economic crisis facing the dairy industry is unprecedented. During the last 

twelve months, billions of dollars in equity have been lost by the U.S. dairy industry. Family farms, in all geographies of the U.S. and of all sizes, are on the brink 

of collapse. The intensity of the crisis has escalated during 2009. During January 

through April this year, the U.S. average all-milk price reported by USDA/NASS 

has averaged $4.80 per cwt. below the U.S. average cash cost of milk production, 

as reported by USDA/ERS. Extrapolated across U.S. milk production during the 

first 4 months of 2009, the loss would be in excess of $3 billion. More recently, May’s 

milk-feed index rate was at its lowest level since that calculation was created over 

2 decades ago and milk prices have dipped further downward this month. This financial loss leads to the loss of small businesses, jobs in rural America, and a 

shrinking tax base for schools and public services. 

Factors Contributing to Today’s Crisis

milk production in New Zealand and early implementation of export subsidies in the 

European Union. The effect of these factors has been a sharp decline in U.S. dairy 

exports, and domestic inventory levels that are keeping dairy commodity prices at 

extremely low levels.

Efforts to Support Dairy Farms 

The U.S. dairy industry, as individual parties, as a collective industry, and in collaboration with USDA, has worked to address this critical problem of excess supply, 

which is estimated at 6.5 billion pounds of milk (three percent of annual production). Despite the long list of initiatives, a gap between current supply and demand 

remains, and dairy commodity prices remain at levels much below farm costs of production. The following is a list of some of the steps taken within our industry.

1. Cooperatives Working Together (CWT) is an industry initiative funded by approximately 2⁄3 of this nation’s dairy farmers with the goal of increasing exports 

of dairy products to meet growing international demand and managing excess 


11124013 11124014
105

production of milk. On July 10, CWT announced the second Herd Retirement 

Program this year designed to reduce milk production. The first program reduced milk production by 1.96 billion pounds on an annual basis.

2. USDA has implemented the Dairy Export Incentive Program (DEIP). This 

program was announced on May 22 and resulted in the commitment to export 

48.6 million pounds of dairy products through June 30, the end of the DEIP 

marketing year. Secretary Vilsack has announced the remaining DEIP volumes 

would be eligible for bonuses during the 2009–2010 marketing year. DEIP has 

the ability to subsidize exports of:

• 150 million pounds of nonfat dry milk.

• 22 million pounds of butter.

• 6.7 million pounds of cheese.

These product volumes represent approximately 1.5 billion pounds of milk. 

DFA members are very appreciative to the Administration and Sec. Vilsack 

for making the DEIP program available to export dairy products in an environment with a short-term decline in global demand.

3. USDA feeding and nutrition programs announced by Sec. Vilsack have the 

capability to use dairy products equivalent to approximately 2 billion pounds of 

milk. We urge full use of this very beneficial program to assist needy consumers 

as well as dairy farmers.

4. DFA has supported the National Milk Producers Federation (NMPF) request 

to provide for sales of cheese to the Commodity Credit Corporation (CCC) which 

meet packaging specifications commonly accepted in commercial channels.

5. DFA has also supported the NMPF request to increase the level of the Price 

Support Program for a temporary 3 month period to immediately increase dairy 

farmer income.

6. DFA supports increased dairy purchases for distribution through USDA nutrition programs.

7. DFA’s Board of Directors established a new Price Stabilization Study Committee to draft guiding principles for the organization to use in discussion of 

long-term solutions to today’s situation.

8. NMPF has created a Task Force that is charged with seeking long-term solutions to the margin volatility faced by U.S. dairy farmers.

Despite these short-term and long-term initiatives, market conditions continue to 

be bleak for the dairy industry. Farm level prices for June continue to be near historic lows, and based on current commodity prices, the hope of recovery in July or 

August gets weaker with each passing day. 

We are very concerned that milk supplies will decline dramatically due to the loss 

of equity on dairy farms and little sign of a turnaround. It is likely that many 

dairies will decide to liquidate rather than store a year’s supply of silage beginning 

in September. Additionally, this crisis is so severe and of such duration that farm 

lending institutions will likely withhold additional credit for many dairy farmers, 

causing them to go out of business. A likely scenario suggests a significant reduction 

in milk production coinciding with an improving domestic and global economy. As 

the economy improves demand for dairy products and exports will increase. However, reductions in milk supply will likely result in dairy product shortages causing 

dairy prices to approach or exceed previous record levels. This will create consumer 

resistance to higher prices and reductions in demand that will lead to a continuation 

of brutal cycles. 

The dairy sector has a history of identifying programs to help dairymen and 

women through difficult times. Next week, the industry, under the leadership and 

guidance of the National Milk Producers Federation (NMPF) will be reviewing and 

discussing policy proposals in an effort to bring a policy recommendation to Congress. DFA is supportive of this process and is eager to identify policy options which 

will decrease volatility in milk prices in the future and bring stability to our sector. 

Following this process, we hope to work with Congress to make the necessary 

changes to Federal dairy policy in order to allow the dairy sector to thrive. 

Thank you for allowing Dairy Farmers of America to submit comments on this 

important issue. We look forward to working with Congress and others in the industry to make positive changes for the dairy industry. 

106

SUBMITTED STATEMENT BY STEVEN ETKA, COORDINATOR, MIDWEST DAIRY COALITION

Chairman Scott, Ranking Member Neugebauer, Members of the Subcommittee:

Thank you for holding this hearing today to discuss the economic conditions facing 

the dairy industry. My name is Steven Etka, and I am the Coordinator and Washington Representative for the Midwest Dairy Coalition. 

The Midwest Dairy Coalition is an alliance of dairy cooperatives, associations and 

state agencies working together to provide an Upper Midwest voice on Federal dairy 

policy issues. Our membership includes Associated Milk Producers, Inc., Bongards’ 

Creamery, Cooperative Network, Family Dairies USA, First District Association, 

Manitowoc Milk Producers Association, Mid-west Dairymen’s Company, Milwaukee 

Cooperative Milk Producers, and the Wisconsin Department of Agriculture, Trade 

and Consumer Protection. 

As suggested by the title of this hearing, the dairy economy is in crisis. Milk 

prices have fallen farther than expected, and the recovery has been slower than anticipated. In June of 2008, the Class III milk price was $20.25 per hundredweight. 

One year later, the June 2009 Class III price is $9.97 per hundredweight. Dairy 

product prices have dipped below support levels repeatedly since January of this 

year. With milk prices paid to farmers less than half of what they were a year ago, 

the economic stress in dairy-dependent regions like the Upper Midwest is severe. 

This economic pain is being felt in all regions of the country. 

The downturn in dairy is as bad as it has been probably since the depression, primarily because of general economic conditions that drive down both domestic and 

export demand. The financial crisis also spills over into farm lending in general and 

dairy specifically. As the down cycle continues, bankers increasingly hold the key 

to whether some great farmers will be able to continue in business. Consistent anecdotal evidence suggests that dairy farmers are losing about $100 per cow per month. 

When this happens, dairy farmers either bleed their equity or borrow, which is not 

currently an option due to financial markets. Literally the milk production infrastructure in the U.S. is at stake. Recovery and TARP monies might be used to make 

a difference in the short run if bold and innovative solutions are tried. 

It is with this background that we offer the following suggestions. 

Milk Income Loss Contract (MILC) Program and Dairy Product Price Support Program (DPPSP): Changes Need to Improve Effectiveness 

Without a doubt, the economic safety net provided by the Milk Income Loss Contract (MILC) Program has provided significant financial assistance to dairy farmers 

nationwide during times of low prices. The direct assistance provided the MILC program has benefits community wide, as the dollars multiple several times over 

throughout these dairy-dependent local economies. 

The MILC Program was first authorized in the 2002 Farm Bill. The modifications 

made in the 2008 Farm Bill to add a feed-cost adjuster and to restore the original 

45 percent payment rate have provided meaningful enhancements to the program. 

The Midwest Dairy Coalition worked hard for and has strongly supported the MILC 

program in both the 2002 and 2008 Farm Bill deliberations. 

Unfortunately, the current dairy price chasm that we’re experiencing suggests 

that the MILC program by itself is not sufficient. The price dairy farmers are receiving for their milk is so far below the cost of production that they are losing thousands of dollars a month, even with the MILC program assistance. Congress should 

consider a temporary increase in the 45 percent MILC payment rate to address the 

emergency price situation. 

As originally envisioned, the MILC program was intended to be a partner to the 

Milk Price Support Program, which was modified by the 2008 Farm Bill to become 

the Dairy Product Price Support Program (DPPSP). The two programs working together, in theory, would provide the assistance and stability to allow viable dairy 

producers to weather the storm of low price cycles. But the theory remains untested, 

because the DPPSP is not fully functioning, leaving the MILC program to do all of 

the heavily lifting by itself, a burden it is not able nor was it designed to bear. 

Therefore, we are urging the Secretary to take the following immediate remedial 

actions to bring the DPPSP back to life and serve its intended purpose: 

(1) Increase the Commodity Credit Corporation (CCC) purchase prices for butter, 

powder and cheese 

The 2008 Farm Bill sets minimum CCC purchase prices levels for butter, powder 

and cheese, but provides flexibility for those prices to be increased above those levels when necessary. We are urging the Secretary to take immediate action to increase the price support levels to reflect the additional costs that dairy product manufacturers face when selling product to the CCC relative to commercial sales. 

107

(2) Restore Pre-2009 Policy of Paying a Premium Price for Consumer-Ready, ValuedAdded Products in Packaging More Readily Usable in USDA Nutrition Programs and Food Donation programs. 

Historically, CCC has paid a premium price under the DPPSP to purchase more 

consumer-ready value-added dairy products, such as pasteurized processed cheese in 

2 or 5 pound boxes, because they are more readily used in USDA Nutrition and 

Food Donation Programs, and do not require further processing, as do large cheese 

blocks and barrels. 

However, in January of 2009, just as milk prices were collapsing, the Bush Administration issued a notice to dairy product manufacturers informing them that the 

policy of purchasing these value-added products was ending. Unfortunately, the current Administration has continued this policy. 

We are urging that USDA reinstate its pre-2009 policy of paying a premium 

prices for value-added, ready-to-use dairy products, such as pasteurized processed 

cheese. This will not only help stabilize milk prices, but will also help meet the 

growing needs of the food donation programs during this time of high demand. To 

the extent that there is any question about USDA’s authority to continue this practice under the revamped statutory authority for the price support program, we believe that the DPPSP authority can be married with that of the CCC Charter Act 

of 1933 to address these concerns. 

(3) CCC Should be an Active Buyer of Dairy Products on the CME at Established 

Price Support Levels 

For reasons described below, many dairy product manufacturers are reluctant to 

sell product to the CCC. We are urging the CCC to become an active buyer of dairy 

products on the CME at the established price support levels, instead of the current 

practice of being a passive buyer of dairy products by simply offering to buy product 

at the established CCC purchase price. Because the CME prices are used widely as 

a benchmark price for off-market dairy product sales, we believe that the CCC’s active participation in the CME would significantly enhance the effectiveness of the 

DPPSP. We believe the Secretary has the authority to buy products for CCC directly 

on the CME if administratively he waives the CCC product and packaging specifications which are outdated, impractical and costly. 

(4) Take All Practical Actions Available to Harmonize CCC Packaging and Grading 

Standards with Commercial Standards Set by the Chicago Mercantile Exchange 

(CME) 

Currently, CCC packaging and grading standards differ from commercial standards established by the Chicago Mercantile Exchange (CME). Therefore, manufacturers are reluctant to sell product to the CCC because they have to change their 

manufacturing procedures in order to address those standards. Because of the discrepancies between CCC and CME standards, and periodic delays in receiving payment the CCC, there are additional costs associated with selling product to the 

CCC. We are urging USDA to undertake a full review of their dairy product packaging and grading standards, in dialogue with the dairy industry, to investigate 

practical ways to harmonize CCC standards with those used for commercial sales. 

Additional Efforts Necessary to Purchase Cheese for USDA Nutrition and 

Food Donation Programs 

USDA has taken action to use existing CCC stocks of nonfat dry milk for food 

donation programs. This will be helpful in the long-run to prevent excessive stocks 

from hanging over the market, so we appreciate the Secretary’s efforts in this regard. According to food aid organizations such as Second Harvest, food pantry demand is up very significantly from 1 year ago. Dairy products can provide healthful 

food to children and families in need. 

However, we believe that USDA should take additional action to use all authorities at the Secretary’s disposal to make purchases of cheese products directly off the 

market for use in USDA Nutrition and Food Donation Programs. Direct purchases 

off the market will not only have the most direct and immediate effect in stabilizing 

milk and dairy product prices, but will help address the humanitarian food needs 

for low-income populations.

Federal Milk Marketing Order Reform 

The dairy farmers and industry leaders of the Upper Midwest have long voiced 

concerns about the discriminatory pricing policies inherent to the Federal milk marketing order system. It is widely documented that the bias of the current system 

toward Class I (fluid) milk has a downward effect on the value of milk used for manufacturing. For regions like the Upper Midwest, where 85–90 percent of the milk 

is used for manufactured dairy products, this discrimination is of great concern. In 

108

addition, as Class I utilization percentages nationwide continue to decline, the outdated Class I bias of the FMMO system must be revisited. We look forward to working with the Committee and USDA to reform the system in favor a more coherent 

approach to milk pricing. 

Trade Issues 

We greatly appreciate the Secretary’s recent announcement of the DEIP allocation 

for the 2009–2010 marketing year, and urge quick action to fill these allocations. 

The delay in announcement of the 2008–2009 DEIP allocations caused much of this 

allocation to go unfilled, which is a regrettable lost opportunity to help stabilize 

milk prices. Hopefully, the 2009–2010 experience will be more positive. 

In the world of dairy, small imbalances in supply and demand result in large 

changes in milk prices. We cannot ignore the fact that dairy imports and exports 

play a role in that overall supply-demand equation. The strong milk prices of 2007 

and 2008 were driven in large part by tight supplies of dairy products in the world 

market, and a related surge in U.S. dairy exports. The milk price crash of 2009 was 

related in part to the loss of those markets. The unique, high world market price 

situation of 2007 and 2008 allowed the U.S. to take advantage of the export market 

at prices that were profitable to U.S. dairy farmers. However, in general, world market dairy prices are often below the U.S. cost of production. While we should look 

for ways to expand our export opportunities, it defeats the purpose if those markets 

come at prices that are unsustainable to U.S. dairy farmers. 

There have been times in the last decade were dairy product imports have significantly affected domestic price levels. There continue to be dairy product import categories, such as milk protein concentrates (MPCs), for which there are no limits. 

Whenever U.S. dairy prices start to recover, our market will once again be vulnerable to lower-priced MPC imports from our competitors. The Midwest Dairy Coalition continues to support efforts to establish tariff rate quotas on MPC imports, to 

bring about greater consistency with import rules in place for other dairy products, 

and to close the loopholes that have encouraged circumvention of those rules. 

Long-Term Solutions Needed to Address Wide Price Volatility 

While immediate action is needed to address the current milk price crisis, the current situation has sparked an industry-wide discussion about long-term solutions to 

prevent the wide volatility in milk prices. The bottom end of the wide price swings 

of the last decade have been disastrous for dairy farmers, and the high ends of the 

price cycles are leading dairy product users to seek out alternatives and reduce their 

use of dairy products, with long-term effects on dairy demand. Indeed, neither side 

of these wide price swings is beneficial to dairy farmers. 

Many plans are being discussed in the industry to institute long-term policies to 

prevent the type of price crisis we are now experiencing from ever occurring again. 

While there is no national consensus of the best approach to achieve this goal, we 

strongly urge the Committee and the Secretary of Agriculture to assist the industry 

in these efforts to develop and analyze options for the long-term viability of dairy 

farming in this country. 

Thank you for the opportunity to submit this testimony. 

SUBMITTED STATEMENT BY NATIONAL FARMERS UNION

National Farmers Union (NFU), a nationwide organization representing more 

than 250,000 farm, ranch and rural residents, submits the following testimony for 

the record. 

Since the peak of dairy market prices in 2008, the market has precipitously collapsed to historic low levels and is now well below the cost of production. NFU has 

long supported a comprehensive dairy policy that accounts for dairy profitability, income stabilization, limitation on imports, competitive markets and supply-inventory 

management. 

Dairy farmers of all sizes and across all regions of the country are continuing to 

battle an unprecedented economic disaster. From coast to coast, today’s situation is 

untenable. Equity has been rapidly disappearing, market prices are not rising above 

1970 levels and creditors are cutting off producers—yet there is no relief in sight. 

National Farmers Union has worked throughout the past seven months to construct 

workable and immediate solutions for producers. Today’s hearing will provide the 

subcommittee with input on the economic conditions facing the dairy processing industry. This NFU testimony aims to provide solutions for dairy producers, who are 

going broke as a result of failed federal dairy policies. 

The NFU board recently voted to encourage Congress to pass a dairy stimulus 

package to provide an adequate safety net for producers in addition to establishing 

109

an inventory management program. Furthermore, the board expressed support for 

the concept of the Federal Milk Marketing Improvement Act of 2009. Most importantly, the board expressed the need for producers to receive an immediate financial 

lifeline to sustain their livelihoods through this unprecedented situation. 

Time is of the essence for these producers. Many continue to lose $100–$200 per 

dairy cow per month. Regardless of operation size, many producers have been issued 

notice from feed suppliers that they will no longer receive feed, and creditors across 

the country are terminating lending. This situation is having a ripple effect across 

rural America, devastating rural citizens and further weakening the nation’s already ailing economy. 

America’s dairy farmers are some of the hardest working individuals feeding our 

nation and the world. Congress, the administration and the American public must 

not wait any longer in offering these individuals a lifeline. 

In 2007, NFU hosted a dairy summit of producer-based organizations to seek solutions, both long and short term, for dairy producers. The following three principles 

were identified and agreed to by participating organizations:

• Return on investment greater than cost of production, PLUS a profit from the 

market;

• Reform of the Federal Milk Marketing Order system; and

• Restoring competition to a non-competitive dairy market.

While no single action by Congress or the administration will immediately resolve 

today’s crisis, a suite of options does exist to ensure producers will survive this devastating economic period. Options to achieve the above mentioned principles are outlined below, categorized by short-term action and long-term action: 

Short Term Options: 

• Establish safety net support price that is fair and equitable to all producers—

Establish an emergency Class III floor price of $18/cwt by existing authorities 

of the Secretary for a period of 6–9 months. During this period, USDA should 

launch the FMMO review as established in 2008 Farm Bill. Additionally, we 

support efforts to launch an investigation at the CFTC into potential manipulation at the CME;

• Continue countercyclical MILC safety net—Approve Sen. Gillibrand’s legislation 

to double MILC payment rate (S. 1398);

• Eliminate make allowance. If not eliminated, make it variable and tied to producers’ cost of production;

• Require the NASS survey to be audited periodically;

• Maintain standards of identity on dairy products and move to increase fat content standards in fluid milk;

• Deploy low-interest and emergency loans, including a foreclosure mitigation 

program to stem the tide of loan foreclosures;

• Product purchase for donations to food banks and other nutrition programs;

• Allow producers to label milk as free of artificial growth hormones;

• Accurate recording and publishing of import data from ERS; and

• Ensure imported dairy protein blended products are accounted for and categorized appropriately according to the common or commercial meaning of the 

term ‘‘milk protein concentrate’’, not allowed to disguise skim milk powder MPC 

to avoid tariffs and the tariff rate quota. 

Long Term Options 

• Efficient transmission of price signals should be established. Today’s market is 

non-functioning with imbalance of buyers/sellers;

• Pass the Milk Import Tariff Equity Act to address unlimited imports flooding 

U.S. domestic market.

• Include CA and all regions/areas in the FMMO;

• Correct pooling/de-pooling provisions in the FMMO;

• Eliminate bloc voting;

• Allow ‘‘no’’ vote on amendments, yet maintain FMMO;

• Do not place financial burden of transportation onto producers;

• Establish three-part pricing formula to include: cost of production, Consumer 

Price Index and Chicago Mercantile Exchange;

• Resolve distribution and supply management challenges;

110

• Repeal forward contracting authority;

• Support funding for academic antitrust research;

• Intensify review process for proposed dairy mergers;

• Promote smaller coops and increase oversight of coop management to ensure interests of producers are met;

• Passage of S. 889; and

• Eliminate authority for dairy import promotion assessments.

National Farmers Union has written to Congress and the administration calling 

for action in response to the dairy crisis. Included with this testimony is a copy of 

these letters. Our producer members are prepared to engage in immediate conversations with members of this subcommittee and any member of Congress willing to 

help resolve today’s crisis and ensure a similar situation is not repeated in the future. 

ATTACHMENT 1

June 3, 2009

Hon. TOM VILSACK,

Secretary,

Department of Agriculture, 

Washington, D.C.

Dear Secretary Vilsack:

As the dairy market collapse spreads throughout the dairy industry and impacts 

producers across the country, it is critical for immediate action to occur. With demand shrinking, market prices collapsing, input costs increasing and reduced credit 

available, dairy farmers are facing a unique set of challenges on multiple fronts. 

While the dairy sector is not unique in its economic struggles, the immediacy of the 

market collapse requires creative policy solutions. 

On behalf of National Farmers Union’s (NFU) independent dairy farmers nationwide, I write to thank you for the initiatives the department has taken thus far to 

address the dairy crisis. I call upon you for additional help to resolve the immediate 

situation and proactively create workable policy options for the future. Your March 

26, 2009 announcement to disperse 200 million pounds of nonfat dry milk (NFDM) 

for domestic feeding programs and expeditiously release Milk Income Loss Contract 

(MILC) program payments was welcome news for dairy producers. Unfortunately 

the severity of today’s situation requires additional action. 

Each month NFU tracks and publishes the farmer’s share of the retail food dollar. 

Our latest data shows consumers paying $4.99 for a pound of cheddar cheese while 

the farmer receives less than $1.00; farmers receive $0.97 out of the $2.99 consumers pay for a gallon of fat free milk. At a time when more consumers are eating 

at home, thereby increasing retail dairy product sales, producers are losing money 

on every gallon of milk sold. To make the situation more painful, producers read 

media stories of double-digit profit margins for dairy processing companies. 

NFU has called upon Congress to convene hearings to reexamine the impact of 

food prices on American families. Twelve months ago, food processing companies 

were quick to point the finger at higher agricultural commodity prices as the cause 

of increased retail food prices. Since commodity prices have collapsed and retail food 

prices have not tracked in similar fashion, a full examination is long overdue. 

Furthermore, the discussion of unfettered imports has not been given adequate 

attention when evaluating the current crisis. For many years, NFU has supported 

closing the milk protein concentrate (MPC) and casein loophole created by the Uruguay Round agreement, which allows for the importation of MPC and casein tarifffree. Without question, the overflow of imported, ultra-filtered dried protein product 

displaces American-produced milk in the production of dairy products. MPC was a 

relatively new product during Uruguay Round negotiations and after implementation of World Trade Organization (WTO) rules in 1995 became commercially viable. 

Additionally, a lack of enforcement by the U.S. Customs Service has allowed dairy 

protein blends to be imported in circumvention of U.S. tariffs and tariff-rate quotas. 

Much of the imported dairy protein blended products are essentially equivalent to 

skim milk powder and do not satisfy the common or commercial meaning of the 

term ‘‘milk protein concentrate.’’ Therefore, they should be subject to tariff provisions covering powdered milk imports. Moreover, a 2001 Government Accountability 

Office (GAO) report stated ultra-filtered milk is not nutritionally equivalent to fluid 

milk nor has the product undergone mandatory safety tests under the Food and 

111

Drug Administration’s ‘‘Generally Recognized as Safe’’ rules. The impact of imports 

must become a central part of the discussion when trying to address today’s crisis. 

During NFU’s annual meeting, our member-delegates approved a special resolution focused on the dairy crisis. The resolution called on Congress and USDA to take 

all appropriate actions to sustain family dairy farmers through this period of economic uncertainty. Below are the specific requests to USDA:

• Immediate implementation of the 2008 Farm Bill provisions related to the 

FMMO system to increase efficiency and be more responsible to the market, including a USDA study and report on the impact of misreporting of nonfat dry 

milk prices on federal order minimum prices; and a FMMO commission to 

evaluate current federal and state milk pricing regulations to provide recommendations for changes to Congress and USDA;

• Establishment of a dairy price support program that accounts for the total cost 

of production. The structure of the program should allow producers to sell milk 

at a reasonable profit without building government stocks of products;

• Auditing and enforcing the current definition of milk as related to standardized 

cheese and yogurt;

• Immediate oversight of the dairy product pricing system to ensure transparency, fairness and competitive markets;

• Accurate recording and publishing of import data from ERS;

• Purchases of domestic dairy product and hamburger by the U.S. Department of 

Agriculture for domestic and international nutrition programs; and

• Immediate release of the MILC payments due to producers.

The special policy resolution further called on Congress to do the following:

• Make low-interest and emergency loans available, including a foreclosure mitigation program, to stem the tide of loan foreclosures as a result of the current 

economic climate;

• Eliminate authority for dairy forward contracting, which allows processors to 

shift all economic risk onto producers, encourages vertical integration of America’s dairy production and dismantles of the Federal Milk Marketing Order 

(FMMO) system;

• Eliminate authority for collection of dairy promotion program assessments from 

importers;

• Pass legislation closing the MPC and casein loophole as established during the 

Uruguay Round; and

• Oppose efforts that would prohibit producers from labeling milk as free of artificial growth hormones.

More than 150 individuals gathered on May 30 in Manchester, Iowa to rally for 

higher milk prices for producers. The event was held to draw attention to the ongoing crisis for dairy producers. As evidenced by the well attended Iowa rally, the economic impact is not isolated to the dairy industry. The multiplier effect throughout 

a rural community is severe when any producer is forced out of business. Since June 

is nationally recognized as ‘‘Dairy Month’’, I urge you to continue to do all you can 

to help stem the tide for America’s dairy producers. 

Again, I thank you for your continued commitment to addressing the dairy crisis 

and hope we can work collaboratively to protect independent family dairy farmers. 

Sincerely,

ROGER JOHNSON, President,

National Farmers Union.

cc: 

Senate Agriculture, Nutrition and Forestry Members, 

House Committee on Agriculture Members. 

ATTACHMENT 2

June 22, 2009

Hon. TOM HARKIN, Hon. COLLIN C. PETERSON,

Chairman, Chairman,

Agriculture, Nutrition and Forestry 

Committee, 

Committee on Agriculture, 

United States House of Representatives; 

United States Senate;

112

Hon. SAXBY CHAMBLISS, Hon. FRANK D. LUCAS, 

Ranking Minority Member, Ranking Minority Member,

Agriculture, Nutrition and Forestry 

Committee; 

United States Senate, 

Committee on Agriculture, 

United States House of Representatives, 

Washington, D.C. 

Washington, D.C.; 

Dear Chairmen Harkin and Peterson and Ranking Members Chambliss and 

Lucas:

Dairy farmers of all sizes and across all regions of the country are facing an unprecedented disaster. From Minnesota to California and Texas to Vermont, the current situation is untenable. Equity is rapidly disappearing, market prices remain at 

1970 levels, creditors are cutting off producers—yet there is no relief in sight. The 

National Farmers Union (NFU) board of directors met late last week to discuss the 

current dairy crisis and seek workable and immediate solutions. 

The NFU board voted to encourage Congress to pass a dairy stimulus package to 

provide an adequate safety net for producers in addition to establishing an inventory management program. Furthermore, the board expressed support for the concept of the Federal Milk Marketing Improvement Act of 2009. Most importantly, the 

board expressed the need for producers to receive an immediate financial lifeline to 

sustain their livelihoods through this unprecedented situation. 

In March, NFU member-delegates approved a special policy resolution focused on 

the dairy crisis. The resolution called on Congress and USDA to take all appropriate 

actions to sustain family dairy farmers through this period of economic uncertainty. 

Below are the specific requests to Congress:

• Make low-interest and emergency loans available, including a foreclosure mitigation program, to stem the tide of loan foreclosures as a result of the current 

economic climate;

• Eliminate authority for dairy forward contracting, which allows processors to 

shift all economic risk onto producers, encourages vertical integration of America’s dairy production and dismantles the Federal Milk Marketing Order 

(FMMO) system;

• Eliminate authority for collection of dairy promotion program assessments from 

importers;

• Pass legislation closing the MPC and casein loophole as established during the 

Uruguay Round; and

• Oppose efforts that would prohibit producers from labeling milk as free of artificial growth hormones.

The special policy resolution called on USDA to do the following:

• Immediate implementation of the 2008 Farm Bill provisions related to the 

FMMO system to increase efficiency and be more responsible to the market, including a USDA study and report on the impact of misreporting of nonfat dry 

milk prices on federal order minimum prices; and a FMMO commission to 

evaluate current federal and state milk pricing regulations to provide recommendations for changes to Congress and USDA;

• Establishment of a dairy price support program that accounts for the total cost 

of production. The structure of the program should allow producers to sell milk 

at a reasonable profit without building government stocks of products;

• Auditing and enforcing the current definition of milk as related to standardized 

cheese and yogurt;

• Immediate oversight of the dairy product pricing system to ensure transparency, fairness and competitive markets;

• Accurate recording and publishing of import data from ERS;

• Purchases of domestic dairy product and hamburger by USDA for domestic and 

international nutrition programs; and

• Immediate release of the MILC payments due to producers.

Time is of the essence for these producers. Many continue to lose $100–$200 per 

dairy cow per month. Regardless of operation size, many producers have been issued 

notice from feed suppliers that they will no longer receive feed and creditors across 

the country are terminating lending. America’s dairy farmers are some of the hardest working individuals feeding our nation and the world. Congress, the AdministraVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00118 Fmt 6621 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
113

tion and the American public must not wait any longer in offering these individuals 

a lifeline. 

Sincerely,

ROGER JOHNSON, President,

National Farmers Union.

cc: 

Senate Agriculture, Nutrition and Forestry Members, 

House Committee on Agriculture Members. 


11124042
(115)

HEARING TO REVIEW ECONOMIC 

CONDITIONS FACING THE DAIRY INDUSTRY 

TUESDAY, JULY 21, 2009

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY, 

COMMITTEE ON AGRICULTURE, 

Washington, D.C.

The Subcommittee met, pursuant to call, at 11:10 a.m., in Room 

1300 of the Longworth House Office Building, Hon. David Scott 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Scott, Kagen, Boswell, 

Cardoza, Murphy, Minnick, Peterson (ex officio), Neugebauer, 

Goodlatte, Conaway, Smith, Roe, and Thompson. 

Staff present: Claiborn Crain, Alejandra Gonzalez-Arias, Chandler Goule, Tyler Jameson, John Konya, Scott Kuschmider, James 

Ryder, April Slayton, Debbie Smith, Rebekah Solem, Mike Dunlap, 

and John Goldberg. 

OPENING STATEMENT OF HON. DAVID SCOTT, A 

REPRESENTATIVE IN CONGRESS FROM GEORGIA 

The CHAIRMAN. This hearing of Livestock, Dairy, and Poultry to 

review economic conditions in the dairy industry, part two, will 

come to order. 

First, let me say welcome to all of you to the second part of our 

Subcommittee’s examination of the current crisis in the dairy industry. As always, I appreciate everyone attending and I look forward to hearing additional perspectives and exploring further ideas 

for reform of, and assistance to, the dairy sector. 

Now, we all recognize the importance of the dairy industry to 

this nation and to the world. Just yesterday in fact, I and other 

Members of this Committee and other Members of Congress went 

on the floor and were speaking about the dairy industry in support 

of a resolution proclaiming June to be National Dairy Month. And 

likewise, I am relatively certain that we all agree that the economic 

situation in this iconic American industry is dire, and it must be 

addressed quickly as was evidenced by last week’s hearing on this 

topic. However, there is no shortage of opinions regarding the 

causes of this current crisis, and as such, naturally there is a wide 

range of views on what we need to do to remedy this situation. 

Therefore, it is imperative that we use these hearings over the next 

few weeks to develop some consensus, some way we can all come 

together as quickly as we can on a way forward to help this indusVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00121 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
116

try both in the short term and the long term to maintain the viability of the entire industry. This is a very, very dire situation. 

And by ‘‘we’’ of course, I mean us in Congress as the policymakers, I mean the Administration in the form of the United 

States Department of Agriculture, but most importantly, it is the 

industry itself, a very complex industry with differing opinions. The 

old traditional divisions between regions, herd sizes, between processors and producers, between importers and exporters, have only 

served to deepen and perpetuate this crisis. We must move beyond 

these differences in order to develop new and innovative policies 

that benefit the whole dairy industry and not simply one state, or 

one region, or one sector. 

At last week’s hearing, many Member of this Subcommittee, as 

well as many of our witnesses expressed a profound desire to move 

beyond generalities and platitudes, to roll up their sleeves and 

begin the dirty and necessary work of developing new, effective, 

short-term assistance mechanisms and long-term support programs. Some even expressed exasperation that this hasn’t been 

done yet. What I will say to my colleagues, our witnesses and anyone within earshot that anyone and everyone who has specific 

ideas about reform is welcome to present them to this Subcommittee at any point, at any time. If anyone was waiting for 

some clear signal that it is time to begin, this is the clear signal. 

The time is now. So I urge everyone to come to the table with your 

ideas and desires, make them plain, become ready to give as much 

as you are ready to receive because compromise, careful consideration will be essential to creating new dairy policy that benefits everyone. That is the goal and helps us to avoid the types of situations we find ourselves in at the present. We can do this. 

I will certainly be doing my part as the Subcommittee Chairman, 

and each Member of this Committee will be doing their part. I will 

personally push the United States Department of Agriculture to 

use its available tools, and it has some, in its belt to help this industry in the short term. I have already communicated with Secretary Vilsack to increase the Department’s loan guarantees to 

dairy farmers, and I have asked him to increase the Department’s 

purchase of products off the market. This is an important first step. 

And in fact, I and many others have sent repeated letters to the 

Secretary on these very issues. But this gives us something to 

begin the process of helping. 

And with that, now I will turn to my Ranking Member, Mr. 

Neugebauer, who I know shares my desires to seek solutions to the 

problems before us today, and is working hard as all of us are, for 

any opening statement he wishes to make. 

OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A 

REPRESENTATIVE IN CONGRESS FROM TEXAS 

Mr. NEUGEBAUER. Well, thank you, Chairman Scott, for calling 

this second hearing to review the current economic conditions of 

the dairy industry. 

The hearing we had a week ago served as a great starting point 

for the Subcommittee in understanding the current dairy policies, 

and how they are helping or hurting producers during the current 

market conditions. I expect the panel for today’s hearing will build 

117

on what I learned last week and offer some further explanations. 

I am sure our witnesses will again have a degree of variability in 

their thinking on what is the best fix or the best appropriate action 

for us to take. Our witnesses last week were very informative with 

testimony and subsequent discussions that have transpired thereafter. One of the things I look forward to hearing today is some of 

the tools that producers are using for risk management in trying 

to deal with the volatility in the marketplace, and if there are tools 

that are available, what would those tools need to be. I look forward to hearing from our panel today and thank each and every 

one of you for taking time out, and Mr. Chairman, again, thank 

you for calling this second hearing on the dairy industry. 

The CHAIRMAN. Thank you very much, Ranking Member. 

And now we will hear from our distinguished Chairman, Mr. Peterson, who has been providing sterling leadership on this issue. 

Chairman Peterson. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. Thank you, Mr. Chairman, and the Ranking 

Member, Mr. Neugebauer, and we appreciate your leadership and 

we expect great things out of you between your leadership, the rest 

of the Committee Members, and the folks we have here today. We 

expect you to come up with a solution that doesn’t cost any money, 

that gets milk back up to at least $15 or higher and that is all 

sweetness and light. 

The CHAIRMAN. We will do our best, Mr. Chairman. 

Mr. PETERSON. But as someone who has served as Ranking 

Member for many years on this Subcommittee, I know the challenges that you have before you, and a lot of people have been looking at different ideas to try to deal with this. We haven’t hit the 

magic sweet spot yet, but we are going to keep working on this 

and, as you said very well, it is an extremely difficult situation. Now, we have been in problems before, we have been at $10 milk 

before, but not for this period of time. We have had some things 

that have happened here, put together with the recession not in 

the United States, but around the world and this difficult situation. 

I want to welcome, there are a couple Minnesotans here today, 

Scott Hoese, who is the President of the Farmers Union in Carver 

County. Welcome to the Committee. And also Mr. Welch, who 

heads up the AMPI in New Ulm, Minnesota, right outside my district. I had a chance to go over and visit with them on more than 

one occasion. They do a great job for us over there. So welcome to 

the Committee, both of you, and the other witnesses. I look forward 

to testimony and I apologize, I have to head out here in a little bit 

and go talk to the soybean growers and see what they are up to. 

Thank you, Mr. Chairman. I yield back. 

[The prepared statement of Mr. Peterson follows:]

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

CONGRESS FROM MINNESOTA

I will be brief since we have several witnesses today. I want to thank Chairman 

Scott and Ranking Member Neugebauer for their leadership on this issue and for 

agreeing to call additional hearings on the economic conditions facing the dairy industry before we adjourn for the August recess. I thought last week’s hearing was 

118

instructive and I think it is vital we hear from as many different groups of people 

as we can and keep this issue at the forefront. 

Fluid milk prices have fallen faster, and farther, than at any time since the Great 

Depression. As a result, farmers large and small have said they are in dire financial 

straits. We heard last week about the kinds of measures that have been taken in 

communities where dairy producers work and live, including things like counseling 

and suicide prevention services. 

The problems affecting dairy farmers today are hitting producers of every size, in 

every region, regardless of their business structure. To show that this is a national 

and not a regional issue, we have dairy farmers from all across the country before 

us today, including one from my home state, Mr. Scott Hoese from Mayer, Minnesota, President of the Carver County Farmers Union. 

Last week we had USDA Under Secretary Miller here to talk about the agency’s 

role in responding to this crisis and I thanked him for the steps USDA has already 

taken to support U.S. dairy farmers. USDA already has bought nonfat dry milk and 

authorized export subsidies, but one thing we heard from producers last week—and 

what I imagine we might hear today—is that many of them are going to need more 

help if they want to stave off bankruptcy. 

I said last week that I think USDA is about at the end of the road in doing what 

they can to help the industry. We have given away too much in these trade agreements and have asked our dairy producers to depend on an export market that cannot be counted on, as has been shown with the plunge in worldwide demand following the global recession. 

I hope these hearings can help us rally around some alternatives that appeal to 

all producers nationwide. And that is important for both the short- and long-term 

because one thing we don’t need is to have the kind of regional conflicts that have 

splintered the dairy community in the past. I’ve seen that we are heading that way 

and that’s something we’ve got to stop, because a $10 per-hundredweight milk price 

is not a help to anybody, whether you are big or small, or whether you are in New 

Hampshire or in central California. 

I appreciate today’s witnesses being here today and lending their voice to this 

timely debate. 

I thank you again, Chairman Scott, and Ranking Member Neugebauer, for calling 

today’s hearing, and I yield back my time.

The CHAIRMAN. Thank you, Mr. Chairman. I appreciate that. 

The chair would request that other Members submit their opening statements for the record so that witnesses may begin their testimony and to ensure that we have ample time for questions. 

[The prepared statements of Messers. Baca, Kagen, and Thompson follow:]

PREPARED STATEMENT OF HON. JOE BACA, A REPRESENTATIVE IN CONGRESS FROM

CALIFORNIA

Chairman Scott and Ranking Member Neugebauer:

I am pleased to be here today to discuss the current economic conditions facing 

the dairy industry—and what steps, if any, the Federal Government should take to 

stabilize the dairy market. 

I thank the Chairman and Ranking Member for convening this hearing and hope 

we will be able to gain valuable insight into this critical issue. 

I also want to thank all our witnesses for coming here today—and taking time 

from their schedule to help us in Congress hear the perspective of the dairy industry 

on how to tackle the current crisis. 

Everyone in this room understands the important work America’s dairy farmers 

do, and the vital need to keep the dairy industry healthy and prosperous. 

When agricultural markets fluctuate, there is a direct and significant impact on 

our nation’s food supply—and thus the health and nutrition of virtually every American. 

In my own Congressional District in the Inland Empire of California—dairy is a 

significant agricultural and economic product. 

As Members of the Subcommittee on Livestock, Dairy, and Poultry, it is vitally 

important that we gather as much information on this subject as possible. 

America’s dairy industry must remain strong and secure. 

119

We must be willing to work together on this issue. The USDA, industry groups, 

the Federal and state governments all play an important role in stabilizing our markets. 

I look forward to hearing from our witnesses today and again thank the Chairman 

and Ranking Member for their leadership. 

Thank you. 

PREPARED STATEMENT OF HON. STEVE KAGEN, A REPRESENTATIVE IN CONGRESS

FROM WISCONSIN

Mr. Chairman,

Thank you for holding this important series of hearings on the economic conditions facing the dairy industry. 

As many of you know, Wisconsin is famous for its cheese. While this is just one 

of the dairy products my state produces, it is evident from this well-deserved reputation that the dairy industry plays a central role in Wisconsin. According to the Wisconsin Agricultural Statistic Service, the State of Wisconsin has over 13,000 licensed 

herds and over one million dairy cows. Wisconsin also produced over 2.2 billion 

pounds of milk in May 2009. I assert with some understatement that dairy is a 

prime economic engine for my state. 

The problems facing the dairy industry go beyond the extreme drop in prices 

we’ve seen between the record highs of 2008 and today. Were it simply that prices 

have decreased, I believe that the dairymen in Wisconsin would adapt as they have 

during prior lulls in prices. However, we are also experiencing a period of high input 

costs, particularly feed costs. In Wisconsin, feed costs for May 2009 were $8.38 per 

cwt. when the all-milk price in Wisconsin for May 2009 was $11.60. This dramatic 

ratio underscores the difficulty farmers across the nation face in trying to remain 

solvent during this economic crisis. 

While I am pleased by the improvements we made in the 2008 Farm Bill by tying 

MILC payments to feed prices, and the Secretary’s recent utilization of the Dairy 

Export Incentive Program, it is clear that there is more that needs to be done. For 

example, I hope this Committee will investigate a temporary increase in the MILC 

payment rate until prices rise. I also would encourage the Secretary to increase the 

Commodity Credit Corporation (CCC) purchase price for butter powder and cheese. 

These are just two suggestions, and I look forward to hearing from our witnesses 

on other solutions to the dairy crisis. We must continue to support our dairy industry. If farms go under, they will not return. Dairy is critical to our economy and 

to our future. I look forward to working with the Chairman and the entire Committee to meet the needs of our constituents. 

Thank you, and I yield back the balance of my time. 

PREPARED STATEMENT OF HON. GLENN THOMPSON, A REPRESENTATIVE IN CONGRESS

FROM PENNSYLVANIA

Chairman Scott, Ranking Member Neugebauer:

I appreciate you holding a second hearing on this very important issue. While I’m 

not a Member of the Subcommittee, I again thank you both for allowing my participation in this extremely critical hearing. 

I represent about 22% of the Commonwealth of Pennsylvania, where agriculture—

and the dairy industry in particular—is extremely important to our rural economy. 

Like all of the Members of the Committee present at the hearing, many of the 

dairy farmers in my district are struggling just to keep themselves from going bankrupt. This has for some time been much more than simply depressed prices. This 

is a real crisis; and this is a complicated crisis, which is threatening the survival 

of many dairy farmers, not just in my district, but across the country. 

I am grateful for this hearing, and I again appreciate the opportunity to discuss 

the causes of this predicament and what steps Congress can take to best address 

it. Sincere thanks to the witnesses for attending and I look forward to working with 

the Committee on this vital issue in the future.

The CHAIRMAN. When we get to the questioning period, this Subcommittee will follow the leadership of the Chairman and the full 

Committee and moving away from as people appear. We will call 

upon people according to seniority as the main Chairman does. Is 

that all right with you, Mr. Conaway. 

120

Mr. CONAWAY. Let us change it back. 

Mr. PETERSON. No, I haven’t changed it back yet. It is still a 

work in progress. We will see how it goes. 

The CHAIRMAN. As the Chairman leads, we shall follow. That is 

a good policy to have here. So we will follow that procedure going 

by seniority until further notice. 

I ask unanimous consent that Mr. Thompson be permitted to sit 

and participate in today’s hearing. Good to have you back, Mr. 

Thompson, and thank you for your participation on the floor with 

our bill. I thought we had a good debate. 

Let me first welcome our panel of distinguished witnesses to the 

table. First, we have Mr. Ed Welch, who is President and CEO of 

Associated Milk Producers Inc. on behalf of the Midwest Dairy Coalition of New Ulm, Minnesota. Thank you, and welcome, Mr. 

Welch. Next we have Mr. Phil Plourd, who is President of Blimling 

and Associates Inc., Roger M. Blimling Inc. of Cottage Grove, Wisconsin. Good to have you, Mr. Plourd. Thank you. Mr. Everett Williams, dairy farmer and President of the Georgia Milk Producers, 

Inc. from Madison, Georgia, my home state, the greatest state in 

the Union. Good to have you with us, Mr. Williams. Mr. Paul 

Rozwadowski, dairy farmer and Dairy Subcommittee Chairman of 

the National Family Farm Coalition of Stanley, Wisconsin. Good to 

have you with us, Paul. Mr. Scott Hoese, President, Carver County 

Farmers Union on behalf of the National Farmers Union from 

Mayer, Minnesota, and Mr. Donald DeJong, dairy farmer, Hartley, 

Texas. Mr. Welch, we will begin with you. 

STATEMENT OF ED WELCH, PRESIDENT AND CEO,

ASSOCIATED MILK PRODUCERS INC., NEW ULM, MN; ON

BEHALF OF THE MIDWEST DAIRY COALITION 

Mr. WELCH. Thank you, Chairman Scott and Ranking Member 

Neugebauer, Members of the Subcommittee. I appreciate the Committee’s invitation for me to present my views on the economic conditions facing the dairy industry. My name is Ed Welch and I am 

the President and Chief Executive Officer of Associated Milk Producers Incorporated, a milk marketing cooperative based in New 

Ulm, Minnesota. I am testifying today on behalf of the Midwest 

Dairy Coalition, an alliance of dairy cooperatives, associations and 

state agencies working together to provide an upper Midwest voice 

on Federal dairy policy issues. 

As suggested by the title of this hearing, the dairy economy is 

in crisis. Milk prices have fallen farther than expected and the recovery has been slower than anticipated. Prices paid to dairy farmers are less than half of what they were a year ago. The economic 

stress in the dairy-dependent regions like the upper Midwest, as in 

all dairy regions, is severe. Consistent anecdotal evidence suggests 

dairy farmers are losing $100 per cow each month. At that rate, 

dairy farmers are bleeding equity and rapidly increasing debt. 

Many say the downturn in the dairy economy is as bad as it has 

been since the Depression. Given the general economic conditions 

and the driving down of both domestic and export demand, I can 

see how this is true. It is with this background that we offer the 

following suggestions separated into short- and long-term solutions. 

121

First, I thank you for including the MILC, Milk Income Loss 

Contract Program, in the 2008 Farm Bill. Adding the feed-cost adjuster to the program and restoring the original 45 percent payment rate provided meaningful enhancement. Without a doubt, the 

economic safety net provided by the MILC program has provided 

significant financial assistance to dairy farmers nationwide during 

this time of low prices. 

Unfortunately, MILC alone isn’t enough. That reality brings me 

to the first short-term solution Congress should consider, a temporary increase in the 45 percent payment rate to address the 

emergency price situation. The MILC program was intended to be 

a partner to the Milk Price Support Program, which was modified 

in the 2008 Farm Bill to become the Dairy Product Price Support 

Program. The two programs working together in theory provide assistance and stability to allow dairy producers to weather low-price 

cycles, but the theory remains untested because the product price 

support program is not fully functioning. 

Another short-term step should be urging the U.S. Secretary of 

Agriculture to take immediate steps to bring the support program 

back to life. I would suggest four steps. First, increase the price of 

dairy products purchased through the Dairy Product Price Support 

Program. The 2008 Farm Bill sets minimum CCC purchase price 

levels for butter, powder and cheese but provides flexibility for 

those prices to be increased above those levels when necessary. We 

urge the Secretary to take immediate action to increase the price 

support levels of these products. Second, restore the CCC’s ability 

to purchase pasteurized processed cheese and other value-added 

products under the support program. These products could easily 

be used in domestic nutrition programs. Third, enable the CCC to 

be an active buyer of dairy products on the CME. This would prevent prices from falling below the support level. Finally, make 

dairy product packaging standards consistent whether selling to 

the CCC or the CME. This move would make it easier for dairy 

product manufacturers to utilize the price support system. Taking 

these steps would make the Dairy Product Price Support Program 

more effective, working in tandem with the Milk Income Loss Contract Program. Improvements to both programs could provide necessary short-term fixes to this dairy economy. 

Long term, we must address the extreme volatility in milk pricing. To reference an earlier point, the Class III milk price was 

$20.25 per hundredweight in June of 2008. One year later today, 

it is $9.97 per hundredweight. The bottom end of that price swing 

of the last decade has been disastrous for dairy farmers. The high 

end of the cycle is leaving dairy users to seek non-dairy alternatives and reduce their use of dairy products in general. This will 

have a negative long-term effect on dairy demand. Indeed, neither 

side of these wide price swings is beneficial to the dairy industry. 

We strongly urge the Committee and Secretary to assist the industry in developing and analyzing options for the long-term viability of dairy farms in this country. That may include limited imports 

of products such as milk protein concentrated in butter fat for 

which there are no current limits at this time. Whenever domestic 

dairy prices begin to recover, our market is always vulnerable to 

these low-priced imports. 

122

In closing, I want to thank the Committee for holding this hearing on the dairy crisis. I will be happy to answer any questions or 

provide any additional information that you may want. 

[The prepared statement of Mr. Welch follows:]

PREPARED STATEMENT OF ED WELCH, PRESIDENT AND CEO, ASSOCIATED MILK

PRODUCERS INC., NEW ULM, MN; ON BEHALF OF MIDWEST DAIRY COALITION

Chairman Scott, Ranking Member Neugebauer, Members of the Subcommittee:

Thank you for holding this hearing today to discuss the economic conditions facing 

the dairy industry. My name is Ed Welch and I am the President and Chief Executive Officer of Associated Milk Producers Inc. (AMPI). AMPI is a dairy marketing 

cooperative with 3,500 member farms, 5.8 billion pounds of milk and $1.7 billion in 

annual sales. Members operate dairy farms located throughout the upper Midwest 

States of Wisconsin, Minnesota, Iowa, Nebraska, South Dakota and North Dakota. 

They own 14 manufacturing plants and market a full line of consumer-packaged 

dairy products. 

I am testifying today on behalf of the Midwest Dairy Coalition, an alliance of 

dairy cooperatives, associations and state agencies working together to provide an 

upper Midwest voice on Federal dairy policy issues. Members include AMPI, 

Bongards’ Creameries, Cooperative Network, Family Dairies USA, First District Association, Manitowoc Milk Producers Association, Mid-west Dairymen’s Company, 

Milwaukee Cooperative Milk Producers, and the Wisconsin Department of Agriculture, Trade and Consumer Protection. 

As suggested by the title of this hearing, the dairy economy is in crisis. Milk 

prices have fallen farther than expected, and the recovery has been slower than anticipated. In June of 2008, the Class III milk price was $20.25 per hundredweight. 

One year later, the June 2009 Class III price is $9.97 per hundredweight. Dairy 

product prices have dipped below support levels repeatedly since January of this 

year. With milk prices paid to farmers less than half of what they were a year ago, 

the economic stress in dairy-dependent regions like the upper Midwest is severe. 

This economic pain is being felt in all regions of the country. 

The downturn in dairy is as bad as it has been probably since the depression, primarily because of general economic conditions that drive down both domestic and 

export demand. The financial crisis also spills over into farm lending in general, and 

dairy specifically. As the down cycle continues, bankers increasingly hold the key 

to whether some farmers will be able to continue in business. Consistent anecdotal 

evidence suggests that dairy farmers are losing about $100 per cow per month. 

When this happens, dairy farmers either bleed their equity or borrow, which is not 

currently an option due to financial markets. Literally the milk production infrastructure in the U.S. is at stake. Recovery and TARP monies might be used to make 

a difference in the short run if bold and innovative solutions are tried. 

It is with this background that we offer the following suggestions. 

Milk Income Loss Contract (MILC) Program and Dairy Product Price Support Program (DPPSP): Changes Needed to Improve Effectiveness 

Without a doubt, the economic safety net provided by the Milk Income Loss Contract (MILC) program has provided significant financial assistance to dairy farmers 

nationwide during times of low prices. The direct assistance provided the MILC program has benefits community wide, as the dollars multiply throughout dairy-dependent local economies. 

The MILC Program was first authorized in the 2002 Farm Bill. The modifications 

made in the 2008 Farm Bill to add a feed-cost adjuster and restore the original 45 

percent payment rate have provided meaningful enhancements to the program. The 

Midwest Dairy Coalition worked hard for and has strongly supported the MILC program in both the 2002 and 2008 Farm Bill deliberations. 

Unfortunately, the current dairy price chasm that we’re experiencing suggests 

that the MILC program by itself is not sufficient. The price dairy farmers are receiving for their milk is so far below the cost of production that they are losing thousands of dollars a month, even with the MILC program assistance. Congress should 

consider a temporary increase in the 45 percent MILC payment rate to address the 

emergency price situation. 

As originally envisioned, the MILC program was intended to be a partner to the 

Milk Price Support Program, which was modified by the 2008 Farm Bill to become 

the Dairy Product Price Support Program (DPPSP). The two programs working together, in theory, would provide assistance and stability to allow viable dairy proVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00128 Fmt 6601 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
123

ducers to weather the storm of low-price cycles. But the theory remains untested, 

because the DPPSP is not fully functioning, leaving the MILC program to do all of 

the heavy lifting by itself—a burden it is not able, nor was it designed, to bear. 

Therefore, we are urging the U.S. Secretary of Agriculture to take the following 

immediate, remedial actions to bring the DPPSP back to life and serve its intended 

purpose: 

(1) Increase the Commodity Credit Corporation (CCC) purchase prices for butter, 

powder and cheese. 

The 2008 Farm Bill sets minimum CCC purchase prices levels for butter, powder 

and cheese, but provides flexibility for those prices to be increased above those levels when necessary. We are urging the Secretary to take immediate action to increase the price support levels to reflect the additional costs that dairy product manufacturers face when selling product to the CCC relative to commercial sales. 

(2) Restore the pre-2009 policy of paying a premium price for consumer-packaged 

products that are more readily usable in USDA nutrition and food donation programs. 

Historically, CCC has paid a premium price under the DPPSP to purchase more 

consumer-packaged dairy products, such as pasteurized processed cheese in 2 or 5 

pound boxes. They are more readily used in USDA nutrition and food donation programs and do not require further processing, as do large cheese blocks and barrels. 

However, in January of 2009, just as milk prices were collapsing, the Bush Administration issued a notice to dairy product manufacturers informing them that the 

policy of purchasing consumer-packaged, value-added products was ending. Unfortunately, the current Administration has continued this policy. 

We are urging the USDA to reinstate its pre-2009 policy of paying a premium 

price for consumer-packaged, value-added dairy products such as pasteurized processed cheese. This will help stabilize milk prices and the growing needs of food donation programs. If there question about USDA’s authority to continue this practice 

under the revamped statutory authority for the price support program, we believe 

the DPPSP authority can be married with that of the CCC Charter Act of 1933 to 

address these concerns. 

(3) CCC should be an active buyer of dairy products on the Chicago Mercantile Exchange (CME) at established price support levels. 

For reasons described below, many dairy product manufacturers are reluctant to 

sell product to the CCC. We urge the CCC to become an active buyer of dairy products on the CME at the established price support levels, instead of the current practice of being a passive buyer by simply offering to buy product at the established 

CCC purchase price. Because CME prices are widely used as a benchmark price for 

off-market dairy product sales, we believe the CCC’s active participation in the CME 

would significantly enhance the DPPSP effectiveness. We believe the Secretary has 

the authority to buy products for CCC directly on the CME if, administratively, he 

waives the CCC product and packaging specifications that are outdated, impractical 

and costly. 

(4) Take all practical actions available to harmonize CCC packaging and grading 

standards with commercial standards set by the CME. 

Currently, CCC packaging and grading standards differ from commercial standards established by the CME. Therefore, manufacturers are reluctant to sell product 

to the CCC because they must change manufacturing procedures in order to address 

those standards. Because of the discrepancies between CCC and CME standards, 

and periodic delays in receiving payment from the CCC, there are additional costs 

associated with selling product to the CCC. We urge USDA to undertake a full review of its dairy product packaging and grading standards, in dialogue with the 

dairy industry representatives, to investigate practical ways to harmonize CCC 

standards with those used for commercial sales. 

Additional Efforts Necessary to Purchase Cheese for USDA Nutrition and 

Food Donation Programs 

USDA has taken action to use existing CCC stocks of nonfat dry milk for food 

donation programs. In the long run, this will be helpful in preventing excessive 

stocks from hanging over the market. We appreciate the Secretary’s efforts in this 

regard. According to food aid organizations such as Second Harvest, food pantry demand is up significantly from 1 year ago. Dairy products can provide healthful food 

to children and families in need. 

We believe, however, the USDA should take additional action to use all authorities at the Secretary’s disposal to purchase cheese products directly off the market 

124

for use in USDA nutrition and food donation programs. Direct purchases off the 

market will have the most direct and immediate affect in stabilizing milk and dairy 

product prices. They will also help address the humanitarian food needs for low-income populations.

Federal Milk Market Order Reform 

The dairy farmers and industry leaders of the upper Midwest have long voiced 

concerns about the discriminatory pricing policies inherent to the Federal milk marketing order system. It is widely documented that the bias of the current system 

toward Class I (fluid) milk has a downward affect on the value of milk used for 

manufacturing. For regions like the upper Midwest, where 85 to 90 percent of the 

milk is used for manufactured dairy products, this discrimination is of great concern. In addition, as Class I utilization percentages nationwide continue to decline, 

the outdated Class I bias of the Federal milk market order (FMMO) system must 

be revisited. We look forward to working with the Committee and USDA to reform 

the system in favor a more coherent approach to milk pricing. 

Trade Issues 

We greatly appreciate the Secretary’s recent announcement of the Dairy Export 

Incentive Program (DEIP) allocation for the 2009–2010 marketing year and urge 

quick action to fill these allocations. The delay in announcement of the 2008–2009 

DEIP allocations caused much of this allocation to go unfilled, which is a lost opportunity to help stabilize milk prices. Hopefully, the 2009–2010 experience will be 

more positive. 

In the world of dairy, small imbalances in supply and demand result in large 

changes in milk prices. We cannot ignore the fact that dairy imports and exports 

play a role in that overall supply-demand equation. The strong milk prices of 2007 

and 2008 were driven in large part by tight supplies of dairy products in the world 

market and a related surge in U.S. dairy exports. The milk price crash of 2009 was 

related, in part, to the loss of those markets. The unique, high world market price 

situation of 2007 and 2008 allowed the U.S. to take advantage of the export market 

at prices that were profitable to U.S. dairy farmers. The world market dairy prices, 

however, are often below the U.S. cost of production. While we should look for ways 

to expand our export opportunities, it defeats the purpose if those markets come at 

prices that are unsustainable to U.S. dairy farmers. 

There have been times in the last decade when dairy product imports have significantly affected domestic price levels. There continue to be dairy product import categories, such as milk protein concentrates (MPCs), for which there are no limits. 

Whenever U.S. dairy prices start to recover, our market will once again be vulnerable to lower-priced MPC imports from our competitors. The Midwest Dairy Coalition continues to support efforts to establish tariff-rate quotas on MPC imports. This 

would improve consistency with import rules in place for other dairy products and 

close loopholes that have encouraged circumvention of those rules. 

Long-Term Solutions Needed to Address Wide Price Volatility 

While immediate action is needed to address the current milk price crisis, the current situation has sparked industry-wide discussion about long-term solutions to 

prevent the wide volatility in milk prices. The bottom end of the wide price swings 

of the last decade has been disastrous for dairy farmers. The high ends of the price 

cycles are leading dairy product users to seek out alternatives and reduce their use 

of dairy products, with long-term effects on dairy demand. Indeed, neither side of 

these wide price swings is beneficial to dairy farmers. 

Many plans are being discussed in the industry to institute long-term policies to 

prevent the type of price crisis we are now experiencing from ever happening again. 

While there is no national consensus of the best approach to achieve this goal, we 

strongly urge the Committee and the Secretary to assist the industry in developing 

and analyzing options for the long-term viability of dairy farming in this country. 

Thank you for the opportunity to submit this testimony.

The CHAIRMAN. Thank you, Mr. Welch. 

Now we will hear from Mr. Phil Plourd. 

125

STATEMENT OF PHILIP G. PLOURD, PRESIDENT, BLIMLING 

AND ASSOCIATES, INC./ROGER W. BLIMLING, INC., COTTAGE 

GROVE, WI 

Mr. PLOURD. Mr. Chairman and Members of the Committee, 

thank you for inviting me to appear before you and participate in 

this important ongoing discussion. 

I am President of two Wisconsin-based firms that have worked 

extensively with dairy producers on risk management issues for 

more than 15 years. We administer ten cooperative and plant forward contracting programs across the nation including the one at 

AMPI, Mr. Welch’s firm, and we also work with several individual 

dairy producers. The forward contracting programs we manage, 

theoretically, serve more than 10,000 farms. I say ‘‘theoretically’’ 

because the reality is that only a small percentage of producers use 

the programs and other tools to hedge. This is unfortunate on 

many levels, and it is curious. Reasonably well-developed futures 

and options markets exist at the Chicago Mercantile Exchange. 

Last year, a total of 470,000 Class III milk futures and options contracts traded at the CME. Ten years ago, only 58,000 contracts 

traded. 

In addition, great strides have been made in facilitating dairy 

producer access to the tools. Forward contracting programs like 

those managed by our firm are fairy common. Importantly, these 

programs typically allow smaller producers to access risk management tools. In short, many producers are able to contract milk with 

their cooperative or proprietary plant in much the same way grain 

producers can forward contract corn or soybeans with a local elevator. 

Finally, while the milk and dairy products markets are certainly 

volatile, they do not stand out among their peers in the agricultural arena. That is, standard calculations do not show dairy markets to be somehow so volatile as to make conventional risk management impossible. So dairy futures and options markets exist. 

Convenient producer access to those markets has been facilitated 

by forward contracting programs, and volatility in the dairy complex is not altogether different from volatility in other domestic agricultural markets. 

So why are producers not actively managing risk? For a while I 

believed the slow adaptation rate was mostly a function of experience. After all, dairy market volatility only really emerged in the 

late 1980s. The need to manage risk is still relatively new. More 

recently, however, I have come to a different conclusion. In my 

opinion, producer risk management efforts are seriously hampered 

by the various and complicated systems employed to price milk in 

the United States. Consider how corn producers typically manage 

risk. They call the local elevator for a quote. Elevators offer a price 

tied to the Chicago futures market plus or minus a local basis. Producers agree to the price. When the time comes they ship the corn 

and get paid the contract price. Now consider how different the 

process is for a dairy producer in, say, Chairman Scott’s home 

State of Georgia. The producer sees a Class III futures price of 

$14.50. He or she may be offered a Class III value as a base price 

via a cooperative but here is the rub: dairy producers in Georgia 

are part of the Southeast Federal Milk Marketing Order. Typically 

126

in that order, 60 percent of a producer’s income is tied to the Class 

I price, which is determined of the higher of the Class III or Class 

IV formula set a month in advance plus his own differentials across 

the order. Ten percent of the income is based on the Class II price, 

which is tied to nonfat dry milk and butter plus a differential. 

Twenty percent of income comes from Class III, which is determined by the cheese and whey markets, and finally, ten percent of 

income is drawn from Class IV, which is again linked to the nonfat 

and butter markets. 

Believe it or not, there is actually a pretty strong correlation between producer pay prices in Georgia and the Class III price that 

can be hedged in the futures market, or with a forward contract. 

It would work. If we had an hour or 2 I could break out the spreadsheets, but who would believe that at a glance? Who could? 

Grain farmers would almost certainly hedge less too if confronted 

with a maze of pricing tied to whether the bushels they send to the 

elevator go into corn syrup versus corn flakes, creamed corn in a 

can versus frozen niblets in a bag, bulk poultry feed or a fifth of 

Wild Turkey. 

It has been our anecdotal observation that dairy producers in the 

areas with significant cheese production and clear ties to the Class 

III price are more likely to hedge than producers in more diverse 

utilization areas, but it is still not easy. Importantly, producers 

who do hedge have significantly reduced their income variability in 

recent years. This is supported by our own internal studies of producer risk management performance, and we have clients today 

who are receiving $17 or $18 per hundredweight for milk hedged 

last summer compared to the low market prices that prevail. The 

existing vehicles work; the road, however, is twisted and rutted. 

We are trying to convince producers to use modern market-based 

risk management tools, but they are compelled to do so in an antiquated, complex pricing system. This is not a call for wholesale deregulation. Instead, positive results could be achieved by making a 

conscious effort to align policy prescriptions with risk management 

realities. Our dairy producers deserve better than the pricing complexity that confronts most of them every day. United States dairy 

farmers are the most dynamic producers in the world. Many understand how hedging works. It is my belief that they would be better 

served by a system that allows them to make it happen. Thank 

you. 

[The prepared statement of Mr. Plourd follows:]

PREPARED STATEMENT OF PHILIP G. PLOURD, PRESIDENT, BLIMLING AND ASSOCIATES, 

INC./ROGER W. BLIMLING, INC., COTTAGE GROVE, WI 

Mr. Chairman and Members of the Committee, thank you for inviting me to appear before you and participate in this important, ongoing discussion of current conditions in the dairy marketplace. 

I am President of a pair of Wisconsin-based firms that work extensively with producers, processors, end-users and other interested parties on a variety of dairy market issues. Specific to this discussion, our firm has been a leading provider of market-based risk management services for dairy producers for more than 15 years. Indeed, in 1994, working in partnership with Alto Dairy Cooperative and the Wisconsin Department of Agriculture, Blimling and Associates introduced what is believed to be the nation’s first futures-based forward contracting program for members of a dairy cooperative. Today, we administer a total of ten similar cooperative/

plant programs from coast-to-coast. Those programs theoretically serve more than 

127

10,000 farms—many located in the districts or home states of the distinguished 

Committee Members. 

I say ‘‘theoretically serve’’ because the reality is that only a comparatively small 

percentage of producers actually use these tools to hedge—whether on their own, 

through the programs we manage, or via programs managed by others. This is unfortunate on many levels, not only for the individual producers themselves but for 

the dairy industry at large. 

And, it is curious. 

Reasonably well-developed futures and options markets exist at the Chicago Mercantile Exchange Group (CME). While not to be confused with the corn or crude oil 

markets, the dairy markets have come a long way since their inception in 1993. 

Last year a total of about 470,000 Class III milk futures and options contracts traded at the CME; 10 years earlier, in 1999, only 58,000 contracts traded. [i] Volume 

in 2008 equaled approximately 1⁄2 of U.S. milk production. Class III milk futures 

and options combined open interest [ii] stood at about 79,500 contracts on June 30, 

equal to about 8% of annual U.S. milk production. In addition, there is also a small 

but growing marketplace in over-the-counter instruments for managing dairy risk 

that are not traded through the CME. 

Beyond the development of markets over the past decade, great strides have been 

made in facilitating dairy producer access to the tools. Forward contracting programs like those managed by our firm are fairly common. Though I cannot say for 

certain, I estimate that at least 15 of the 25 largest U.S. dairy cooperatives offer 

programs. In addition, thanks to a laudable provision of the last farm bill, several 

proprietary plants offer programs. While not every program is identical, they tend 

to share basic characteristics. Most notably, they allow smaller producers to access 

risk management tools because forward contracts are offered in increments smaller 

than the futures contracts traded at the CME (the plant or cooperative bundles milk 

forward contracts for sale in the futures market or to customers via a price for finished products). In addition, producers using a forward contracting program are not 

required to post margin monies as would be required if they were using futures directly in their own account. In short, many—and perhaps a majority—of producers 

have a mechanism available to contract milk with their cooperative or proprietary 

plant in much the same way grain producers can forward price corn, soybeans or 

wheat with a local elevator. 

Finally, while the milk and dairy products markets are certainly volatile, they do 

not stand out among their peers in the agricultural arena. That is, standard calculations do not show dairy markets to somehow be so volatile as to in some way preclude risk management via traditional methods employed by producers of other agricultural commodities. For example, we calculate that 30 day historic price volatility 

in the block cheddar cheese market averaged 27.6% from 2006 through 2008. It was 

26.5% in the Class III milk futures market over the same period. That compares 

with corn at 40.1%, wheat at 44.8%, soybeans at 35.0%, lean hogs at 36.8% and live 

cattle at 19.2%. [iii] The dairy markets are not exceptionally volatile—at least as 

conventionally measured. 

So: dairy futures and options markets exist. Convenient dairy producer access to 

those markets has been facilitated by forward contracting programs. And, volatility 

in the dairy complex is not wholly divergent from volatility in other domestic agricultural markets. Yet comparatively few dairy producers are using risk management 

tools. 

What’s going on? 

For several years, I believed the slow adaptation rate was largely a function of 

experience—or the lack thereof. After all, dairy market volatility only really 

emerged in the late 1980s. Up to that point market-based risk management was not 

a concern for producers or anyone else in the dairy industry. Sure, grain farmers 

hedged in larger numbers, but they had a 100 year head start. I must confess that, 

in less confident moments, I wondered if we were just somehow lousy teachers. We 

crisscrossed several states talking about risk management and forward contracting 

programs, conducting workshops for or visiting with literally thousands of dairy producers . . . and only a small percentage came on board. 

More recently, however, I have reached a different and more plausible conclusion: 

in my opinion, producer risk management efforts are seriously hampered by the various and complicated systems employed to price milk in the United States. 

Consider how corn producers typically manage risk. They look at futures prices. 

They call the local elevator for a quote. Elevators offer fixed-forward prices at the 

futures value plus or minus a local basis. [iv] Producers agree to the price. When 

the time comes, they ship the corn and get paid the forward contract price. 

Now consider how different the process is for a dairy producer in, say, Chairman 

Scott’s home state of Georgia. The producer sees a Class III futures price of $14.50/

128

cwt posted for January 2010. He or she may be offered that Class III value as a 

‘‘base price’’ via a cooperative. Here’s the rub: dairy producers in Georgia are part 

of the Southeast Federal Milk Marketing Order. Typically, in that order, 60% of a 

producer’s income is tied to the Class I price—which can be the higher of a base 

price determined by the Class III or IV formula set a month in advance plus a Class 

I differential zoned across the order; 10% of income is tied to the Class II price, 

which is based on an advanced skim value linked to the price of nonfat dry milk 

over a 2 week period plus a Class II differential as well as butterfat related to a 

butter price for the entire month plus a fixed Class II differential; 20% of income 

comes from Class III, which is determined by the cheese and whey markets; and, 

finally, 10% of income is drawn from Class IV, which is again linked to nonfat dry 

milk and butter. On top of all that the producer finds plant and marketing agency 

premiums as well as volume, quality and hauling adjustments. Against that backdrop, it is difficult to know exactly what the $14.50/cwt Class III futures price 

means to the dairy producer in Georgia. 

Believe it or not, there is actually a pretty strong correlation between producer 

pay prices in Georgia and the Class III price that can be hedged in the futures market or via a forward contracting program. It would work. If we had an hour or 2 

I could break out the spreadsheets, but unless you are one of the few dairy marketing professionals in this country who actually know all about the regulated milk 

prices and constantly changing premiums discussed in the previous paragraph, who 

would believe that at a glance? Who could? 

Grain farmers would almost certainly hedge less, too, if confronted with a maze 

of pricing tied to whether the bushels they send to the elevator go into corn syrup 

versus corn flakes, creamed corn in a can versus frozen niblets in a bag, bulk poultry 

feed versus a fifth of corn whiskey. 

It has been our anecdotal observation over the years that dairy producers in areas 

with significant cheese production are more likely to hedge than producers in areas 

with more diverse milk product utilization. Producer hedging, in other words, is 

more widespread in Wisconsin, Minnesota and Idaho than in Pennsylvania (high 

Class I and II) or California (an entirely different pricing system and a lot of nonfat 

dry milk and butter in the pricing pool). Producers are more inclined to hedge when 

they can readily connect the Class III hedging mechanism with their milk check. 

This is not to say that a dairy producer in Northeastern Wisconsin has as easy-tounderstand a hedging mechanism as his or her neighbor marketing soybeans. But 

it is closer. 

Importantly, those producers who can make the connection and do hedge have significantly reduced their income variability in recent years. This was demonstrated 

by data included in the testimony offered by Mr. Kruse of Blue Bell Creameries last 

week. It is supported by our own internal studies of producer risk management performance. We have clients today who are receiving $17 or $18 per hundredweight 

for milk hedged last summer; some will be in the $15 to $16 range for the second 

half of this year based on marketing decisions made in February and March. This 

compares to base prices of $10 per hundredweight that their neighbors are receiving. 

The existing vehicles work; the road, however, is twisting and rutted. 

Overall, it is my sense that we are in the murky middle so far as producer risk 

management is concerned. 

We are trying to convince producers to use modern, market-based risk management tools; but they are compelled to do so in an antiquated, complex pricing system. We speak about trying to reduce volatility on a macro, market-wide level but 

underestimate the likelihood that micro, individual level volatility reductions would 

be far easier to achieve if the U.S. milk pricing system were simplified in a manner 

that would allow traditional futures and options markets to thrive and foster the 

greater use of forward contracting. 

The inherent challenges, I might add, are not limited to the producer community. 

Processors and end-users face myriad dairy risk management challenges as well—

challenges that are also largely a function of the pricing system. For example, it is 

much more straightforward for a pizza maker to hedge the cost of wheat used to 

make dough flour than it is for a pizza maker to hedge the cost of cheese. 

This is not a call for wholesale deregulation. Yes, that would definitely force the 

issue. Yet similar results could be achieved by making a conscious effort to align 

policy prescriptions with risk management realities. It boils down to some simple 

questions. Such as: if we adjust policy in a particular direction, are we increasing 

or decreasing a producer’s ability to manage risk via conventional methods? Or, perhaps more productively: how can we construct a pricing system that makes managing risk straightforward? 

129

Our dairy producers deserve better than the pricing complexity that confronts 

most of them every day. U.S. dairy farmers are the most dynamic producers in the 

world. They achieve the amazing day after day. Many understand how hedging 

works. It is my belief that they would be better served by a system that allows them 

to make it happen. 

Thank you. 

Endnotes 

[i]

[ii] Open Interest is a measure of market liquidity. It represents the number of 

contracts that have been entered into but not yet exited. For example, if two parties 

enter into a new futures market contract—one as a new buyer, one as a new seller—

their activity generates one lot of open interest.


11124016
130

[iii]

[iv] Basis refers to the difference between a local price and a central market price. 

For example, corn in Eastern Iowa may be trading at ¥$0.03/bu relative to the 

CME Group corn futures price.


11124017
131

The CHAIRMAN. Thank you, Mr. Plourd. 

Now we will have Mr. Everett Williams from Madison, Georgia. 

STATEMENT OF J. EVERETT WILLIAMS, PRESIDENT, GEORGIA 

MILK PRODUCERS, INC., MADISON, GA 

Mr. WILLIAMS. Chairman Scott and Members of the Subcommittee, I would like to thank you for the opportunity to discuss 

with you the economic conditions that face dairy producers today. 

My wife, Carol, and I live in Madison, Georgia, where we operate 

a third-generation dairy farm with our four children. As President 

of Georgia Milk Producers, I am here today representing all dairy 

farmers in Georgia. Georgia dairymen operate in an area where 

population growth is one of the fastest in the United States. The 

milk deficit for our area grows greater each year with Georgia now 

importing up to 68 million pounds of milk per month. The Federal 

Milk Market Administrator’s Office in Atlanta predicts that within 

the next decade, no dairies will exist in the Southeast. One reason 

for this is the current dairy pricing system. 

The USDA Dairy Product Price Support Program helps support 

prices and farm income. The price paid for nonfat dry milk, butter 

and cheese is too low to help dairy producers remain profitable. 

Raising the support price for these products is not a good long-term 

solution because the government would have to buy more of these 

products as dairymen produce them for sale to the government. 

Government-purchased products depress market prices. Buying 

products at a price below the cost of production does not support 

dairymen, but creates inventories that depress prices for months or 

years, only prolonging the low prices for dairymen. Without the 

Dairy Product Price Support Program, milk prices might drop 

lower than with the current system, but prices will rebound faster 

because the market would use more dairy products, and there 

would be no government inventories to depress future prices. 

The Chicago Mercantile Exchange and cheese trading—producers 

need a true dairy market for its price signals and income. Farm 

milk price correlates very closely with the block cheddar price on 

the CME. We are concerned with the small amount of cheese, less 

than one percent, that is traded with a small number of buyers and 

sellers for cheese on the Chicago Mercantile Exchange. The price 

could be easily manipulated to the detriment of dairy producers. A 

Government Accountability Office report released in July 2007 

stated, ‘‘Because the CME spot cheese market remains a market in 

which few daily trades occur and a small number of traders account for the majority of the trade, questions exist about this market’s susceptibility to potential price manipulation.’’ The government should follow up on this GAO report with an investigation to 

find improvements or a more equitable dairy pricing system. 

Marketing programs—we support the Holstein Association’s 

Dairy Price Stabilization Program. The dairy markets continue to 

have ever-increasing price volatility, which hurts producers, processors and consumers. This program is designed to match supply 

with demand, including exports. Federal legislation would be needed to implement this plan. This plan allows expansion of production and new producers. The goal would be to control milk price 

volatility while not setting milk price. 

132

Pricing Class I milk—the present system of using a formula that 

locks Class I pricing to manufactured pricing is adversely affecting 

markets that are primarily Class I. Over the last decade the expansion of milk production in the West has weakened Southeast fluid 

milk production. A system needs to be developed that would price 

milk independently. 

Southeast milk marketing conditions—Our daily cooperatives 

have done a very poor job of matching milk production with demand. In the Southeast, milk production has decreased 23 percent 

while in the Southwest production has increased 44 percent since 

the year 2000. The end result is that we have a fluid market in 

the Southeast that his short of fluid milk. The money that processors pay for milk is being spent to pay for milk hauling from the 

Southwest to the Southeast. Transportation credits of 30¢ per hundredweight of milk are paid by Class I processors to a Federal 

order fund to help supply milk from outside the Southeast. These 

transportation credits create disorderly milk marketing. This action 

hurts all dairy producers in the Southeast for the benefit of a few 

haulers. 

Thank you for this opportunity. 

[The prepared statement of Mr. Williams follows:]

PREPARED STATEMENT OF J. EVERETT WILLIAMS, PRESIDENT, GEORGIA MILK

PRODUCERS, INC., MADISON, GA 

Chairman Scott and Members of the Subcommittee, on behalf of Georgia Milk 

Producers, Inc., I would like to thank you for giving us this opportunity to discuss 

with you the economic conditions that face dairy producers today. 

My name is Everett Williams. My wife, Carol, and I live in Madison, Georgia, 

where we operate a third generation dairy farm with our four children. As the President of Georgia Milk Producers, I am here today representing all dairy farmers in 

Georgia. 

Georgia dairymen operate in an area where population growth is one of the fastest in the U.S. The milk deficit for our area grows greater each year with Georgia 

now importing up to 68 million pounds of milk per month. The Federal Milk Market 

Administrator’s office in Atlanta predicts that within the next decade no dairies will 

exist within the Southeast. One reason for this is the current dairy pricing system. 

We appreciate this Committee’s efforts to review the current economic situation 

and to investigate all short-term and long-term possibilities that would improve our 

industry. Here are some suggestions that we believe would help our region and the 

nation as a whole: 

USDA Dairy Product Price Support Program 

The USDA Dairy Product Price Support Program helps support prices and farm 

income. The price paid for Nonfat Dry Milk (NFDM), butter and cheese is too low 

to help dairy producers remain profitable, especially considering the dramatic rise 

in input costs over the past 3 years. Even though raising the support price appears 

to help producers now, however it is not a good long-term solution. Dairymen would 

be producing milk for the government to purchase instead of the marketplace. If 

these government purchased products are used in the U.S., such as for the school 

lunch program, they still depress market prices causing the government to buy more 

product. If large amounts of product were given or sold to foreign countries that 

would depress prices and cause harm to relationships between the U.S. and trading 

partners. 

The government should encourage dairy product usage in the school lunch program to improve our children’s diet and nutrition, but using surplus inventories displaces normal market sales. 

The USDA Dairy Product Price Support Program is an example of good intentions 

by the government to help dairymen but now causes more harm than good. Buying 

products at a price below the cost of production does not support dairymen, but creates inventories that depress prices for months or years, only prolonging the low 

prices for dairymen. When the dairy industry has excess production processors make 

NFDM to sell to the government, instead we should be making whole milk powder 

133

for the world market. Most foreign countries want whole milk powder not NFDM. 

Without the Dairy Product Price Support Program milk prices might drop to lower 

prices than with the current system but prices would rebound faster because the 

market would use more dairy products and there would be no government inventories to depress future prices. Dairymen would get a better, clearer signal to cut 

production and to produce products for the market, not the government. 

Chicago Mercantile Exchange (CME)/Cheese Trading 

Producers need a true dairy market for its price signals and income. Farm milk 

price correlates very closely with the Block Cheddar price on the Chicago Mercantile 

Exchange (CME). We are concerned with the small amount of cheese (less than 1%) 

traded with the small number of buyers and sellers for cheese on the CME. The 

price could be easily manipulated to the detriment of dairy producers. 

We know from a Government Accountability Office (GAO) report (GAO–07–707) 

released in July 2007, that the opportunity for price manipulation exists. GAO stated, ‘‘Because the CME spot cheese market remains a market in which few daily 

trades occur and a small number of traders account for the majority of trades, questions exist about this market’s susceptibility to potential price manipulation.’’

Cheese plants report prices to the National Agricultural Statistics Service (NASS). 

These prices are the CME cheddar cheese price of 10 days earlier including basis. 

Therefore the cheese price on the CME sets the NASS survey price which sets the 

Class I Mover. 

We want the government to follow up on this GAO report with an investigation 

to find improvements or a more equitable dairy pricing system. 

Supply Management Programs 

We support the Holstein Association’s Dairy Price Stabilization Program. The 

dairy markets continue to have ever increasing price volatility which hurts producers, processors and consumers. Low prices benefit processors and consumers, but 

helps to force dairymen out of business causing a severe drop in production and the 

next round of high prices for consumers. These high prices are needed by dairymen 

to repay equity lost in the low part of the price cycle, but hurt processors and consumers causing a decrease in milk consumption which makes the next round of low 

prices even worse. 

The Holstein Dairy Price Stabilization Program is designed to match supply with 

demand, including exports. Federal legislation would be needed to implement this 

plan. An advisory board would be appointed which would set the amount of milk 

needed and the market access fee per hundredweight. This fee would be paid by 

those producers who produce more than their assigned market amount. The fees 

would be collected and paid proportionally to those producers who do not expand. 

This advisory board would react to market conditions by increasing supply when 

milk was short or decreasing supply when there is too much milk. This plan allows 

for expansion of production and new producers. The goal would be to control milk 

price volatility while not setting milk prices. 

De-Coupling Class I Milk 

The present system of using a formula that locks Class I pricing to manufactured 

pricing is adversely affecting markets that are primarily Class I. The expansion of 

milk production in the West over the last decade has negatively impacted dairymen 

producing for fluid markets. A system needs to be developed that would price fluid 

milk independently. 

Southeast Milk Marketing Conditions 

Our dairy cooperatives have done a very poor job of matching milk production 

with demand. We have allowed tremendous production declines in the Southeast 

while encouraging large milk production increases in the Southwest. 

In the Southeast, milk production has decreased 23 percent from 12.0 billion 

pounds to 9.2 billion pounds since 2000. Meanwhile in the Southwest, production 

has increased 44 percent from 11.9 billion pounds to 17.1 billion pounds since 2000. 

The end result is that we have a fluid market in the Southeast that is short of fluid 

milk. The money that processors pay for milk is being spent to pay for milk hauling 

from the Southwest to the Southeast instead of going to pay local dairymen. Transportation credits of 30¢ per hundredweight of milk are paid by Class I processors 

to a Federal Order fund to supply milk from outside a marketing area during periods of deficit milk production. These transportation credits are being used to subsidize milk hauling from the Southwest to the Southeast even as some milk is being 

hauled out of the Southeast to manufacturing plants in the north. This action hurts 

all dairy producers in the Southeast for the benefit of a few haulers. 

134

Thank you for the opportunity to submit our plea for help and a call for a drastic 

change both for the good of Georgia’s dairy industry, the Southeast as well as for 

the U.S.

The CHAIRMAN. Thank you, Mr. Williams. 

And now we will hear from Mr. Rozwadowski. 

STATEMENT OF PAUL J. ROZWADOWSKI, CHAIRMAN, DAIRY

SUBCOMMITTEE, NATIONAL FAMILY FARM COALITION; 

DAIRY FARMER, STANLEY, WI 

Mr. ROZWADOWSKI. Mr. Chairman, Members of the Subcommittee, on behalf of myself, my family and other family farmers, I thank you for giving me the opportunity to come here and 

testify on the dairy crisis that is causing economic devastation to 

dairy farm families, related agribusinesses and rural economies all 

across the nation and it is putting our food security at risk. I am 

a dairy farmer from Stanley, Wisconsin. I milk 60 cows on 375 

acres along with my wife and four children, and have been doing 

so for 30 years. I serve as the Dairy Committee Chairman of the 

National Family Farm Coalition. The NFFC has dairy farmers both 

conventional and organic members from coast to coast. 

As we meet here today, the crisis dairy farmers are living worsens. Virtually every dairy farmer in the country is going broke. The 

stress level amongst farmers is past the breaking points. My parish 

priest told me last week that for the past couple of months he has 

had to counsel one or more dairy farmers a week to try to stop 

them from committing suicide, and he doesn’t know how much 

longer he can be successful at this. Members of this Subcommittee, 

you have called for this hearing today because you recognize that 

there is a serious problem in dairy. I believe you are genuinely concerned and we urge you to look for solutions, both short term and 

long term. We are in a situation that needs emergency actions. 

Loans are well intended and they pay some bills, but it will further 

send farmers into debt without the capability to repay even the interest on those loans. Loans get repaid from profit and at $10 to 

$12 milk, there is no profit. 

Congress had good intentions with the MILC Program and now 

it even has a feed adjuster with it, but at $10 milk I receive about 

$1.47 payment per hundredweight, which doesn’t even bring me 

close to the $18 I need to operate my farm. Even doubling of these 

payments would fall far short and put more burden on the taxpayer at a time when dairy processors are making record profits, 

and should be the ones paying farmers, not the taxpayers. Dean 

Foods, the large fluid milk processor in the country, saw profits 

double to $76 million in the first quarter of this year while Kraft 

Foods saw a $60 million increase in the first quarter when consumers are still paying nearly the same price at the store as they 

did a year and a half ago when processors were paying us dairy 

farmers $20 or more for our milk. Now, let us think about this. The 

processors are getting nearly the same for their product at the retail level but the farmer is receiving half as much for the raw product. Even if we had a five percent surplus, which I don’t believe 

there is, the math just doesn’t add up, five percent causing a 50 

percent drop in price. What it does add up to is a lot of greed and 

corruption. 

135

I would be the first one to admit that the processing industry is 

vitally important, and I could not farm without them processing 

and marketing my milk. They know they need a profit and return 

on investment and they successfully got Congress some years ago 

to give them a make allowance which amounts to about $2 a hundredweight. Again, the dairy farmer pays that cost. Well, the dairy 

farmer needs to make a profit too. Milk prices have been so low for 

so long that we must act quickly, or in a few short months there 

will be a massive exit of dairy farmers like you can’t possibly imagine. 

I know lobbying organizations for the big processors are telling 

you that the dairy farmers are producing so much milk that there 

is a big surplus, and that the poor economy is causing consumers 

to buy less dairy products, but here is some interesting USDA research figures for 2008. Dairy farmers produced 190 million pounds 

of milk and the commercial disappearance of the dairy products 

was 193 pounds. Two thousand nine is following along the same 

path but with an interesting twist. According to Resources Incorporated, a firm that collects data from retail checkout scanners, 

found that during the 13 week period from March 1 through May 

31 of this year, retail cheese sales were up by five percent and fluid 

milk sales were up 1.2 percent in the United States. Someone is 

lying about this surplus thing or maybe it has something to do with 

the record amount of protein concentrates being imported and 

made into garbage cheese. Again, the processors are playing both 

ends by profiting from using cheap, untested imported ingredients 

and passing it off to consumers as cheese and creating a mythical 

surplus, forcing down the price of raw milk. Cheese is retailing for 

$3.50 a pound or more. If 1 pound of cheese is made from 10 

pounds of milk, then 100 pounds of milk is worth $35. With the 

farmer getting $10, who is getting the other $25? We are killing 

cows with the National Milk Producers Federation’s Cooperatives 

Working Together Program to try to lower milk production. Then 

we import cows right back from Canada and allow in massive imports. This is another Band-Aid approach that has about as much 

chance to solve the dairy price crisis as taking an aspirin would 

have to cure cancer. 

We have corruption demonstrated by Dairy Farmers of America, 

the largest marketing co-op in the country, being fined $12 million 

and disciplined by the Federal Government for violating rules in 

futures trading and daily trading at the Chicago Mercantile Exchange. They have also been the focus of a 2 year Department of 

Justice investigation which I am told is the biggest in U.S. history 

by the Department. The findings of the investigation never came 

to light under the Bush Administration. We hope the USDA and 

the DOJ can immediately revive this investigation. 

Another example of corruption plaguing the dairy industry was 

the misreporting of powdered milk prices from August 2006 to 

April 2007 on the NASS surveys. It is my opinion that the management of these cooperatives that serve on the board knew what was 

happening and encouraged it. I respectfully ask Congress to see 

what is happening here. How much more evidence will it take to 

convince you that the dairy pricing system is broken. Greed and 

corruption are running the show. 

136

We ask the Congressional Agriculture Committee——

The CHAIRMAN. Mr. Rozwadowski, we are going to have to ask 

you—you are a minute or so over. We are going to ask you if you 

can wrap it up right quick, please. 

Mr. ROZWADOWSKI. Yes, last sentence. We ask the Congressional 

Agriculture Committee to investigate all the corruption in the dairy 

industry and start working on a new pricing system for dairy. The 

old one is very badly broken and can never be fixed. Congress 

needs to start listening to the voices of the family farmers. Thank 

you. 

[The prepared statement of Mr. Rozwadowski follows:]

PREPARED STATEMENT OF PAUL J. ROZWADOWSKI, CHAIRMAN, DAIRY SUBCOMMITTEE, NATIONAL FAMILY FARM COALITION; DAIRY FARMER, STANLEY, WI 

Mr. Chairman, Ranking Member and other Members of the Committee, thank you 

for giving me the opportunity to come here to testify on the dairy crisis that is causing economic devastation across the nation and putting our nation’s food security 

at risk. I am a dairy farmer from Stanley, Wisconsin. I milk 60 cows on 375 acres 

and have been a dairy farmer for 30 years. I currently serve as the Dairy Subcommittee Chairman for the National Family Farm Coalition. NFFC has dairy 

farmers from across the country as part of its membership, from California to Wisconsin to Pennsylvania to New York. We also have organic dairy groups who are 

part of our membership. In the short term, dairy farmers need an $18 emergency 

price floor for all manufactured milk. In the long term, we need to revamp our failed 

milk pricing system and antitrust reform of our heavily consolidated industry that 

has left farmers with few options to market our milk. 

In my area, farmers are burning up their equity accumulated over their lifetimes. 

One farmer in my area had to cash out his wife’s IRA just to get crops planted this 

spring. My parish priest in my small town has had to counsel one or more dairy 

farmers a week to prevent their suicides. And we know of reports across the country 

of farm suicides that have already occurred. 

All of us, whether we are small or large farms, conventional or organic, have believed for a long time that our industry was in a crisis. During the farm bill, NFFC 

was one of the few farm groups warning about this coming catastrophe and urging 

that the current milk pricing system had to be replaced because it was prone to manipulation by a few corporate interests and fostered unsustainable volatility. Now, 

as we confront 1970s prices for our milk and the worst conditions I have ever seen 

in 3 decades of farming, we still believe fundamental change is needed to address 

the corruption and greed that is at the root of this crisis. Dairy prices have crashed 

to 1970s levels not because of any supposed overproduction, but because of a pricing 

system easily manipulated on Wall Street, a flood of untested imported dairy ingredients, and dairy cooperatives that have long ceased to represent their farmer memberships. We believe industry groups such as the International Dairy Foods Association and so-called dairy cooperative groups like National Milk Producers Federation 

have failed America’s dairy farmers and are the reason why we have barely 60,000 

dairy farms left in the country. So long as Secretary Tom Vilsack and Congress continue to take their policy cues from these industry outfits, we will never solve our 

dairy crisis. 

The National Family Farm Coalition has been working tirelessly for over a decade 

to represent the real voices of dairy farmers from across the country and to expose 

corruption in the dairy industry. We have been among the few raising questions 

about our dairy co-ops, the pricing system and the deep-seated corruption of our socalled industry groups such as National Milk Producers Federation. NFFC’s work 

helped to launch the Department of Justice’s 2 year antitrust investigation into 

Dairy Farmers of America, the nation’s largest dairy cooperative. The findings of 

that investigation have never been released. We have repeatedly requested that the 

Senate Judiciary Committee look into investigating DFA’s activities, but to no avail. 

NFFC members also protested at the Chicago Mercantile Exchange where cheese 

prices are determined. Our efforts led the Commodity Futures Trading Commission 

in December 2008 to issue an unprecedented fine of $12 million against Dairy Farmers of America. NFFC in 2007 brought to the attention of USDA price misreporting 

of nonfat dry milk prices, costing dairy farmers at least $50 million. To date, dairy 

farmers have not been compensated for this egregious error that occurred as a result of incompetence on the part of our main dairy cooperatives. NFFC also helped 

137

to release a report earlier this year showing the false myth that overproduction was 

behind the current price collapse when we are currently importing record amounts 

of milk protein concentrates from foreign countries. On these antitrust and corruption issues, dairy lobbyists such as IDFA, National Milk Producers and our major 

co-ops have remained virtually silent while continuing to support a pro-free trade, 

globalized dairy industry that only benefits the bottom lines of processors seeking 

the cheapest ingredients. These groups have proven over and over that they do not 

care about the well-being of America’s dairy farmers. 

Immediate Actions 

NFFC, along with Farm Aid, has repeatedly urged Secretary Vilsack to exercise 

the authority he has under Section 7 of 608c(18) of the 1937 Agriculture Act that 

gives him authority to adjust the minimum price of milk under the FMMOs if the 

price ‘‘is not reasonable in view of the price of feeds, the available supply of feeds, 

and other economic conditions which affect market supply and demand for milk.’’ 

Over 13,000 faxes and letters have been delivered to USDA demanding that farmers 

receive an $18 emergency floor price. Farmers do not like the idea of receiving taxpayer money from Milk Income Loss Contract payments. While a doubling of MILC 

payments may address some of the problems short-term, NFFC believes farmers 

should not be deriving their income from taxpayers, but from processors, many of 

whom are enjoying record profits. Dean Foods, the largest fluid milk processor in 

the country, saw profits double to $76 million in the first quarter of this year while 

Kraft Foods saw a $60 million increase in first quarter profits. 

Fixing The Broken Dairy Pricing System 

Longer term, in order to stabilize our industry and ensure consumers have access 

to local sources of fresh dairy products, we need a new pricing system and a reasonable supply management program. Instead of spotlighting our broken dairy pricing 

system, industry representatives continue to focus on the Dairy Export Incentive 

Program, National Milk’s Cooperatives Working Together’s ‘‘cow retirement’’ program, and more government purchasing of dairy products, none of which have made 

a dent in the crisis. Our milk prices are currently determined in large part by 

cheese trading at the Chicago Mercantile Exchange. These thinly traded markets 

are easily manipulated by large corporate players, such as Kraft Foods and DFA. 

The Government Accountability Office in 2007, at the request of several U.S. Senators, found that the CME was highly prone to manipulation and the December 

2008 fine of DFA only confirmed what many farmers suspected for years as we 

struggled with extreme volatility with our prices. It is unconscionable to have a pricing system that has no basis in supply and demand. Farmers should not be receiving prices that are lower than what they were 30 years ago, not even accounting 

for inflation! In 1980, the dairy support price was $13. In recent months, we have 

received between $9 and $11 for our milk. This is unacceptable and it is time to 

change the system to finally account for farmers’ cost of production in the pricing 

formula. 

New Dairy Pricing Bill 

NFFC supports a bill introduced in the Senate by Senators Bob Casey and Arlen 

Specter, S. 889, the Federal Milk Marketing Improvement Act, that would establish 

a national average cost of production. The only supply management we have now 

are low prices that drive farmers out of business. This just hurts all our rural communities and puts at risk our domestic food supply. S. 889 would have a supply 

management that maintains supply in line with demand and gives farmers a fair 

price. S.889 would have two classes of milk and would price milk based on a national cost of production. All manufactured milk will be classified as Class II milk. 

The values of Class I milk will be determined by adding the existing Class I differential in each Federal or state market to the Class II price. For instance, in Federal Order #1, if the Class II price were $21.00 per cwt, then adding the Order #1 

Class I differential of $3.25 per cwt would establish a Class I price of $24.25 per 

cwt. The price paid to dairy farmers would be slightly over $22.00 per cwt. S. 889 

would also institute an inventory management in case of true overproduction after 

accounting for imports. Every 2 months, the Secretary can determine whether there 

is an excess of milk and milk products being produced in the United States. USDA 

Secretary must factor in products including cheeses, butter, butterfat, milk powder, 

ice cream, yogurt, as well as substitute dairy ingredients such as milk protein concentrates, casein, caseinates, whey protein concentrates. If the Secretary determines 

there is excess production, milk prices for producers may be reduced for not more 

than 5% of all milk produced. There will be no reduction in prices received by producers unless there is a positive trade balance in dairy products (i.e. exports are 

higher than imports). Producers can receive a reduced price for milk of up to half 

138

the Class II price. Further deductions may be taken for producers with more than 

3 million pounds of milk. New producers are exempt from these guidelines for 1 

year. 

IDFA has suggested that dairy producers should utilize risk management tools 

such as futures contracts and forward contracting. These tools are simply designed 

to pay producers below the FMMO minimum price. A USDA study shows farmers 

lost $28 million through their pilot forward contracting program. The 2008 Farm 

Bill unfortunately revived the forward contracting program. Sixty thousand dairy 

farmers cannot hope to attain a fair price when the industry is so heavily consolidated and controlled by a few key players, including Dean Foods in the fluid milk 

market, Leprino Cheese for the food processing sector and Kraft Foods for the retail 

sector. 

Controlling Imports 

The reaction from USDA and our dairy cooperatives to stem the current crisis so 

far has been to get the government to buy up supposed surplus products and help 

subsidize exports. USDA has spent millions to purchase products for international 

food aid and to distribute to local food banks. USDA has also, at industry’s behest, 

revived the Dairy Export Incentive Program. National Milk Producers Federation 

has been promoting for 6 years its Cooperatives Working Together program. CWT 

attempts to control U.S. dairy production through herd retirements. It has been an 

utter failure at stabilizing milk prices and also lower cull-cow prices, further hurting 

farmers’ income. Farmers who have been milking for decades are now seeing a lifetime’s work go up in smoke as their herds, including even bred heifers, are being 

sold off to the CWT program. The Pope this week noted we have 924 million hungry 

people in the world today, yet farmers are selling their cows to CWT instead of helping to produce the vital dairy products that could be used to feed the hungry. One 

respected farm reporter said, ‘‘CWT is a bloody and heart-breaking supply-management program that isn’t working . . . At best, it’s a poor way of managing the milk 

supply. At worst, it’s a sinister scheme for killing off the nation’s dairy industry so 

that cheaper, foreign sources of dairy products can be utilized.’’ None of these supply 

stabilization programs, from export subsidies to CWT, will work so long as we cannot control dairy imports flooding our markets and displacing U.S. farmers’ quality 

milk. 

Currently, the U.S. has seen record imports of milk protein concentrates, which 

have never been approved as ‘‘Generally Regarded as Safe’’ by the FDA. For the 

first 2 months of 2009, there was a 71.8% increase in MPC imports compared to 

2008. Seven thousand metric tons of MPCs were being imported in February, the 

highest ever on record. Yet USDA and industry continue to insist on an oversupply 

of milk and downplay the impacts of imports. 

Consumer Gouging 

The collapse in dairy prices has not been a benefit to consumers, as seen in the 

profits experienced by dairy and food processors. While prices paid to farmers have 

dropped 50%, consumers have certainly not seen a 50% drop in prices at the grocery 

store for milk and cheese. Dean and Kraft’s profits show that consumers are still 

paying exorbitant prices in many parts of the country for milk and cheese. 

Fallacy of Global Markets 

The industry and our dairy cooperatives have continually promoted the false idea 

that global exports are the key to helping improve milk prices. Food processors and 

dairy co-ops are continually trying to degrade standards of identity for milk to allow 

for inferior and cheaper dairy ingredients to be used, instead of U.S. farmers’ wholesome fresh milk. Industry has tried to allow for the use of more MPCs to be used 

in cheesemaking and wants ultrafiltered milk to be labeled as simply ‘‘milk.’’ Consumers thinking they are getting real milk in their dairy products are now seeing 

these milk substitutes, many coming from foreign countries, in everything from coffee creamers to macaroni and cheese. MPCs, which are the dry powder form of 

ultrafiltered milk, remove many of the vitamins and minerals contained in real 

milk. MPCs were originally intended for use in industrial glue and are sourced from 

countries that include China and India! They may even be coming from water buffaloes and not cows. No consumer is clamoring for ‘‘innovative’’ dairy products containing more fake milk substitutes using imported materials. Only the industry, 

such as IDFA’s members, supports such innovation not to address consumer demand, but to fatten their own profit lines. NFFC supports the immediate closure 

of loopholes allowing for the import and use of MPCs and passage of the Milk Import Tariff Equity Act. Consumer interest and trends have shown a strong preference for local sources of fresh dairy products. This is the exact opposite of industry’s vision of a ‘‘global marketplace.’’ NFFC remains greatly concerned about the 

139

Federal Milk Marketing Order Review Commission called for by the 2008 Farm Bill 

to examine milk pricing. The Commission emphasizes ensuring globally competitive 

dairy markets at the expense of a fair price for dairy farmers. Also, the Commission 

explicitly calls for ‘‘evaluating the nutritional composition of milk, including the potential benefits and costs of adjusting the milk content standards.’’ We believe this 

is a dangerous attempt by food processors to water down the definition of milk to 

include MPCs and ultrafiltered milk. 

Dairy farmers have also never seen the trickle down effects of export markets. 

When dairy prices were relatively higher in 2007 due to supposed export demand 

for nonfat dry milk, U.S. prices consistently lagged behind the world price and behind the EU and Oceania (New Zealand and Australia). Through the work of NFFC 

member John Bunting, we helped expose price misreporting in 2007 on the part of 

DairyAmerica, the marketing agency for nonfat dry milk exports. DairyAmerica is 

made up of several major U.S. cooperatives, including DFA. It was discovered that 

from August 2006 to April 2007, DairyAmerica had submitted erroneous nonfat dry 

milk powder prices to the NASS survey that helps determine milk prices. NFDM 

prices reported to NASS consistently lagged behind world prices. A June 2008 report 

released by the USDA’s Inspector General estimated farmers lost at least $50 million due to this scandal. To date, USDA has offered no compensation to farmers for 

this enormous loss. NFFC believes this is a gross underestimate of the real amount 

of losses. I am now part of a class action lawsuit filed in March 2009 on behalf of 

dairy producers in twenty five states against DairyAmerica. I believe the price 

misreporting scandal shows why reliance on global exports will never benefit dairy 

farmers, but only the processors and cooperatives that do the exporting. This is also 

why the DEIP program is unlikely to benefit farmers. 

Antitrust and Fair Competition in Dairy Markets 

An April 2004 meeting, organized by NFFC and attended by New York Attorney 

General Eliot Spitzer, was held in Syracuse, New York, on dairy antitrust issues. 

The meeting helped spur investigations to finally look at the market abuses on the 

part of our dairy cooperatives. The Department of Justice’s antitrust division then 

launched a 2 year investigation into DFA and its market collusion with the likes 

of Dean Foods and others. The Bush Administration never allowed charges to be 

brought forth, despite evidence of severe anti-competitive practices on the part of 

DFA. NFFC is working with the DOJ to see if this case can be revived again and 

justice served for dairy farmers who suffered from DFA’s abuses and in many cases 

were driven out of business. In addition, two antitrust lawsuits have been brought 

by DFA members and customers against the co-op and in April 2009, a shareholder 

lawsuit against Dean Foods was filed alleging illegal marketing practices harming 

farmers. Through all these years of antitrust problems and failures to have a truly 

free and competitive dairy market, Congress has failed to examine these incredible 

market failures in our industry while continuing to rely on policy advice from these 

same players. 

Organic Dairy in Crisis 

It is not just conventional dairy farmers who are being threatened with bankruptcy. Organic dairy farmers, many of whom invested heavily to switch to organic 

production, are suffering the same tragic effects of this current crisis. Processors 

have now cut the price of milk for farmers, and imposed production caps. Many family farmers are now in danger of losing their farms. 

The same corporate processors who control conventional dairy production are now 

threatening the viability of the organic dairy industry. In addition to the serious financial losses some farmers are experiencing, two of the largest organic milk processors and handlers, Dean Foods (marketing Horizon milk) and HP Hood, which 

owns Kemps dairy in the Midwest (marketing Stonyfield milk) have informed some 

of their farmers that they will not renew their contracts. 

Enforce Organic Dairy Standards 

In the dairy sector, there are now estimated to be 20 large industrial dairies, each 

milking thousands of cows, producing as much as 40% of the nation’s organic milk 

supply. Under the Bush Administration, the USDA was accused of ‘‘looking the 

other way’’ as large corporations invested in organics while allegedly violating Federal standards. These corporations have, in essence, signed a financial death warrant for these farmers. Without contracts to sell organic milk, many of these operators face bankruptcy and risk losing the farms that have been in their families for 

multiple generations. 

For years, members in the organic community and the National Organic Standards Board, the expert panel set up by Congress, have appealed to the USDA to 

crack down on ‘‘scofflaws’’ bending the organic regulations on giant factory dairies, 

140

mostly in the desert-West. NFFC urges Secretary Vilsack and Congress to view this 

as a legitimate emergency and take immediate action, to shut down the giant farms 

that are violating Federal organic law. If nothing is done, many of the ethical, hardworking farmers who built the organic dairy industry will be driven out of business 

by those who are unethically skirting the law. The dairy industry, conventional and organic, contributes over $20 billion to Wisconsin’s economy. We help support thousands of jobs in rural communities. The current crisis is now putting our entire rural economies in jeopardy, from our feed suppliers to equipment companies to veterinarians to local small businesses. USDA and 

Congress need to start listening to the voices of family farmers and not those of the 

industry who are in large part responsible for this mess. Unless action is taken immediately, we will see 1⁄3 of our remaining dairy farmers go out of business very 

soon. Consumers in the very near future may have to rely on Chinese imported 

dairy products for their food supply. For the sake of our rural economies and our 

national security, let us work towards ensuring we will always have a viable American dairy industry and consumer access to safe, quality, and real dairy products. 

* * * * *

The National Family Farm Coalition (NFFC), founded in 1986, provides a 

voice for grassroots groups on farm, food, trade and rural economic issues to ensure 

fair prices for family farmers, safe and healthy food, and vibrant, environmentally 

sound rural communities here and around the world. For further information about 

the organization, visit www.nffc.net.

The CHAIRMAN. Thank you very much. 

Now we will hear from Mr. Scott Hoese, President of the Carver 

County Farmers Union. 

STATEMENT OF SCOTT HOESE, PRESIDENT, CARVER COUNTY 

FARMERS UNION, DAIRY FARMER, MAYER, MN; ON BEHALF 

OF NATIONAL FARMERS UNION 

Mr. HOESE. Good morning, Mr. Chairman and Members of the 

Committee. I am a dairy farmer from Mayer, Minnesota, where my 

wife, son and I own and operate a diversified farm. We grow all of 

our own feed for our 120 milk cows in addition to some corn and 

soybeans. I currently serve as the President of the Carver County 

Farmers Union, and I am here today on behalf of the National 

Farmers Union. Bongards’ Creamery, where I serve as a Board 

Member, had a June base price of $10.90 per hundredweight, a dollar over Class III. My costs of production averages $14. As a board 

member, right now we are trying to pay the most to our producers. 

Because the expansion of our operations 3 years ago, we now have surplus pregnant heifers to sell. Today they sell for $1,000 

and $1,200 apiece. Last year I was getting more than $2,000. 

To comply with state environmental regulations on my manure 

pad, I have to empty my pad, take out 2 feet of soil clay and then 

put in 2 feet of new clay back in around the perimeter and then 

get certified by the NRCS. EQIP will cost share us 75 percent but 

I still have to account for $10,000 this year. 

Recently the Minnesota Farmers Union held a number of listening sessions to hear directly from dairy farmers across the state. 

What we heard were stories of farmers having to go to their local 

food bank for food because they have no income. One was hoping 

his garden would do well this year so he has something to feed his 

family, and there were two recent suicides by hog and dairy farmers. This economic crisis does not discriminate based upon herd 

size or location. Today’s situation is unlike any experienced in the 

past. 

The roller coaster market dairy producers have been riding 

seems to be getting more severe with each passing year with the 

141

highs not lasting long enough to mitigate the lows. Each month the 

National Farmers Union publishes the farmer’s share for the retail 

food dollar. July data shows consumers paying $4.99 for a pound 

of cheddar cheese while the farmer receives less than a dollar. Consumers pay $2.99 for a gallon of fat-free milk with the farmers receiving 97¢. At a time when consumers are eating more at home 

and increasing retail dairy product sales, producers are losing 

money on every gallon of milk sold. Policies need to allow producers to capture a greater percentage of the retail food dollar. 

Much of the debate over today’s situation has been centered on 

whether we are producing too much milk for current demand. Unfortunately, the data published by the USDA does not provide a 

full or accurate picture of the commercial disappearance. Failure to 

account for imported protein skews the overall picture. If USDA 

would recognize its own 2004 AMS report which concluded milk 

protein imports used in food production are equivalent to approximately five percent of our milk production, then you would see why 

we are a net deficit producer. Farmers Union has supported closing 

MPC and casein loopholes since it was created in 1995. The loophole, coupled with the lack of environment enforcement by the Customs Service, allows an overflow of imported dairy proteins to displace U.S. milk and drive down our domestic market. 

While some argue imports are not having a significant impact on 

our prices and point to export data, it is important to understand 

where we have been. During the past 6 years, the dollar has lost 

40 percent of its value according to the Federal Reserve. That devaluation made the price of U.S. commodities increasingly competitive on the world market at a time when economies across the 

globe are experiencing growth. Two major factors have changed significantly since 2007–2008. The world economy is in the midst of 

a severe recession and the value of the dollar is strengthening. Increasing and expanding exports is important to farmers but the 

chart in my written testimony shows dairy imports have outpaced 

exports 13 out of the past 16 years. Imports must be part of the 

discussion when trying to address today’s crisis. 

Due to increased levels of consolidation, there is a lack of competition in the dairy sector. A few major companies dominate the 

market, leaving producers and consumers to suffer as a result. In 

order for the dairy industry to be viable in the future, policymakers 

need to take immediate steps to foster and restore competitive competition in the marketplace. There is no single reason why the 

dairy industry is in the economic condition it is in, and there is no 

single option to solve the crisis. 

The following principles were identified and agreed to by producer organizations in March 2000 and remain valid today. Number one: Return on investment greater than cost of production plus 

a profit from the market; two, reform the Federal Milk Marketing 

Order System, and number three, restore competition to the dairy 

market. Included in my written testimony is a detailed list of options to achieve these three principles. 

Let me be clear: Producers need a lifeline now. Farmers Union 

recognizes the need for a fundamental overhaul of our Federal 

dairy policy, but unless Congress and the Administration extend a 

142

lifeline proportionate to today’s crisis, there will be little need to 

overhaul policy because so many producers will be out of business. 

Thank you for the opportunity to be here today. 

[The prepared statement of Mr. Hoese follows:]

PREPARED STATEMENT OF SCOTT HOESE, PRESIDENT, CARVER COUNTY FARMERS

UNION; DAIRY FARMER, MAYER, MN; ON BEHALF OF NATIONAL FARMERS UNION

Good morning, Mr. Chairman and Members of the Committee. My name is Scott 

Hoese, I am a dairy farmer from Mayer, MN. My wife, son and I have a Century 

farm that consists of more than 600 acres, 120 milk cows and an additional 125 

heifers and young stock. We grow all of our own feed in addition to some corn and 

soybeans. We expanded our operation 3 years ago, from 65 cows to the current 120. 

I currently serve as the president of Carver County Farmers Union, as a township 

supervisor, on the board Bongards’ Creamery and am past President of the Minnesota Association of Soil and Water Conservation Districts. I am here today on behalf of National Farmers Union (NFU)—a nationwide organization representing 

more than 250,000 farm, ranch and rural residents. 

In 1908, a small number of dairy farmers in Carver County, Minnesota decided 

to organize a farmer-owned cooperative creamery, Bongards’ Creamery. This farmerowned cooperative has two processing facilities in Bongards and Perham, Minnesota 

where we produce approximately 60 million pounds of natural cheese each year and 

a variety of top quality whey powders. My family has been part of this co-op since 

1962 and I currently serve as a director. The initial goals were simple and continue 

to be our focus today: produce the freshest, most wholesome and flavorful dairy 

products while getting a fair return for our raw milk. 

I applaud the Subcommittee for scheduling this hearing and providing producers 

the opportunity to speak directly to you. Recently, the Minnesota Farmers Union 

held a number of ‘‘No Bull’’ dairy action sessions to hear directly from dairy farmers 

and gather suggestions to improve dairy farm-gate price and profits. As a producer, 

it has been frustrating, to say the least, to weather one of the worst economic periods in 30 years yet it seems as though our society as a whole has not grasped how 

desperate our situation is. 

Dairy farmers of all sizes and across all regions of the country are enduring an 

unprecedented disaster. From Minnesota to California and Texas to Vermont, the 

current situation is untenable. Equity is rapidly disappearing, market prices remain 

at 1970 levels, creditors are cutting off producers—yet there is no relief in sight. 

Since the first of the year, two dairy producers in California have committed suicide 

as due to the gravity of their financial situation and the future outlook. This situation is unlike any experienced in the past and the width and depth cannot continue 

to be ignored. 

My state is the sixth largest dairy state in the United States, milking about five 

percent of the national herd. While many large dairy states have witnessed a decrease in their herd, Minnesota has increased cow numbers for the past 4 consecutive years. Despite the increase in herd size, the number of Minnesota farmers milking today is fewer. Our states’ economic engine relies on the dairy industry. For 

every dollar from dairy production and processing, about $2 is generated in statewide economic activities. 

The multiplier effect of the dairy industry on Minnesota’s economy is a total economic output of nearly $9 billion and almost 40,000 jobs. Unfortunately, the 2009 

market collapse has resulted in an average of $12.60 per hundredweight (cwt) for 

Minnesota dairymen for the first 4 months of the year according to the Minnesota 

Department of Agriculture—the lowest market level since 2002. One of the untold 

stories with today’s dairy crisis is the impact it has had off the farm—jobs are lost 

and rural communities struggle to survive if even just one dairy producer is forced 

to liquidate their operation.

143

impact of food prices on American families. Since commodity prices have collapsed 

and retail food prices have not tracked in similar fashion, a full examination is long 

overdue. 

Supply Versus Demand 

Much debate over today’s situation has been centered on whether U.S. farmers 

are producing too much milk for current demand. Unfortunately, the commercial 

disappearance data used by USDA does not account for the imported MPC, casein 

and caseinates for food usage as reported in a 2004 USDA Agricultural Marketing 

Service (AMS) report titled, ‘‘Milk Protein Products and Related Government Policy 

Issues’’. The report stated that in 2003, the amount of imported milk protein concentrates accounted for 5.9 percent of the total U.S. milk protein production. The 

report concluded that milk protein imports is equivalent to approximately five percent of our milk protein production. 

According to a recent letter from Secretary Vilsack to the National Family Farm 

Coalition, domestic milk marketing’s in 2008 totaled 188.8 billion pounds. Data from 

USDA’s Economic Research Service shows commercial disappearance on a milkfat 

basis totaling 193 billion pounds (184.3 billion pounds of domestic use and 8.8 billion pounds of exports). Vilsack cites this data to underscore his point that domestic 

marketing’s are more than adequate for domestic use. Where USDA’s data is flawed 

is in the lack of accounting for the five percent equivalent of U.S. milk production 

in the form of imported milk proteins as stated in AMS’s 2004 report. Five percent 

of the 188.8 billion pounds of milk marketed in 2008 totals close to 9.5 billion 

pounds. Adding the 9.5 billion pounds of equivalent imported milk proteins increases the commercial disappearance number to 202.5 billion pounds. 

The 2008 commercial disappearance number of 202.5 billion pounds appropriately 

includes the imported milk protein ingredients used for food. After removing the export commercial disappearance of 8.8 billion pounds, the total domestic commercial 

disappearance is 193.7 billion pounds. Comparing the 188.8 billion pounds of milk 

marketing’s verses the 193.7 billion pounds of domestic commercial usage, we are 

a net deficit producer by nearly 5 billion pounds. If we produce just 188.8 billion 

pounds and use 202.5 billion pounds for both domestic usage and exports, we are 

13.7 billion pounds short on production. As you can see, by using more accurate data 


11124018 11124019
144

to account for imported proteins used for food production, it is clear that U.S. dairy 

producers are not oversupplying the market. 

Imports 

For many years, NFU has supported closing the milk protein concentrate (MPC) 

and casein loophole created by the Uruguay Round agreement, which allows for the 

importation of MPC and casein tariff-free. The overflow of imported, ultra-filtered 

dried protein product displaces American-produced milk in the production of dairy 

products. MPC was a relatively new product during Uruguay Round negotiations 

and after implementation of World Trade Organization (WTO) rules in 1995 became 

commercially viable. 

A lack of enforcement by the U.S. Customs Service has allowed dairy protein 

blends to be imported in circumvention of U.S. tariffs and tariff-rate quotas. Much 

of the imported dairy protein blended products are essentially equivalent to skim 

milk powder and do not satisfy the common or commercial meaning of the term 

‘‘milk protein concentrate.’’ Therefore, they should be subject to tariff provisions covering powdered milk imports. Moreover, a 2001 Government Accountability Office 

(GAO) report stated ultra-filtered milk is not nutritionally equivalent to fluid milk 

nor has the product undergone mandatory safety tests under the Food and Drug Administration’s ‘‘Generally Recognized as Safe’’ rules.

145

Dairy Imports 

Milk Equivalent (Billion Lbs.) Factor 2002 2003 2004 2005 2006 2007 2008

Cheese x10 4.75 4.75 4.71 4.60 4.54 4.35 3.75Casein x39 7.93 8.94 8.72 8.36 6.95 7.75 10.21Butter x4.2 0.14 0.13 0.22 0.16 0.16 0.15 0.13MPC x22 2.01 2.34 2.12 2.67 3.04 2.96 3.04Lactose x5.5 0.05 0.08 0.06 0.06 0.07 0.07 0.09

Total 14.88 16.24 15.84 15.85 14.76 15.28 17.22

U.S. Milk Production (Billion) 169.758 170.394 170.934 176.989 181.787 185.602 189.892Percent of U.S. Production 8.77% 9.53% 9.27% 8.95% 8.12% 8.23% 9.06%

United States Department of Agriculture FAS Agricultural Import Commodity Aggregations

146

While some argue that imports do not have a significant impact on domestic dairy 

prices and point to recent export data, it is important to understand where we have 

been and where we are headed. According to the Federal Reserve, the dollar lost 

40 percent of its value from 2002–2008 and in 2008 was at a 30 year low according 

to USDA, compared to other major currencies. The devaluation of our currency 

made the prices of U.S. commodities increasingly competitive abroad. In 2007 and 

2008, we witnessed record agricultural exports in terms of volume and value despite 

record high domestic market prices. As economies across the country were experiencing strength and growth, a new demand was created for food commodities. The 

new middle class populations in Asia, Latin America and Africa were demanding an 

improved diet including meat and dairy products. Two major factors have changed 

significantly since 2007 and 2008: economies across the world are in the midst of 

a severe recession and the value of the U.S. dollar has been strengthening. Increasing and expanding exports is important to American farmers, but in looking at the 

chart below, dairy imports have outpaced exports 13 out of the past 16 years. The 

impact of imports must become a central part of the discussion when trying to address today’s crisis.

Source: USDA–FATUS.

Chicago Mercantile Exchange Reform 

In June 2007, the Government Accountability Office issued a report on the spot 

cheese market titled, ‘‘Market Oversight Has Increased, But Concerns Remain About 

Potential Manipulation’’. Since the demise of the National Cheese Exchange (NCE) 

due to manipulation allegations, the CME is where spot cheese prices are determined, impacting virtually all cheese traded in the U.S. as well as impacting the 

price producers receive for their milk. Despite these significant influences, it is typically less than one percent of the national cheese production is traded on the CME. 

GAO concluded, ‘‘Because the CME spot cheese market remains a market in which 

few daily trades occur and a small number of traders account for the majority of 

trades, questions exist about this market’s susceptibility to potential price manipulation.’’ In its report, GAO recommended USDA reduce the redundancy that exists in 

the NASS survey of cheese prices, improve the timeliness associated with the cheese 

prices survey’s and implement an audit for the survey. To date, we are unaware of 

efforts within USDA to implement GAO’s recommendations. 

GAO highlighted the lack of transparency on the CME by identifying how the 

market involves daily anonymous trading compared to the NCE where cheese traded once a week with the identities of the traders made public. The concerns of manipulation that led to the demise of the NCE remain prevalent at the CME including, low trading volume and a small number of entities making the trades. GAO 

specifically cited trading at the CME spot cheese market being concentrated among 

a small number of entities, primarily large companies and cooperatives in the cheese 

and dairy industry. The ability of a handful of players to influence the spot cheese 

market has a significant negative economic impact on all producers. If the CME was 

a more open and honest market, more businesses would trade and increase the volume to create a more accurate and reliable market that better reflects the actual 

milk production in the United States. I encourage the Subcommittee to review the 


11124020
147

GAO report and utilize it as a tool in striving to eliminate manipulation from dairy 

markets. 

On December 16, 2008 the Commodity Futures Trading Commission (CFTC) announced a $12 million penalty levied on charges of attempted manipulation of the 

Class III milk futures contract and exceeding speculative position limits in that contract. CFTC found attempted manipulative practices occurred from May 21 through 

June 23, 2004 on the CME Cheese Spot Call market. This settlement made public 

just 18 months following the publication of GAO’s report demonstrates the need for 

the Federal Government to restore fair, transparent and open markets for America’s 

dairy producers. 

Competition 

Consolidation within the agricultural industry has been on the rise recent years 

and has brought about the demise of thousands of independent family farms. Independent producers are finding it increasingly difficult to participate in a fair, open

retail markets. The latest update, released in April 2007, reveals that the top four 

firms in most agricultural sectors continue to tighten their strong-hold.

and sustainable in the future, policy decision-makers need to take immediate steps 

to foster and restore competition in the marketplace. Economic power concentrated 

in the hands of a few players has essentially eliminated the price system. The farmgate price is no longer cost plus profit; instead it is a command economy with a few 

corporate players dictating farm price. 

Make Allowance 

Dairy producers and cheese processors are partners, each dependent upon the 

other. However, both, not just one or the other, must sustain profitability to achieve 

a healthy dairy industry. Farmers receive no assurance of profitable milk prices 

under Federal milk market order system, leaving the question as to why should 

processors be given special treatment. National Farmers Union has opposed all proposals to increase the make-allowance for processors because we believe it gives an 

unfair advantage to processors and will be economically harmful to producers. 

The current make allowance system sends a false signal to processors to continue 

production regardless of market demand and provides a strong incentive for processors to run as much raw milk as possible through a plant regardless of market 

conditions. The result from this system is that it puts the needs of the processor 

at odds with the needs of the dairy producer. Too much milk reduces the price to 

the dairy farmers and milk shortages decrease the amount of milk available to the 

processor. 

The make allowance system should be reformed so that it provides benefits to the 

producer and processor. Farmers Union has long advocated for the establishment 


11124021 11124022
148

of a variable make allowance that would link processor and producer prosperity. A 

variable make allowance would increase significantly when milk prices are high, 

thereby giving an incentive to the processor to continue production because the return would be greater. However, when prices are low the make allowance would decrease and send a signal to the processor to limit production in order to allow demand to catch up with production. We believe a variable make allowance is a ‘‘winwin’’ proposal because it would enable producers and processors to make a higher 

return when milk prices rise. 

As long as the manufacturing allowance is fixed at the processor’s cost plus a return on investment, and is paid for by farmers, the processing segment of the industry will be unconcerned with market signals. We need a system that works with the 

marketplace at all levels: producer, processor, wholesaler, retailer and consumer to 

provide an equitable, stable and viable economic environment for all segments of the 

dairy industry. 

NASS Survey 

In April 2007, NFU sent letters to USDA’s Inspector General and then-Secretary 

Johanns regarding concerns with reports that prices reported for non-fat dry milk 

(NFDM) by NASS were consistently below actual prices observed in the marketplace, resulting in lowered prices paid to dairy producers. Because the NASS reports 

are directly linked to the prices received by dairy producers through the Federal 

order system, any misreporting, underreporting or inaccurate reporting of NFDM 

prices is a significant pricing problem. When the misreporting became known, NFU 

called on USDA to take the following actions:

• Immediately review price reporting procedures for NFDM from July 2006 to the 

present (April 2007);

• Calculate, with publicly available documentation, the amount of revenues lost 

by producers as a result of the misreporting;

• USDA should review milk pricing programs, including whey reported prices, to 

assure that dairy commodity prices are accurately and fairly reported;

• Explanation as to why the department had not implemented the auditing authority granted by Congress in 2000 and 2002; and

• Calculate, with publicly available documentation, the impact of all classes of 

milk and adjustments to monthly prices for Class I, Class II and Class IV.

To allow such serious agency errors to occur at the expense of dairy producers 

should not be tolerated. 

Policy Options 

Time is of the essence for dairy producers. Many continue to lose $100–$200 per 

dairy cow per month with no immediate increase in the market on the horizon. Regardless of operation size, many producers have been issued notice from feed suppliers that they will no longer receive feed and creditors are terminating lending options. Since dairy prices peaked last year, the market has precipitously collapsed to 

historic low levels and is now well below the cost of production. NFU supports a 

comprehensive dairy policy that accounts for dairy profitability, income stabilization, 

limitation on imports, competitive markets and supply-inventory management. 

In 2007, NFU hosted a dairy summit of producer-based organizations to seek solutions, both long and short term, for dairy producers. The following three core principles were identified and agreed to by participating organizations and remain applicable in today’s environment:

• Return on investment greater than cost of production, PLUS a profit from the 

market;

• Reform of the Federal Milk Marketing Order system; and

• Restoring competition to a non-competitive dairy market.

The NFU board voted in June to encourage Congress to pass a dairy stimulus 

package to provide an adequate safety net for producers in addition to establishing 

an inventory management program. Most importantly, the board expressed the need 

for producers to receive an immediate financial lifeline to sustain their livelihoods 

through this unprecedented situation. A suite of policy options exist to ensure producers will survive this devastating economic period. Options to achieve the above 

mentioned principles are outlined below, categorized by short-term action and longterm action. 

149

Short Term Options: 

• Establish safety-net support price that is fair and equitable to all producers—

Establish an emergency Class III floor price of $18/cwt by existing authorities 

of the Secretary for a period of 6–9 months. During this period, USDA should 

launch the FMMO review as established in the 2008 Farm Bill and CFTC 

should launch additional investigations into potential manipulation on the 

CME. A long-term supply management program must be established in tandem 

with the emergency floor.

• Continuation of the countercyclical Milk Income Loss Contract (MILC) program—Legislation has been introduced in the Senate that would double the 

MILC payment rate short term. This provides a quickly deployable lifeline in 

an effort to prevent additional dairy bankruptcies.

• Eliminate the make allowance. If not eliminated, make it variable and tied to 

producers’ cost of production.

• Require the NASS survey to be audited periodically.

• Maintain standards of identity on dairy products and move to increase fat content standards in fluid milk. Milk is naturally produced with fat content of 3.5 

or higher, yet most of the whole milk sold in the U.S. has been reduced to 3.2.

• Deploy low-interest and emergency loans, including a foreclosure mitigation 

program to stem the tide of loan foreclosures.

• Purchase dairy products and hamburger for donations to food banks and other 

nutrition programs.

• Allow producers to label milk as free of artificial growth hormones.

• Require accurate recording and publishing of import data from ERS.

• Ensure imported dairy protein blended products are accounted for and categorized appropriately according to the common or commercial meaning of the 

term ‘‘milk protein concentrate,’’ not allowed to disguise skim milk powder MPC 

to avoid tariffs and the tariff rate quota. 

Long Term Options 

• Efficient transmission of price signals should be established. Today’s market is 

non-functioning with imbalance of buyers/sellers.

• Pass the Milk Import Tariff Equity Act to address unlimited imports flooding 

U.S. domestic market.

• Include California and all regions/areas in the FMMO.

• Correct pooling/de-pooling provisions in the FMMO.

• Eliminate bloc voting.

• Allow ‘‘no’’ vote on amendments, yet maintain FMMO.

• Do not place financial burden of transportation onto producers.

• Establish three-part pricing formula to include: cost of production, Consumer 

Price Index and Chicago Mercantile Exchange.

• Resolve distribution and supply management challenges.

• Repeal forward contracting authority.

• Support funding for academic antitrust research.

• Intensify review process for proposed mergers.

• Promote smaller coops and increase oversight of coop management to ensure interests of producers are met.

• Passage of the Federal Milk Marketing Improvement Act of 2009 (S. 889)

• Eliminate authority for dairy import promotion assessments.

As stated at the beginning of my testimony, today’s economic conditions for dairy 

producers can be attributed to many factors. As such, there will be no single action 

by Congress or the Administration to resolve all of the challenges. I hope the series 

of hearings this Subcommittee conducts will provide you with all the necessary resources of ideas to create a suite of options to ensure both short term survival and 

long term prosperity for America’s dairy farmers. Thank you for the opportunity to 

be here today.

The CHAIRMAN. Thank you, Mr. Hoese. 

Now we will have Mr. Donald DeJong, dairy farmer from Hartley, Texas. 

150

STATEMENT OF DONALD A. DEJONG, OWNER AND MANAGER, 

NORTHSIDE FARMS, LLC; OWNER AND CEO, AGRIVISION FARM 

MANAGEMENT, LLC; OWNER AND MANAGER,

NATURAL PRAIRIE DAIRY FARMS, LLC; OWNER AND

MANAGER, DJ FARMS, LTD., DALHART, TX 

Mr. DEJONG. Thank you, Mr. Chairman, Mr. Neugebauer, other 

Members of the Committee for this opportunity to address you on 

the crisis that faces us in the dairy industry today. 

My mom and dad immigrated here to this country in 1958 with 

nothing, just one machine and a couple hundred bucks. They 

milked cows for others in southern California, and over a 20 year 

period put enough money together to buy a dairy farm in Riverside, 

California. I am one of seven. I have three brothers in the industry, 

two in central Texas, myself in Hartley, Texas, on the high plains, 

and one brother still in Shasta, California. 

This is truly hard times that we are facing. My dad said we have 

never seen such a dip or the spreads between cost and profit have 

been so wide, and it hurts. But we haven’t sat still as a family in 

understanding it. It has been a long process. My dad left The Netherlands for a reason. There was no opportunity there. This country 

has opportunity. We can work hard. We have laws and it is predictable. And through the years that he has been here, we have been 

able to work through this process, we have been successful. We currently milk a lot of cows and we use a lot of tools. We try to read 

the tea leaves as best as we can, and when we need a change, we 

change. Through the process we have known we have to use market tools, and as soon as they were introduced we started using 

them. We have opportunities now not always to lock in a profit, but 

to at least avoid devastation. The last 5 years we have always had 

an opportunity to take advantage of those products, and those 

products are both through co-ops. It is not size discriminate. It 

doesn’t cost a lot of money, but you have to be disciplined to make 

a decision on your own to say, ‘‘Look, I can now take a margin, I 

need to take this margin, I need to take it now and it is going to 

survive.’’ We have done that. Is it always possible? No. Have we 

missed some dollars on the top? Yes. Have we avoided the destruction of our family? No. We have been able to grow. The turtle wins 

the race. 

An example of what we have to do—we grow a lot of our feed. 

We are integrated farms. But I can never, ever get my farm hat 

to agree with my dairy hat on when to buy and sell my corn. The 

market gives us opportunities to do that. I am able to take a price. 

Last year I could sell into a market of corn at $7 and we did. I can 

buy the corn back at $3.50 to $4. We did. And the market gives 

us that opportunity. And the same with the milk. We need to have 

systems in place that don’t discourage this. We need to have systems that encourage it. We need to get disciplined. Turtle wins the 

race. We have in this system a dairy industry that can be a global 

player. We can grow the pie. But the current systems we have 

today are discouraging that. Our price support program encourages 

the government to buy products that the market doesn’t want. The 

powder is the wrong kind. The butter is packaged wrong. And then 

we have to resell that back into the market. Why do we do that? 

Then we set up a system with our price support program that we 

151

are the balancer of the world. Why do we want to do that? Why 

do we do that to ourselves? I don’t think that is what we want to 

do in the future. When we roll up our sleeves, we need to talk 

about those things. 

One of the things that we could do immediately is transparency. 

For somebody who wants to work, and understand price discovery, 

we have to have better transparency, and daily reporting of sales 

of all products would go a long way towards that. 

In closing, I would like to say I think our future is bright. It is 

hard. We are at the bottom of this thing. Do no harm. If we act 

and do things on a knee-jerk reaction now, it is going to do more 

harm. We are sending the wrong signals. We are clearing the market. We are seeing life happening. We are seeing a reduction of the 

herd and we will get through this, and we need to roll up our 

sleeves and say how are we going to fix this thing to be the dominant dairy player in the world, and lead by example as we always 

have in this country. Thank you. 

[The prepared statement of Mr. DeJong follows:]

PREPARED STATEMENT OF DONALD A. DEJONG, OWNER AND MANAGER, NORTHSIDE

FARMS, LLC; OWNER AND CEO, AGRIVISION FARM MANAGEMENT, LLC; OWNER

AND MANAGER, NATURAL PRAIRIE DAIRY FARMS, LLC; OWNER AND MANAGER, DJ 

FARMS, LTD., DALHART, TX 

Chairman Scott and Ranking Member Randy Neugebauer, thank you for giving 

me this opportunity to discuss with you and the Committee the economic conditions 

that face dairy industry today. More than just talk to you and the Committee about 

the serious economic conditions, I want to share with you and the Committee some 

of the tools available to all dairymen, regardless of size, that have assisted me and 

my farm through these difficult times. 

My name is Donald DeJong. I operate an integrated dairy farm operation in the 

northwest corner of the Texas Panhandle. I am the son of a Dutch immigrant who 

started milking cows for relatives in Southern California in 1958. Our family started 

our own farm in 1978 after accumulating the necessary capital to start. In 1989 I 

moved my family to near Dublin, Texas, west of Fort Worth where I started my own 

dairy. About 5 years ago I moved again to Hartley County, Texas where my wife 

Cheri and I established the integrated dairy operation we run today. 

I am here today to describe to the Committee the risk management tools which 

we have used to lessen the strain of the current market price disaster in dairy and 

to identify areas where the Congress can assist to make these tools better and better used by dairymen. By almost all standards, I operate what is called a ‘‘large 

dairy’’. However, what I am going to talk about today is available to large and small 

dairy farmers alike. 

I appreciate the Chairman calling this hearing to consider the economic conditions 

which now face dairymen. There are no words that can adequately describe how 

truly bad the economics are, they are just that bad. These losses are being carried 

by every producer regardless of region, regardless of size, regardless of marketing 

or no marketing orders, and regardless of co-op membership. It is broad, it is deep, 

it is painful. As I read and heard the testimony given today, there is clearly a call 

to do something to stop the pain. It is also clear that you, Mr. Chairman, and the 

Committee are interested in the plight of the American dairy farmer and want to 

do something to help us. We appreciate the sincere concern and desire. 

As much as we all would like some immediate cure from this, I caution the Committee and the Congress in its good hearted pursuit to help us in dairy farming. 

At this point in this crisis, the likelihood that your actions will hurt us are as great 

as the likelihood that you will help us. Let me explain. 

The losses are already made. Some of the results of those losses have some more 

time to play out, but the losses are set. Though we are not at the end, for those 

who will not survive, the die is already cast. The market response as to who is milking and where in the dairy industry will become clearer over the next several 

months to a year. Those actions are already in play and cannot be changed. It is 

unfortunate, but that is the reality in which we operate. 

152

The problem is simply stated: We have too many farms with too many cows producing too much milk for the markets that we have at this time. As an industry, 

we responded quickly to rising export demand 2 years ago. However, we have been 

slower to respond to lower export demand. That is the challenge: Milk has to leave, 

cows have to go, and, unfortunately, some farms will have to go as well. 

Due to a lot of factors, change cannot come soon enough to save those who progressed too far along the path of overproduction, and for many the result will be 

the end of their farming experience. It is too late. 

Without saying that I agree with the following scenarios, I think seeing how some 

of the recent proposals to help dairymen would play out will help explain my point. 

For example, the Secretary could raise FMMO milk prices. The Secretary currently 

has two open hearings regarding make allowances, yields, and other factors concerning the formulas that set prices in the Federal milk marketing orders. These 

formulas are also used in the Dairy Price Support Program. It is within the power 

of the Secretary today to use the record as it exists and roll back price reductions 

of late last year. Depending on what he did, such changes could easily add another 

25¢ to 50¢ per cwt to the existing formulas and to producers in general. That is 

not small money, but when producers are losing dollars, it would not be enough. 

Even then, assuming he announced that action today, it could not be effective any 

earlier than for September milk. Producers would receive the benefits in the second 

half of October, or 3 months from now. It would be too little, too late. At the same 

time, if the decision was not based on sound law, facts, or policy, it could have other, 

negative impacts due to being rushed. 

There are also proposals that the Secretary immediately announce a higher price 

support price for powder, butter and cheese. Such a move would directly impact 

powder, maybe butter, but not necessarily cheese. Cheese has often been trading 

below the support price since January and there is no clear signal that the price 

support program is having any real effect. Even then, the higher prices now would 

only begin to impact product sold in August and would still not reflect in producer 

checks until September. 

Any other program that could be devised will take time to develop, implement, 

and have an impact on dairy. But, as I mentioned, they will not solve the problem 

of those deepest in need. There are many farms which will have already exhausted 

or are on the verge of exhausting all their resources. They will have ended dairying 

before any forced price relief happens. Farmers are counting days, not months. 

Each and every one of us dairy farmers is looking for some relief, a glimmer of 

hope. Farmers and their bankers and their creditors are looking for any excuse to 

hang on a little longer, lose some more money, hoping that before they lose it all, 

relief will have arrived. The announcement of, and holding, these hearings is already providing that glimmer. A program would be a beam of light. But as I noted 

above, it will be too late and the longer they stay, the longer this time of low prices 

will continue. The longer the necessary market correction is delayed, the more capital will be drained from the survivors leaving an even more weakened dairy industry. Because the problem is too much milk from too many cows from too many 

farms, keeping the current numbers up means the source of our problem is continued and relief is delayed. It is how the law of economics works. 

What can and should Congress do? 

As we ponder things for the future it is important that after 2 decades of milk 

diversion programs, whole herd buyouts, the milk assessment with refund, MILC, 

price supports, and the industry-funded CWT program, we still find ourselves with 

$9 milk. Over time, the laws of supply and demand will always win as markets seek 

efficient pricing. This is true in free markets and controlled markets. Free markets 

adjust relatively quickly in finding price equilibrium. History shows that markets 

which have been controlled, by government for example, eventually self-destruct—

generally because prices were set too high or low and oversupply or shortages accordingly ensue. And markets, such as dairy in the United States, that are regulated are not immune from this economic force. 

The role of price risk management today 

In discussions about today’s situation there is a lot of talk about price volatility. 

In looking at the numbers, there is no doubt. We have seen within a twelve month 

period record high prices and record low prices. Dairy farmers are squeezed between 

commodity prices. Their inputs are grains and crops that have their ups and downs 

and their highs and their lows. These commodities are turned into another commodity—milk. It has ups, downs, highs, and lows. The cycles between inputs and 

outputs do not align. Today we are facing unprecedented high feed costs and equally 

historic low milk prices. 

153

The circumstances are such that is unlikely that any dairy farmer when considering all of the costs is making any money. Most are not even covering their operating costs. 

What role does price risk management have in this circumstance? 

First, it is important to understand that price risk management is not the same 

as guaranteeing a profit. The role of risk management is to limit losses to capital 

to levels which the farm can sustain and remain viable. In practical terms, what 

that means is that in the use of the multiple tools available to producers to manage 

risk (we will talk about those later) the goal is to maximize margins by establishing 

upper limits for feed costs and lower limits for milk. Sometimes in doing so it means 

fixing a loss but it is a known loss and one which we know we can afford. We do 

not have to worry about the losses being greater. 

Too often, dairy farmers look at the futures market and say to themselves they 

want a higher price. Rather than fixing what is available they expose themselves 

to the risk it will get lower on the chance it will get better. 

In summary, price hedging is not the same as price adequacy. Hedging is not always about hedge to profit, hedging to protect capital from losses. 

What tools are available? 

There are many options available to handle this volatility and protect capital during downturns in prices and upturns in costs. 

Today in many markets producers have the opportunity either with their buyer 

or their cooperative to forward contracts. These options are available regardless of 

the size of the producer. Under this option, producers and buyers agree either to 

a fixed price or a fixed formula for a period of time. Both parties analyze the contract to insure that it is something they can afford to be a part of. At the end of 

the term of the agreement it may or may not be the best price for milk when compared to what others were paid, but it was the best price at the time it was negotiated and if properly understood is good enough to protect the farm capital for survival. 

I can and do participate in forward contracts for feed. Under these agreements 

we agree to purchase in advance hay and other commodities at fixed prices for the 

upcoming year. Again it is not a question as to whether we judged the market correctly, but whether we fixed our contracts so that we minimized losses or maximized 

profits depending on market conditions. Feed companies generally provide fixed 

price feed agreements with their customers. These contracts are available to all 

farmers regardless of size. 

Another means of managing risk is the use of the Chicago Mercantile Exchange 

Class III and IV prices. Contracts can be had for 200,000 per month or what a 100 

cow farm would produce. Many cooperatives offer mini contracts to their members 

at lower volumes. Through the CME one can use the puts to floor prices and actually sell milk months in advance at higher prices. If milk producers had entered into 

forward contracts or hedged their milk sales in the fall, and in some cases earlier 

this year, this price protection may not have guaranteed profits, but the losses 

might have been in the range of $1 per hundredweight instead of $5 or $6 per hundredweight. 

When we look back on these difficult times and look at the survivors there will 

be many characteristics common among them and generally not found in those who 

fared less well. Aside from those who started with more capital, integrated dairy 

farming operations that produced most or all of the crops were better able to survive 

because the costs of their feeds were less. Smaller farmers tended to be in a better 

position in general than larger farms who only owned the dairy and purchased the 

inputs. 

The Supply Management Programs should not be adopted 

Before further discussion, we must remind ourselves that the milk market is different from any other market in the world. Unlike corn, its raw product is perishable. Unlike perishable vegetables which are subject to annual planting decisions, 

its raw product cannot be ‘‘turned on or off’’ at the individual producer level except 

by program liquidation. Unlike a domestic oil well, its raw product cannot be immediately sourced overseas under efficient market arbitrage. Unlike gold, its raw product is a solid staple in the diet of over half of the world’s population. In my opinion, 

the fact that the milk market is very unique from other markets implies that it is 

even more important to understand and respond to milk’s supply and demand laws. 

It goes hand-in-hand, then, that the normal process of supply and demand seeking 

equilibrium pricing should not be manipulated. 

The law of unintended consequences, but clearly predictable, will play out if supply management is instituted. By decoupling milk prices from market reality, the 

154

gaps between dairy prices and the ingredients from imported products or the use 

of substitute ingredients will over time further reduce the demand for milk. By decoupling the milk prices from the rest of market activity, producers will be exposed 

to higher risk of unprofitability because prices will not respond to costs of production. Technology for increasing production will stagnate. The value of more milk per 

cow will decrease. 

There have been a number of farmers who have been advocating instituting a 

supply management program for dairy. The ‘‘promise’’ of this program is that by 

managing supply, dairy farmers will always be profitable or, at least, not experience 

what they have now. Supply management has been in Europe for decades and they 

have the same low prices we do. Canada’s system exists because they can balance 

off of the United States. 

The supply management program, irrespective of its merits or difficulties, cannot 

solve dairymen’s problems today. The current difficulties will have resolved themselves, good, bad, or ugly, before any such program could be decided upon, let alone 

implemented and having an impact. 

The only way a supply management program can work is to isolate us from the 

world both in terms of imports and exports. It is difficult enough to estimate domestic demand; it is impossible to do so for world demand. Besides dozens of different 

economies, the ever changing value of the dollar, international events and politics, 

and different weather conditions all pose multiple factors to the equation. We in the 

United States are sitting on the cusp of a tremendous opportunity to grow our 

dairies to supply the world. We should not be shutting it down. Matching supply 

and demand to domestic market eliminates opportunities in world markets. When 

global demand comes, the U.S. will not have the milk. 

The institution of supply management will reduce the value of heifers. Limiting 

farm production means fewer cattle, less cattle means less value. Reduced value of 

cattle will reduce credit lines, balance sheets, and producer income regardless of 

size. The excess heifers unwanted in U.S. will be exported to develop and grow competing milk supplies elsewhere in the world. Smaller, retiring farms will be especially hit. Their animals will be worth less than with a dynamic market and opportunities to sell will be reduced. 

As I have shown, you can reduce the risk of volatility with existing marketing 

tools and do not need a program; in fact, supply management may interfere with 

the liquidity of those tools. 

What Congress can do? 

Consider long term reform for the dairy industry that is done in a thoughtful and 

methodical manor. Decisions should not be made in ‘‘crisis mode’’. It will be better 

to do nothing now and allow the market to find equilibrium while working toward 

the goal of transforming the U.S. dairy industry into a consistent global supplier 

of high quality dairy products. 

Eliminate the price support program. It is a burden to the U.S. dairymen and tax 

payer. The U.S. price support programs should not continue to be the balancer of 

burdensome global milk supply. 

Replace End product pricing with competitive pricing for milk. 

Institute a mandatory price reporting (analogous to mandatory price reporting in 

U.S. cattle trade.) We need greater transparency and price discovery in pricing of 

milk and milk products. Surveys of what all plants are paying for milk, inventories 

of dairy products, prices received for milk products. This information helps us understand what the dairy economy is doing. 

We need to maintain the integrity of the markets and those who participate in 

them. 

We can talk about other insurance or safety net so long as it does not hamper 

the sale and movement of milk and milk products domestically and in world markets. Thank you.

The CHAIRMAN. Thank you, Mr. DeJong. 

What I find intriguing from these hearings, as we are trying to 

find a way to help the dairy industry, are the differences of opinions coming from each of you on what the solutions are. For example, let us first talk with one that I think is at the heart of this 

discussion, and that is the Dairy Pricing Support Program. Let us 

talk about that. The gentleman from Minnesota, Mr. Plourd, says 

we need to keep this pricing support system. My friend from Georgia, Mr. Williams, says we need to do away with the price support 

155

system. Now, we are sitting here and in order to come up with 

some of these solutions, we as a Committee are going to have to 

have the wisdom of Solomon. If one of you say the answer is to do 

away with the price support system and another one the issue is 

to keep the price support system, how do we grapple with that? So 

let me ask you about that. Why do you say do away with it, why 

do you see keep it, and what should we do with it, and why—each 

of you, what is the problem? Let us start with that. How do we fix 

the pricing support system and why do we have such varying opinions on what to do, because we have only one road to go down here 

and we have to decide what road this is. So would you tell me why 

you two have such differences on that? And I would like to get 

everybody’s opinion on that one because there is so much here that 

my first round of questions can’t cover it all, but we want to have 

everybody have a chance for questions. 

My apologies. Thank you, my crackerjack staff, it wasn’t you, Mr. 

Plourd. It was Mr. Welch. 

Mr. WELCH. I would love to address that issue, Mr. Chairman. 

The U.S. dairy industry has been supported forever basically. It 

has been a very good floor and safety net for years and years and 

years. When the support program got into trouble was the mid 

1980s and we probably—I have to be careful here, but the dairy industry probably allowed the support price to get too high. Maybe 

the cost of production wasn’t where it should have been. The support price got to $13, and in that time period the government was 

buying all kinds of nonfat cheese and they had warehouses full of 

product that they couldn’t possibly give it away to food nutrition 

programs. So we wanted to keep the support program because it 

worked great for years. Remember in the 1980s, there was no volatility. You bought cheese at $1.35 under the support and you sold 

it back at ten percent over that so you sold it back at $1.43, and 

when you look at the price swings of milk in the 1980s, there 

weren’t any. As you have gone through the 1990s and the 2000s 

and 2010s, this variability, which to me is the key issue here, that 

is what is killing the dairy industry. Our consumers and customers 

don’t like it. The export market doesn’t like it, and our dairy farmers can’t stand the bottom side of it. So we had a support that was 

too high, too much product in the warehouses. The suggestions at 

that time were supply management, a two-tier-type program. When 

you get a certain level of product, cut back on production. I still 

think those are viable options. I think we let the program support 

get too low where it was very meaningless, but nobody can argue 

the last 5 months if we didn’t have the support at $1.10, cheese 

would have gone lower. It is not a coincidence cheese went down 

to 3¢ under support. I told Secretary Vilsack last week, if he raised 

the support price 20¢, I bet cheese would go up 20¢. It would be 

3¢ under support. The big cheese people aren’t interested in the 

government holding onto cheese. They are interested in holding 

onto cheese as cheap as possible. So I think the support is an integral part of it. And the other side of it is, any dairy economy in 

a modernized nation—we have the highest standard of living in the 

country. Europe strongly supports their dairy industry. The United 

States has always supported dairy, and agriculture, for that matter. In my opinion, if we think that the United States wants to be 

156

unsupported and unprotected and compete with the world market, 

it is going to be a difficult situation because New Zealand, Brazil, 

Ukraine, there are a lot of places out there that have lower cost 

of production. 

The CHAIRMAN. Mr. Williams, could you expound quickly why 

you differ? 

Mr. WILLIAMS. My point is, the support price is low enough now 

that all it does is, when it is enacted the government buys inventories and those inventories continue to depress the price. But, the 

future of those inventories are done away with, and if they sold 

back in commercial channels they continue to depress the price. We 

might be better off as dairy farmers to allow the bottom go down 

to wherever it was until the product clears out, and then the prices 

can rebound. It happens with whey now and whey has come back 

very quickly because it is not supported. It is kind of halfway in 

between and halfway out. If we increase the support price, somebody has to buy that product and that ends up being the government, and I don’t think that is going to work in the long run. 

The CHAIRMAN. Just finally because I want to get to the Ranking 

Member here, but on this main point, could I just get kind of like 

a show of hands or nod of the head as to those who agree with Mr. 

Welch that it is an integral part, the price support system. Okay. 

You have one, two. Anybody else? Okay. So there are two folks favoring the price support system and four that don’t. Is that right? 

Okay. We will come back to that a little later. 

I will turn to the Ranking Member now. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. That was an excellent question because I think there is a lot of difference of opinion. 

One of the things we need to make sure is, when the government 

is making policy, it is making policy that is helpful and beneficial. 

If we have current policy that is not beneficial or helpful, then I 

think certainly that ought to be an issue that is on the table. 

Mr. DeJong, Mr. Plourd was talking about some tools that are 

available and you kind of alluded to some of those tools, and we 

talked about, I guess, that milk at one time about a year was $20. 

It is now less than $10. Was there opportunities last summer to 

lock in these high prices for a period that would have lasted into 

this year? 

Mr. DEJONG. The market trades about 18 months out, and you 

roll through an 18 month contract, and yet, the market is always 

giving us opportunity not only to be profitable but really to avoid 

these huge dips, yes, and we have used those tools. 

Mr. NEUGEBAUER. Is that available, Mr. Plourd, to small producers as well as large producers? 

Mr. PLOURD. Yes. I mean, there has been a tremendous effort 

over the past 10 years to, if you will, democratize the process. Most 

producers shipping to cooperatives and many proprietary plants 

have access to programs. Some have a 25,000 pound minimum contract, which captures more producers than the contracts in Chicago 

themselves. So smaller producers do have access to the programs 

through their plants and cooperatives. 

Mr. NEUGEBAUER. Now, one of the things that I think we have 

unanimity on was that the price discovery for milk is somewhat 

problematic, that it is not just a matter of my milk is worth X 

157

today and I can get a daily price. In the current farm bill we actually provided for an opportunity for USDA to provide daily pricing, 

but it is my understanding they have not done that at this time. 

What is the issue that could simplify and make the milk industry 

more transparent and allow it to be able to use some of the market 

tools to hedge, to take some of the dips and valleys out of the industry? Mr. DeJong? 

Mr. DEJONG. Sir, we do have, currently, some price reporting in 

the dairy industry, but it is not on a daily basis. If we went to a 

system very similar to the cattle system of daily reporting of contracts, and this is everything from cheese to fluid, so when our coop sells five spot loads of milk at $1 over or $2 under, it should 

be immediately reported. This will help all market participants understand where the process is moving. As a dairy producer trying 

to hedge myself being able to make a more-informed decision and 

sometimes really having to step out and hope that that is the direction we are going. If there is product that shows up that is not on 

or reported what is coming in or out of the country and things like 

that, that transparency will only enhance the market, make it 

more efficient. 

Mr. NEUGEBAUER. Yes, sir. 

Mr. ROZWADOWSKI. I would like to comment on what has discouraged me as a dairy farmer from buying milk futures contracts or 

forward contracts. I think it was 2006, not long ago, the USDA did 

a study on forward contracting, and that was when it was still a 

pilot program. The purpose being, they wanted to know how much 

money farmers made or lost, and they reported that farmers lost 

$28 million. I approached my accountant about futures contracts, 

and that is all he does is dairy farmers in my area and he is probably the largest accountant for dairy farmers in Wisconsin or one 

of the largest. I asked him right out, how many farmers, just give 

me a rough percentage, how many of your farmers have gone into 

futures, and he says he has had 25, 30 percent. He says a lot of 

them have. And I say, again, percentage-wise, how many of those 

farmers made money at it, and he says I can answer that exactly, 

he says it is zero; I have never had one come out ahead. He says 

sometimes they buy futures for a short period of time and come out 

ahead. Then they will go into it again and they will lose. He says 

every one of my farmers have lost. 

Futures contracts and forward contracts are the only legal way 

for processors to pay less than the minimum legal announced milk 

price by the Federal Milk Marketing Orders. 

Mr. NEUGEBAUER. Mr. DeJong, do you want to comment on that? 

Mr. DEJONG. I may respond to that, that we are looking at do 

dairymen lose money on hedging. Well, if you say you are going to 

get the top price every month on every hedge, you are a genius and 

it ain’t going to happen. It won’t happen. But did you lock in a 

profit and did that accountant show your bottom line to make 

money. Sure, you had losses in your hedge account but you made 

money. You stayed in business. You are able to have a predictable 

growth pattern, and that is the point that I think that, as we mature in these markets, that is what I would call discipline and how 

do we get to that point to have the discipline, and not worry about 

what might show up as a hedge loss. 

158

Mr. NEUGEBAUER. Thank you, Mr. Chairman. I see my time is 

expired. 

The CHAIRMAN. Thank you. 

Mr. Kagen, the gentleman from Wisconsin. 

Mr. KAGEN. Thank you again, Mr. Chairman, for calling this 

meeting. If we had all of the people in dairy and those people who 

represent dairy come in to give testimony about the problems they 

are having, we wouldn’t have time for much else that is going on 

here in Congress because most everybody I know that dairyland, 

Wisconsin, is underwater and losing $100 a cow, and these are 

markets that we can’t control. I think what this Committee has to 

begin to focus on is those factors that we can control, that we can 

influence, not necessarily the world and global market. I don’t 

think this Committee can have any effect whatsoever about $9 cost 

reduction of milk over in New Zealand. What we have to do is 

make certain that we continue to have the resources in our dairy 

states and dairy farmers so we continue to become food independent. 

Mr. Welch, in your testimony you brought up a number of important factors that influenced the price of milk domestically, in particular, the milk protein concentrates, the MPCs. My understanding is, there are no limits at the present time for any corporate import of MPCs. Is that your understanding? 

Mr. WELCH. That is my understanding. There are import limits 

on nonfat and butter and cheese, but as you read the data, there 

are a lot more MPCs coming back in, and every month there are 

more, and there is a lot of butterfat coming in in the forms of concentrated milk fat and other milk fat products. One of our main 

competitors, we do a lot of business for McDonald’s Cheese and we 

are competing on price, and when you make a processed slice, you 

use butter. We use domestic butter. They use imported butter, 40¢ 

difference in price. It is hard to compete on a level playing field 

when things like that are happening. 

Mr. KAGEN. You also mentioned in your testimony about the difference between active and passive buying at the CME. I would 

like you to explain in some detail for other Members of the Committee, and our staff, what you think should be taking place there. 

Mr. WELCH. Well, my suggestion is that when there is an offer 

at the support price, the CCC should automatically buy it. You 

know, if the support price is $1.13, which it has been, why has the 

block cheese price been $1.07 to $1.10? Well, the reason is, there 

is a lot of convoluted things we have to go through to offer the 

cheese. By the time we get the grater set up it is 3 weeks later and 

gee, will the cheese market be back up by then. We don’t know. So 

it doesn’t work. The floor on support is not really $10 milk. Cheese 

is about 60¢, 70¢ less, it appears. But if the CCC bought everything offered at the support, that would be the support. It would 

be $1.13 where it is intended. Now, the USDA would say, well, the 

quality or find some other issues with it. Well, find somebody to 

shred it and put it in the food service program or there are other 

things you can do with the cheese. 

Mr. KAGEN. You also had a suggestion that we could harmonize 

the packaging standards between commercial packaging and also 

the CCC. 

159

Mr. WELCH. Well, these would have to go hand and hand, they 

would have to, because the 40 pound blocks offered on the CCC 

have standards and they are not much different than the government standards. There are some issues on bag tightness, and I am 

not even sure if they need sleeves anymore like they used to. But 

my opinion, I don’t want to get in trouble here but those standards 

are roadblocks to make it difficult to offer cheese. 

Mr. KAGEN. Let me ask this of the entire panel, whether or not 

anyone would object to somehow finding a way forward to tying the 

price of MILC price support in some way to the price that consumers are paying at the markets, the grocery stores. Does anybody object to that? Well, we have one person that would object, 

the French guy over here, is it? 

Mr. DEJONG. Donald DeJong, Dutch. 

Mr. KAGEN. So you think that is a bad idea? The old idea of 

milk-to-feed ratio didn’t work out so well in this marketplace. I 

haven’t noticed anything in the grocery stores where the prices are 

going down for the consumer, but they certainly went down at the 

farm. 

Mr. DEJONG. I am not here to defend retailers, but their risk 

structure is a lot different than my risk structure. I do not want 

their risk and I do not want to duke it out like they duke it out 

in their stores. When we set prices arbitrarily by a few people, it 

is market distortion and I will vote forever that thousands of people making thousands of decisions daily will move this market 

where it needs to be quicker and faster. 

Mr. KAGEN. So you are suggesting that at the CME there are too 

few purchasers and sellers, it is too restrictive of a market? 

Mr. DEJONG. I think we should encourage everything we can do 

to have that transparent market grow and encourage that. 

Mr. KAGEN. So you would be in favor of transparency of prices 

of milk that are forward contracted as well if we de-identify those 

people——

Mr. DEJONG. Every transaction that happens in dairy should be 

reported the day it happens. Yes, I am in favor of that. 

Mr. KAGEN. Thank you. I see that my time is expired. Thank you 

for being here today. 

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

The gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. Welch, you suggest in your testimony that USDA should be 

an active buyer on the Chicago Mercantile Exchange as opposed to 

serving its traditional role of being a market of last resort for sellers. Are you suggesting that USDA should actively bid on the private market? 

Mr. WELCH. No, I am suggesting they would have a standard bid. 

It would be the support price, so if somebody offered at the support 

price and somebody else in the industry didn’t buy it, they would 

buy it. That would guarantee that the market would not go below 

the product support price. This product support price was never intended to really be at $1.08. I mean, we have a product support 

price program. First of all, we took out the processed-cheese side 

of it. That weakened the program. And now the prices are 4¢ or 

5¢ under it, and the USDA is not buying any product. 

160

Mr. GOODLATTE. Would there be any kind of a mechanism that 

would stop that from becoming excessive purchases of these commodities? Because I presume they would have to take delivery on 

these items. 

Mr. WELCH. Quite likely there might have to be a volume limit. 

I don’t know. 

Mr. GOODLATTE. Does anybody else want to comment on that? 

Mr. Plourd? 

Mr. PLOURD. I think harmonizing the packaging would accomplish the same goal essentially. I mean, if people had a choice between offering at the CME below support or offering to the government at support but the packaging, everything was the same, it 

would come closer. 

Mr. GOODLATTE. Does anybody else want to comment on that? If 

not, Mr. Plourd, is there any combination of steps individual producers can take in today’s market to better position them to ride 

out the current economic crisis? 

Mr. PLOURD. Well, yes, I think that the risk management tools 

that I discussed do exist, and I think that the point of using these 

tools is not to—you would expect that producers would limit the 

variability in their price, not always get the high or get the low. 

I mean, our studies have shown that producers using forward contracts versus producers who don’t end up about the same at the end 

of the day dollar for dollar, but the huge difference is that the guys 

who are contracting have a $4 or $5 swing between high and low 

and the guys who are not have a $10 swing between high and low. 

So it is a way to manage individual volatility on an ongoing basis, 

and most dairy producers have access to the tools, and my opinion, 

my testimony is that the pricing system complicates the use of 

those tools. It is often difficult to understand how to get from point 

A to point B, given the complexities in the pricing system. 

Mr. GOODLATTE. Thank you. 

Mr. Rozwadowski, am I close on that pronunciation? 

Mr. ROZWADOWSKI. Perfect. 

Mr. GOODLATTE. You also had another interesting suggestion. You want the Congress to enact an $18 per-hundredweight price 

floor. Do you know what the impact of that would be on government purchases? 

Mr. ROZWADOWSKI. That immediate step would be temporary like 

until the end of the year, until we can get a new pricing system 

going, and on a temporary basis. I don’t believe it would have too 

much effect on supply at all because right now farmers are so far 

behind in paying bills and debt, and as each month goes on you are 

even more farther behind. 

Mr. GOODLATTE. So they are not going to increase production because they don’t have the capital to buy more cows? Is that what 

you are——

Mr. ROZWADOWSKI. Well, they are going to use the money to pay 

their bills and catch up on the past bills that they have been getting so far behind on, and that is going to last for at least a few 

months or quite a few months. 

Mr. GOODLATTE. But you don’t have any cost estimates on that 

proposal? 

Mr. ROZWADOWSKI. No, sir, I do not. 

161

Mr. GOODLATTE. I wonder if those of you who have experience 

using a forward contract for your feed purchases or milk sales, 

were you ever charged or paid a price different from that specified 

under the terms of your contract? Nobody. And for those of you who 

have experience using a forward contract for your feed purchases 

or milk sales, were you ever coerced into entering a contract? And 

for those of you with those same experiences, have you ever turned 

down a contract offer that did not work within the financial plan 

of your business? Have any of you used forward contracting, I 

guess is my first question. What is your experience with it? 

Mr. HOESE. Well, we have in the past. We have not done it for 

the last couple years. Like the gentleman next to me said, we pretty well broke even. But our creamery charge is a 25¢ per hundredweight which you do contract to protect the cream and to pay the 

broker. There are some fees involved in forward contracting of the 

milk, so that is what I will comment on that. 

Mr. GOODLATTE. Is that why you are not participating in it now? 

Mr. HOESE. Well, at times we think about it because we are diversified, we have other crops we do some forward contracting on 

and we should be—my son is more or less in charge of the dairy 

part of it. You know, he wants to and I say go ahead. By the time 

we go ahead, then the price has dropped again so it is a matter 

of communication between myself and son, so that is part of the 

issue, I guess, right there. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. I thank you, Mr. Goodlatte. 

Let me ask each of you this question. Why doesn’t the United 

States produce more milk protein concentrates and why do we 

produce more nonfat dry milk? Can we start with each of you? Mr. 

Welch? 

Mr. WELCH. Well, basically I think it is pretty simple. The milk 

protein concentrates have always been cheaper from New Zealand 

and Australia. We have had attempts over the last 10 years to 

produce our own milk protein concentrates, but our milk prices are 

high, and it is just—if we are going to let them free access, that 

is why we do have tariffs on cheese and butter or we wouldn’t be 

producing cheese and butter. It is all about price. Our milk prices 

are quite a bit higher than theirs and they can produce it quite a 

bit cheaper. I think it is that simple. The same with caseinates. 

Caseins are subsidized out of Europe and we have never been able 

to make caseinates in this country where we could make money because they are subsidized. 

The CHAIRMAN. Are you saying the same thing about why we 

produce more nonfat dry milk? 

Mr. WELCH. Well, there are a couple answers there. One of 

course is there is a support program so they know they have a 

market of last resort, and the domestic nonfat market has been 

fairly strong. It is just in the last 20, maybe 20 years that they 

have differentiated the proteins and gone to milk for more protein 

concentrates and some other products. 

The CHAIRMAN. Mr. Plourd, do you agree? 

Mr. PLOURD. Yes, I would say that the competitive cost of production of MPC is cheaper elsewhere. I guess I will agree with Mr. 

Welch on both counts. I think with nonfat, the biggest reason we 

162

make so much nonfat is because the government will buy it. We 

sort of devolve into a last resort kind of mentality. Now, if you are 

going to make a big investment in a plant, you are going to make 

it in something—all things being equal, you know that the government will buy nonfat from you at 80¢ per pound. They don’t have 

a support price for MPC, so where are you going to put your capital 

investment, and that tends towards nonfat instead of the others. 

The CHAIRMAN. Mr. Williams, do you agree? 

Mr. WILLIAMS. The trouble I see with the imports is, industry 

has learned to use these imports at a cheaper rate to go in the 

cheese vat and manipulate cheese prices. Our cheese prices are 

what sets the price of milk all across the United States, and as 

more of these products are brought in, they go in the cheese vat, 

increase the cheese yield and the industry has become very adept 

at using these imports to control cheese price. 

The CHAIRMAN. Mr. Rozwadowski? 

Mr. ROZWADOWSKI. Yes, it is a profit thing. The processors can 

produce powdered milk and make more profit on that even at price 

support levels than they can making a profit on MPCs, given the 

fact that they can buy imported MPCs so cheaply. 

The CHAIRMAN. And Mr. Hoese? 

Mr. HOESE. I guess I agree with what the gentlemen had previously said so I don’t have any further comment. 

The CHAIRMAN. Mr. DeJong? 

Mr. DEJONG. Sir, in the Southwest and Texas, we have, really, 

a joint venture plant between DFA and Fontera that makes MPC 

in this country, and it is a plant that we use it as our cow balancer. 

It is the place where we put the milk when we don’t have anywhere to put the milk. We can take that plant from zero to 160 

loads a day, and to manufacture at that time when our cows are 

giving us more milk that the market doesn’t need. It is an efficient 

way to do it. Should we have gone out and built a nonfat plant? 

Our tea leaves say long term-wise, no. But if you are risk averse 

and the system in place that we have today would tell us as a cooperative, build a nonfat plant and shove it to the government. We 

will make allowance and we will make a profit in that plant. I don’t 

know what the price of my product is going to be to my farm, but 

that is not what I want to do. I want to make something that is 

going to sell and not hold over my head, and if we use it that way, 

we can make MPC in this country efficiently. 

The CHAIRMAN. I see. Let me ask you one other question. There 

has been a lot of discussion about supply management that different dairy organizations have proposed. What is each of your 

opinion on this option as a management tool to help stabilize 

prices? 

Mr. DEJONG. I believe that any market intervention to that scope 

will end in tears. 

The CHAIRMAN. Will end in tears? 

Mr. DEJONG. Tears. Supply management is either going to end 

with a surplus or not enough milk, a deficit, and I don’t know how 

to set that fine tune. When you have a country, Mr. Chairman, 

that has different costs of production from coast to coast, different 

marketing opportunities, it will be very, very, very difficult. I don’t 

know how to get it done, and obviously with all the programs we 

163

have had today, MILC, CWT and everything else, we are here talking about $9 milk. 

The CHAIRMAN. I see. Anyone else care to comment on that? Yes, 

Mr. Rozwadowski. 

Mr. ROZWADOWSKI. As far as that goes, farmers may be a unique 

bunch, especially in this country when prices tend to be down, milk 

prices tend to be down. They strive and do everything that they 

possibly can to increase milk production of their cows to try to 

overcome this deficit. Now, when prices are good, of course, we fall 

into the category of adding on to your farms, adding on to your 

herds and increasing the supply. So it works on both ends, and I 

don’t see any other way that we can stop this or curb this without 

some form of supply management. 

The CHAIRMAN. Okay. Thank you very much. 

Mr. Conaway, the gentleman from Texas. 

Mr. CONAWAY. Thank you, Mr. Chairman. 

A couple things. Mr. Welch, would it be okay if the USDA sold 

into that market, all that stuff they are buying at support prices, 

they turn around and sell it back into the market? 

Mr. WELCH. At ten percent over? 

Mr. CONAWAY. No, just sell it at market, at $1.13. So you want 

protection of the downside but you don’t want the upside competition? 

Mr. WELCH. Well, I was assuming they would send it in at what 

the program now, at 110 percent over, but they could. They could 

sell it to—we could buy it and shred it. 

Mr. CONAWAY. Well, what if the USDA sold it, though? Would 

you be okay with them selling it on the CME, this huge inventory 

that they are buying? 

Mr. WELCH. Sure. Quite likely, they could sell it at $1.40 as the 

market went back up. It would be the same cheese. It happens a 

lot. People buy and sell the same cheese in the CME. 

Mr. CONAWAY. But not the Federal Government cheese. It is not 

that huge inventory that they buy. That doesn’t go back into the 

market at those high prices, does it? Okay. Help me understand. 

Somebody mentioned packaging and differential between the CCC 

and CME. I know there is a difference but is there a distinction 

between them? Is there a reason why there is a difference in lot 

size or package size or whatever it is? 

Mr. WELCH. I have been told it is for keeping quality. The program I am familiar with is the barrels, and the barrel is definitely 

a higher price, firmer fiber barrel, seals up better, probably costs 

2¢ to 3¢ more. On the 40 pound blocks, we don’t make any 40 

pound blocks, but I understand there are some different standards 

on the block itself. 

Mr. CONAWAY. On the price production management system, 

there are price production management systems that do work. It is 

typically the market in non-ag businesses because the price will decide whether or not something gets sold or not, and then if you 

can’t sell it and if you don’t have that buyer of last resort, the taxpayers. We talk about the government buying stuff. The government really doesn’t have any money that it doesn’t take from taxpayers or borrow from somebody else, and so there is a management system that would work. I am assuming none of you are realVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00169 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
164

ly interested at that point in just a free market for milk at this 

stage. Thank you, Mr. Welch. 

I had one other question, Mr. Chairman. The risk management 

tools that are available, are there barriers to using those other 

than the 25¢ fee that Mr. Hoese mentioned? Are there other barriers that are systemic, something that we could fix? I can’t fix the 

decision between you and your son whether or not you guys want 

to pull the trigger. I can’t fix the accountant’s analysis of whether 

or not it is a good deal or not but are there things that could be 

done contract-wise or market-wise that would make those tools a 

true risk management tool that you would use as opposed to just 

theoretically thinking about? 

Mr. PLOURD. In my estimation, it is about simplification. We 

have four classes of milk, different calendars operating that set the 

price, and I think that some effort to harmonize——

Mr. CONAWAY. Mr. Plourd, thank you. We hear a lot of conversations that a lot of the commodities contracts aren’t exactly the 

same. They kind of look like contracts. You buy or sell one thing 

that kind of looks like something you bake. Have you looked at if 

you did use a contract at the Class III forward price how that compared with—can that be used as a risk management tool for folks 

who actually produce and they sell against this complicated, convoluted system where you have a little bit of Class I, II, III and 

IV make up the price you actually get. Is the contract near enough 

to be able to use that or are they afraid they are not going to get 

the best price for that? 

Mr. PLOURD. I think, from a mathematical correlation perspective, it does work. As a practical matter, it is not something that 

is just—people snap to it and understand it right away in terms 

of reconciling their own milk check with the trade instrument. It 

does work. Correlations are good but it is complicated to get from 

milk check to Class III. 

Mr. HOESE. If I may, if you look at Minnesota and Wisconsin, the 

most average age of a dairyman is probably between 55 and 60 so 

that is one of the curtailing elements that they don’t contract now. 

Some of the larger herds do a lot of contracting. That is what we 

see in Minnesota. 

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

The CHAIRMAN. Thank you, Mr. Conaway. 

Well, we have talked about supply management, we have talked 

about the pricing. Let me ask you all each about the CWT program. 

It seems to me that through herd reduction we could do two things: 

we could decrease the milk supply and stabilize our price for fluid 

milk. Is that not agreeable with everybody? Can we all get on the 

same page with that one? Is there anybody that agrees with that? 

Are we all happy with the CWT? Is there anybody that has a problem with that? Mr. Hoese? 

Mr. HOESE. Currently, I am not paying into CWT, and of our 450 

producers, there is only probably a handful of producers that do 

pay in the CWT. One of the things that I see as an issue for myself 

especially is, the last go-around they paid 97 percent up front and 

another ten percent if you leave your barn empty. I have heard of 

one producer already went to CWT, sold all his herd, next day he 

is buying heifers, he is going to forego that ten percent just to start 

165

milking again, so that’s one issue I have with CWT that I don’t 

agree with. 

The CHAIRMAN. Okay. Mr. Rozwadowski? 

Mr. ROZWADOWSKI. Yes, I have to agree with Mr. Hoese. I have 

had one farmer that I saw myself that sold his herd on CWT and 

at the same time they were hauling them out, they hauled in 

springing heifers and he never missed a single milking. I don’t believe the program is working and has any chance of working. 

The CHAIRMAN. Mr. Williams? 

Mr. WILLIAMS. I don’t think most people would say it is working real well with $9 milk, getting rid of enough cows to control production. 

The CHAIRMAN. Mr. Welch? 

Mr. WELCH. I think the concept has a lot of merit. It is a supply 

management program. Most of the panel doesn’t agree with supply 

management but, yes, it has some pitfalls, and a program like that 

has to be mandatory. You can’t have winners and losers and parts 

of the country that are in or out. But I do think it has some potential. 

The CHAIRMAN. Mr. DeJong, did you want to add anything? 

Mr. DEJONG. Sure. Currently, our cooperative does pay into 

CWT. Again, I am not a fan of market initiative but at this current 

crisis, if you look at a respectful way to retire, this is a respectful 

way to retire at the values that they are giving to get us out of a 

short-term crisis here. Will it work perfect? No. Have I voiced my 

opposition to it within my boards? Yes. But the hopeful sign was 

at least initially we have 67 percent of the industry together to 

agree on something, and it has and will make an impact on this 

industry. Has it been administered perfectly? No. Will it get renewed again? I don’t know. But it has forced industry to come together and do something, so that is a positive. 

The CHAIRMAN. All right. Do any of you currently participate in 

the Livestock Gross Margin-Dairy insurance program? Anybody? 

Getting to a way to stabilize the industry, do you think moving towards a single nationwide marketing order would help create some 

stability in the industry? Let us start with you, Mr. Welch. 

Mr. WELCH. I do. I think if you had one order, you would have 

not all these other issues about orders, shipping, and all the other 

requirements. 

The CHAIRMAN. Do you agree, Mr. Plourd? 

Mr. PLOURD. Yes. I mean, there is always a lot of particulars but 

in the realm of simplicity, I think it would go a long way. 

The CHAIRMAN. Good. Mr. Williams? 

Mr. WILLIAMS. I guess it would be more simple but as we consolidate orders, we decrease production, especially in the Southeast 

where it is short. We are a high-cost region of production, and with 

a single price we are probably going to be at a greater disadvantage than we are now. 

The CHAIRMAN. But you say it could help create some stability? 

Mr. WILLIAMS. I said it might be more simple than the conditions 

are now, but simple does not mean that the dairy industry in the 

Southeast would survive with a price that was pretty well based 

on cheese, and when we produce a fluid market and our price cost 

in the Southeast, we just cannot produce for the cheese market. 

166

The CHAIRMAN. I see. Mr. Rozwadowski? 

Mr. ROZWADOWSKI. I would agree with Mr. Welch’s comment on 

that one. 

The CHAIRMAN. Okay. Mr. Hoese? 

Mr. HOESE. I guess I would agree with the previous gentleman 

but who would run it and manage it. I guess that would be my 

major question. Where would you start from? A lot of unknowns 

here, I guess. 

The CHAIRMAN. All right. Mr. DeJong? 

Mr. DEJONG. Sir, any movement for less gamesmanship in the 

Federal Milk Marketing Orders, and they have a lot of gamesmanship between areas, so any movement in that direction would be 

good. 

The CHAIRMAN. So you agree with that? 

Mr. DEJONG. Yes. 

The CHAIRMAN. Well, this is wonderful. We are making progress 

here. Mr. Williams is a little hedging but I think that we got one 

area of agreement, which is great. Okay. 

Mr. Thompson. 

Mr. THOMPSON. Well, first of all, thank you, Chairman and 

Ranking Member, for the privilege of sitting in with this Subcommittee. I very much appreciate this series of hearings that you 

have been doing. It is very important. 

I have information that was collected from the Center for Dairy 

Excellence regarding my Congressional district. It shows that the 

economic impact of dairy in Pennsylvania’s 5th District, it is over 

$1 billion, and these numbers are striking in terms of the discrepancy. The farm revenue has just over $200 million, and I would 

fathom to say that frankly the farmers’ checkbooks are in red ink. 

The discrepancy there is just incredible, and so this is such an important hearing. Obviously we are looking at those farmers’ checkbooks, that is the important thing here, because we need them to 

stay in business and continue to feed us and clothe us and to house 

us and all the things that comes off of our family farms. We are 

focusing, specifically, on dairy this afternoon and look to the other 

side of that balance sheet in terms of input costs. I am just curious, 

Mr. DeJong, how much does input cost? We heard a lot about imports and obviously you compete in that global market, and, obviously, costs impact the balance sheet. How much in your opinion 

do input costs, particularly in our country in the form of taxes and 

regulations, energy prices, how much does that put U.S. dairymen 

at a disadvantage? 

Mr. DEJONG. When we say tax, regulation and energy, our tax 

structure, I would say is benign for me as a dairyman. The regulations, we are looking at investments in—what we talk about is upgrading our systems with nutrient utilization plans, comprehensive 

nutrient management plans, which are very, very expensive. It is 

forcing growth, forcing a guy to get bigger because they have to get 

more cows to cover the costs of that infrastructure. So that is a big 

issue, and then energy swings have been impacted hugely, and it 

is very hard for us to figure out as a farmer and an irrigator in 

west Texas, we use a lot of energy, and it has been very difficult 

for us on the energy side. 

Mr. THOMPSON. Thank you. 

167

Mr. Williams, if you were the milk czar and you had the ability 

to do whatever reform is necessary to the Federal Milk Marketing 

Order, what would you see or what would you like to see? 

Mr. WILLIAMS. The gamesmanship that has been alluded in the 

Federal orders, the fact that supplying a Class I market has a 

higher cost that producing, say, for a cheese market because of 

swings in production in the Southeast versus demand, and that 

would be two of the ones. 

Mr. THOMPSON. Mr. Hoese, any thoughts on that? 

Mr. HOESE. Again, that is a loaded question. If I was the milk 

czar, I probably wouldn’t be sitting here right now. You know, 

every area in the nation is different and cost of production is different in areas. To be a milk czar, whatever you want to call the 

person in charge of the milk market order or whatever, the task 

would be overwhelming. My costs of production might be a little 

lower or might be a little higher than some of the gentlemen sitting 

here, so I think it is whatever it is in the area that you are in, I 

don’t see a milk czar taking care of the questions that we have 

here. I think it is going to be tough enough for you gentlemen to 

solve this and to work through this, and a year from now it might 

be $18 again on its own. We don’t know that right now. You know, 

when we were thinking about contracting milk in January, it went 

up to $16. We didn’t do it. Everybody was telling us it was going 

to be higher by then. We didn’t contract milk by then. We should 

have then. We would have been money ahead but we didn’t, so to 

your question, I really don’t have a simple answer even though I 

spun around here a little bit, so sorry about that. 

Mr. THOMPSON. That is all right. It is not a simple question. I 

understand that. 

Mr. Rozwadowski, right now the safety line that I think I just 

read on Friday, the USDA is helping to ease up credit to help folks 

be able to borrow. There was something like that, that I don’t want 

to misquote it, but I have heard discussions about the lifeline and 

the lifeline being credit. It seems to me that is a short-term solution obviously to keep farms surviving. How hard is it for our farmers to be able to pay this debt back? 

Mr. ROZWADOWSKI. It is impossible right now at $10 milk. It is 

impossible. Most farmers are not making their mortgage payments. 

A lot of banks are allowing them to go down to the status of paying 

interest only, and those farmers are struggling something terrible 

just to pay that interest. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Thompson. 

Let me ask each of you this question. We have addressed different things today, but if you had to prioritize what we need to 

do to help the current dairy situation, what would each of you list 

as the two most critical things that we should do, or that should 

be done in the short term to alleviate the current dairy situation? 

We would like to get what each of you would recommend as the 

two most critical things that you feel we need to do for the short 

term to help the dairy industry. Let us start with Mr. Welch. 

Mr. WELCH. I think the two things that would immediately help 

would be to raise the support price, and I would recommend 20¢. 

I don’t think the government would buy any cheese at $1.33. And 

168

raise the MILC payment, go from 45 to 90 percent. That would 

probably be $21⁄2–$3. It would not be cost of production but it 

would at least keep some people in business. I strongly fear if we 

don’t do something, we are going to have a mass liquidation and 

we won’t have enough milk. I think it is a domino thing. When one 

starts going, we might see a lot of people exit the dairy business 

if we don’t give something——

The CHAIRMAN. I want to get this right. The first thing would be 

to raise the support price by 20¢. 

Mr. WELCH. Yes, I gave it a number, on cheese. 

The CHAIRMAN. On cheese? 

Mr. WELCH. Yes. 

The CHAIRMAN. Okay, and the second one? 

Mr. WELCH. That the MILC calculation, the 45 percent payment, 

make it 90 percent. 

The CHAIRMAN. It is 45 percent now, you want to make it 90 percent. 

Mr. WELCH. Yes, and those would be short term. As a matter of 

fact, you wouldn’t have near as much MILC payment because of 

the support price increase. I haven’t done the calculation but there 

wouldn’t be a very big MILC payment. 

The CHAIRMAN. Raise the support price by 20¢ on cheese, and 

the MILC from 45 percent to 90 percent, raise the payment? 

Mr. WELCH. Sure, but if you raise the support price by 20¢, the milk price goes up $2. I suspect the MILC payments may not even 

exist at that level. I am not sure. 

The CHAIRMAN. Okay. Good. Thank you. 

Mr. Plourd? 

Mr. PLOURD. I am not sure I should be in the habit of disagreeing with one of my better customers. I would say two things. 

I think if I were in the dairy producer lobbying role, I would say 

that one of the things that struck me as curious was USDA’s decision to eliminate the purchases of processed cheese under the support price program. It was a way to get an easier quality standard 

into the government would have cleaned up the barrel market 

quite a bit sooner. For myself, I would say with all due respect, I 

would say that we should just wait because we have had these—

I mean, every 3 years we are back at the same table basically discussing the crisis in the dairy farm economy. I think that we ought 

to make a decision to have these hearings when prices are at higher levels. I mean, we tend to wait until we get way too low before 

we try to find a fix and we try to fix things. I am not sure we make 

them better. And then the market tends to take its course and will 

turn higher. So that would be my comments. 

The CHAIRMAN. To wait? 

Mr. PLOURD. I have the opinion that already today market forces 

are at work in such a way that we will see higher milk prices by 

the fourth quarter of this year as well as on into next year. 

The CHAIRMAN. Okay. That is good to know. 

Mr. Williams? 

Mr. WILLIAMS. I somewhat agree with the last one. I am not sure 

there is anything government is going to do in the short term that 

is going to make a significant difference besides handing out 

money. I don’t think that is going to work real well and we ought 

169

to be working on more long-term solutions that balance supply with 

demand and cut out the gamesmanship on Federal orders and that 

type of thing, and find a true market that cannot be manipulated 

by a few traders. I think the long-term solutions are much more—

even though we are going to have a mass exodus of dairymen, it 

is hard to enact anything that is going to slow that, that is not 

going to mess with the market in the future. 

The CHAIRMAN. So you feel we should do nothing? 

Mr. WILLIAMS. Unfortunately, I don’t know anything that they 

can do besides, like I said, hand out money, that is going to make 

a significant difference. 

The CHAIRMAN. And you don’t want us to do that? 

Mr. WILLIAMS. Well, if it was given to me, it would be fine, I 

guess, with no strings. 

The CHAIRMAN. Answered like a good man from Georgia. 

Mr. Rozwadowski? 

Mr. ROZWADOWSKI. First I would like to see an $18 floor price 

and let that price come from the marketplace, not the taxpayers. 

That would get some money into the dairymen’s pockets so they 

can pay some bills. And second, one thing that we could do that 

would really make a difference is, stop the imports of cheese, MPC 

and dairy ingredients and caseinates and all that stuff. 

The CHAIRMAN. Okay. Eighteen dollar floor price as determined 

by the market, not anything we would do. Is that what you are saying? 

Mr. ROZWADOWSKI. I don’t think so. A set price announced by the 

USDA of $18 or near that figure. 

The CHAIRMAN. What is it now? 

Mr. ROZWADOWSKI. There is none. 

The CHAIRMAN. There is none? Okay. Thank you. Eighteen dollar 

floor price set by USDA. All right. And stop imports of cheese. Is 

that correct? 

Mr. ROZWADOWSKI. Yes, sir. Well, cheese and ingredients like 

MPCs that we use in our cheese vats to make more cheese. 

The CHAIRMAN. All right. Thank you. 

Mr. Hoese? 

Mr. HOESE. I guess one important thing we should really consider right now is MILC payment. There is a production cap on 

that, and from my herd of 120 cows, I am going to hit that production cap in about 10 months, so if we could raise that cap or allow 

that cap to extend, I think that is one of many concerns if there 

is no price increases of our dairy milk, so that is one issue I have. 

I agree with the gentleman on the end, raise it 20¢ a hundredweight for the cheese, just get a little stimulus into the program. 

I am a little concerned about the $18 floor price because that is 

going to lead to overproduction again, but if you raise it a couple 

dollars a hundredweight, it should help to alleviate some of the 

current issues. 

The CHAIRMAN. Okay. Thank you very much. 

Mr. DeJong? 

Mr. DEJONG. Sir, I do believe in do no harm. 

The CHAIRMAN. Hold on a second. Let me go back. 

Mr. Hoese, you said raise the MILC. 

170

Mr. HOESE. Yes, there is currently a cap, like 1.9 million pounds 

or something in a year or something like that, and like I said, my 

herd is going to reach that in about 10 months. 

The CHAIRMAN. What would you raise it to? 

Mr. HOESE. Double it, because we have to help the gentleman 

next to me too, and I am sure he probably ran out of his already 

for this year or close to it. In 10 months he said he will be out of 

his MILC cap. He will be at the cap. But we should double it to 

help—it is just 120 cows. If you split that between myself and my 

son, we each have 60 cows, which is the average herd probably in 

Minnesota right now and Wisconsin, so everybody looks at you with 

120 cows, you got a lot of cows, but——

The CHAIRMAN. So what would that cap be? 

Mr. HOESE. It is 3.6–3.7 million pounds, and I think that would 

probably help a lot right now with the current situation. 

Mr. WELCH. The current cap is 2.95 million pounds. 

Mr. HOESE. Okay. Thank you. 

The CHAIRMAN. Okay, 2.95 million pounds, so you are looking at 

6 million pounds. 

Mr. HOESE. Six million pounds. Thank you. 

The CHAIRMAN. Mr. DeJong? 

Mr. DEJONG. Mr. Chairman, I think that this market has gone 

through a cycle and we are coming out of it. When we send signals 

out there that we are going to keep and hold these herds and develop a program, it is going to send a signal, it is going to make 

this thing last longer. Right now, as hard it sounds, is do nothing, 

is to let this thing—the futures markets today are responding and 

saying yes, we do believe that the price recovery is at hand and is 

coming. Herd reduction is here. We are at the trough, and the simple fact that we are all meeting here again is extending this longer 

for everybody in the dairy sector to get their arms around what the 

problem is and understand how to solve it. The other thing I would 

encourage is, just move to mandatory price reporting in everything 

already and that will encourage a more transparent market. 

The CHAIRMAN. Mandatory price reporting? 

Mr. DEJONG. Yes, sir. 

The CHAIRMAN. All right. Thank you each very much. Mr. 

Conaway, anybody? All right. 

I want to thank all of our witnesses for coming today. This has 

been a part of a series of hearings that we will be holding, and we 

will be holding another hearing next Tuesday on July 28. I look forward to our continued discussions with our Subcommittee, our producers and our processors. 

Under the rules of the Committee, the record of today’s hearing 

will remain open for 10 calendar days to receive additional material and supplementary written responses from the witnesses to 

any questions posed by a Member of the panel. 

The hearing of the Subcommittee of Livestock, Dairy, and Poultry is thereby adjourned. Thank you. 

[Whereupon, at 12:55 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

171

* There was no response from the witnesses by the time this hearing went to press.

SUPPLEMENTARY MATERIAL BY J. EVERETT WILLIAMS, PRESIDENT, GEORGIA MILK

PRODUCERS, INC. 

July 27, 2009

Hon. DAVID SCOTT,

Chairman, 

Subcommittee on Livestock, Dairy, and Poultry, 

Committee on Agriculture, 

Washington, D.C.

Dear Congressman Scott:

I would like to take this opportunity to thank you for inviting me to serve as a 

panelist for the hearing held by the Subcommittee for Livestock and Poultry on July 

21, 2009. This is a perilous time for the nation’s dairy industry, and we hope that 

the hearings held by this Subcommittee will lead to a quick recovery for our industry. I have faith that with the right changes made to our milk marketing system, 

our industry could one day thrive again. 

I would like to respond further to one of the questions asked of the panel during 

the hearing on July 21. A Committee Member asked the panel what actions we 

would take to improve the current dairy pricing system if we were appointed Milk 

Czar. I would have the Justice Department investigate market access for all dairymen and any antitrust concerns in the milk markets. The Justice Department 

should investigate the Chicago Mercantile Exchange cheese markets for illegal activity. 

Also, current imports of casein and Milk Protein Concentrates do not meet USDA 

standards and therefore should not be allowed for use in cheese making. The government’s goal should be to not allow the greed of milk companies to destroy dairymen. 

The Federal Milk Marketing Order (FMMO) should be expanded to cover all of 

the United States. Their mission should be to audit milk plants (for better price discovery) and to enforce milk payments to dairymen. 

Manufacturing and fluid milk would be the only two classes of milk. The market 

would be used to set the prices. The goal on fluid pricing would be to encourage 

milk production near the population. We in agriculture must recognize that allowing 

the least cost production areas to set our fluid prices will cause more and more milk 

to be shipped even greater distances. 

I would also implement the Holstein Dairy Price Stabilization Program to control 

milk price volatility. Matching production with market needs would benefit dairymen, processors and consumers. 

Once again, I appreciate your efforts to improve our nation’s dairy industry and 

for the opportunity to serve on the panel last Tuesday. I hope you consider these 

suggestions and please feel free to contact me at [Redacted]. 

Sincerely,

EVERETT WILLIAMS,

President. 

SUBMITTED QUESTIONS

Questions Submitted By Hon. Glenn Thompson, a Representative in Congress from 

Pennsylvania *

Question 1. In your view, are the current proposals to assist access to credit a 

short term or long term solution? 

Question 2. How will farmers be able to deal with this debt? How will they be 

able to pay it off?

Question 3. How much do input costs—particularly in the forms of taxes, Federal 

regulations, and energy prices—put U.S. dairymen at a disadvantage?

Question 4. In your view, how are milk imports affecting prices? 

(173)

HEARING TO REVIEW ECONOMIC 

CONDITIONS FACING THE DAIRY INDUSTRY 

TUESDAY, JULY 28, 2009

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON LIVESTOCK, DAIRY, AND POULTRY, 

COMMITTEE ON AGRICULTURE, 

Washington, D.C.

The Subcommittee met, pursuant to call, at 10:30 a.m., in Room 

1300, Longworth House Office Building, Hon. David Scott [Chairman of the Subcommittee] presiding. 

Members present: Representatives Scott, Costa, Kagen, Holden, 

Boswell, Cardoza, Markey, Murphy, Minnick, Peterson (ex officio), 

Massa, Neugebauer, Goodlatte, King, Conaway, Smith, Roe, and 

Thompson. 

Staff present: Adam Durand, Alejandra Gonzalez-Arias, Chandler Goule, Scott Kuschmider, James Ryer, Rebekah Solem, Mike 

Dunlap, John Goldberg, and Jamie Mitchell. 

OPENING STATEMENT OF HON. DAVID SCOTT, A 

REPRESENTATIVE IN CONGRESS FROM GEORGIA 

The CHAIRMAN. This hearing of the Subcommittee on Livestock, 

Dairy, and Poultry to review economic conditions in the dairy industry, part three, will come to order. Thank you all very much. 

The gentleman from Pennsylvania, Mr. Thompson, is not a Member of this Subcommittee, but he has joined us again today. I have 

consulted with the Ranking Member. We are pleased to welcome 

him to join in the questioning of the witnesses. Good to have you, 

Mr. Thompson, again. 

This is the third part of our Subcommittee’s examination of the 

current crisis in the dairy industry—and crisis in the dairy industry is really putting it mildly. As always, I appreciate everyone attending and aiding us in our efforts. 

For those who were not able to attend last week’s hearing, I 

would like to inform you that you missed what is perhaps the most 

monumental event in history of dairy policy. A diverse group of 

panelists, representing a broad geographic and ideological spectrum 

all agreed to something, and that is very, very important. I don’t 

know if anyone on this Subcommittee, and certainly not me, can recall that happening in recent history. Of course whether or not that 

portends further or larger agreements in the future remains to be 

seen. Let us hope so. For it is only by us coming together that we 

can really find a solution to these very critical issues that are indeed complex and challenging facing the dairy industry. At the 

174

very least, however, it did show that our idea about where dairy 

policy should head is not irreconcilable. 

Of course there is certainly a tremendous amount of work to be 

done before we are all marching through the halls of Congress 

singing Kum Bay Ya. Hopefully we will be able to do that. However, I feel that this series of hearings has laid the foundation and 

the groundwork upon which we can begin to enact sound dairy policy reforms. 

That being said, new and different voices are always welcome to 

contribute to the debate. 

[The prepared statement of Mr. Scott follows:]

PREPARED STATEMENT OF HON. DAVID SCOTT, A REPRESENTATIVE IN CONGRESS FROM

GEORGIA

Welcome everyone, to the third part of our Subcommittee’s examination of the 

current crisis in the dairy industry. As always I appreciate everyone attending and 

aiding us in our efforts. 

For those who were not able to attend last week’s hearing, I would like to inform 

you that you missed what is perhaps the most monumental event in the history of 

dairy policy. A diverse group of panelists, representing a broad geographic and ideological spectrum, all agreed to something. I don’t know if anyone on this Subcommittee, and certainly not me, can recall that happening in recent history. Of 

course, whether or not that portends further or larger agreements in the future remains to be seen. At the very least however it did show that our ideas about where 

dairy policy should head are not irreconcilable. 

Of course there is certainly a tremendous amount of work to be done before we’re 

all marching through the halls of Congress singing Kum Bay Ya. However I feel 

that this series of hearings has laid the groundwork upon which we can begin to 

enact sound dairy policy reforms. That being said new and different voices are always welcome to contribute to the debate. And in the interest of hearing all of those 

voices I’ll end here and turn to my Ranking Member, Mr. Neugebauer, for any comments he wishes to add and then we’ll hear from our panelists.

The CHAIRMAN. And in the interest of hearing all of those voices, 

I am going to end here and turn to my Ranking Member, Mr. 

Neugebauer, for his comments that he would like to add, and then 

we will hear from our Chairman, Mr. Peterson, and the rest of the 

panel. Mr. Neugebauer. 

OPENING STATEMENT OF HON. RANDY NEUGEBAUER, A 

REPRESENTATIVE IN CONGRESS FROM TEXAS 

Mr. NEUGEBAUER. Well, thank you, Chairman Scott, for calling 

this third and at least final hearing for a while on the review of 

current economic conditions in the dairy industry. 

As I was visiting with some of the witnesses before the meeting 

here, we had really good meetings in the past. We have had great 

panels. As the Chairman alluded to, we have had diverse panels. 

We have had people with different perspectives and different ideas 

on what is the current situation in the dairy industry, and really 

how—where do we go from here. I think one of the things we have 

heard that there is not universal agreement on, some of the actions 

that we need to take that probably should give this body pause for 

concern, that until we come to a consensus on what we would do, 

we should approach this with some degree of caution. 

One of the things that happens when the government starts 

doing things is it many times disrupts market conditions. And so, 

then, when the government gets into a marketplace and the market participants have to learn how to now deal with the governVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00180 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
175

ment being in the room, we are seeing that in other areas of government right now. We have had a massive intrusion of the government into our financial institutions. We now have the government 

in the car business. We have the government in the insurance business. And I would tell you that those of you out there in the dairy 

business, you don’t want the government getting into the dairy 

business too deep. 

And so what we hopefully will hear today are some more ideas 

and thoughts about what are some of the appropriate things that 

we can do. I would hope that we would be looking for long-term solutions. Many cases when market dips and markets go up and 

down, sometimes government is chasing the problem, maybe things 

are too expensive or things are too cheap, and somehow people 

think the government’s role is to determine what the price of a 

commodity is, and that is not the role of a government to determine 

what the price of something is. Is it the role, then, for government 

to make sure there is integrity in the market? Certainly. Transparency, certainly. Those are roles we can play. 

But I would just caution those that are looking for a quick fix 

that quick fixes sometimes have long-term consequences. What I 

would hope we would be looking for, then, are solutions that make 

the dairy industry healthy and profitable and continue to be a 

major part of our agricultural economy, and quite honestly, a major 

part of a way of life in America. 

So I thank the witnesses for being here today. We know that we 

have a great panel of thoughtful witnesses and we look forward to 

hearing your testimony. With that, Mr. Chairman, I yield back my 

time. 

The CHAIRMAN. Thank you, Ranking Member Neugebauer. Now 

we will hear from the Chairman of the full Committee on Agriculture, Chairman Peterson. 

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A 

REPRESENTATIVE IN CONGRESS FROM MINNESOTA 

Mr. PETERSON. Thank you, Mr. Chairman, and thank you, Mr. 

Neugebauer for your leadership, for holding these hearings, the 

third one that we have done here. And I would guess that we are 

not done listening to people yet. We will decide how we proceed. 

But, it is important that we have an opportunity for people to come 

in and give us advice about where we ought to be going and how 

we ought to approach this situation, which is a very bad situation 

as we are all aware. 

I just want people to know I have been—I was on this Subcommittee for many, many years going back, way back to Mr. Gunderson’s time, and this is one of the worst situations we have been 

in. But I want folks to know how much Members of this Subcommittee, the full Committee, and Members outside of our Committee have focused on this issue. This is not something that people have not paid attention to. 

I cannot tell you how many Members have approached me on the 

floor, called me into meetings, particularly in the Northeast. The 

Members—Mr. Holden, Mr. Murphy, Mr. Massa, Mr. Welch, Mr. 

Courtney—I know I am forgetting somebody. Just about everybody 

that has agriculture, including some of my friends on the other side 

176

of the aisle, have talked to me. In California, which saw this problem first and probably the hardest, Mr. Cardoza, Mr. Costa, Mr. 

Nunes have been very much focused on this. 

As usual in dairy, we have not come to a consensus yet. There 

are ideas out there. Some good ones, some that I am not sure are 

so good. But one of the problems we run into is finding out—finding a way to pay for the different ideas that are out there. And 

frankly from my perspective, one of the problems is that we have 

been pretty firm in not opening the farm bill, not trying to get 

down the road of opening that whole situation up. So we have been 

working within some constraints there as well, but rest assured 

this Committee very much understands the problem, understands 

the seriousness, understands that this is something that needs to 

be dealt with on a timely basis. I can tell you that the Members 

are very much focused on this and providing leadership and we will 

continue to do that. 

So, Mr. Chairman, I appreciate your leadership and the time 

that you have spent on this issue, and I look forward to hearing 

from our witnesses today. We welcome you all to the Committee 

and very much appreciate your taking your time in giving us your 

advice about where we ought to move. So, thank you, Mr. Chairman. 

[The prepared statement of Mr. Peterson follows:]

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

CONGRESS FROM MINNESOTA

I would like to thank Chairman Scott and Ranking Member Neugebauer for calling this third and final hearing this month on the economic conditions facing the 

dairy industry. I appreciate their leadership on this issue and for their diligence in 

holding these hearings before we adjourn for the August District Work Period. 

I will be very brief since the purpose of today’s hearing is to continue with the 

examination of the economic hardships facing dairy producers because of historic 

low prices. 

The two hearings this Subcommittee has held to this point have been instructive 

and have shown that the dairy crisis is not confined to one region or type of business operation. I imagine we will hear much of the same today. 

Including today, this Committee will have heard from 20 witnesses over these 

three hearings, including producers from California, the Pacific Northwest, Texas, 

Georgia, Minnesota, Wisconsin, and Pennsylvania. In addition, we heard from two 

of our colleagues, Representatives Peter Welch of Vermont and Joe Courtney of Connecticut, about the situation in their districts, where the dairy industry plays a big 

role in the local economy. 

I think it was important for this Committee to hear as many different voices as 

possible from all across the country when it comes to the current plight of the dairy 

industry and how best to move forward. I know there is a lot of passionate debate 

on dairy policy, even in the absence of low prices. Too often those strong feelings 

break along regional lines, pitting producers in one part of the country against another. As I said many times when we were going through the farm bill, we cannot 

afford to have agriculture divided. I hope our witnesses today and in the previous 

hearings will keep that in mind. 

I appreciate today’s witnesses being here today and lending their voice to this 

timely debate. I thank you again, Chairman Scott, and Ranking Member 

Neugebauer, for calling today’s hearing, and I yield back my time.

The CHAIRMAN. Thank you very much, Mr. Chairman. The chair 

would request that other Members submit their opening statements for the record so that the witnesses may begin their testimony and we can make sure we have ample time for their questions. 

[The prepared statement of Mr. Baca follows:]

177

PREPARED STATEMENT OF HON. JOE BACA, A REPRESENTATIVE IN CONGRESS FROM

CALIFORNIA

Chairman Scott and Ranking Member Neugebauer:

I am pleased to be here today as we continue to discuss the current economic conditions facing the dairy industry—and what steps, if any, the Federal Government 

should take to stabilize the dairy market. 

I thank the Chairman and Ranking Member for convening this hearing and hope 

we will be able to gain valuable insight into this critical issue. 

I also want to thank all our witnesses for coming here today—and taking time 

from their schedule to help us in Congress hear the perspective of the dairy producers and exporters on how to tackle the current crisis. 

Everyone in this room understands the important work America’s dairy farmers 

do, and the vital need to keep the dairy industry healthy and prosperous. 

When agricultural markets fluctuate, there is a direct and significant impact on 

our nation’s food supply—and thus the health and nutrition of virtually every American. 

In my own Congressional District in the Inland Empire of California—dairy is a 

significant agricultural and economic product. 

As Members of the Subcommittee on Livestock, Dairy, and Poultry, it is vitally 

important that we gather as much information on this subject as possible. 

America’s dairy industry must remain strong and secure. 

We must be willing to work together on this issue. The USDA, industry groups, 

the Federal and state governments all play an important role in stabilizing our markets. 

I look forward to hearing from our witness today and again thank the Chairman 

and Ranking Member for their leadership. 

Thank you.

The CHAIRMAN. We have a battery of issues and concerns, among 

them, the Dairy National Pricing Order, our Livestock Cost Margin 

Dairy Program, our Herd Buyout Program, how you feel about the 

CWT. There is just so much here for us to deal with to try to come 

to some solutions as to how we can get some help. Our goal again, 

as I reiterated, is to see what we can do to get some immediate 

help as well as long-term help. 

So with that, let me welcome each of you and our panel of witnesses that we are pleased to have, Mr. Craig Lang, President of 

the Iowa Farm Bureau Federation and a Member of the Board of 

Directors of the American Farm Bureau Federation of Brooklyn, 

Iowa. Welcome. 

Mr. W. Anthony Bostwick, the CEO of Braum’s Ice Cream and 

Dairy Stores, on behalf of Braum’s and the American Independent 

Dairy Alliance, Oklahoma City, Oklahoma. 

Mr. Joaquin Contente, dairy farmer and President of California 

Farmers Union, Hanford, California. 

Mr. Walter M. Guterbock, D.V.M. and M.S., Manager of the Columbia River Dairy and Sixmile Land and Cattle Company from 

Boardman, Oregon. 

Ms. Melissa L. Hughes, General Counsel, CROPP Cooperative, 

LaFarge, Wisconsin. 

Mr. Gordon M. Cook, Jr., dairy producer and Member of the 

Board of Directors of Holstein USA, Inc., of Hadley, Massachusetts. 

And Mr. Thomas M. Suber, President of U.S. Dairy Export Council, Arlington, Virginia. 

Thank you and welcome to each of you, and we thank you for 

taking the time out to come and share with us your expert testimony. 

Mr. Lang, we will begin with you. 

178

STATEMENT OF CRAIG LANG, PRESIDENT, IOWA FARM

BUREAU FEDERATION; MEMBER, BOARD OF DIRECTORS, 

AMERICAN FARM BUREAU FEDERATION, BROOKLYN, IA 

Mr. LANG. Chairman Scott and Ranking Member Neugebauer, 

thank you for the invitation to be here today. I would also like to 

say it is good to see my friend and Congressman, my personal Congressman, Congressman Leonard Boswell, here today. It is good to 

see you. Thank you. 

I am Craig Lang, a fifth generation farmer from Iowa. Two of my 

sons comprise the sixth generation of our family to be involved in 

farming. Our farm is truly a three-generational dairy. My 83 yearold father works on the farm every day. My brother manages the 

dairy, and my two sons are working into partnership and ownership. They work full time on the farm because, unlike many farms, 

dairy is a full-time occupation. I would also like to add that my 

daughter, Jessica, is Executive Secretary of the Iowa Dairy Association. So our roots run very deep in the dairy industry. 

We milk 560 cows three times daily, producing roughly 35,000 

pounds of milk each day. We plan to expand by building a new parlor and a new nutrient handling system, and also by doubling our 

herd when long-term profitability returns to the dairy sector. Until 

that time, we are only expanding enough to meet the needs of my 

two sons joining my operation. Our break-even cost is around $14 

per hundredweight, of which $7 per hundredweight is for feed. Our 

current mailbox price is about $11 per hundredweight after you 

add in for premiums for quality and volume. 

Because of the historically challenging milk price, we have almost depleted all the cash we put away over the previous 2 years 

when our farm milk price receipt was considerably higher. 

At this time, we have about 40 percent of our 2010 milk production sold for a price between $14 and $18 per hundredweight using 

a buying tool through our milk cooperative. We have always believed that operating our farm from a strong financial position is 

our best defense to low prices. 

This year, U.S. dairy producers have been caught in a classic 

price-cost squeeze, with milk prices declining sharply from record 

highs while feed and land costs remain high. At the current time, 

public and private intervention measures are in place, but are not 

being fully felt at the farm gate. 

Dairy farmers enjoyed positive returns in 2007 and most of 2008 

as strong international demand pushed up the price of dairy products and the mailbox price of milk. In November of 2007, all-milk 

price hit a record $21.90 per hundredweight. In 2008, milk prices 

remained high and sent a signal to the market to produce more. 

And we, as farmers always do, we did produce more because the 

prices were good. 

Last fall converging factors lead to an evaporation in U.S. dairy 

export markets. First and foremost, the global economic recession 

virtually halted the trade of products, while a stronger dollar also 

made our products more expensive in the marketplace. And finally, 

New Zealand was able to regain their market position in late 2008. 

The Farm Bureau believes the major factors leading to the current economic stress in the dairy industry are the demand shock 

from the evaporation of the international marketplace, excess supVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00184 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
179

ply being thrust upon the domestic marketplace, and shrinking 

margins in income over feed costs. 

Declining milk and dairy product prices in late 2008 and 2009 

have reactivated government programs to support dairy prices and 

dairy farm income. In February of this year, milk prices dropped 

below the trigger of Milk Income Loss Contract payments to dairy 

farmers for the first time in 2 years triggering over $450 million 

in checks to dairy producer. However, our dairy herd size only allows us to reap about 30 percent of our production in that program. 

In addition, USDA has allocated the maximum volume of dairy 

products to the U.S. through the MILC Program to export Dairy 

Export Incentive Payments and yet be consistent with World Trade 

Organization commitments. We believe this program is good. The 

Farm Bureau has encouraged USDA to expand Commodity Credit 

Corporation purchases authority and purchase CCC inventories for 

domestic feeding programs and expand dairy allocations through 

DEIP. Short-term solutions include maintaining the current safety 

net, letting existing programs work, further use of DEIP, expanding or enhancing Cooperatives Working Together Program and altering existing programs to enhance dairy income. 

The Farm Bureau would be supportive of at least three options 

to assist dairy producers in the short term, the first and probably 

the best through the CWT Program, removing cows from the market. We believe that another three percent reduction in cow herd 

numbers is important to bring prices back to a profitable level. 

Thank you for your time, and I will answer questions later. 

[The prepared statement of Mr. Lang follows:]

PREPARED STATEMENT OF CRAIG LANG, PRESIDENT, IOWA FARM BUREAU

FEDERATION; MEMBER, BOARD OF DIRECTORS, AMERICAN FARM BUREAU

FEDERATION, BROOKLYN, IA 

Chairman Scott and Ranking Member Neugebauer, thank you for the invitation 

to be here today. I am Craig Lang, a fifth generation farmer from Iowa. My two 

sons comprise the sixth generation of my family to be involved in farming. Our farm 

is a three-generation dairy. My 83 year old father works on the farm everyday. My 

brother manages the dairy and two of my sons are working into ownership. They 

work full time on the farm because, unlike many farms, dairy is a full time occupation. 

My oldest son is a graduate of the University of Northern Iowa with a degree in 

Political Communication. He has decided not to go to law school because he believes 

there is a good future in the dairy industry. My second son graduated from Kirkwood Community College with an Agriculture Production degree. He also believes 

agriculture holds a promising future and is specializing mainly in the crops and feed 

needs of the dairy animals. My two sons could find employment off the farm, however, their passion is to continue farming. With good policy and a little luck, they 

will succeed in growing our operation to a profitable and competitive size. 

We milk 560 cows three times each day, producing roughly 35,000 pounds of milk 

per day. We plan to expand by building a new parlor and nutrient handling system 

when long-term profitability returns to the dairy sector. Until that time, we are only 

expanding enough to meet the needs of my two sons joining our operation. Our expansion includes a remodeled free stall barn, more cows in milk, expanding our silage storage capacity, dry feed storage and additional rented land. 

Our break even cost for the milk we produce is around $14 per hundredweight, 

of which $7 per hundredweight is for feed. Our current mail box price is about $11 

per hundredweight after you add in premiums for quality and volume. 

Because of the historically low milk price, we have almost depleted all the cash 

we put away over the previous 2 years when the price was considerably higher. We 

are now using a bank line of credit to help pay for daily operations. We have about 

40 percent of our 2010 milk production sold for a price between $14 and $18 per 

hundredweight using a buying tool through our milk cooperative. 

180

This year, U.S. dairy producers have been caught in a classic ‘‘price-cost squeeze’’ 

with farm milk prices declining sharply from record highs while feed costs remain 

high. At the current time, public and private intervention measures are in place but 

are not yet being fully felt at the farm gate. 

Dairy farmers enjoyed positive returns in 2007 and most of 2008 as strong international demand pushed up the price of dairy products and the mail box price of 

milk. In November 2007, the all-milk price hit a record $21.90 per hundredweight. 

In 2008, milk prices remained high and sent a signal to the market to ‘‘produce 

more.’’ Farmers responded by increasing U.S. milk production. Total U.S. milk production rose by 2.1 percent in 2007 and by 2.3 percent in 2008. This is close to the 

2.1 percent average increase since 2000. Much of this supply increase was driven 

by cow numbers rather than gains in milk production per cow because of the pressure of rising feed prices—both concentrates and forage. 

Last fall, converging factors led to an evaporation of the U.S. dairy export market. 

First and foremost, the global economic recession virtually halted the trade of products, while a stronger dollar also made our products more expensive in the marketplace. Finally, New Zealand was able to regain much of its drought-plagued milk 

production in late 2008. 

Farm Bureau believes the major factors leading to the current economic stress in 

the dairy industry are the demand shock from the evaporation of the international 

marketplace, excess supply being thrust upon the domestic marketplace, and 

shrinking margins of income over feed costs. 

Declining milk and dairy product prices in late 2008 and 2009 have reactivated 

government programs to support dairy prices and dairy farm income. USDA estimates that it purchased 170 million pounds of nonfat dry milk in the first 6 months 

of 2009. That is the equivalent of about 30 percent of production. USDA has said 

they expect to remove an additional 40 million pounds of nonfat dry milk during 

the remainder of 2009. In February 2009, milk prices dropped below the trigger for 

Milk Income Loss Contract (MILC) payments to dairy farmers for the first time in 

2 years, triggering over $450 million in checks to dairy producers. In addition, 

USDA has allocated the maximum volume of dairy products the U.S. is allowed to 

export with Dairy Export Incentive Payments (DEIP) subsidies and yet be consistent with World Trade Organization (WTO) commitments. Farm Bureau has encouraged USDA to expand the Commodity Credit Corporation (CCC) purchasing authority, purchase CCC inventories for domestic feeding programs and expand dairy 

allocations via DEIP. 

Yet, this declining economic picture has caused all of us to look at various options 

to determine what can be done to assist the dairy industry—in the short- and longterms. 

Short-term solutions include: (1) Maintaining the current safety net and letting 

existing programs work; (2) further use of DEIP; (3) expanding or enhancing the Cooperatives Working Together (CWT) program; and (4) altering existing programs to 

enhance dairy farmer income. 

While Farm Bureau policy on dairy is lengthy, a few policy highlights include:

(a) We support ‘‘a market-oriented national dairy program that includes a national countercyclical income assistance component, such as the MILC program 

which is consistent with a worldwide fair and open trade policy.’’ In addition, 

we oppose ‘‘discrimination against large producers in the MILC program.’’

(b) We support a ‘‘continuation of the dairy price support program at the current 

level.’’

(c) We support ‘‘state and regional initiatives or compacts which are consistent 

with our overall goal of a market-oriented national dairy program, specifically 

the expansion and reauthorization of the Northeast Interstate Dairy Compact 

and authorization of the Southern States Dairy Compact.’’

(d) We support and encourage the use of CWT.

Given these policy positions, Farm Bureau would be supportive of at least three 

options to assist dairy producers in the short-term. The first, and probably best, option would be a further ongoing effort to reduce cow numbers through the CWT program. We applaud the efforts undertaken by CWT so far. The latest removal of 

100,000 cows unfortunately, only represents about one percent of the U.S. herd. Our 

economists believe another three percent reduction in the cow herd numbers for an 

extended period of time will be required before dairy prices are likely to significantly 

rebound. 

We fully understand that the buyout program may not have the funds to reduce 

the U.S. herd enough to boost milk prices back to a profitable level. This may mean 

that the only option is for more farmers to sell their herds on the open market. 

181

Eventually, that culling of the U.S. herd will reduce milk supply and boost prices. 

Cull cow markets have already softened considerably and are making this a difficult 

decision for farmers. 

While fewer dairy cows would be useful in increasing dairy prices to farmers, we 

are adamantly opposed to a Federal Dairy Herd Buyout program similar to that 

used in the past. While that program did decrease production significantly and increase the price available to dairy farmers, it added to total meat supplies and had 

a negative effect on the beef industry. As a general farm organization representing 

farmers who produce all types of commodities, it is imperative that we do not support programs that may benefit one sector to the detriment of another sector. 

Some in the dairy industry have suggested limiting milk supply by taxing increases in production. That would only serve to increase domestic milk prices and 

make U.S. dairy producers less competitive in world markets. 

We know that some Members of Congress and dairy organizations have asked 

USDA to raise the purchase prices under the Dairy Price Support program. While 

this would certainly raise prices, it is not something AFBF can support given our 

policy to continue the ‘‘dairy price support program at the current level.’’ We also 

oppose increasing support prices because it has the strong potential to send the 

wrong signal to the market to increase or at least maintain, rather than to decrease, 

production. 

While our policy does not support increasing the price support levels, it does call 

for ending discrimination against large milk producers in the MILC program. The 

current program limits payments to an operation of about 160 cows. Farm Bureau 

would like to see this payment limitation removed. We would also support state and 

regional initiatives or dairy compacts, although we do not see much ambition for 

such an initiative at the current time. 

DEIP pays cash bonuses to exporting companies, subsidizing the sale of U.S. dairy 

products to foreign buyers at prices less than cost and enables U.S. companies to 

compete in global markets where other countries may be subsidizing their own dairy 

product sales. DEIP has been dormant for several years but due to encouragement 

from AFBF and others, USDA reopened the program recently, setting allocations 

that could help move up to 1.5 billion pounds of milk to the export market. As of 

July 1, U.S. companies had received $2.3 million in bonuses to export dairy products. AFBF will continue to pursue future DEIP allocations in a timely fashion in 

order to continue to encourage more dairy product exports while operating within 

our WTO commitments. 

In the short-term, it is tempting to ‘‘do something’’ to help producers immediately. 

But, as USDA Under Secretary Jim Miller testified before the House Agriculture 

Committee 2 weeks ago, ‘‘USDA is currently forecasting the all-milk price to average 

$11.60/cwt in the third quarter and $13.10/cwt in the fourth quarter. For all of 2010, 

USDA is projecting an all-milk price of $15.30.’’ We are working our way out of this 

severe crisis and must let the dairy sector return to a supply/demand balance as 

soon as possible. 

I want to draw your attention to a few charts. Farm Bureau believes there is a 

huge problem in trying to ‘‘help’’ the dairy industry via increasing the dairy price 

support levels. The cost of producing milk varies widely around the U.S. The first 

chart is a graph of dairy margins (price minus cost) for each of the last 18 months 

for the 25 percent of producers who are the lowest cost producers in the U.S. These 

producers have actually made a profit over the last year and a half.

182

The second chart shows the results for the same 18 months for the 50 percent 

of producers deemed medium cost producers. The third graph shows the figures for 

those 25 percent who are the highest cost producers. For both of the last two categories, on average, producers have lost money over the last 18 months.


11124023 11124024
183

The final chart compares the profits and losses of the three categories. As we consider how to assist the dairy industry in either the short- or long-term, the question 

that troubles us the most is, ‘‘How do you help high-cost producers without producing a windfall for the low-cost producers?’’ In the short-term, we believe allowing 

the current program to work is the best answer. There is no question many dairy 

producers are in a crisis and have suffered greatly, but attempting to ‘‘do something’’ in the short-term would not be a wise investment.


11124025
184

In the long-term, AFBF is well-aware that price volatility has been a major issue 

for the dairy sector. While volatility may offer opportunities at high price levels, it 

also means price swings can be difficult to balance on the low end. However, AFBF 

policy is clear that reducing price volatility should not come at the expense of producer choice, and deviations from market-oriented pricing are unwise. AFBF has 

strong policy against supply management in all commodities. 

A supply/growth management program is problematic for a variety of reasons: (1) 

It is predicated on the fact that someone can adequately and accurately predict domestic and world supply and demand for dairy products; (2) It limits innovation and 

incentives for efficiency gains in the industry; (3) It potentially offers an insurmountable barrier to entry for new producers; and (4) It takes away the U.S. dairy 

industry’s ability to participate in the potentially lucrative world markets. 

AFBF’s policy is clear that greater market presence is needed in the dairy industry. We support an expanded role for markets and private enterprise in establishing 

prices for all classes of milk; and a price discovery method which utilizes more milk 

and expands mandatory reporting and auditing of prices and inventories; including 

penalties for inaccurate reporting. 

We also support modifications in the Federal Milk Marketing Order that will enhance the milk price received by producers and are encouraging USDA to appoint 

the task force to review the Federal Milk Marketing Orders as soon as possible. 

Many of our dairy producers see the need for improved price discovery and feel that 

Federal orders could operate more effectively. 

In conclusion, we are keenly aware that producers are facing significant income 

loss and that all of them may not be able to survive financially. We believe encouraging further CWT programs to reduce supply would be most beneficial. We do not 

believe increasing the minimum support levels in the current dairy price support 

program is a good idea as it would encourage additional milk production and slow 

the supply adjustment process needed to bring the dairy market back into balance. 

We have encouraged USDA in the past year to increase dairy product purchases 

by the government. We will undoubtedly request additional buys in the future. We 

are willing to discuss long-term strategies to help stabilize the dairy sector; however, we do not see supply/growth management implemented by the U.S. Government as a viable option. 

As a general farm organization, AFBF must ensure producers of all agricultural 

commodities are treated fairly. It comes as no surprise to anyone here that the pork 

and beef sectors are undergoing as troubled a time as is the dairy industry. Certainly, there is reason to believe peanut producers are also suffering. If AFBF was 


11124026
185

to support additional assistance for the dairy industry, we would also need to be 

helpful to other sectors as well. 

Farm Bureau appreciates the opportunity to share our views and we look forward 

working with you on these issues.

The CHAIRMAN. Thank you very much, Mr. Lang. We will now 

hear from Mr. Anthony Bostwick. 

STATEMENT OF W. ANTHONY BOSTWICK, CEO, BRAUM’S ICE 

CREAM AND DAIRY STORES, OKLAHOMA CITY, OK; ON

BEHALF OF AMERICAN INDEPENDENT DAIRY ALLIANCE 

Mr. BOSTWICK. Chairman Scott and Members of the Subcommittee, on behalf of Braum’s Ice Cream and Dairy Stores and 

the American Independent Dairy Alliance, I would like to thank 

you for giving us this opportunity to testify today. 

Our recommendations grow out of our experience operating a 

strong regional milk and ice cream business. We believe that there 

is compelling need now to modernize the U.S. dairy policy. Our current economic condition provides an opportunity that we cannot afford to waste. 

Braum’s is a vertically integrated third generation 100 percent 

family-owned business based in Oklahoma. Braum’s is unique in 

that we raise our own crops to feed our own cows, we milk our own 

cows, we bottle our own milk, and we make our own ice cream, and 

we sell our own milk and ice cream products in our own stores. Our 

marketing strategy is based on quality, traceability, time to market, freshness, higher solid nonfats and the lower fat milks. 

ADIA is a group of diverse, independent producer-handlers and 

exempt plants formed several months ago. My testimony is focused 

on the role of the Federal Milk Marketing Order System and our 

recommendations for change. 

First, Federal minimum prices are set by the government without regard to the cost of production to the producer. 

Second, in a highly concentrated market in which a few large cooperatives and processors exercise dominate market power, losses 

fall with disproportionate weight on smaller producers in the regulated pool. 

Third, the Federal Milk Marketing Order pricing system is complex, poorly understood, nontransparent, and ill-equipped to facilitate innovation, growth, and production diversification responsive 

to changing customer demand. It has essentially become divorced 

from reality. As originally designed in the 1930s, it was intended 

to ensure adequate supplies of Grade A milk for fluid consumption. 

That goal has been accomplished. Fluid milk today is a minority 

use of milk. Cheese is the undisputed primary use. And the rules 

of the FMMO today primarily serve that use and are disruptive to 

fluid milk markets. 

We have a system in which a mother buying milk for her toddler 

is essentially subsidizing cheap cheese for pizzas. This neither 

makes nutritional or economic sense. A coherent national dairy policy is essential. What is our national policy and what should it be? 

Is it to preserve small farms? The pooling and pricing system does 

not contribute to that goal. Nor do the support programs because 

they are insufficient to overcome the economic penalty of the small 

186

farm as a producer of a commodity pool to milk. If that is the goal, 

a different suite of tools and programs would be required. 

Is it reformation of dairy policy to assure producers a return consistent with cost of production and a reasonable profit? The pooling 

and pricing system as currently structured contemplates no such 

requirements. 

Is it simplification and increased transparency to facilitate a 

thriving and efficient market driven dairy industry? Braum’s and 

the ADIA both believe that this should be a goal of a revised future 

oriented Federal dairy policy. We support such simplification. For 

example, a single Federal order with a single all-milk price could 

help remove much of the market disruption caused by the current 

system. A program driven by continuously shrinking Class I receipts is just not rational dairy policy. 

Is it to provide options for farmers to control their own destiny? 

We are headed in the direction of fewer, less diverse opportunities 

in the milk business rather than more. This is wrong, and it is a 

counterproductive national policy. 

Producer-handlers, large and small, are innovators in the dairy 

industry, and they respond directly to customer demand for differentiated milk products, organic, grass fed, local, glass bottles, 

home delivery, higher solids, nonfat content and low-fat milks, 

freshness, single source farm traceability. The business risks and 

capital investments of a producer-handler and management responsibilities of direct marketing are very substantial. But for those 

that choose this model, it is a viable alternative. 

We recommend the following: Modernize the Federal Milk Marketing Order system to simplify complex, arcane, and antiquated 

price formulas and replace them with a national and transparent 

single price system, and direct the USDA to suspend the producerhandler elimination hearings pending such modernization. 

Thank you for the opportunity to testify today. 

[The prepared statement of Mr. Bostwick follows:]

PREPARED STATEMENT OF W. ANTHONY BOSTWICK, CEO, BRAUM’S ICE CREAM AND

DAIRY STORES, OKLAHOMA CITY, OK; ON BEHALF OF AMERICAN INDEPENDENT

DAIRY ALLIANCE

Chairman Scott and Members of the Subcommittee, on behalf of Braum’s Ice 

Cream and Dairy Stores (Braum’s) and the American Independent Dairy Alliance 

(‘‘AIDA’’) I would like to thank you for giving us this opportunity to testify today. 

Our comments and recommendations grow out of our experience as a producer-handler operating a strong regional milk and ice cream business and our reasons for 

opposing the current NMPF and IDFA proposals pending before USDA to eliminate 

independents from the U.S. dairy marketplace by forcing them into the regulated 

pool. To us, this is an example of the need now to modernize U.S. national dairy 

policy. The current economic conditions provide an opportunity that we cannot afford to waste. 

I. Braum’s and AIDA—Who We Are 

Braum’s is a vertically-integrated, third-generation, 100% family-owned business 

based in Oklahoma. Braum’s is unique in that we raise our own crops to feed our 

own cows, we milk our cows, we bottle our milk and make our own ice cream; and 

we sell our milk and ice cream products in our own stores. The only milk you can 

buy at a Braum’s store is Braum’s milk. Braum’s operates stores in five states: 

Oklahoma, Texas, Arkansas, Kansas and Missouri. Our stores include a quick service restaurant with drive thru windows, an Ice Cream Parlor, and a Fresh market 

where fresh dairy, bakery, meat and produce items are sold. 

Our marketing strategy is based on quality, traceability, time to market, 

freshness, and higher SNF (solids non-fat) in lower fat milks. Our lower fat milk 

187

1The founding members of AIDA include Snowville Creamery (Ohio), Kreider Farms (Pennsylvania), Heartland Creamery (Missouri), Aurora Organic Dairy (Colorado), GH Dairy (Texas) and 

Longmont Dairy (Colorado). 

products are unique—they contain a higher SNF percentage than other brands 

based on a process through which we remove water. As a result, it takes 3 gallons 

of milk to make every 2 gallons of Braum’s fat-free milk. A variety of doctors in our 

marketing area recommend our low-fat milks to their patients who need extra calcium with less fat. 

AIDA is a group of diverse independent producer-handlers and exempt plants 

formed several months ago in response to a petition by NMPF and IDFA to eliminate producer-handler status as a matter of national policy.1 We are each strongly 

interested in the rejection of that proposal on its merits in the ongoing proceeding 

at USDA, and equally interested in a seat at the national policy table to discuss 

effective modernization of U.S. dairy programs. To that end, my testimony is focused 

on the role of the Federal Milk Marketing Order system and our recommendations 

for change. 

II. The Current Dairy Market Economic Situation 

A number of witnesses have already testified about one of the fundamental problems for producers in today’s market—Federal minimum prices under the Federal 

Milk Marketing Order system are set by the government without regard to the cost 

of production to the producer. In times of high input prices for feed and fuel like 

the present, the economic loss associated with the inability to secure a cost of production plus a reasonable rate of return is devastating. 

A second problem is that in a highly concentrated market such as the one we 

have, in which a few large cooperatives and processors exercise dominant market 

power, such losses fall with disproportionate weight on smaller producers in the regulated pool. The record in the producer-handler hearing demonstrates as much as 

a $5/cwt cost of production disadvantage for such producers. 

A third problem is that the Federal milk marketing order pricing system is complex, poorly-understood, non-transparent and ill-equipped to facilitate innovation, 

growth and product diversification responsive to changing consumer demand. It has 

essentially become divorced from market reality. As originally designed in the 

1930s, it was intended to ensure adequate supplies of Grade A milk for fluid consumption. That goal has been accomplished. Fluid milk is today a minority use of 

milk. Cheese is the undisputed primary use—and the rules of the FMMO today primarily serve that use, and are disruptive to the fluid milk market. We have a system in which a mother buying milk for her toddler is essentially subsidizing cheap 

cheese for pizza. This makes neither nutritional or economic sense. 

A fourth problem is the lack of a consistent regulatory program throughout the 

country although there is clearly a national market for milk and the dairy products 

produced from it. We have a jumble of federally regulated areas, state regulated 

areas, Federal and state regulated areas and areas outside of any order whatsoever. 

A single national order that encompasses the existing marketing areas would help 

but would still leave large areas of the country out of the ‘‘national’’ system. The 

State of Idaho, for example, now one of the top ten dairy states is not included in 

any Federal or state order system. A coherent national dairy policy is essential. 

III. Redefining National Dairy Policy 

The elements of the foregoing situation demonstrate a need for re-evaluation of 

both national objectives and national policy. What is our national policy and what 

should it be?

• Is it the preservation of small farms? The FMMO pooling and pricing system 

does not contribute to that goal, nor do the support programs because as currently structured they are insufficient to overcome the economic penalty of the 

small farm as a producer of commodity, pooled milk. If that is the goal, a different suite of tools and programs is required and should be developed to facilitate economically viable small farm operations. Farm preservation should not 

be the goal of a program intended to facilitate orderly flow of milk to consumers.

• Is it reformation of dairy policy to assure producers a return consistent with 

cost of production and a reasonable profit? The FMMO pooling and pricing system as currently structured contemplates no such requirement and unless 

USDA elects to revisit the methods by which prices are set, Congressional action to change the law may be required.

188

• Is it simplification and increased price transparency to facilitate a thriving and 

efficient market-driven dairy industry? Braum’s and AIDA both believe that 

this should be the goal of a revised, future-oriented Federal dairy policy. We 

support such simplification. For example, a single Federal order with a single 

all-milk price could help remove much of the market disruption caused by the 

current system. A program driven by continuously shrinking Class I receipts is 

just not rational dairy policy. As just one example of lost economic value in the 

current FMMO system, we estimate that the FMMO fees that would be due 

from Braum’s to the USDA for telling us what we should pay ourselves for our 

own milk would equal an additional ten farm jobs. We would hope we can all 

agree that folks in Oklahoma need these jobs more than the government needs 

money for such a purpose.

• Is it providing options for farmers to control their own destinies? As very clearly 

demonstrated by the producer-handler hearing, we are headed in the direction 

of fewer, less diverse opportunities in the milk business rather than more. This 

is wrong and is counter-productive national policy. Producer-handlers, small 

and large, are innovators in the dairy industry responding directly to consumer 

demand for differentiated milk products (organic, grass-fed, local, glass-bottled, 

home delivery, higher SNF content in low-fat milks, freshness, single-source 

farm traceability, etc.). The business risk, capital investment and producer-handler management responsibilities of direct marketing are very substantial but, 

for those who choose this model it is a viable alternative for economic success 

and provides a valuable source of competition in the U.S. market.

• Is it maintaining every economically viable business we have in rural areas? 

Dairy farms in rural areas provide important economic engines for those areas. 

Every reasonable tool available to minimize consolidation is important to maintaining the economic base of those rural areas. Braum’s and AIDA support national dairy policy that is consistent with maximizing jobs in rural America. 

This presumes every reasonable tool available for competitive success remains 

available. 

IV. Conclusion and Recommendations 

We submit that we should stop fighting individual alligators and drain the swamp 

instead. We need a future-oriented dairy policy that addresses the market we have 

today and that we hope to have and grow in the future. The independent producerhandler option is an important component of any policy that fosters a healthy competitive marketplace with strong ties between producer, handler, retailer and consumer, of which I represent all four. To this end we recommend the following:

• modernize the FMMO system to simplify complex, arcane and antiquated pricing formulas and replace them with a national and transparent single price system;

• direct USDA to suspend the producer-handler elimination hearing pending such 

modernization; and

• affirm the ability and right of participation of independent dairies in the marketplace.

Thank you for the opportunity to testify today.

The CHAIRMAN. Thank you, Mr. Bostwick. And now we will hear 

from Mr. Joaquin Contente. And let me apologize for just basically 

murdering your name a few minutes ago. And I thank Mr. Jim 

Costa, your Congressman, and my staffer for coming to my rescue. 

Mr. Contente, you are recognized. 

STATEMENT OF JOAQUIN CONTENTE, PRESIDENT,

CALIFORNIA FARMERS UNION, HANFORD, CA; ON BEHALF 

OF NATIONAL FARMERS UNION 

Mr. CONTENTE. Thank you, Mr. Chairman and Members of the 

Committee. And I would also like to thank Chairman Peterson for 

allowing these meetings to exist. And, of course my Congressman, 

Congressman Costa from the Valley there, we appreciate all of you 

being here today. 

189

My name is Joaquin Contente. I farm in the Central Valley with 

my brother Tony, and currently I serve as President of the California Farmers Union, the state chapter of the National Farmers 

Union. Today I testify on behalf of the National Farmers Union. 

I come here humbly today to try to emphasize how serious things 

are. In my county alone, there are 25 dairies that have either filed, 

or are on the edge of filing, for bankruptcy. Each day, we have people that are falling into that category closer and closer. Two producers in my area there, immediate area there, have committed 

suicide and many more are experiencing unimaginable stress because the difference between what producers are receiving and 

what they are paying for their inputs is huge. California’s dairy industry is very, very large, $61 billion economy to the state, 435,000 jobs that we have in the state due to the 

dairy industry. Many of the allied industries and businesses that 

participate in this industry are also falling into these categories of 

failures. The producers are not able to pay their bills and you are 

finding businesses that rely on these industries it causes them to 

fail. The impact will be huge if we do not change something in the 

very near future. 

I have found that there is considerable widespread consensus 

among dairy producers and their allied industries in what should 

be done to improve the dairy policy to end this crisis. The California Dairy Campaign has launched a letter writing campaign to 

call attention to the ongoing crisis. We have sent hundreds of letters here to the Committee and also to the Administration. 

A number of counties in the state have recently adopted a resolution. The largest counties, Tulare, Kings, and Merced, have adopted 

these resolutions. This resolution is included in the testimony that 

I presented here today in its entirety, And it provides the solutions 

for the industry. 

The first solution: A Federal mandate. I would like to read an 

excerpt from the OMB’s website of what the Support Price Program, a definition of it. For this program to be successful, it should 

maintain market prices near average operating costs. This will ensure that the efficient producers are able to stay in business until 

prices recover. However, less efficient producers will not have this 

protection. 

This is a very good explanation of what the Support Price Program should do. It should be there for when the market has these 

interventions. We had this intervention that happened with the financial meltdown last fall, which really had nothing to do with 

supply and demand on the producer side. So we should have something in place—and it is a mandate of the Federal Government to 

have that and that mandate is not being adequately adjusted for 

the conditions that we have. 

We support the July 15th letter that Senator Patrick Leahy of 

Vermont, along with my Senator, Barbara Boxer, from California, 

have signed on, urging the Secretary to increase the Dairy Price 

Support Program. And we also feel that the Secretary has this authority without having to open up the farm bill. 

The second solution, implementation of fair tariffs on unregulated dairy solids. During the 1993 Uruguay Round, the caseins 

were not included in the tariff rate schedules that were negotiated. 

190

That left a big hole for product to come in basically unregulated. 

Today these unregulated milk proteins make up the largest category of imports by volume. Compounding the problem is the failure of USDA ERS information in regard to the usage data for these 

proteins. The commercial disappearance or utilization reports do 

not include any of these imports, thereby misleading the impact of 

these proteins. If you were to figure out the volume of the amount 

of milk equivalent of this category, which would be casein, 

caseinates, and MPC, it would be equivalent to about 15 billion 

pounds of milk annually. It is the largest single category of imports. 

Sorry. 

[The prepared statement of Mr. Contente follows:]

PREPARED STATEMENT OF JOAQUIN CONTENTE, PRESIDENT, CALIFORNIA FARMERS

UNION, HANFORD, CA; ON BEHALF OF NATIONAL FARMERS UNION

Good morning, Mr. Chairman and Members of the Committee. My name is Joaquin Contente. I own and operate a dairy farm with my brother Tony in Hanford, 

which is just West of Fresno in the Central Valley of California. I currently serve 

as a President of the California Farmers Union, a state chapter of the National 

Farmers Union (NFU). I serve on the board of the California Dairy Campaign (CDC) 

which represents dairy farmers throughout California. The California Dairy Campaign is a member organization of California Farmers Union and a member of the 

dairy Subcommittee of the National Family Farm Coalition (NFFC). 

My dairy has been in my family since the 1920’s, but the future of my dairy and 

others throughout California and the nation are in serious jeopardy due to record 

low producer prices. In my county alone 25 dairies have either filed or are in process 

of filing for bankruptcy and many more are closer to bankruptcy each day. Many 

of the dairy operations near bankruptcy today have been in operation for several 

generations. They are family dairy farms that have weathered many economic 

storms, but the crisis they confront today is unparalleled in our history. Two dairy 

producers in my state have committed suicide and many more are undergoing unimaginable stress because producer prices cover just 50 percent of the average cost 

of production in California. 

California leads the nation in dairy production generating more than $61 billion 

in economic activity and more than 434,000 full-time jobs. The dairy crisis is adversely affecting all the related businesses that supply and provide services to dairy 

producers. Dairy producers across the country face the same grim outlook due to 

record low producer prices that cover just a fraction of the average cost of production. 

Mr. Chairman, I commend your leadership for holding this series of hearings to 

address the economic conditions in the dairy industry because the dairy crisis becomes more serious each passing day. In order to end this crisis it is vital that dairy 

producers come together to agree upon policy changes that will lift our industry out 

of this deepening crisis. In my lifelong history as a dairy farmer I have never seen 

prices remain this far below our costs for this long and I have never seen so many 

dairy producers so desperate for relief. 

I have found that there is considerable and widespread consensus among dairy 

producers and their allied industries about what should be done to improve Federal 

dairy policy end this crisis. The California Dairy Campaign launched a letter writing campaign in May to call attention to the ongoing dairy crisis and offer solutions 

to end it. Producers and allied industries alike joined the letter writing effort to 

urge President Obama and leaders in Congress to work together to provide relief 

to dairy producers. Thus far we have sent more than 300 letters to Members of the 

House and Senate Agriculture Committees and President Obama calling for an increase in the dairy support purchase price and the establishment of an inventory 

management program. 

A number of counties throughout the California, including some of the biggest 

dairy producing counties like Tulare, Kings and Merced, have passed a dairy resolution put forward by CDC and CFU to raise public awareness about the dairy crisis 

and call for specific actions to end it. I have included a copy of the California dairy 

resolution in its entirety in my testimony. Local officials understand the profound 

impact that the dairy crisis is having on communities throughout the state. The 

191

dairy resolution puts forward solutions to end the crisis by calling for an increase 

in the dairy support purchase price to reflect today’s cost of production; implementation of fair tariffs on unregulated imported dairy solids; greater market transparency; and the establishment of an inventory management program. I will outline 

each of these solutions in my testimony today. 

Increase the dairy support purchase price 

In order to be effective, the dairy support purchase price must factor in today’s 

cost of production so that is can provide a meaningful safety net during crisis like 

the one faced by producers across the country today. We support a temporary emergency floor price of $18 per hundredweight to provide immediate relief to producers. 

We call for an increase in the Federal support purchase price to the level included 

in the Milk Income Loss Contract (MILC) program, which is the Boston Class I price 

plus the feed adjuster. 

The Federal Government supports the price of dairy products at $9.90. This is the 

price milk producers received 30 years ago. We call upon Congress to act quickly 

to adjust the Federal purchase price so that it includes the current cost of production, not the costs paid to producers more than 30 years ago. 

The Office of Management and Budget (OMB) during the last Administration publicly stated that the price support needs to be at the cost of production. We call upon 

Congress and the Obama Administration to act quickly to adjust the Federal purchase price so that it includes today’s cost of production, not the costs paid by producers more than 30 years ago. 

The recent devastation of the dairy industry can be attributed to a number of factors including the financial meltdown that began last fall, rising concentrated dairy 

imports, a lack of competition in the marketplace, consolidation, rising input costs 

and other factors. To be an effective safety net, the price support program must be 

increased in response to rising production costs. 

The U.S. is already a net deficit milk producer. Federal dairy policy should foster 

a healthy and viable domestic milk supply because each cow in the U.S. generates 

$20,000 per year to the national economy. In these uncertain financial times, it is 

critical that dairy producers receive a fair price that is based on their full cost of 

production. An equitable price support that more closely reflects the prevailing cost 

of production would be an important first step in ending the dairy crisis. 

Implement Fair Tariffs on Unregulated Dairy Solids 

Concentrated dairy imports for January and February of 2009 surged upward 

more than 70 percent compared to 2008 despite record low producer prices. Much 

attention has been paid to the decline in dairy exports. But rising imports of concentrated dairy proteins are the real threat to the future of our domestic milk supply. With these imports a little goes a long way in displacing domestic milk production and most do not meet basic food safety standards. 

It is difficult to comprehend the impact of concentrated dairy imports because 

these imports, including milk protein concentrate (MPC), casein and caseinates for 

food usage, are not included in the commercial disappearance data issued by USDA. 

A 2004 USDA Agricultural Marketing Service (AMS) report titled, ‘‘Milk Protein 

Products and Related Government Policy Issues’’ stated that the amount of imported milk protein concentrates accounted for 5.9 percent of the total U.S. milk 

protein production. The report concluded that on average milk protein imports are 

equivalent to approximately five percent of our domestic milk protein production. 

The U.S. dairy market is the world’s largest single commercial dairy market. This 

market last year reached and exceeded 200 billion pounds of milk including exports. 

However, the USDA ERS fails to include any usage data for casein, caseinates and 

MPC in its commercial disappearance of milk data. Therefore, the commercial disappearance or utilization reports from USDA ERS are not complete or accurate. 

Once all the different categories are included in the commercial disappearance calculation such as casein, butter, MPC, and lactose the total for imports surpasses 15 

billion pounds of milk equivalent or more than seven percent of U.S. milk production. Just a few percentage changes in milk consumption can have a significant impact on producer prices. Concentrated dairy imports amount to more than seven of 

our domestic milk production and have a substantial impact on the prices received 

by U.S. dairy producers and have made our country net deficit in milk production. 

Dairy producers have fought for years to pass legislation to regulate dairy imports 

by supporting passage of the ‘‘Milk Import Tariff Equity Act.’’ So far, dairy processors and food manufacturers, with their well funded lobbying firms, have fought 

off any regulation. To end the dairy crisis, lawmakers need to direct their attention 

to the dairy imports that are flooding our market and forcing so many operations 

to the brink of financial collapse. 

192

As consumers become more interested in where their food comes from, a trade 

loophole is allowing a flood of concentrated dairy imports from far off places. Our 

country already relies on dairy imports to meet our domestic needs, and if action 

isn’t taken soon we are going to become even more dependent on imports. 

Mandate Greater Market Transparency 

In order to establish an effective dairy price discovery system the Federal Government must restore fair, transparent and open dairy markets. The consolidation that 

has occurred over the past couple of decades has eliminated market competition to 

the point that now the last one percent of our daily milk production determines the 

price of all of the milk produced regardless of prevailing market demand for dairy 

products. 

A handful of traders set the prices for cheese and butter on the Chicago Mercantile Exchange (CME). This thinly traded market operates for only a few minutes 

5 days per week yet it is the mechanism that sets all-milk futures contracts. The 

CME completely lacks transparency. Traders use code names to guarantee their anonymity. Capitalism and the interests of society are trumped by a handful of traders 

that are self-regulated with virtually no oversite. Dairy producers across the country 

are very concerned that the lack of Federal oversight and transparency at the CME 

has led to market manipulation, and created a highly volatile market that negatively impacts dairy producers. 

Due to the lack of transparency at the CME, producers that may be economically 

impacted by anti-competitive trading practices, have no recourse to independently 

inquire or investigate the lack of competition in the marketplace. If the CME was 

more open and transparent, more businesses would trade, and the sales volume 

would increase fostering a more accurate and reliable market that better reflects the 

actual value of milk in the United States. 

In June 2007, the Government Accountability Office (GAO) issued a report on the 

spot cheese market titled, ‘‘Market Oversight Has Increased, But Concerns Remain 

about Potential Manipulation.’’ The 2007 GAO report documented that few daily 

trades occur on the CME and a small number of traders account for the majority 

of trades. The report further concluded that the CME is susceptible to potential 

price manipulation. 

One of the greatest challenges facing U.S. producers and every other producer in 

the world is consolidation and concentration of the marketplace, which also drives 

market globalization. Capitalistic markets function properly when there is a balance 

of buyers and sellers. There are about 60,000 dairy farms marketing milk today 

through 200 cooperatives. Half a century ago, there were 180,000 dairy producers 

marketing through 1,000 cooperatives. While the number of farms and cooperatives 

continue to decline, the marketing presence of farmer-owned dairy cooperatives has 

actually expanded during the past generation. Despite this expansion there is less 

competition vying for producers at the co-op level, with more intervention by noncooperatives and non-farmer controlled businesses. 

Dairy cooperatives continue to grow in size and form strategic alliances with private entities. For example, my own cooperative, Land O’ Lakes, sells a large portion 

of their cheese to Kraft Foods. The largest cooperative, Dairy Farmers of America, 

has ongoing agreements to supply milk to Dean Foods and Leprino Foods, and continues to expand its relationship with Fonterra. Cooperatives justify their actions 

by claiming they are subject to the growing demands of retailers. Wal-Mart, for example, wishes to consider no more than two suppliers for each food product it features in its stores across the U.S. The consolidation and concentration not only 

harm producers through lower prices, but also negatively impacts consumers with 

less choice at the grocery store. 

In most U.S. metropolitan areas, one company, Dean Foods, has acquired the majority of fluid plants. Two corporations dominate the cheese sector; Kraft Foods at 

the retail level and Leprino Foods at the food service level. Regardless of which cooperative a U.S. producer markets his milk, at the end of the day the vast majority 

of milk is purchased by only three major buyers that dictate each market. Dean 

Foods dominates the fluid market, Kraft owns the retail market and Leprino runs 

the food service market. Until steps can be taken to end the stranglehold that these 

three entities have on the three major components of the dairy sector, competition 

will be stifled and producer prices depressed. 

Economic power concentrated in the hands of a few players has essentially eliminated the price system, which capitalism is thought to rest. The farm-gate price is 

no longer cost plus profit; instead it is a command economy with a few corporate 

players dictating farm price. The loss of producer economic power is best illustrated 

by the widening gap between retail prices and farm-gate prices. While consumers 

193

continue to experience sticker-shock on dairy products, dairy producers are left with 

a shrinking percentage of the consumer dollar. 

Many organic dairies throughout the country are also struggling due to the dairy 

crisis. Many have seen the price they receive for organic milk decrease substantially 

and are now subject to production caps. Organic dairy producers have invested 

heavily to meet organic standards, but now that many of the same corporate processors have entered the organic market, these producers are also struggling due increasing consolidation and concentration. 

Establish an Inventory Management Program 

Inventory management is sorely needed now more than ever. At the turn of the 

century the Federal order adopted the California style make-allowance structure. 

This pricing mechanism establishes cost of production values for plants. These values remain constant whether the market is short or long. Plants become isolated 

from market conditions and are decoupled from capitalistic signals in regard to supply and demand. 

Since the loss of parity in 1981, the gap between retail and farm-gate prices has 

continued to widen dramatically. As the mid 1990’s approached, volatility constantly 

increased due to several factors including consolidation; introduction of futures contracts, and the U.S. became a net-importer. Establishing a milk inventory management program will ensure the stability of the marketplace and provide sustainability for all in the dairy industry and these benefits will also be enjoyed by retailers and consumers alike. 

California dairy producers have been in a constant growth mode. When prices are 

good, we add cows; when prices go down, our bankers tell us to add cows in order 

to cash flow, even though, historically, California has had some of the lowest mail 

box prices in the nation. An effective inventory management system would provide 

an incentive for dairy producers to manage milk production to meet prevailing market demand. Producer price volatility is a threat the dairy producers in California 

and across the nation. The current system provides an incentive for dairy producers 

to simply maximize their production, especially when producer prices are high 

which can lead to lower prices due to the increase in supply that results. An inventory management program could provide an incentive for smart growth in milk production that is based upon current market conditions. It would lead to the end of 

the boom and bust cycles that have plagued dairy producer prices for so many years 

and provide some stability in the future for all producers. 

Conclusion 

The outlook for dairy producers in California and across the country is grim unless Congress acts quickly to reform Federal dairy policies. We call upon Congress 

to increase the dairy support price to factor in today’s cost of production; address 

rising unregulated imports of concentrated dairy proteins; mandate greater market 

transparency and establish and inventory management program to balance milk 

supply with market demand. 

We thank you Mr. Chairman for holding this important series of hearings to address the difficult and unprecedented economic conditions dairy producers face 

today. We greatly appreciate the opportunity to testify today and look forward to 

working with Members of the House Agriculture Committee to end the dairy crisis 

and sustain our domestic milk supply in the future. 

ATTACHMENT

California Dairy Resolution 

Relative to dairy producers. 

Whereas, California has been the nation’s leading dairy state since 1993 and is 

ranked first in the U.S. in the production of total dairy product, butter, ice cream, 

yogurt, nonfat dry dairy product, and whey protein concentrate and is second in 

cheese production, and 

Whereas, the dairy industry provides an economic impact of an estimated national 

average of $20,000 per cow per year, primarily in local economies, and 

Whereas, dairy farming is the leading agricultural commodity in California generating more than $7 billion in revenue each year, and 

Whereas, the California dairy industry generates more than $61 billion in economic activity and more than 434,000 full-time jobs, and 

Whereas, the absence of profitable prices in the dairy industry for farmers, the 

lack of competition in dairy product processing ownership, as well as outdated regulations are causing an economic crisis among California dairy producers, and 

194

Whereas, since last year, the price that dairy product processors pay farmers for 

their dairy product has dropped as much a 50 percent, and 

Whereas, the primary safety-net for California dairy producers is the Federal 

dairy product price support program of $9.90 per cwt, and 

Whereas, the Federal dairy product price support program does not adequately 

provide a safety net due to the fact that it is based on production costs from thirty 

years ago, and 

Whereas, the Federal Government in 2006 implemented an ethanol policy mandate that has increased all feed costs to dairy producers in California, and 

Whereas, the Federal dairy product price support program does not account for 

this new Federal energy mandate, and 

Whereas, the Federal dairy product price support program should maintain market prices near average operating costs in order to be successful. This will ensure 

that efficient producers are able to stay in business until prices recover; however, 

few efficient producers will have the protection at the current price support level, 

and 

Whereas, California dairy product prices are set by the Chicago Mercantile Exchange (CME) cash cheese exchange. A June 2007 General Accounting Office (GAO) 

report on the CME states that the CME is thinly traded and is not a very competitive market. As a result, the CME should be reviewed and analyzed to determine 

if it is an effective and transparent price discovery mechanism; and 

Whereas, the Federal dairy product price support program needs to be at an adequate level to ensure California dairy producers have a viable, competitive and stable market free of manipulation, and 

Whereas, a significant loss of capacity would create a dependence on imported 

dairy product and other dairy products and reduce our nation’s food security, and 

Whereas, concentrated dairy imports for January and February of 2009 surged 

upward more than 70 percent compared to 2008 despite record low producer prices. 

Resolved by the Senate and the Assembly of the State of California, jointly, That 

the Legislature of the State of California respectfully requests that the President, 

Congress and the United States Department of Agriculture acknowledge the importance of the dairy industry nationwide as well as the unique aspects of the dairy 

industry region-by-region through:

(1) Updating the Federal dairy product price support program to reflect today’s 

cost of production;

(2) Implementing fair tariffs on unregulated imported dairy solids;

(3) Mandating greater market transparency.

(4) Establishing a milk inventory management program. 

* * * * *

The NFU board voted in June to encourage Congress to pass a dairy stimulus 

package to provide an adequate safety net for producers in addition to establishing 

an inventory management program. Most importantly, the board expressed the need 

for producers to receive an immediate financial lifeline to sustain their livelihoods 

through this unprecedented situation. A suite of policy options exist to ensure producers will survive this devastating economic period. Options to achieve the above 

mentioned principles are outlined below, categorized by short-term action and longterm action. 

Short Term Options: 

• Establish safety-net support price that is fair and equitable to all producers—

Establish an emergency Class III floor price of $18/cwt by existing authorities 

of the Secretary for a period of 6–9 months. During this period, USDA should 

launch the FMMO review as established in the 2008 Farm Bill and CFTC 

should launch additional investigations into potential manipulation on the 

CME. A long-term supply management program must be established in tandem 

with the emergency floor.

• Continuation of the countercyclical Milk Income Loss Contract (MILC) program—Legislation has been introduced in the Senate that would double the 

MILC payment rate short term. This provides a quickly deployable lifeline in 

an effort to prevent additional dairy bankruptcies.

• Eliminate the make allowance. If not eliminated, make it variable and tied to 

producers’ cost of production.

• Require the NASS survey to be audited periodically.

195

• Maintain standards of identity on dairy products and move to increase fat content standards in fluid milk. Milk is naturally produced with fat content of 3.5 

or higher, yet most of the whole milk sold in the U.S. has been reduced to 3.2.

• Deploy low-interest and emergency loans, including a foreclosure mitigation 

program to stem the tide of loan foreclosures.

• Purchase dairy products and hamburger for donations to food banks and other 

nutrition programs.

• Allow producers to label milk as free of artificial growth hormones.

• Require accurate recording and publishing of import data from ERS.

• Ensure imported dairy protein blended products are accounted for and categorized appropriately according to the common or commercial meaning of the 

term ‘‘milk protein concentrate,’’ not allowed to disguise skim milk powder MPC 

to avoid tariffs and the tariff rate quota. 

Long Term Options 

• Efficient transmission of price signals should be established. Today’s market is 

non-functioning with imbalance of buyers/sellers.

• Pass the Milk Import Tariff Equity Act to address unlimited imports flooding 

U.S. domestic market.

• Include California and all regions/areas in the FMMO.

• Correct pooling/de-pooling provisions in the FMMO.

• Eliminate bloc voting.

• Allow ‘‘no’’ vote on amendments, yet maintain FMMO.

• Do not place financial burden of transportation onto producers.

• Establish three-part pricing formula to include: cost of production, Consumer 

Price Index and Chicago Mercantile Exchange.

• Resolve distribution and supply management challenges.

• Repeal forward contracting authority.

• Support funding for academic antitrust research.

• Intensify review process for proposed mergers.

• Promote smaller coops and increase oversight of coop management to ensure interests of producers are met.

• Passage of the Federal Milk Marketing Improvement Act of 2009 (S. 889)

• Eliminate authority for dairy import promotion assessments.

The CHAIRMAN. You are about a half a minute over. But we have 

seven Committee Members. So we are going to try to hold everyone 

to the 5 minutes so that we can get into the questions. What you 

have to say is so very, very important, and I appreciate you getting 

your major points in those 5 minutes. Then we will have ample 

time with questions and answers from the Committee Members to 

get into further detail with you. So I appreciate your cooperation 

and it will help us to make sure we get everything in. 

Next we have Mr. Walter Guterbock. 

STATEMENT OF WALTER M. GUTERBOCK, D.V.M., M.S.,

LIVESTOCK MANAGER, COLUMBIA RIVER DAIRY AND 

SIXMILE LAND AND CATTLE COMPANY, BOARDMAN, OR 

Dr. GUTERBOCK. I am Walter Guterbock. I am the Manager of 

Columbia River Dairy, which is on the shores of the Columbia 

River in eastern Oregon. Columbia River Dairy is part of an integrated farm that produces potatoes, mint, peas, carrots, and other 

food crops, as well as feed for the cows. We are able to feed a lot 

of the byproducts of food processing back to our animals. 

Our dairy was built specifically to supply a particular cheese 

plant which is nearby. We have a direct contract with our customer 

and we are not a member of a co-op. 

196

The Pacific Coast dairy industry, Mr. Chairman, has unique 

needs. We live in an area—this would include California—where 

feed is plentiful, the climate favors dairy production, we have 

water, we have land, we are able to handle our waste responsibly, 

there is lots of byproducts of our agricultural bounty that can be 

fed to animals to create a high quality protein. And we have to 

grow rotation crops which are also animal feed. 

We are close to Pacific seaports and we are far from eastern markets. There are lots of cows and lots of processing plants between 

us and the bulk of the U.S. population. So we really—for our future 

growth or our future success, we need to focus on exports, specifically exports to Asia and to Mexico. We need be able to compete 

on the world market and we can. 

As previous speakers have said, we are in the worst economic crisis in the dairy industry that any of us can remember, and the 

wealth destruction for dairy families and the loss of their family 

identity is really tragic. And our dairy is losing money just like everybody else or most other people. But the current problem is due 

to a collapse in demand, mainly export demand, as others have 

said. The supply of milk is pretty much in line with trends, so supply management is the solution to the wrong problem. 

Previous programs, government programs, failed—supply management programs failed to have any lasting effect on milk prices. 

So the need, as others have said, is to bring supply and demand 

into balance. The current milk pricing system based on the CME 

regional orders, modifying the CME price based on regional usage, 

depooling decisions by processors, and so on, create imbalances between supply and demand in local areas. The most important point 

is that all the milk that a dairy producer produces is priced the 

same. So the incentive to the producer is to produce as much as 

possible. There is a saying that says nobody has a surplus of milk 

on their farm, and that is true. So the system does not give clear 

signals not to overproduce. And similarly, the make allowance and 

the structure of the Federal program allows excess plant capacity 

to exist. 

So supply management has several disadvantages. First of all, it 

perpetuates current production patterns and prevents shifts to 

more efficient areas and more efficient enterprises. It creates a 

privileged class of people who have a license to produce milk, and 

provides a barrier to entry to young families who want to get in. 

Most dairy owners look about like me and we need young blood in 

our industry. 

It would increase the surplus that overhangs the market and 

threatens to reduce prices in the future, and it won’t increase demand. It would—most proposals include a tax on producers that 

would come at absolutely the worst time for cash flow in history, 

and the tax will come long before there is any benefit in milk pricing. 

It will create an artificially high price, which makes us less competitive and will attract imports. And no agency or no person is 

smart enough to predict supply and demand, and central planning 

always creates surpluses or shortages. 

We cannot isolate ourselves from the world market. The higher 

U.S. price will cut exports and attract imports and our barriers, 

197

whether sanitary or tariffs, are not effective. The Congressional Research Service estimated that by 2018, 5 billion pounds, or 21⁄2 percent, of our milk supply will be allowed in as imports just under 

current treaties. 

So there is a desire now to do something, anything to prevent 

this kind of crisis from happening again. But supply management 

is not the solution, and it would perpetuate the current imbalance 

between supply and demand. 

A free market with safeguards and transparent reporting of 

prices is the most efficient way to match supply and demand. So 

dairymen and co-ops need to be able to contract freely with users 

and negotiate prices, and prices need to send clear signals to producers not to overproduce. 

Thank you. 

[The prepared statement of Dr. Guterbock follows:]

PREPARED STATEMENT OF WALTER M. GUTERBOCK, D.V.M., M.S., LIVESTOCK

MANAGER, COLUMBIA RIVER DAIRY AND SIXMILE LAND AND CATTLE COMPANY, BOARDMAN, OR 

Chairman Scott and Ranking Member Neugebauer. Thank you for giving me this 

opportunity to discuss with you and the Committee the economic conditions that 

face dairy industry today. 

My name is Walter M. Guterbock. I have been actively involved in dairying either 

in academia, veterinary practice, or operation of farms since 1979. I am the Manager of Columbia River Dairy and Sixmile Land and Cattle Company, both in eastern Oregon along the Columbia River. Columbia River is a very large dairy that 

supplies a nearby cheese plant. Our farm is not a member of a cooperative. It is 

part of an integrated farm that raises most of the forage crops that are fed to the 

animals and other food crops such as potatoes, onions, peas, and mint that generate 

byproducts that are fed to the animals. The animals in turn provide fertilizer for 

the crops. We take pride in the excellent quality of milk we produce, in the certification we have earned for animal welfare, in the responsible way we handle animal 

waste, and in our progressive labor management practices. Previously, I have been 

a partner in or managed farms in California, Michigan, and Washington. 

The financial losses of family dairy farms in 2009 are unprecedented. No region, 

no operation size, nor any business model has been spared the impact of low milk 

prices and high input costs in the midst of a worldwide economic downturn. Almost 

all dairy farms, large and small, are owned by families, and it is the wealth of farm 

families that has been destroyed. There are very few corporate dairy farms. 

Crises are the cradles of ideals and ideas. It is too late to prevent the loss of 

wealth to dairy families that has already occurred. But of course people in the industry are looking for programs that might avoid such economic losses in the future. 

Some of these can generally be labeled as supply management programs. The details of these programs vary, but there are key elements that continue to emerge 

in all of them.

(1) Individual farm and cooperative voluntary plans for growth, consolidation, 

and relocation will be replaced by government mandates and limitations.

(2) Numerous decisions by independent producers and cooperatives involving 

the supply of milk will be replaced by a centralized decision making process determining where milk will be produced and how much.

(3) Growth based upon farm family goals, available resources, current market 

demands, local opportunities, and other individual farm factors will be replaced 

by government-assigned quota based upon past production. Current national 

production patterns will be cast in stone and adjustments of milk producing capacity between regions will be difficult. This means that consumers will not 

benefit from regional efficiencies; the industry will be preserved in less efficient 

areas and will not be able to expand in more efficient ones.

(4) Payments for milk will be taxed, reducing farm income. Either all producers 

will pay a tax that will benefit those who comply with restrictions, or substantial penalties will be imposed on milk from farms that do not. In some plans, 

the tax is on all milk produced, not just the milk that is over the limit, so that 

the farmer who milks one extra cow or whose production rises because of good 

198

luck or good management would pay a severe penalty on all his milk. The tax 

will reduce revenue to dairy farmers during a severe cash flow crunch, hardly 

a desirable goal. Any potential milk price increase resulting from the program 

will come long after the blow to revenue.

(5) Business decisions and estate planning for dairy farmer families, already 

complex due to estate and income taxes, will become more complicated. Proposed rules will make it more difficult to combine operations, divide them, or 

expand them to allow younger family members to participate in the business. 

As in farm subsidy programs, ingenious ways will be found to hide common 

ownership of different herds to allow expansion to continue while appearing to 

comply with the limits.

(6) Supply management creates a privileged class (current producers) and raises 

huge barriers to entry to entrepreneurs or young families who want to get started in dairying. The population of dairy owners looks about like me, and we need 

young, aggressive, progressive producers to enter our ranks to keep us moving 

forward.

Fresh milk is highly perishable. It must be processed within days of leaving the 

cow. Storage capacity at the farm is usually 1 or 2 days’ production, so milk must 

be picked up promptly or the farmer can’t milk because the tanks are full. Milk can 

only be stored long term in the form of finished products like cheese, butter, protein 

concentrates, and powder. This means that a farmer must have a processor who will 

pick up the milk reliably and promptly, and that the processor must then pay the 

farmer for it. Unlike the grain farmer, the dairyman can not store his product and 

wait for favorable markets. If the producer can’t sell milk immediately, it quickly 

becomes worthless. 

The processor, in turn, has to find a home for the milk or for the finished products. Surplus milk is freely traded and its value tends to fall until the market is 

cleared. The government support price provides a floor. Little milk is ever discarded. 

Unfortunately, our current pricing system of Federal orders, pooling, and support 

prices does not allow these price signals to get back to the producer. The dairy producer gets paid the same price for all the milk he produces, whether it finds a profitable home or not. While the coop or marketing order as a whole may pay some 

price for overproduction, the individual producer does not really feel it. A supply 

management system with an artificial floor price will encourage overproduction in 

relation to real demand and reduce further the transmission of price signals back 

to producers. The best way to rein in overproduction is to have local co-ops and processors pay farmers far less for milk that is surplus to their needs, sending a strong 

price signal not to overproduce. 

A national supply management system would not recognize local needs for flexibility to adjust to changes in supply and demand. Consuming populations grow and 

shrink. Successful dairies tend to expand, because they generally produce more heifers (young cows) than they need to replace the cows they cull. There are also tax 

advantages to reinvesting income into herd expansion and new facilities. Dairy families use expansion as a way to create opportunities for young family members to 

stay in the business. Also, dairy farming tends to expand in areas like the Northwest where land and feed are reasonably priced and there are opportunities to market milk, and contract in areas where climate, urbanization of farmland, short growing seasons, the lack of processing capacity, or other factors make it less efficient. 

In the long run, efficient, successful producers of all sizes can supply dairy products 

to the public more cheaply than inefficient legacy producers. Certain areas of the 

country favor efficient dairy production more than others, and should be allowed to 

expand, while others need to contract. 

Both the supply and the demand for milk, on a regional or national scale, are unpredictable, although there are patterns. In order to ensure consumers a consistent 

supply of fresh dairy products without sudden shortages, there has to be some surplus production. So any milk marketing system has to be able to accommodate 

changes in supply or demand and have enough capacity to accommodate the fluctuations. The idea of supply management is to bring supply in line with demand so 

that the excess milk does not depress the price of all milk. But milk supply is always out of line with demand somewhere in the country, and milk is moved from 

one area to the other at market-clearing prices. Surplus milk will find a home at 

some price in the current system, but if the price is not allowed to drop, there is 

no incentive to stop producing it. 

The factors driving, or dampening, domestic demand are generally known—income, population, season, product availability, government feeding programs, prices, 

restaurant sales, and other factors. But knowing general trends does not provide 

anyone the ability to predict demand exactly even 3 months in the future. Milk is 

199

traded world-wide, and worldwide prices affect prices and demand at home. Worldwide prices change in response to currency fluctuations, climatic events in other 

countries (such as drought in Oceania), political events, market crises (like the melamine contamination scare in China), trade negotiations and treaties, the strength 

or weakness of other economies, dairy policies of our competitors, and other factors. 

The high dairy prices of 2008 were in part due to increased exports, related to 

drought in Oceania and high demand from Asia. The melamine scare, the economic 

collapse, and the end of the drought reduced our exports and are contributing to 

current low prices. Our current low prices are due to a collapse in demand, not to 

a great oversupply compared to historical levels. 

The factors supporting supply are also well known. The trend is for production 

per cow to rise, overall milk production to increase slightly from year to year, and 

for America’s dairy producers to continue to provide more milk with fewer cows. 

Seasonal variations in milk yield are fairly well understood. But there are many 

variations in milk production that are hard to predict, caused by weather events, 

differences in forage crop growing seasons, changes in feed prices that drive ration 

changes, and other imponderables. Successful dairy managers of both small and 

large herds understand these factors and have learned to maximize profit. But their 

results vary, day to day, season to season, and year to year, and are not fully predictable. 

I am sure there are witnesses who paint supply management as a defense of the 

small family dairy farm against the big farms that are claimed to have caused a 

glut of milk and the current low prices. Again, the current crisis is due to a collapse 

in demand, not a sudden rise in supply. The current crisis actually hurts the traditional farm that produces a lot of its own feed and relies on family labor less than 

it does the larger producer who recently expanded, has to purchase most of his feed, 

has high overhead, and is carrying a large debt load. The trend to consolidation and 

larger herds in dairying has been in place for a hundred years, and is driven by 

demographics and basic economics. When traditional dairy producers retire, their 

children often do not want to come back to run the farm. The average age of dairy 

farm owners is in the late 50s. At the same time, efficient, progressive producers 

of all sizes have expanded their businesses. There are many producers who started 

with 40 cows and now own thousands. As in any business, there are economies of 

scale that give a larger producer slight advantages, but smart small producers continue to be successful. The forces driving consolidation will not be stopped by a supply management program, although their effects will be distorted as aggressive producers find creative ways to skirt the rules. 

Like other areas of the economy, dairying has gone through a period of over-expansion fueled by high milk prices and easy credit. The party is over and we are 

in a period of adjustment to new realities. A prompt world economic recovery will 

help us like everyone else. But there are economic threats to our industry from the 

large number of heifers waiting to join the national herd and the huge stocks of 

products in government storage that will have to be sold on the world market someday and threaten to hold prices down. Raising the drawbridge by artificially raising 

the U.S. milk price through supply management will not do anything about either 

trend. It will make us less competitive on the world market, perpetuate the surpluses, and do nothing to increase demand. Again, ultimately only the operation of 

a free market can bring supply and demand into balance. 

For supply management programs to succeed, someone must be able to predict 

production and demand accurately, not just for the next quarter, but beyond. A producer can not turn a spigot to raise or lower production at will. Adjustments are 

made over years, not over weeks or months, because the production cycle of a cow 

is so long (2 years for a calf to come into production, and a 4 year productive life 

of an average cow). Production cycles in other food animals (chickens, hogs, beef cattle) are much shorter and capacity can be adjusted much more quickly than in 

dairy. There is no known model today which can consistently determine what production should be. We know that free markets are the most efficient way to match 

supply and demand. Managed economies usually create either shortages, because 

prices are held so low that producers lose the incentive to produce, or surpluses, if 

prices are kept artificially high and encourage overproduction. 

Not only do supply and demand vary from time to time, they vary from place to 

place. As it stands now, milk demand exceeds supply in the Northeast, is somewhat 

balanced in the Southwest and in surplus in California. This summer, a heat wave 

in California will probably change this balance temporarily, but it may not. Shorting 

milk nationally because one region is overproducing makes no sense in other regions. The view from the West Coast is different. We have a favorable climate for 

crop production and dairy cows, and a large supply of feeds that are byproducts of 

the bounty of food crops produced in the area. We have access to West Coast ports 

200

and the Columbia River to get our products onto ships. We are a long way from 

eastern markets and the bulk of the U.S. population. After consumer demands in 

our region are met, we have little opportunity to send our milk East. Large and 

growing milk sheds to the East of us are supplying large and efficient plants that 

are closer to eastern markets. The result is that the West Coast must look to Mexico 

and the Pacific Rim for its demand. To meet that demand we have to have the milk 

and we have to be able to compete in the world market. Penalizing efficient producers and limiting milk production to raise the U.S. milk price artificially will, in 

the long term, doom the dairy industry on the Pacific Coast, which includes many 

small producers as well as big ones. 

Some would counter that the allowances could be made regionally, not nationally, 

but to what effect? There is a great interdependence between regions. The Southeast, for example, receives a substantial amount of its milk from the Southwest, 

Central, Mideast, Midwest and Northeast. Milk flows freely from region to region 

to fulfill demand and to pursue pricing opportunities. 

Ultimately the design of any program will be affected by politics. Since there are 

many more consumers who vote than dairy farmers, it is likely to that politics will 

demand lower consumer prices. Ultimately lower farmgate prices will result, which 

could result in milk shortages. Interregional politics will also come into play, and 

dairy production will be preserved in inefficient areas where it is dying out. Setting 

prices too high in the hope of preserving the family farm will encourage overproduction, raise consumer prices, reduce demand, increase government surpluses, and 

cause food processors to seek alternatives to dairy ingredients. Again, free markets 

(with appropriate safeguards) allocate resources more efficiently and accurately 

than any agency or political process can. 

The major selling point of supply management has been that milk prices will be 

more stable. That is there will be no more lows like now, neither will there be any 

highs like last year. What this means is that American producers would receive a 

different price than the one that the world market would provide. Higher sometimes, lower sometimes. Those restrictions will not apply to milk produced outside 

of the United States. To support prices higher than those dictated by economics, 

there need to be barriers which protect the industry from outside forces. Outmoded 

political, physical, and sanitary barriers cannot protect the U.S. dairy industry from 

the outside world. 

The political barriers no longer exist. Just last year an Ontario court stopped 

shipment of milk from that province into the United States. Milk marketing orders, 

state health departments and other local, state, and Federal agencies in the United 

States were unable to stop that milk coming in. In fact some, such as milk inspectors, helped it. Instead the milk was stopped because the Canadian court held that 

all milk produced in Ontario belonged to Dairy Farmers of Ontario and DFO did 

not wish to market in the United States. That could change tomorrow and we would 

not be able to stop it. Under NAFTA it is virtually impossible to export milk and 

milk products into Canada and equally impossible to stop Canadian milk from coming into the United States. The proximity of Canadian milk sheds to U.S. markets 

in the East and the Northwest makes this a major long term threat if our milk 

prices get out of alignment with world prices. 

Our southern border also poses a challenge. Milk processed in Mexico, whether 

U.S. milk exported to the plant or milk produced in Mexico, can come into the 

United States virtually without tariffs and free of Federal Milk Marketing Orders 

and a supply management program. Large population areas in Texas and Southern 

California are ready markets if milk prices are out of alignment. 

Physical barriers no longer protect us. The use of container ships and a massive, 

efficient, and speedy transoceanic transportation system mean that the cost of 

transportation on milk and milk products to the United States provides a lower cost 

barrier than before. U.S. prices cannot be too far out of alignment with world prices 

plus those lower transportation costs. Added value products such as cheeses and 

creams and even UHT fluid milk would be attractive exports to the United States 

if milk prices were out of alignment with the world. 

Over the years various trade agreements in addition to NAFTA have provided access to our domestic markets. We have attached a table showing the amount of 

dairy products are allowed under multilateral and unilateral trade agreements. 

Limits on imports from the European Union are not strong enough to prevent a misalignment of prices from attracting European milk and milk products to the U.S. 

Sanitary rules provide no protection. To market products as Grade A anywhere 

in the United States, the product must come from a plant certified on the interstate 

milk shippers (IMS) list which in turn means that the plant must use milk that 

comes from farms meeting the Pasteurized Milk Ordinance (PMO) requirements. 

Though this is universal in the United States and is a U.S. program, it is not limVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00206 Fmt 6601 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
201

ited to the United States. PMO certifying agencies in Florida, New York, and 

Vermont have inspected and certified plants in Greece, Spain and Canada. A current list shows that plants in Spain, Ontario, and Mexico are on the IMS list and 

certified by third party certifiers. 

We are part of the world market and must meet that market. We are efficient 

producers of very high quality products. Our goal must be to sell American milk to 

the world, not provide opportunity for the world to sell milk in our markets. To do 

that we need a world based pricing system so that we can be exporters of milk and 

milk products. 

Columbia River Dairy’s contract with its customer is a good example of how milk 

can be produced to meet the challenges of the future. Our dairy was located specifically to be close to feed, water, and a market. The plant where we send our milk 

was built to accommodate the production of our dairy and two others in the area. 

Our contract was negotiated to meet our customer’s needs, its customers’ needs, and 

our needs. It creates a fair means for win-win-win, although we are currently receiving less than our cost of production and are losing money like everyone else. The 

contract provides for surplus milk so that it does not become a burden for anyone. 

I agree with a witness from the first hearing who said that the way to get supply 

and demand into balance is at the farm to plant level. One of the reasons for the 

current oversupply of milk was the failure of co-ops to place limits on milk shipments from their members. They built new plants instead, to harvest the make allowance, and with the assurance that the government would be the ultimate customer for powder, butter, and cheese. An improved system would send clearer signals to co-ops and producers not to produce in excess of what their customers need. 

Producers who would compete on the world market and still make a profit must 

be efficient. Current dairy programs such as the milk marketing orders and dairy 

product price support program create or encourage inefficiencies and discourage efficiencies. The make allowance formulas should be replaced with competitive pricing. 

Plants and producers need to be free to negotiate supply and price to maximize the 

profits of both. That negotiation requires transparency of information. Full and 

timely disclosure of volumes of milk and milk products and prices will help us 

achieve the efficiencies we need. The dairy product price support program needs to 

end. We need to be free to clear the market and to grow with the market. We certainly do not need a supply management program that taxes those who wish to locate and grow to meet demand efficiently and reward those unwilling to take on 

those opportunities. All the products the government holds eventually have to be 

sold to someone and will depress future prices. In the end it is producers, taxpayers, 

and consumers who pay the price for these programs. 

In times like these, free markets look cruel, and it is tempting to try to temper 

their effects. It is painful to see families losing their life’s savings and businesses 

that have become part of their identity. Businesses that supply dairy farmers also 

feel the pain and the risk of financial ruin. Dedicated dairy workers lose their jobs 

and cows get loaded on trucks and go off to an uncertain fate. But in the long run, 

the market will win. Artificially raising the milk price will reduce our competitiveness, encourage overproduction, and cause even greater surpluses to hang over future markets from government storage. 

Thank you again for giving me this opportunity. 

I will be happy to answer any questions.

The CHAIRMAN. Thank you very much. Now we will hear from 

Ms. Melissa Hughes, General Counsel to CROPP Cooperative. 

STATEMENT OF MELISSA L. HUGHES, J.D., GENERAL

COUNSEL, CROPP COOPERATIVE (COULEE REGION

ORGANIC PRODUCE POOL), LAFARGE, WISCONSIN 

Ms. HUGHES. Mr. Chairman, Members of the Committee, good 

morning. My name is Melissa Hughes, with CROPP Cooperative in 

LaFarge, Wisconsin. Thank you for the opportunity to come here 

today to discuss the current economy’s impact on the organic dairy 

industry. 

CROPP stands for Cooperative Regions of Organic Producer 

Pools. We are the largest national organic cooperative. Founded 20 

years ago by eight farmers, last year we had over $500 million in 

sales of organic dairy products, juice, produce, eggs, and meat. We 

202

have over 1,300 certified organic farmers in 28 states. Of that, approximately 1,050 are dairy farmers with an average herd size of 

50 cows. 

After 20 years of double-digit growth, 2009 has seen that growth 

come to a screeching halt. Some companies have seen sales fall 

back. Ours are flat. The organic dairy industry is a separate but 

parallel stream to the conventional industry. You, Congress, helped 

create this separate stream of commerce with the passage of the 

Organic Foods Production Act in 1990. It takes stringent requirements to get into this stream and the USDA’s National Organic 

Program is there to enforce the regulations. 

We appreciate your continued support of the NOP and the Secretary’s commitment to strengthening and solidifying the organic 

program. In an era where many claim to be natural or green or 

sustainable, organic remains and should remain the gold standard 

of labels, assuring consumers that the products have followed a rigorous production standard audited and verified from farm to shelf. 

But like many other industries, our lane of traffic has hit a traffic jam. Our sales have slowed, causing an excess of supply of organic milk. Although certainly the recession has contributed, we 

believe other factors have played a part. As the gold standard, 

many have tried to knock organic from the pedestal. Some of those 

attacks have come from our own community. 

Another factor has been a rush of companies coming into our 

stream. Who can blame them? We were moving faster. But as those 

companies have realized, organic dairy is a complicated business to 

run and they have left the market. The tragedy here is that this 

has left many small organic dairy farmers stranded with no market 

for their organic milk. Although they want to remain organic, the 

high cost of production and feed is forcing them to go conventional 

or stop dairying entirely. Organic helped them stay on the farm, 

and without organic they are leaving the farm. This is terrible for 

our agricultural system and for our rural communities. 

Today, we at CROPP are doing okay. The fundamental principles 

of our business, organic production, a stable and sustainable pay 

price and supply management are serving us well. Organic production provides a valuable product our consumers desire. A stable 

and sustainable pay price enables our farmers to know what to expect in their mailbox and know it will cover their costs. We continue to pay our farmers an average of $27/cwt. 

Finally, we are diligent in our efforts to match supply with demand. We have instituted a supply management quota to address 

the current oversupply. Our farmers have collectively decided to reduce their production by seven percent. While this is certainly not 

easy, we believe this supply management effort will get us through 

this period and provide us with good lessons for the future. 

Again, Mr. Chairman, we appreciate your continued support of 

organic production and the National Organic Program. Although 

separate and distinct, our neighbors and partners are conventional 

dairy and we sincerely appreciate your efforts to help them through 

this difficult period. Thank you. 

[The prepared statement of Ms. Hughes follows:]

203

PREPARED STATEMENT OF MELISSA L. HUGHES, J.D., GENERAL COUNSEL, CROPP 

COOPERATIVE (COULEE REGION ORGANIC PRODUCE POOL), LAFARGE, WI 

Mr. Chairman, and Members of the Committee, thank you for inviting our organization to appear before you and participate in this important, ongoing discussion of 

current conditions in the dairy industry. 

Twenty years ago, eight farmers in the small town of LaFarge, Wisconsin came 

together at a moment not completely unlike this period in the conventional dairy 

industry, when milk was at prices well below the cost of production and farms were 

forced out of business everyday. 

These farmers were schooled in the ways of the conventional dairy system. They 

had seen the roller coaster prices, and cooperatives who were supposed to serve the 

farmers, serving themselves. At a time when the small farmer was struggling to 

stay on the farm, this group saw organic management principles and the consumer 

demand as path to redesigning the relationship between the farmer and the customer, and reconnect the production of milk to the management of land and animals. 

Our cooperative is built on the foundation that organic production of milk is the 

result of sustainable husbandry and farming practices and that these principles 

must yield a sustainable income. Our farmers have translated those principles into 

a business model that has democratically guided the cooperative over the last twenty years, and, we like to believe, influenced the organic marketplace to an extent 

that the principles are part of that marketplace. 

Of course, front and center was the principle that organic farming worked. Appealing to every farmer’s independence, and recognizing the connection between 

livestock and the land, the farmers chose to be as self-sufficient as possible—avoiding off-farm inputs, including feed and chemicals. The farmers had either farmed 

conventional and were looking for alternatives, or had never chosen that route. As 

one farmer said ‘‘it was easy for me to go organic. I was so far behind I was ahead.’’ 

Whichever path the farmer had come from, they now joined on a path towards organic production. 

The next guiding principle is the farmers always get paid a target price first. It 

does not matter if the milk is sold on promotion, or if the milk is made to cheese, 

or powder. When a consumer purchases a gallon of Organic Valley milk, and that 

money is returned to the cooperative, the farmer is paid first. 

The third guiding principle is a stable pay price. Each year, the farmer-governed 

Board of Directors sets a target pay price for the upcoming year, and although 

minor adjustments may be made, up or down, the farmer can expect that this pay 

price will be reflected in the milk check. The money left over from the sale of the 

milk goes to the cooperative for operations. The goal of the pay price is to pay the 

farmers a price that is economically sustainable in that it accurately reflects the 

farmers’ costs of production. The pay price is not tied to conventional prices. The 

simplicity of stable pricing obviously benefits the farmers, and in addition, benefits, 

processors and retailers, as well as consumers by setting consistent expectations in 

price. 

Attached to this testimony is a graph demonstrating the comparison of our Midwest base price to the conventional statistical uniform price. (Our Midwest base excludes quality components in excess of base and regional premiums.) Although not 

perfect, you will see that our price has been stable, growing and reliable. 

To support the target pay price, if we are not able to sell their milk for the organic 

price we have set, we will not sell the milk as organic. We will not participate in 

a spot market for organic milk that drives the overall price down. If we cannot sell 

the milk for the organic price we have set, we sell it conventionally. We will not 

engage in a bidding war that lowers the price of our organic milk. Our farmers rely 

on a price that reflects, to the best of our ability, our farmers’ cost of production 

and marketing. To sell organic milk for less would treat our principles as little more 

than a marketing ploy and defeats the purpose. 

From the small beginning of eight farmers, CROPP Cooperative has grown into 

nation’s largest organic dairy cooperative. We have over 1,300 USDA-certified organic members, who collectively produce certified organic dairy products, eggs, beef, 

poultry, soy, produce and juice. In 2008, our total sales were $527.8 million, representing 22% growth over 2007. In 2008, we paid our dairy farmers a total organic 

premium of $85.0 million. 

This is not to say that the path has been smooth. Throughout the years, we have 

experienced many difficulties involving matching supply and demand and the challenges of a fledgling industry. We, and the organic dairy industry, are not immune 

from the current economic crisis. After experiencing double digit growth for the last 

20 years, our growth for 2009 is flat, if not in some cases, down. Prior to the downVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00209 Fmt 6601 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
204

turn, for the last 9 years, we have been unable to meet the supply demands of the 

consumers. We continually worked to talk to farmers about the benefits of 

transitioning to organic, and many of those farmers became our members. At this 

time, we are no longer actively recruiting farmers to consider the transition to organic. We do have farmers approaching us to market their milk—whether newly 

transitioned, or existing organic farmers who have lost their organic market. For 

those farmers who come to us, we can make no promises that we will have a market 

for their milk. The cooperative has stopped capital projects, has slowed hiring, and 

is heavily promoting in our retail markets. 

However, we do continue to pay our farmers an national average mailbox price of $27/cwt. We have not kicked any farmers off our truck because of a market declines. We believe that we have seen the bottom of the marketplace, and hope to 

see sales stabilizing and growth returning in the next 6 months. For the most part, 

we believe our members will come through this economic crisis and stay on their 

farms. Many are suffering, as costs of health care, feed and other hardships are forcing farmers or their families to take positions off the farm to cover costs. Farming 

is a hands on job, and when farmers are forced to leave the farm, and in their absence, new problems can develop and existing ones can be exacerbated. 

The current economy has challenged but not defeated our guiding principles. The 

low price of conventional milk has meant that when we sell organic milk conventionally, we have to make up the difference to our farmers some other way. As a cooperative, our farmers are committed to investing in the business, and so a strong equity 

structure has helped us weather this period financially. However, continued low conventional prices will put more strain on our cooperative. 

In June, we chose not to lower the pay price, and instead chose to institute a supply management system within which our farmers decided to lower their production 

by 7%, and for any production over 93%, the farmers will receive the conventional 

price. You have heard many proposals to vitiate price volatility, and heard much 

about the concepts of Federal supply management during these hearings. We are 

trying what has worked for use for twenty years, farmer-based supply management.

We don’t claim this is easy, each of our 1,300 farmers has a family, and a story. 

Our process lets each farmer tell their story by appealing the quota, asking for relief 

because of the hardships unique to their story. Our own farmer-members hear the 

appeals and this means we are, together, writing the next chapter of each farm’s 

story and the story of our cooperative. Like any collective effort, we find some farmers are willing to do more to help than others. But we are committed that collectively we can make supply management work to get through this time, and certainly 

believe it will be part of our marketing system moving forward. 

As independent as we like to be, we know part of our story includes Congress, 

and the United States Department of Agriculture. An early chapter was written by 

the Congress in 1990; the enactment of the Organic Food Production Act, meant 

that organic, by Federal mandate, is a separate and distinct category of products 

from ‘‘conventional.’’ By creating a production and handling system that is audited 

and verified at every step of the process as more environmentally sustainable, beginning on the farm and running all the way to the shelf, Congress authorized a 

parallel stream of commerce. We know that the organic community has not been 

easy to work with. This new way of producing products has lead to new ways of 

doing business, like our cooperative. This that would not have happened without 

Congress’ continued support. 

Today, the organic industry stands alone as one of the main engines of growth 

in U.S. agriculture and food sales. The 2008 Farm Bill included unprecedented recognition of the importance of this separate stream of organic. We appreciate that 

support, especially as its reflected in increased funding for the USDA’s National Organic Program, and its expanded influence that can assure that the organic certificate remains the gold standard among the world’s certification processes. 

But the challenges to the National Organic Program are not easy to address. The 

rise of unregulated labels on products, like ‘‘natural’’, ‘‘sustainable’’, or ‘‘local’’ have 

the potential to undermine Congress’ seal. Some organic purists have argued that 

organic does not mean what it says. Our primary interest is that the USDA organic 

seal is seen as the first and last inquiry a consumer needs to make when purchasing 

an organic product. Without this level of certainty, the risk exists that consumers 

believe that some goods are ‘‘more organic’’ than others, or worse, that the USDA 

organic seal itself does not necessarily mean that goods were produced in strict adherence with organic standards. 

To that end, we are working with the USDA to promulgate clear and understandable organic regulations as soon as practicable regarding pasture and other issues 

used to ‘‘threaten’’ the integrity of the organic seal. In addition, where necessary, 

the USDA needs to enforce organic standards swiftly and based on fact, not mere 

205

allegations. We ask for a full commitment from Congress and the USDA to the organic seal, and to reject labels that confuse the marketplace, and the consumers. 

And although we are a separate and parallel industry to conventional, we are affected by the difficult times facing conventional dairies. Our neighbors are conventional dairymen, the processing plants we work with are conventional, the stores we 

sell to also sell conventional milk. A low and volatile conventional price has strong 

effects throughout our industry, and through the United States’ food supply. While 

we recognize that we cannot walk in conventional shoes, we do believe that lessons 

can be learned at this moment, and if the work is done in the upcoming months, 

the lessons will not be forgotten. 

But these difficulties faced can only be avoided by creating the atmosphere for a 

cultural shift in the dairy industry. Short term cures like ‘‘more exports’’ or expanded purchase by government programs do not address fundamental structural 

problems in the dairy industry. A traditional dairy farm of thirty cows was historically naturally restricted from growth by barn size and land base. These small family farms formed the basis of a vibrant and healthy rural community and diverse 

food supply. We feel it is good public policy to have tens of thousands of family 

farms provide diversity of farm operation and production, train tomorrow’s farmers 

and support rural communities. A large group of moderately scaled farms supports 

this policy, rather than concentrating operations in hands of larger and larger 

farms. 

Today, farms expand without check—adding cows in a milk parlor setting by simply lengthening milking time, and defying breeding variances by using sexed semen 

to select for heifers. These seemingly simple choices have led to increased supply 

without concern for the market, or penalty for the producer. The producers and 

processors who have grown without a market should bear the burden more than the 

farmer who has managed growth conservatively. Today’s drive to find markets overseas does not recognize the growth of overseas supply, with low costs which U.S. 

dairymen cannot compete against. In our cooperative’s small microcosm, we have 

been able to have the farmer receive what the farmer needs to stay on the farm, 

we have shared the risk of changes in supply and demand, and we have always 

tried to build our production around the current demands of the market. The connection of land and animals has forced a natural boundary on supply increases, allowing for growth, but in reasonable, manageable increments. 

We cannot offer the detailed short-term efforts that others have suggested for conventional dairy policy. But we can encourage the dairy industry to consider long 

term efforts that include supply management tools, quotas, or forward contracting. 

Our ideas, tested over twenty years, once seemed radical, and now seem conservative. But in the course of twenty years, most important of all, we have reconnected 

the consumer and the farmer. Our consumers purchase our product because they 

believe in the value of our production methods, and they believe that the value is 

reflected in a sustainable price that can be returned to our farmers. This might 

seem radical today to the dairy industry, but a short twenty years from now, the 

consumers could understand and value the dairy farmers of America in a manner 

that they deserve.

206

ATTACHMENT


11124027
207

The CHAIRMAN. Thank you, Ms. Hughes. Now we will have Mr. 

Gordon Cook, Jr. 

STATEMENT OF GORDON M. COOK, JR., MEMBER, BOARD OF 

DIRECTORS, HOLSTEIN ASSOCIATION USA, INC.; DAIRY

PRODUCER, HADLEY, MA 

Mr. COOK. Thank you, Chairman Peterson, and Chairman Scott, 

Ranking Member Lucas, and Ranking Member Neugebauer, and 

other distinguished Members of this Committee for inviting me to 

testify. 

I am Gordon Cook, a dairy farmer from Hadley, Massachusetts, 

who milks about 65 cows, and I am here representing the 30,000 

members of the Holstein Association USA, Inc., a nonprofit dairy 

organization that is headquartered in Brattleboro, Vermont. I am 

here to talk about our Dairy Price Stabilization Program which we 

believe will be able to stabilize the peaks and valleys of milk prices. 

The crisis facing American dairy farmers is well documented. 

You are aware that basically every dairyman in this country is losing money on every pound of milk they sell. What has led us to this 

crisis? The landscape of the dairy industry has changed significantly since our current milk pricing system was established. There 

is a disconnect between the producer and processor, which generally is not beneficial to the dairy farmer. 

For example, for 1 gallon of milk that the consumer pays $2.99, 

the dairy farmer who produced that milk gets just 91¢. The $2.08 

difference goes to the dairy producer and retailer. 

We have seen changes in the quantities of dairy ingredients and 

products being imported into the United States from other countries. In general, as dairy imports increase the price paid to U.S. 

dairy farmers decreases. 

A third change is the development of sexed semen and the effect 

it is having and will have on the amount of milk produced in the 

United States. This year, we expect 63,000 extra heifers to enter 

the national dairy herd, and in 2010 that number is expected to increase to 161,000. 

Historically, the U.S. milk pricing system has encouraged dairymen to produce all the milk they can, which has led us to instability in prices paid to farmers. In the last 4 years, we have seen 

the U.S. all-milk price average fluctuate between $20.50 and 

$11.50. 

Milk is perishable, unlike other agriculture commodities such as 

corn and soybeans that can be stored until the market reaches an 

acceptable level. It is time for our industry to change its mindset 

and start producing milk for the market instead of hoping we can 

market all of the milk we produce. 

The basic objective of the Holstein Association Dairy Price Stabilization Program is to prevent severely depressed producer milk 

prices that result in low and negative returns to dairy producers; 

to reduce the volatility of milk prices, thereby reducing the price 

risk to dairy producers, dairy processors and consumers of milk 

and dairy products; to complement and not replace other existing 

dairy programs such as the Federal Dairy Price Support Program 

and the Milk Income Loss Contract program. In fact, our program 

208

may well reduce the Federal Government’s cost to both of these 

programs. 

Here is an overview of the program. Further details have been 

submitted to you in writing. Let me stress, this program will not 

require the farm bill to be opened. The Dairy Price Stabilization 

Program removes the incentive to produce milk beyond the levels 

of our markets demands. It rewards producers to stay in line with 

market needs. The U.S. Secretary of Agriculture would administer 

the program with an advisory board. The board will forecast the 12 

month domestic and export market demands for fluid milk and 

manufactured dairy products. 

With consideration toward the current level of milk production, 

a determination will be made to the needed change in milk production to fulfill the market needs for each quarter of the next 12 

months to return a profitable price to dairymen. This is referred to 

as the allowable milk marketings, AMM. Dairy producers who 

maintain their milk marketings by quarter within the AMM will 

not have to pay a market access fee. Dairy producers who expand 

their operation and exceed their AMM will be assessed a market 

access fee per hundredweight on total milk marketing. Initially we 

would expect the fee to be between $2 and $3 per hundredweight 

on all milk marketed as determined by the Secretary of Agriculture 

through the board. 

The fees collected from producers paying the market access fee 

would be distributed as a bonus to dairy producers who stayed 

within their allowable milk marketings. 

Producers will receive their base by filing their history of milk 

production in monthly marketings to the area USDA Farm Service 

FSA office. The FSA office will notify the producer’s milk plant or 

dairy cooperative to deduct the market access fee if the producer 

exceeds their AMM. 

The cost of the program to taxpayers is nothing. We would expect 

an assessment of less than 2¢ per hundredweight to producers of 

all-milk marketings to cover administrative costs of the program. 

We are certain that there will need to be some sort of short-term 

fix such as a temporary 6 to 12 month raise in the Price Support 

Program or other quick remedy. However, the dairy industry cannot keep coming back to Washington for continued bailouts. The 

Dairy Price Stabilization Program provides that long-term solution. 

On behalf of the Holstein Association, I thank you for this opportunity and I will look forward to your further questions. 

[The prepared statement of Mr. Cook follows:]

PREPARED STATEMENT OF GORDON M. COOK, JR., MEMBER, BOARD OF DIRECTORS, 

HOLSTEIN ASSOCIATION USA, INC.; DAIRY PRODUCER, HADLEY, MA 

Thank you Chairman Peterson, Chairman Scott, Ranking Member Lucas, and 

Ranking Member Neugebauer for inviting me to testify. I am a dairy farmer from 

Hadley, Massachusetts who milks 65 cows, and I am here representing the 30,000 

members of the Holstein Association USA, Inc., a nonprofit dairy organization that 

is headquartered in Brattleboro, Vermont. I am here to talk about our Dairy Price 

Stabilization Program which we believe will be able to stabilize the peaks and valleys of milk prices. 

The crisis facing America’s dairy farmers is well documented. You are aware that 

basically every dairyman in the country is losing money on every pound of milk they 

sell. 

209

What has led us to this crisis? The landscape of the dairy industry has changed 

significantly since our current milk pricing system was established. Sometimes 

there is a disconnect between the producer and processor which generally is not 

beneficial to the dairy farmer. 

For example, for 1 gallon of milk that the consumer pays $2.99 at the grocery 

store, the dairy farmer who produced that milk gets just 91¢. The bulk of the 

$2.08—the difference between what the consumer pays and the farmer receives—

goes to the dairy processor, and retailer. 

We have seen changes in the quantities of dairy ingredients and products being 

imported to the United States from other countries. In general, as dairy imports increase, the price paid to U.S. dairy farmers decreases. 

A third change is the development of sexed semen and the effect it is having, and 

will have, on the amount of milk produced in the United States. This year we expect 

63,000 extra heifers to enter the national dairy herd, and in 2010, that number is 

expected to increase to 161,000. 

Historically, the U.S. milk pricing system has encouraged dairymen to produce all 

the milk they can, which has led to instability in prices paid to farmers. In the last 

4 years, we have seen the U.S. all-milk price average fluctuate between $20.50 and 

$11.50. 

Milk is perishable, unlike other agriculture commodities such as corn, soybeans, 

and others that can be stored for days, or months until the market reaches an acceptable level. It is time for our industry to change its mindset and start producing 

milk for the market, instead of hoping we can market all the milk we produce. 

The basic objectives of the Holstein Association’s Dairy Price Stabilization Program are:

• To prevent severely depressed producer milk prices that result in low and negative returns over feed costs to dairy producers.

• To reduce the volatility of milk prices to dairy producers and thereby reduce 

the price risk to dairy producers, dairy processors, and consumers of milk and 

dairy products.

• To complement, and not replace, other existing dairy programs such as the Federal dairy price support program and the Milk Income Loss Contract Program. 

In fact, our program may reduce the Federal Government cost of both of these 

two programs.

Here is an overview of the program, and further details have been submitted to 

the Committee in writing. Let me stress, this Program will not require the farm bill 

to be opened. 

The Dairy Price Stabilization Program removes the incentive to produce milk beyond the levels our market demands. It rewards producers who stay in line with 

market needs. 

The U.S. Secretary of Agriculture would administer the program with an advisory 

Board. The Board will forecast the 12 month domestic and export market demands 

for fluid milk and manufactured dairy products. 

With consideration of the current level of milk production, a determination will 

be made to the needed change in milk production to fulfill the market needs for each 

quarter of the next 12 months and return a profitable price to dairymen. This is 

referred to as the ‘‘allowable milk marketings’’. 

Dairy producers who maintain their milk marketings by quarter within the allowable milk marketings will not have to pay market access fees. 

Dairy producers who expand their operation and exceed their allowable milk marketings will be accessed a market access fee per hundredweight on total milk marketings. Initially, we would expect the fee to be between $2.00 to $3.00 per hundredweight on all milk marketed as determined by the U.S. Secretary of Agriculture and 

the Board. 

The fees collected from producers paying the market access fee would be distributed as a bonus to the dairy producers who stayed within their allowable milk marketings. 

Producers will receive their base by filing their history of milk production and 

monthly marketings to their area USDA Farm Service Agency (FSA) office. The FSA 

office will notify the producer’s milk plant or dairy cooperative to deduct the market 

access fee, if the producer exceeded their allowable milk marketings. 

The cost of the program to taxpayers is nothing. We would expect an assessment 

of less than 2¢ per hundredweight to producers on all-milk marketings to cover administrative costs of the program. 

We are certain that there will need to be some sort of short term fix, such as a 

temporary 6–12 month raise in price support or some other quick remedy. However, 

210

the dairy industry can not keep coming back to Washington for continued bailouts. 

The Dairy Price Stabilization Program provides a long-term solution. 

In closing, the Holstein Association’s membership of 30,000 dairy producers of all 

sizes from coast to coast appreciate the study you are doing on the U.S. dairy crisis. 

Something needs to be done now to stop the volatile producer milk price roller coaster ride our nation’s dairy farmers continue to experience. 

The Dairy Price Stabilization Program was developed for dairy producers by dairy 

producers and is a long-term solution to the problem of milk price volatility. This 

Program will be beneficial to dairy farmers, milk cooperatives, processors, and consumers. Thank you very much. 

ATTACHMENT

Holstein Association USA, Inc. 

Dairy Price Stabilization Program—Draft 

Updated July 22, 2009

The volatility in dairy product prices and dairy producer milk prices is extremely 

difficult for dairy producers, milk processors and end users of milk and dairy products to manage. The U.S. All Milk price averaged $15.13 for 2005, just $12.88 for 

2006, a record high of $19.13 for 2007 and $18.32 for 2008, the second highest on 

record. But, the U.S. All Milk price was a record monthly high of $21.90 November 

of 2007, started 2008 with a January price of $20.50 only to fall to $15.60 by December and down to $11.50 for February 2009. Such volatility creates major problems 

for dairy producers to manage cash flow and make capital investment decisions. 

When prices are at their lows returns over feed costs become unfavorable and even 

negative. These unfavorable returns have a negative impact beyond the dairy producer level. Farm input suppliers are negatively impacted as dairy producers reduce 

their purchases of feed, seed, fertilizer, crop chemicals, machinery and other inputs. 

These lower input purchases negatively impact local businesses and communities. 

Program objectives:

• To prevent severely depressed producer milk prices that result in low and negative returns over feed costs to dairy producers.

• To reduce the volatility of dairy product prices and producer milk prices and 

thereby reduce the price risk to dairy producers, dairy processors and end users 

of milk and dairy products.

• Provide flexibility in allowing dairy producers who wish to expand their dairy 

operations as well as providing for new producers who wish to enter dairying.

• To complement and not replace other existing dairy programs such as the Federal dairy price support program and the Milk Income Loss Contract Program. 

In fact, this program would reduce the Federal Government cost of both of these 

two programs.

• Provide for a long run dairy program for 7 years with a 5 year review for continuation and/or modifications based on past performance.

Program provisions:

• The program is mandatory in that all states will be included. However, it is 

flexible in that individual producers may decide to expand their dairy operation 

and new producers are allowed to enter the dairy industry. States having programs to grow their dairy industry will still be able to implement such programs.

• For the purpose of this legislation, the term ‘‘new producer’’ shall be defined as 

any individual or group of individuals entering the dairy business, none of 

whom have any interest in a current dairy enterprise.

• Upon implementation of the program, each dairy producer will be assigned an 

initial base of raw milk marketings from April 1, 2008 through March 30, 2009. 

There will be a Committee setup to review individual appeals. For those producers with less than a 12 month history and for new producers entering after 

the implementation date, their base will begin with their first full quarter of 

milk marketings and for the next three quarters. Each producer’s base will be 

divided into their quarterly historical milk marketings. Bases are a moving base 

whereby at the beginning of the next 12 month period, a producer’s base will 

be the recent past 12 months.

• The base is assigned to the producer owning the producer license for the dairy 

operation.

211

• Bases can be transferred to someone who takes over the dairy operation on the 

existing dairy facility.

• Producers can combine their bases from two or more facilities into one dairy facility provided each producer holding one of the bases to be combined remains 

engaged in milk production of the operation in the combined facility.

• In all other instances a producer’s base evaporates once the owner of the producer license no longer is actively producing and marketing milk.

• The program will be administered by the U.S. Secretary of Agriculture with an 

advisory Board, hereafter referred to as Board, appointed by the Secretary from 

nominations. The Board will include two dairy producers from each of six regions—the West, South, Southeast, Central, Midwest and Northeast; one consumer representative, one representative of dairy product firms (cheese, butter, 

milk powder or other manufactured products), one representative of a fluid milk 

bottler, and a dairy economist advisor to the Board.

• The U.S. Secretary of Agriculture in consultation with the Board will forecast 

the market for fluid milk and manufactured dairy products (total commercial 

disappearance) that includes both the domestic market, any foreseen government purchases, and exports for each quarter of the next 12 months. Taking 

into consideration the current level of milk production, a determination will be 

made as to the needed change in U.S. milk production to fulfill the market 

needs for each quarter of the next 12 months allowing for a producer raw milk 

price that is positive over operating costs as determined by the Board. The 

Board will meet quarterly with the U.S. Secretary of Agriculture to revise forecasts and to forecast out by quarter for the next 12 month period. The market 

needs by quarter is referred to as ‘‘allowable milk marketings’’.

• Dairy producers who maintain their milk marketings by quarter within the ‘‘allowable milk marketings’’ are not directly impacted by the program. Recognizing that milk production is affected by weather, feed quality, herd health, 

etc., a producer who exceeds the ‘‘allowable milk marketings’’ for a given quarter 

by two percent or less will not be impacted provided that their milk marketings 

for the entire 12 month period are within the ‘‘allowable milk marketings’’ and 

if so, any ‘‘market access fees’’ collected will be refunded.

• Dairy producers who produce at or below their ‘‘allowable milk marketings’’ will 

not be impacted with a reduction in base in the future marketing period/s.

• Dairy producers who wish to expand their dairy operation and exceed the ‘‘allowable milk marektings’’ will be assessed a ‘‘market access fee’’ per hundredweight on total milk marketings. This ‘‘market access fee’’ will initially be in 

the range of $2.00 to $3.00 per hundredweight on all milk marketed as determined by the U.S. Secretary and the Board. Based on historical performance 

of the program, this market access fee may be increased or decreased, but cannot be increased for dairy producers currently being assessed the ‘‘market access fee’’ for the current 12 month marketing period. If the market access fee 

would drop while a producer is expanding, the fee could go down (because we 

need more milk), but a fee would never go up once locked in for 12 months.

• For dairy producers who expand marketings beyond the ‘‘allowable milk marketings’’ and pay a ‘‘market access fee’’, their fees would be collected and redistributed back to the dairy producers who held their milk marketings within the 

‘‘allowable milk marketings’’. Redistribution of ‘‘market access fees’’ will be done 

annually at the anniversary date of the inception of this program.

• Once it is determined that a dairy producer has expanded milk marketings beyond the ‘‘allowable milk marketings’’ for a given quarter, the dairy producer 

will have the ‘‘market access fee’’ deducted from their milk check in the following quarter and for the next three quarters. The dairy producer’s higher 

milk marketings during the first quarter and following three quarters having 

a ‘‘market access fee’’ becomes the new and higher historical base to which milk 

marketings for the quarters for the next 12 months will be compared to. New 

dairy producers are those who are not the transferee of an existing dairy producer’s base, but rather entering dairying as an entirely new dairy operation. 

New dairy producers will have the ‘‘market access fee’’ deducted for the first 

four quarters of their milk marketings. Thereafter, the milk marketings during 

these four quarters become the new dairy producer’s base to compare the next 

12 months’ milk marketings to.

• As with Milk Income Loss Contract payments dairy producers will file their 

milk production history and monthly milk marketings with their area USDA 

Farm Service Agency (FSA) office to establish a milk base. Dairy producers will 

212

authorize their milk plant or dairy cooperative to submit their milk marketings 

directly to the FSA office. If a dairy producer’s milk marketings exceed the ‘‘allowable milk marketings’’ for a given quarter, the FSA office will notify the 

dairy producer’s milk plant or dairy cooperative to deduct the ‘‘market access 

fee’’ starting the following quarter and for the next three quarters and submit 

the fees to the FSA office. Area FSA offices will submit ‘‘market access fees’’ 

collected to the national FSA office where they will be pooled and a value per 

hundredweight will be calculated for distribution to all dairy producers who had 

not exceeded the ‘‘allowable milk marketings’’.

• Transfers of bases from one dairy producer to another or the combination of 

bases must be approved by the area FSA office.

• The Federal Milk Market Administrator or State Market Administrator, will, if 

solicited, provide information to use to verify reported producer milk marketings 

from dairy plants.

Administrative costs:

• An assessment of no more than 2¢ per hundredweight will be assessed against 

all milk marketings to cover administrative costs of the program. Milk plants 

are to submit these assessments directly to the national FSA office.

For more information, please contact:

GORDIE COOK, Director and Chair, Legislative Affairs Committee, Holstein Association USA, Inc.;

ADAM GRIFFIN, Dairy ID Programs Manager, Holstein Association USA, Inc.;

LUCAS SJOSTROM, Government Relations Specialist and Communications Assistant,

Holstein Association USA, Inc.

The CHAIRMAN. Thank you very much, Mr. Cook. Now we will 

hear from Mr. Thomas Suber. 

STATEMENT OF THOMAS M. SUBER, PRESIDENT, U.S. DAIRY 

EXPORT COUNCIL, ARLINGTON, VA 

Mr. SUBER. Mr. Chairman, Ranking Member, Members of the 

Committee, thank you for the opportunity to testify in a very serious situation facing our industry, due in large part to problems in 

our export markets. 

My name is Tom Suber. I am President of the U.S. Dairy Export 

Council. In partnership with dairy farmers, dairy processors, cooperatives, and the Foreign Agricultural Service, our mission is to 

increase the volume and value of U.S. dairy exports. 

Over the past several years, U.S. dairy exports expanded significantly, steadily setting new records. They grew from $1.1 billion in 

2003 to $3.8 billion last year. Virtually all of these shipments sold 

without government or other assistance. The National Milk Producers have estimated this moves the producer prices by $1.69 per 

hundredweight last year, contributing $3.6 billion directly to producers’ bottom lines. 

We export a broad array of U.S. dairy products. Thanks to 

NAFTA, our number one market is Mexico. We also ship considerable volumes of product to Canada, Southeast Asia, Japan, the 

Middle East, and China. Our export competitiveness was not unexpected, sudden, or the result of luck. Long-term factors, such as the 

world’s rising middle classes improving their diets, using dairy’s 

many nutritious forms, as well as favorable trade agreements such 

as the Uruguay Round and NAFTA opened up greater opportunities worldwide. Milk supply from traditional new sources simply 

can not keep up with this demand growth. 

To help our members seize these opportunities, we created a unified national research promotion trade policy and regulatory proVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00218 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
213

grams to help increase their sales. From 2003 to 2008, we exported 

almost 1 out of every 3 new pounds of milk we produced, doubling 

the percentage of exported milk production, reaching almost 11 

percent by 2008. 

Our farmers did what any market economy should, expanding 

production in the face of steadily increasing demand using our high 

quality mid-tier cost base as our strength. Then unfortunately 

came the global economic and financial crisis last year, dramatically and deeply depressing dairy demand globally. Despite the 

crash in demand, these new milk supplies from the U.S. and other 

countries simply cannot stop, resulting in huge inventories both 

private and public. 

The soft global markets have resulted in recent declines in U.S. 

dairy exports. Through May of this year, exports represented only 

8.1 percent of U.S. milk production. Much of the decline in this 

year’s shipments comes from a drop-off in overseas sales of nonfat 

dry milk, exports through 5 months were 195 million pounds, down 

53 percent. Cheese exports were similar, off 30 percent, totaling 90 

million pounds for the same period. The reduced size of today’s 

global market of these core products has forced them back into the 

U.S., depressing our product prices, as you have heard. 

Entering the second half of this year, despite continued activities 

by U.S. exporters, recovering global demand remains elusive, leaving expectations for soft commodity markets for the rest of this 

year and into 2010. Dairy demand remains sharply lower in emerging markets such as China and Southeast Asia, where we saw 

much of the growth of the past 5 years. Ultimately the return of 

consumer demand will only come with the restoration of economic 

growth, which fortunately has the attention of policymakers worldwide. 

In the medium and long term, however, virtually all forecasters 

see a return to dairy demand growth that exceeds the supply capacities of lower-cost exporters such as New Zealand and Argentina. The U.S. is well positioned to profitably meet this international market demand. Despite the declines in global markets, it 

is clear the processors and producers need exports for a healthy 

and growing industry. 

Funded by our own farmers and processors, USDEC is assisting 

U.S. export suppliers to make the marketing and relationship investments needed to sustain these markets. To complement the industry’s own efforts, Congress and the Administration could pursue 

a number of measures that would maintain and improve our global 

competitiveness, while permitting a more rapid return to global 

markets as our economies improve. I will just touch on just a few 

of these here, others being mentioned in my written testimony. 

We should swiftly move towards approving pending FTAs with 

Panama and Colombia and especially Korea. We also need to swiftly and fully eliminate all export subsidies through a balanced and 

ambitious WTO round. However, until then, so long as the European Union continues to employ its export subsidies, the U.S. must 

use our own Dairy Export Incentive Program to its fullest extent. 

We also need to strongly enforce our rights under trade agreements 

to ensure that our exports have access that we have negotiated and 

won. 

214

As we do this, however, it is equally critical that the U.S. both 

live up to its own trade commitments and base trade related food 

safety decisions on sound science. 

In closing, I would call your attention to a forthcoming report by 

the Innovation Center on U.S. Dairy which will talk about the impact and consequences of dairy’s increasing globalization. It calls 

out many of the issues that I mentioned before here, confirms them 

by a top-tier consulting firm about our global competitiveness as we 

will be able to reach late market demand that will exist internationally. As that report is done, we hope to be able to brief the 

Members of this Committee on it. 

Thank you very much. 

[The prepared statement of Mr. Suber follows:]

PREPARED STATEMENT OF THOMAS M. SUBER, PRESIDENT, U.S. DAIRY EXPORT

COUNCIL, ARLINGTON, VA 

Mr. Chairman, Ranking Member and Members of the Committee: Thank you for 

the opportunity to testify on the very serious situation facing our industry’s ability 

to develop export markets and to present our recommendations for how to help improve these circumstances. My name is Tom Suber and I am the President of the 

U.S. Dairy Export Council. The U.S. Dairy Export Council (USDEC) is a nonprofit, 

independent membership organization that represents the export trade interests of 

U.S. milk producers, proprietary processors, dairy cooperatives, and export traders. 

The Council’s mission is to increase the volume and value of U.S. dairy product 

exports. Our programs are jointly funded through the national Checkoff by dairy 

farmers, with matching funds from the U.S. Department of Agriculture/Foreign Agricultural Service (USDA–FAS) and from industry members. The programs cover a 

wide range of activities, but stop short of actually selling or subsidizing any dairy 

products. 

Both my preparation for testifying and my testimony today has been funded exclusively with non-Checkoff membership dues of the U.S. Dairy Export Council. The 

time I have spent preparing my written testimony and my appearance today have 

not been funded with any Checkoff dollars. 

I’d like to begin by thanking this Committee for the deep interest shown in the 

challenges currently facing the U.S. dairy industry and for the steps many Members 

of Congress have supported to help address the situation such as full use of the 

Dairy Export Incentive Program (DEIP). We appreciate the concern about the grave 

circumstances facing many in our industry at the moment and we hope these hearings will help shed some light on various aspects of the challenges facing the dairy 

sector. 

Global Dairy Market Dynamics and U.S. Export Situation 

Over the past several years, U.S. dairy exports expanded significantly, hitting 

new record highs several years in a row. Over the past 5 years, U.S. dairy exports 

grew from $1.5 billion in 2004 to a high-water mark of $3.8 billion in 2008. By calculations made by the National Milk Producers Federation (NMPF), the impact of 

commercial exports boosted producer prices by $1.69 per cwt in 2008, thereby contributing $3.6 billion directly to dairy producer bottom lines. 

We ship a broad array of U.S. dairy products all around the world. Our number 

one market is our full NAFTA (North American Free Trade Agreement) partner 

Mexico, a market where we have substantially benefited from the full elimination 

of dairy tariffs and quotas. We also ship considerable amounts of product to Canada 

(despite the lack of virtually any NAFTA benefits for U.S. dairy exports there), 

Southeast Asia, Japan, the Middle East and China. Our most competitive products 

have been those products such as whey proteins and lactose for which global market 

distortions—high tariffs and quotas, export subsidies and domestic support—are 

lowest. However, we also have seen strong increases over the last 5 years in our 

exports of nonfat dry milk (NDM) and cheeses, in addition to other dairy products. 

The chart below illustrates this robust growth in U.S. dairy exports over the past 

several years on a total milk solids basis.

215

This growth did not simply happen overnight nor was it just blind luck. In fact, 

a portion of this success was inevitable since it was based on an immutable trend 

that the rising middle classes in emerging markets will use their increasing disposable incomes to add animal proteins to their diets. In both traditional and non-traditional dairy consuming countries, the rising incomes of the 1990s and this decade 

brought tens of millions of new consumers into various good-tasting and nutritious 

dairy food categories. The influence of rising incomes was accelerated by increasingly westernized diets in the food service sector, improved cold chain infrastructures and the continuing removal of distorting trade practices with the GATT Uruguay Round, then NAFTA and other FTAs. 

It was clear to the farmer leaders of Dairy Management Inc. when they founded 

USDEC in 1995 that these trends would inevitably lead to a favorable change in 

global dairy trade for the United States. Traditional suppliers from Europe, Australia and New Zealand would simply not be able to keep up with the demands of 

new dairy consumers. Consequently, the United States, as the world’s largest cow 

milk producer with a high quality, mid-tier cost base, was well-positioned. 

Yet, it fell to USDEC to work with our industry—including farmer-owned cooperatives, proprietary firms and trading companies—to capitalize on this opportunity. In 

short, we sought to maximize the upside and minimize the downside that underlying economic and trade circumstances would permit. Therefore, USDEC focused 

on carefully-planned programs that integrated efforts to increase sales by helping 

members resolve constraints based on information, commercial, trade policy and 

regulatory factors. 

The steady increases in U.S. dairy exports over the last 5 years underscored the 

importance of this unified national strategy. As supply became strained either from 

temporary issues such as weather or currency value or from long-term trends cited 

earlier, U.S. dairy farmers had the capacity and the will to quickly expand production in response to marketplace signals. 

From 2003 to 2008, this was illustrated by two benchmarks. First, during this 

time, we exported almost one out of every 3 new pounds of milk we produced. Second, U.S. dairy exports as a percent of total production went from 5.7 percent to 

10.8 percent. Also notable is that the DEIP program remained dormant during these 

years, as were massive EU export subsidies. 

The 2007–2008 drought in New Zealand accelerated this gradual tightening of 

supply into an acute pinch, driving global dairy prices to record levels. Matched 

with a run-up of commodities such as oil and other food and feed products, net consumer incomes in important emerging markets began to erode. Then, just as high 

prices began to cap demand in early 2008, the global economic and financial crisis 

hit in the third quarter of 2008. 

With these multiple factors, combined with the United States buying fewer goods 

from overseas, constrained or absent credit and trade financing, rising unemployment abroad and the dairy food scare brought on by China’s melamine scandal, 

dairy demand simply crashed. During this same 2007–2008 time frame, record high 


11124028
216

milk prices worldwide fueled expanded milk production at the farm level. Oceania 

and European suppliers boosted production, as did supplemental global suppliers 

from South America and China. 

Despite the crash in demand, these new supplies from various sources could not 

simply be turned off, resulting in a build-up of huge inventories, both private and 

public, for the first time in 2 years. World dairy prices ended the year down significantly from where they started. Export prices for milk powder, cheese and butter 

fell 40 to 60 percent in 2008, with the majority of the declines occurring in the second half. If this had been a more typical commodity cycle, we would surely have 

seen some weakening of demand such as that experienced in mid-2008. But the velocity and magnitude of the economic deterioration pushed the global market down 

far deeper than anyone expected. 

The soft global markets have resulted in declining U.S. dairy exports in 2009. 

From January through May, the value of U.S. dairy shipments was $855 million, 

down 52 percent from last year’s record pace, according to U.S. Department of Agriculture/Foreign Agricultural Service data released July 10. In the first 5 months of 

the year, exports represented 8.1 percent of U.S. milk production as measured on 

a total solids basis. This figure is down from 10.8 percent of production in 2008 and 

the lowest percentage since 2004. 

The chart below depicts this trend line of exports as a percentage of total U.S. 

milk production through May 2009 (the most recent month for which data is currently available). For comparison, it also shows imports as a percentage of total U.S. 

milk production over the same time period. Both are calculated on a total milk solids basis.

A three percent change in the size of the market for milk that American dairy 

farmers produce may sound small. However, relatively small changes in total volume of milk production can result in huge changes in price as we’ve seen play out 

throughout this year. 

Much of the decline in 2009 volumes comes from a drop-off in overseas sales of 

nonfat dry milk/skim milk powder (NDM/SMP), the largest U.S. dairy export commodity by volume and value. Exports from January through May were 195.2 million 

lbs., down 53 percent. Some exporters, however, have maintained shipments in lieu 

of selling to the Commodity Credit Corporation (CCC) by creating a standardized 

protein skim milk powder that is more desirable than our conventional NDM. 

Cheese exports, which reached record-high volumes last year, were off 30 percent 

at 90.4 million lbs. for January to May 2009. However, based on good penetration 

and support from USDEC, U.S. exporters still are increasing sales to Mexico. As the 

largest overseas market for U.S. cheese, Mexico still gained 15 percent in the first 

5 months of the year. Overall butterfat shipments for the same time period (January to May 2009) were just 18.6 million lbs., down 80 percent. Again, sales to Mexico were higher (+51 percent) as exporters focused on one of their core markets. I 

would be remiss not to mention the important role that the voluntary, producerVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00222 Fmt 6601 Sfmt 6621 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN

11124029
217

funded Cooperatives Working Together (CWT) export assistance plan. The strategic 

bonuses CWT has offered to participating members for exports to particular markets 

have helped support continued butterfat sales in particular as participants have 

shipped product in the early months of 2009 for which bonuses were granted in late 

2008. 

Exports of dairy ingredients like whey and lactose have held up well in 2009. 

Shipments of dry whey in the first 5 months of the year were 186.0 million lbs., 

up 15 percent from last year. Exports of higher-value whey protein isolates were up 

51 percent, to 14.7 million lbs., while sales of whey protein concentrates were down 

17 percent, to 105.4 million lbs. Overall, whey protein exports to key markets China 

and Mexico were higher, while shipments to South America and Oceania slackened. 

Exports of lactose were 182.0 million lbs., up one percent from January through 

May. 

Dispelling Misconceptions 

As an organization dedicated to trade and the promotion of U.S. dairy products 

overseas, USDEC would like to highlight some factors that it believes have contributed to current market pressures and proposals to avoid another crisis. We would 

like to take this opportunity to comment on a few of them in order to set the record 

straight on these trade-related issues.

• Imports: One charge repeated by some is the misconception that a surge in 

dairy imports has created or at least dramatically exacerbated the situation facing the dairy producer community. In a crisis such as we are currently experiencing, any imports can be damaging. Yet, in fact, we have not seen a significant surge in imported dairy products into the United States. In fact, on a total 

milk solids basis in 2009, year-to-date imports of dairy products are actually 

down compared to recent years. As I have stated above, the crux of the problem 

facing our industry is the swift and steep drop in global demand for our products, not an influx of foreign dairy products into the U.S. market.

• Isolationism: As supply management program ideas have begun to circulate, 

many have argued that isolationism would solve this crisis. The goal is seemingly to create a fully closed market like Canada’s. However, by aiming to address this aspect, we would likely create even more complications. It is virtually 

impossible to forecast market twists and turns accurately enough to match production with domestic and export demand. Therefore, overwhelmingly likely decisions by a so-called Supply Management Board would tend towards undersupply in order to keep farm incomes on the high side. The consequence would 

be steadily rising imports in reaction to prices much higher than those that 

exist globally, which would steadily ratchet down our domestic production. In 

short, we would steadily shrink as an industry.

• In addition, building a supply management system replicating Canada’s would 

mean substantially raising our tariff walls, thus requiring offsetting trade concessions to meet WTO obligations. We also would face substantial problems selling exports beyond DEIP, since the WTO ruled out the use of a two-tier pricing 

system in a case that the United States itself brought—and USDEC strongly 

supported—against Canada in 1999.

Although some may argue that our industry is better off abandoning the export 

market, USDEC would like to take the opportunity to remind this Committee that 

in 2009 to date, we have still exported approximately eight percent of U.S. milk production and that this swing in the demand for only three percent of our total milk 

production has been one of the most significant factors leading to the current market situation. If we were tasked with somehow finding swift alternate uses for approximately 11 percent of U.S. milk production rather than simply three percent, 

the crisis would be even deeper and more protracted. 

Whatever the declines in global markets, it is clear that processors and producers 

have come to rely upon exports as fundamental to the health and growth of the industry. We’re far removed from the 1990s, when the value posed by a vibrant export 

market was simply theoretical, and the low levels of exports that existed were mostly facilitated by government programs. Now, a forced retrenchment will hurt most 

everyone in the supply chain. 

Expectations for the Future 

Entering the second half of 2009, recovery in global dairy demand remains elusive, leaving expectations for soft commodity markets for the balance of the year 

and into 2010. Global economic activity is still almost universally down over recent 

years. Developed countries remain in a recession that has lasted more than a year, 

still struggling with a credit crisis that has sapped normal commercial activity, 

218

while substantially increasing unemployment. These factors and others have resulted in sharply less demand for dairy products in emerging markets such as 

China, Southeast Asia and Latin America, where we saw much of the growth of the 

past 5 years. 

Ultimately, the return of consumer demand will only come with the restoration 

of economic growth. Some early signs of recovery are emerging, albeit slowly. For 

instance, the International Monetary Fund (IMF) believes the global economy is beginning to pull out of recession, though full recovery is expected to be sluggish. 

Leading lenders such as Rabobank International have cautioned however that a 

build-up of inventories could forestall a speedy price rebound in the dairy sector. 

The more product stored in U.S. and European Government warehouses or in private storage in Oceania, the longer depressed prices will persist. Thus, commitment 

of stocks to useful purposes such as domestic and international feeding programs 

is important in order to help shorten the current situation. 

In the medium and long-term, however, virtually all forecasts foresee a return to 

dairy demand growth that exceeds the supply capabilities of lower cost exporters 

such as New Zealand, Australia, Uruguay and Argentina. Consequently, prices 

would increase to levels necessary to draw additional exportable supply from the 

next tier of producers. The United States is among the producers well positioned 

with the capability to profitably respond to this demand and provide additional exportable supplies to the international market. Because of this, USDEC is continuing 

to make the investments needed in overseas programs and relationships to pave the 

way towards that opportunity. 

Recommended Government Actions 

Congress and the Administration could pursue a number of measures that 

USDEC believes would help us maintain and improve our global competitiveness 

and permit us to more rapidly regain export markets as economies improve. Exports 

have already been shown to dramatically benefit farmer income; we cannot afford 

to ignore this part of the equation so critical to overall supply/demand balance of 

the U.S. dairy market. Some of these suggestions are short-term solutions such as 

full use of the DEIP. Others, such as passage of beneficial trade agreements, would 

help provide the medium to long-term growth our industry needs to continue to compete in the global market.

• We should swiftly move towards approving pending Free Trade Agreements 

(FTAs) with Panama and Colombia and, especially, South Korea. These agreements would remove barriers to our products and would either provide us with 

an edge over our competitors or at least allow us to remain on more even footing as many of these trading partners pursue FTAs with other important exporters. We recognize that the Administration and many Members of Congress 

believe that some work is needed to address issues of concern they have regarding each of the FTAs; however, we urge that this work be done with the degree 

of urgency befitting such important international agreements.

» We would caution, however, against the pursuit of agreements that offer no 

prospect for a balanced outcome such as would be the case under a TransPacific Partnership FTA, if dairy trade between the United States and New 

Zealand were included. There are very strong anti-competitive concerns 

USDEC has with the near-monopolistic structure of the New Zealand dairy 

industry. Given such concerns, our members have advocated for the full exclusion of U.S.-New Zealand dairy trade, should the TPP FTA move forward as 

currently envisioned.

• At the same time that we pursue genuinely beneficial bilateral agreements, we 

must not take our eyes off the bigger prize—a successful multilateral deal. We 

urge the Administration to continue to aggressively pursue an ambitious Doha 

Round agenda, which would prevent the backsliding that we are now witnessing 

on export subsidies and market access, particularly in developed countries that 

have become such a serious concern this year. We need to have a balanced market access package that calls on those with the steepest tariff barriers to do the 

most and does not undermine the access secured in key developing markets in 

the Uruguay Round. Additionally, the swift and full elimination of export subsidies is a particularly important aspect of the overall Round, as we’ve seen the 

impact this year’s reactivation of the EU’s massive subsidies has had on global 

markets.

• So long as the EU continues to employ its export subsidies, however, it is essential for the United States to use the tools available to it as well. We call on Congress to urge the Administration to maximize its use of the DEIP. This program 

219

is small in comparison with what commercial trade can drive during more typical market conditions (150 million pounds of NDM annually permitted under 

DEIP versus an average of 660 million pounds of NDM exports annually between 2004 and 2008). Despite its relatively small size, in times like these it 

is an important way to help stimulate export demand for U.S. products in a 

global economy currently plagued by ever-rising EU export subsidies.

» DEIP also helps counter the continuing practice by New Zealand to clear its 

inventories at virtually any price due to its need to export 95 percent of its 

production. New Zealand has now become the world price maker with its recent, almost panicked selling, which will resume upon the start of its production season in August. Full use of DEIP can help our exporters keep a foothold in key markets to help better enable them to maintain relationships that 

have been cultivated over the years but are facing heavy strain due to market 

dynamics this year.

• In a similar vein, we ask that Congress maintain funding for the Market Access 

Program (MAP) and the Foreign Market Development (FMD) program at their 

full farm bill authorization levels of $200 million and $35 million, respectively. 

We also urge Congress to direct the Administration not to make changes to the 

current eligibility parameters for the program. Wide consensus exists that they 

contribute to the great success of the program and overall U.S. agricultural exports. MAP and FMD are excellent examples of a successful industry-government partnership that can directly benefit producer incomes, as the dairy industry has seen over the past 5 years. USDEC has participated in these programs 

for several years now and has used the funding to help grow demand for U.S. 

dairy products abroad and cultivate receptiveness to supplies from the United 

States—until recently not one of the major dairy exporters to the world.

• The other critical part of the export support equation is the expertise the FAS 

team, both in Washington and many of the overseas offices, brings to bear on 

the many challenges facing our exporters. These range from the close cooperation between FAS and the U.S. Trade Representative’s Office (USTR) on free 

trade agreements (FTAs) and World Trade Organization (WTO) issues, to resolution of important sanitary/phytosanitary (SPS) and technical barriers, to technical barriers to trade (TBT) challenges to addressing time-sensitive issues 

when product is detained in port. The knowledge of FAS and its dedication to 

helping facilitate the flow of U.S. exports and influencing the policy dynamics 

disadvantaging our products is absolutely critical. We urge Congress to fully 

support FAS’s core mission of promoting U.S. agricultural exports by providing 

adequate funding to achieve this goal.

• As our hard-working FAS and USTR staff go about trying to make our trading 

partners adhere to their commitments, however, it is equally critical that the 

United States live up to the trade commitments it has made by adhering to our 

trade agreements and basing technical trade-related decisions on sound science. 

Very simply, how can we demand others abide by their deals when we simply 

refuse to do the same by inventing specious justifications?

» One particularly important issue is our cross-border trucking obligations with 

Mexico under NAFTA. The United States was found several years ago to be 

in violation of NAFTA by refusing to allow cross-border trucking with Mexico, 

despite our ability to require Mexican trucks to adhere to the very same requirements U.S. trucks face while on American roads. In the spring of this 

year, Mexico finally retaliated against the United States for this trade violation, putting at risk $2.4 billion worth of trade. As Mexico is by far our number one dairy export market, we believe it is essential that the United States 

adhere to its trading obligations under NAFTA.

» There are additional examples of a more technical nature as well that have 

given USDEC cause for concern. The health and safety of America’s consumers has always been a major focus of America’s dairy farmers and processors. However, it is vital that in making decisions regarding imported food 

products and various SPS trade issues, we apply the same rigorous adherence 

to sound science and uniform standards that we expect our trading partners 

to apply in their own countries. Safe food must be paramount, but we must 

let science run its course and then rely upon the results, rather than prejudging the outcome of that technical assessment.

• Finally, I would leave this Committee with a request that it take an interest 

in a forthcoming report by the Innovation Center (IC) on U.S. Dairy on the impact on and consequences of the dairy industry’s increasing globalization. 

220

Staffed and supported by Dairy Management, Inc., the Innovation Center provides an unprecedented, high-level forum where top leaders from dairy farm 

groups, processors, co-operatives and trade associations can review major structural constraints to industry growth and prosperity. Work outcomes then represent an integrated, pre-competitive and collaborative set of analytical, policy, 

regulatory and market development programs across a range of issues.

» In March, an Innovation Center task force retained an experienced management consulting firm to profile the present and future state of the global 

dairy trade, the competitive position of the U.S. industry, and a prospective 

set of integrated programs that could improve our ability to accommodate 

these changes. The task force is close to concluding its work on this ‘‘white 

paper’’ analysis. The report of its preliminary findings earlier this month to 

the IC board created considerable interest in its insights. The analysis 

showed a virtual certainty that, with a return to global economic stability, 

dairy’s global supply/demand dynamics (as reflected in my earlier comments), 

would create a sizeable latent demand gap that the United States was well 

positioned to fulfill. Yet, the analysis also showed that this window of opportunity to grow both our internal and external markets against global competitors was finite. Success depends on making the right strategic choices.

» Presented with choices ranging from ‘‘Fortress USA’’ to the status quo to 

moving towards a consistent, global exporter role, the Innovation Center 

board asked the task force primarily to focus its final recommendations on 

prospective programs to pursue the latter path. Once the Innovation Center 

board has reviewed and decided upon its work programs, we would welcome 

the opportunity to brief interested Members of this Committee on their objectives.

Thank you for the opportunity to provide comments to this Committee on such 

an important topic. USDEC appreciates the time and attention Members of this 

Committee have devoted to the concerns facing many in the dairy industry.

The CHAIRMAN. Thank you, Mr. Suber. I really appreciate that 

very much. 

The gentleman from New York, Mr. Massa, is not a Member of 

this Committee but he has joined us today, and I have conferred 

with the Ranking Member and we are pleased to welcome him and 

permit him to join in questioning of the witnesses. Good to have 

you. 

Mr. MASSA. Thank you, sir. 

The CHAIRMAN. You are quite welcome. Let me start with the 

questioning. First of all, let me just—Mr. Cook, I just want you to 

very briefly give us that breakdown again of the pricing of a gallon 

of milk, who gets what. I think you gave that in your testimony 

real quick. 

Mr. COOK. The average price—and I am sure that we could find 

differences in places. It is $2.99 a gallon. 

The CHAIRMAN. Is this in California? 

Mr. COOK. No. This is the national average. Of this $2.99 a gallon, the average price that the producer receives for that gallon is 

91¢. And that would be $2.08 of the $2.99 that would go elsewhere. 

The CHAIRMAN. It is 91¢ to the producer? 

Mr. COOK. Yes, sir. 

The CHAIRMAN. And $2.08 goes elsewhere. Do you know where 

that elsewhere is? 

Mr. COOK. It would go to the processing and retail industry and 

any intermittent transportation, afterwards. And the farmer usually pays for the transportation to the first port. 

The CHAIRMAN. Of the 2—let me ask you. The 91¢, what do you 

think would be a proper share for the producer if it is not 91¢? 

221

Mr. COOK. The producer’s share before a lot of other changes 

used to be closer to 50 percent of the consumer dollar. And I think 

that that is—it is significant as the erosion of the percentage of the 

consumer dollar—as the erosion of the percentage of what the 

farmer receives of the consumer dollar, it put the producer in a 

harder and harder spot without a doubt, and it certainly adversely 

affects the consumer as well. When prices go high it is the differential between and the lack of percent that hurts. 

The CHAIRMAN. So it is 91¢—you think the fairer amount should 

be about a $1.45? 

Mr. COOK. I think that would be correct, sir. And we are talking 

about fluid milk. That is right. 

The CHAIRMAN. Thank you. Mr. Contente, you mentioned suicides and you gave a number. Could you elaborate on that? I think 

you said ten or two. Over what period of time? You said two? 

Mr. CONTENTE. We have experienced two suicides in our immediate area since the middle of December until present. 

The CHAIRMAN. So over the last 7 months? 

Mr. CONTENTE. Correct. 

The CHAIRMAN. And is it in your farming area? 

Mr. CONTENTE. Actually the Tulare and Kings area is where I 

am speaking of. The Tulare County represents the single largest 

single county of milk production. Kings might be like fifth or something like that. So it is a pretty strong area of milk production in 

the United States. 

The CHAIRMAN. Okay. And finally I want to make sure that we 

have this documented right. And without question, it is documented. These two suicides without question came as a direct result of the dairy situation? 

Mr. CONTENTE. Most definitely because I know both of those people. 

The CHAIRMAN. Okay. Thank you. I think that is very important 

to get on the record as to the seriousness of the issue. Let me just 

ask each of you if you could very briefly—I would like to go through 

this. If you could tell us regarding the current dairy situation if you 

had to prioritize those two things, of what could be done, the two 

most critical things that should be done in the short term to alleviate the current dairy market slump? And if you could, give us those 

two things that would not require a reopening of the farm bill. 

What would those two things be? 

Let me start with you, Mr. Lang, and we will go straight down. 

Mr. LANG. Thank you. First of all, we should look at increasing 

CCC purchases of cheese, dried fat milk, those things that are already allowed within the farm bill, increase that. Food for the 

Needy School Lunch Programs. The next important thing to do is 

remove cows from the market. We believe that three percent more 

of the cows need to be removed before we can have long-term stabilization of milk prices, and farmers and co-ops working together 

has been very effective in helping that happen. 

So those are the first two. 

The CHAIRMAN. Okay. Increasing the School Lunch CCC Program and thinning the herd. All right. 

Mr. Bostwick. 

222

Mr. BOSTWICK. Sir, I am not sure there is really anything at this 

point that can be done in the short term. The tide has already 

started to come back in. Prices are beginning to come back up. So 

I am not really sure that there is any short-term solution that 

would not do more harm than good. 

The CHAIRMAN. All right. Mr. Contente. 

Mr. CONTENTE. Yes. On a short-term solution, immediate attention should be given to the support prices I mentioned earlier in 

my testimony. It doesn’t require opening up the farm bill. The Secretary has the discretionary powers to do that. That would almost 

fix the problem immediately. That would bring cash to the market 

immediately. 

The other solutions I offered in my testimony are almost as important and for a second place, whether it is market transparency 

or supply management or dealing with the unregulated proteins. 

The CHAIRMAN. So you would say pricing and supply; is that 

right? 

Mr. CONTENTE. Pricing on the support mechanism which is lacking. The support mechanism that we have in place, which is a Federal mandate, is not adequate. It should be somewhat closer to the 

cost of production. So that would be the primary goal. Then, of 

course, we have these unregulated proteins that keep messing with 

our market. Those, of course, are not dealt with. At some point 

there needs to be some sort of a regulatory process there to bring 

them in line with the rest of the products that we have. 

The CHAIRMAN. Dr. Guterbock. 

Dr. GUTERBOCK. Mr. Chairman, I don’t think there is anything 

that can be done in the short term that wouldn’t perpetuate the 

problem in the long term. I think supply management and raising 

the support price would again make us less competitive on world 

markets, and unfortunately the answer is to allow prices to seek 

their levels so that the market is cleared, so that demand and supply can come back into balance. 

The CHAIRMAN. So you——

Dr. GUTERBOCK. As hard as that will be, I think that is in the 

long term the best solution. 

The CHAIRMAN. So you directly disagree with Mr. Contente? 

Dr. GUTERBOCK. Yes, sir. 

The CHAIRMAN. Ms. Hughes. 

Ms. HUGHES. Mr. Chairman, as I mentioned, because we are in 

the organic dairy industry, we run separate from the conventional 

dairy industry. So for short-term solutions, I would have to defer 

to my colleagues at the table here. For longer term, I would look 

to the successes that we have been able to have, providing our 

farmers a stable pay price that covers the cost of their production 

and how they can expect what to get in the mailbox from one 

month to the next. 

The CHAIRMAN. Thank you. Mr. Cook. 

Mr. COOK. Yes, sir. I would think the Dairy Price Stabilization 

Program could probably alleviate a lot of the—I am sorry—the 

Dairy Price Stabilization Program, which would alleviate a lot of 

the peaks and valleys in this roller coaster ride that continues to 

bring these crises back in front of this body. I believe that that is 

probably the first and most stable thing that we can look at. It is 

223

for short term today. If you enacted this today, it would come into 

effect soon. But maybe a purchase by the government for the food 

supply, probably mostly cheddar cheese, would be the most effective thing to have an immediate impact. But the Dairy Price Stabilization Program would have the impact that would have the 

most effect over a longer period of time. 

The CHAIRMAN. All right. Thank you. 

Mr. Suber. 

Mr. SUBER. As you can imagine our perspective being on trade 

matter, we would look at continuing rigorous activity in the Dairy 

Export Incentive Program as—it is important to keep us in our 

markets. I would also be cautious about playing with fire that we 

are doing with our existing exports on some of the trade actions 

that we have taken against others that are hard to support if they 

were to be taken against us. Specifically, I refer to the truck ban 

against Mexico, our biggest market, that they are currently retaliating to some degree, and have the right to do so. And it could 

spread to dairy and thereby exacerbate our situation here as well. 

The CHAIRMAN. All right. Thank you. Thank you, each of you. I 

now turn to Mr. King for 5 minutes. 

Mr. KING. Thank you, Mr. Chairman. I want to thank all of the 

witnesses for your testimony here today and look to just a piece of 

information that I need to know a little bit more about. 

Just briefly, Mr. Cook, in your testimony you said that the first 

fourth of the transportation of milk is borne by the milk producer. 

Is most of the milk picked up on the farm? And then how does that 

1⁄4, where does that calculation come from? 

Mr. COOK. I don’t know what you mean by the fourth, but I did 

say that the first price—the farmer provides the transportation to 

the first port. 

Mr. KING. That is the word I missed. 

Mr. COOK. I apologize. The first port. So the first port. It would 

go from the farmer to its first stop, whether it is the processor or 

a cooperative trucking central station. But the farmer pays that 

transportation for that first ride. 

Mr. KING. Even if the milk is picked up on the farm? 

Mr. COOK. That is where it is always picked up. 

Mr. KING. Is that billed specifically, then? Is it an itemization? 

Mr. COOK. It is a deduction from your price. 

Mr. KING. Okay. That is something I didn’t know, and I am glad 

I clarified that. But I did mishear you as well. So I blundered into 

a little more knowledge and I appreciate it. 

I would like to then turn to Mr. Lang. And with the recommendations that you have made here this morning to reduce the 

herd by three percent, in the bottom line of this, when agriculture, 

especially our livestock producers have—in the end they have 

taken a lot of swings up and down in the marketplace, and we have 

had a cow buyback operation going on in the past. That in my view 

has been at least to a marginal degree successful, if not more so. 

How do we balance this with our pork producer industry today and 

the stress they are going through? We are going to hear from them 

on—if we turn our focus on milk cows in Iowa. 

Mr. LANG. Certainly. That is true. The pork producers and the 

beef industry are having a really challenging time as well. Just for 

224

your record, our farm, the co-op pays for our milk to be delivered 

to the first port. So not all dairy farmers pay for the milk transportation. So we don’t pay that bill ourselves. 

First of all, we do not support a whole herd buyout similar to the 

one we had in the mid-1980s because of the repercussions to the 

beef industry and the pork industry, or the entire meat industry. 

We don’t support that. But co-ops working together, utilizing their 

own money to take herds out of the market system over an orderly 

time certainly should not interfere with the pork and beef industry, 

as much as a whole herd buyout would. Those cows are going to 

go to market one way or the other. So the co-ops working together 

is at least a way for the farmer to garnish some income into the 

future rather than just selling the cows. 

The second part of your question is that we do not support managed supply of any kind. We believe that the volatility in the market gives opportunity to young farmers, such as my two sons, that 

when prices are the lowest it is their opportunity to get in the market and buy cows and work their way through. 

So there are a lot of programs already that the dairy industry 

has differently than a lot of other industries, and we believe that 

we ought to let those pieces work and let the reduction of another 

three percent take place either through liquidation, or through a 

structured program like CWT. 

Mr. KING. Mr. Lang, you mentioned two young sons coming into 

the operation, and I think you would be aware that there is a bill 

floating around this Congress, and we expect it to be on the floor 

today, that would have to do with USDA moving over and the FDA 

taking over on the farms. When your young sons are looking at the 

very real prospect that that might be law here in the United 

States, with the FDA regulating livestock production, milk production, and setting foot on our farms and making decisions bureaucratically about something that will be abdicated by the USDA, are 

they more or less likely to continue to invest and build their future 

there, or do they start looking over the horizon to start getting 

away from the FDA on the farm. 

Mr. LANG. My sons will continue to work against that kind of 

regulation. We believe that we already have more than enough regulation in the dairy industry. On our farm today we have state inspectors, Federal inspectors, the Department of Natural Resources, 

and they look under every sink, in every refrigerator. They inspect 

all our wells, all our watering system and everything else. We believe we have enough regulation. So my point would be we wouldn’t 

support more regulation by FDA. 

Mr. KING. I thank you, Mr. Lang, and I thank all the witnesses, 

Mr. Chairman. I yield back the balance of my time. 

The CHAIRMAN. Thank you, Mr. King. 

The gentleman from California Mr. Costa. 

Mr. COSTA. Thank you very much, Mr. Chairman, and as the 

Chairman of this Subcommittee and the Chairman of the full Committee, we do appreciate, those of us who come from dairy country, 

the attention and the focus that this Subcommittee has provided in 

the full Committee as it relates to what has been the meltdown of 

the dairy industry nationwide, and in California obviously it was 

ground zero where it first began. 

225

Having been in the dairy business, my family, for three generations, it clearly is of great concern to me and my district when you 

look at the total impact that the dairy industry in California has 

in terms of our economy. This is the worst I have ever seen it, in 

our family, in my family’s generation. The boom-and-bust cycles, 

unfortunately, seem to be becoming narrower. And as has been 

noted by a number of the testimony, we have done a lot of shortterm efforts in the last 6 months to try to provide some relief with 

the purchase of the CCC and the DEIP Program, the Dairy Export 

Incentive Program, and one of you indicated that we ought to continue to do more. 

But let me just suggest to all of you that if we are going to try 

to change this cycle, these boom-and-bust cycles continuing to be 

narrow, it seems to me that the industry has to come together, and 

that is never easy, having been a part of this industry for three 

generations. So let me give you that as a suggestion, as we look 

at how we deal with the supply-side aspects of this. 

Let me get to a couple quick questions here. Mr. Suber, you indicated that obviously exports are an important part, going forward, 

in the future. On milk solid basis, exports exceeded .08 to 6.8 percent over the last 13 years as a percentage of the national dairy 

production, yet dairy imports were relatively flat, from 3.9 to 4.0 

percent in 2008 with a high of 4.6. So we are importing about four 

percent of our milk product. We are exporting, we have as high as 

about six percent plus over the past 13 years. What barriers are 

existing there from us expanding on that export market? 

Mr. SUBER. Just one thing on the statistics. Depending upon how 

you count them, fat basis, solids basis, we use a total solids basis. 

Mr. COSTA. I was doing milk solid basis. 

Mr. SUBER. We are exporting—we have bid as high as 11 percent 

and currently are down to around ten—eight percent versus the 

four percent that we are importing. So it is about twice as much 

that we are exporting as we are importing on a solids basis. 

But directly to your question in the barriers that are there, the 

biggest barrier today, of course, is the economic situation, so let us 

move past that if we can, because that is the focus of many policymakers, and we wish them Godspeed in fixing those. The issues 

are, many of them are, related to competitiveness, and the fact that 

we would be more competitive in the long run as you get the distortions out of the international trading system, and those are primarily export subsidies. We use ours and would throw them away 

in a minute if Europe would also outlaw theirs. Add as well high 

tariff barriers that exist in richer countries. 

Mr. COSTA. I have a couple of other questions, so I want to move 

on. 

Mr. Joaquin Contente, I thank you for being here, and as a constituent of my mine, obviously the role you play is important, and 

we appreciate that. You focus in your testimony on milk protein 

concentrates and state that these imports represent nearly six percent of the U.S. milk inventory. Why are we not producing more 

MPCs domestically since it could be a significant part of the market, in your view? 

Mr. CONTENTE. Mr. Costa, I would say that the primary reason 

for those prices would be the primary reason for the lack of us not 

226

producing it here, because you can import that cheaper than you 

can produce it here. It is, traditionally, it has been a last residual 

product that is made overseas. In fact, the EU for many years subsidized the production of it to be exported, so you are competing 

against a national treasury. 

Mr. COSTA. My time is running out here. 

Mr. Cook, the Holstein Association has been working with producers around the country to deal with a program that would be 

more supply-side-sensitive. And how do you do that in terms of 

dealing with the base, and how do you get producers to participate 

in such a program? 

Mr. COOK. I think the producers probably don’t like the volatility 

as some of the other people testifying think they do. I think volatility primarily helps retail organizations that can price things 

higher and then maybe not fall quite so fast. The volatility is what 

is hurting dairy producers. It is hurting consumers. 

Mr. COSTA. The boom-bust cycle. 

Mr. COOK. Yes, sir. And the length of the time, the Vs have 

turned into Us and fairly long, long Us. And, it is this kind of a 

system that would stop that volatility. It would more make people 

supply the marketplace rather than trying to have the marketplace 

accept the supply. And, it is a means of making things be longerterm lasting. 

The CHAIRMAN. The gentleman from Texas Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. 

I thank the panel for being here. Just a quick show of hands, 

how many of you are in favor of some sort of a government-run production management system? Two of you, three. One in the back. 

Thank you. 

Mr. Cook, you mentioned some comments about increased—because of sexed semen, that you are seeing net increase in the size 

of the herds, you said about 161,000 head this year. What does that 

mean? Is that what you just said, or is that a segment of your business? 

Mr. COOK. On a study done by Select Sires and other people who 

are in the artificial insemination business and sell sexed semen, 

they have said 8,000 heifers in 2008 were added to this herd over 

and above normal consequences. This year it is to be 63,000, next 

year 161,000. 

Mr. CONAWAY. So I get it right, why in the face of, what all of 

you would agree is an oversupply of production, are there incentives? Where are the incentives to increase the size of your herd? 

If what we have been told everyone is losing $100 per head per 

month, what is creating that incentive to increase the supply of 

your herd? 

Mr. COOK. Oftentimes there are two times when farmers try to 

make too much milk. One is when they aren’t getting enough for 

it, and they try to cash flow to pay their bills. And the other one 

is when they get a response, a cost to—feed costs, a feed-cost-tomilk ratio of greater than three to one, it is called an expansion 

mode, and people expand and grow their herds, and when they 

grow their herds, you know what happens. 

Mr. CONAWAY. I do. And I am curious as to the role the Federal 

Government should play in helping folks make decisions that are 

227

in their own best interests. What perverse things we are doing to 

perpetuate what—I am a CPA—what perpetuates decisions that 

aren’t in either the individual’s best interests or the system’s best 

interests. 

Mr. COOK. The CWT Program, which I believe has done a great 

job, is 67 percent of the people trying to take care of 100 percent 

of the problem. This milk supply program would be mandated, and 

everyone would participate. 

Mr. CONAWAY. Speaking of that milk supply mandate, how would 

new producers get into the system? 

Mr. COOK. They would get into the system like they always got 

into the system, but they would pay a market access fee to enter 

the system. But in any other kind of a business you wanted to get 

into, you would need to be an awful lot cheaper or an awful lot better to be able to sell your product. Here you come in, and the milk 

goes in at the level of anybody else’s milk available, and if it is too 

much, everybody suffers. 

Mr. CONAWAY. So in a closed loop you are going to be taking from 

some producers and giving to other producers in that system? 

Mr. COOK. No. The beauty of this is it is open to anybody to 

make their own decisions. You can decide if you want to enter the 

business, if you want to expand the business. 

Mr. CONAWAY. But once in, what I understand your system 

would do is you have ten producers, and three of them produce too 

much milk under the allowable, then they pay the seven that don’t. 

So it is a closed loop, taking money from each other and swapping 

money around. 

On your overproduction why wouldn’t you just say everybody 

gets a fixed quota of what you can produce, figure out whatever 

management system you can work up with, everybody gets a fixed 

quota, and above that you just can’t sell it? I come from the oil 

business, and there was a time when we had an allowable set each 

month by the Railroad Commission, and, again, oil and gas wells 

can be stopped and started a lot easier than cows can be stopped 

and started. 

Mr. COOK. I understand that, but I don’t know if that would 

allow for new producers to get into the business, and we do not 

want to stop that from happening——

Mr. CONAWAY. Have you ever seen a production management 

supply system run by a government—we have a production supply 

system that is called the market, and it is rugged, and it is harsh, 

and it is unrelenting, but it works over time, and we have heard 

several of the folks say that. A couple of the witnesses last week 

said that; in other words, don’t do anything, just let the hard decisions that have to get made do that. 

Have you ever seen a government-mandated supply system in 

any market, not milk, actually work to the benefit of the producers 

and the consumers? 

Mr. COOK. Sir, I have seen the consolidation of the poultry and 

the hog industry go to vertical integration and actually just ruin 

that industry for many parts of this country, and I hope not to let 

that happen to the dairy industry. And I hope we can have a fresh, 

wholesome supply of milk all over this country, and I believe this 

program allows that to happen. 

228

Mr. CONAWAY. Some of us would respectfully disagree with the 

fact that government could run markets that way over the long 

term, in which folks can come and go in and out of the market fairly, and that consumers could get a fair deal, and that producers 

could get a fair deal. I would argue that there has not been a government-mandated supply system ever that worked over the long 

term. It may work in a short term to keep folks in a business that 

may or may not be in the business, but these production management systems that are government-run I don’t think work. 

Mr. COOK. I understand your reluctance, but I do hope that the 

Secretary would pick a board that would be responsible. 

Mr. CONAWAY. So what you are saying is the fact it hasn’t 

worked ever is because we haven’t had the really smart people putting it together? 

Mr. COOK. I don’t know that I have seen such a system in place. 

The CHAIRMAN. Thank you. 

The gentleman from Wisconsin Mr. Kagen. 

Mr. KAGEN. Thank you, Mr. Chairman, for convening another 

hearing on the dairy crisis across America. 

I want to thank everyone for coming here to Washington, leaving 

your farms and representing your best interests and the people 

that you work so hard to represent. 

I have heard a lot of suggestions. Many of the suggestions, if not 

all of them, have already been taking place by the Agriculture Secretary Mr. Vilsack. Mr. Lang mentioned the purchase of cheese to 

the CCC. That has been done. Maintaining the safety net that we 

have, that is being done. The DEIP Program, Dairy Export Incentive Program, that is being invested in. So all three of these ideas 

have been thrown at this marketplace which has been collapsing 

before our very eyes. 

Ms. Hughes, organic farmers seem to be doing okay, but then you 

have been controlling your supply; is that correct? 

Ms. HUGHES. That is right, sir. We have been working very hard 

on supply management, and we have also put into place over the 

past 20 years a pay price system that avoids the volatility and is 

stable, so that not only can the farmers know how much to 

produce, they know how much they are going to get paid for that 

production. 

Mr. KAGEN. But you are not controlling the market, are you? 

Ms. HUGHES. We control what we can, sir, but, no, we are not 

controlling the market, but we work very hard to create the connection with the consumers so that the consumers understand our 

milk is coming from a certain group of producers. Those producers 

expect a certain price and are setting their price, and so the consumers understand that relationship and are willing to pay a premium for that milk that goes directly to our farmers. 

Mr. KAGEN. Just for the record, let me ask you a couple of questions about your input costs, because the rest of the dairy farms 

I am familiar with in Wisconsin have an input cost anywhere from 

$18 to $21 per hundredweight. What is your average on an organic 

farm? Do you have numbers that you could submit? 

Ms. HUGHES. I will be able to submit those numbers to you. I 

don’t have them with me today. 

229

I can say that our farmers have been challenged in the past with 

input costs for organic feed because they were required to feed 100 

percent organic feed. The feed industry lagged behind the growth 

of the organic dairy industry in the past years, and in the past 2 

or 3 years, we have seen very significant organic feed costs. Those 

have leveled out now as folks in the feed industry have provided 

more organic feed, so our farmers are better able to manage those 

costs. 

In addition, a lot of our farmers at that moment of seeing the increased feed costs turn to their own systems and their own operations to grow their own feed and to pasture their animals. One of 

the fundamental principles of organic production is to try to keep 

as closed a system as you can, produce what you have on your farm 

for your cows without having to go too far off for input. 

Mr. KAGEN. Thank you so much. 

Mr. Suber, you mentioned that you are in favor of promoting all 

the free trade agreements available to help exports, but exports 

have been at a record high; have they not? 

Mr. SUBER. They were through 2008, that is correct. 

Mr. KAGEN. Until global demand was destroyed. 

Mr. SUBER. That is correct. 

Mr. KAGEN. And yet do you think our foreign trade, foreign exports of dairy products alone could pull us through this? 

Mr. SUBER. They grew over a 5 year period and, in fact, delivered 

some of the highest prices that this market has ever seen. So, yes, 

they are a significant contributor to a healthy and growing industry. Exports are the way that this industry has grown for 5 years, 

and they are the future once the overall demand is robust enough 

globally. 

Mr. KAGEN. And, Mr. Cook, you are not suggesting that what the 

Holstein group is trying to do is to produce the OPEC of milk, are 

you? 

Mr. COOK. No, sir. We are trying to stabilize this industry for the 

benefit of the producers and the consumers. 

Mr. KAGEN. Thank you very much. I see my time is about to expire, but I have this comment to make, that I am very impressed 

with the fact that throughout the farming community, Mr. Chairman, if you don’t know it, it is legalized gambling. If you are in 

farming, you are a gambler. You are betting on the weather, you 

are betting on the commodity market and hoping that you can 

come out okay at the end of the day. But it is one of the only industries that I know of where if the price is going down, you produce 

more, which really chases down your own price. It is 

counterintuitive. Maybe that is why we have these countercyclical 

programs trying to support the industry. My hope is that we find 

the bottom of the demand curve, because you can produce the supply to meet the world’s demand. 

Let me get a quick comment from anyone on the panel with regard to the import licenses for cheese and for MPCs and the like. 

I am very interested to know if you are interested in seeing a study 

performed that would evaluate the role that the import licenses, 

the import of cheese and MPCs has on our domestic and foreign 

markets. 

230

Mr. COOK. I would just like to know that if all of the imports 

that come in that are used in the dairy industry or in the processing are actually imported as dairy products, or if some of them 

come in under other labels such as industrial uses and things like 

that. I think that is an important thing to check on. 

The CHAIRMAN. The gentleman from Tennessee Mr. Roe. 

Mr. ROE. Thank you, Mr. Chairman, and thank you for holding 

these hearings. 

I come from an area of a lot of small dairy farmers, and one of 

the things, the biggest complaints that I hear, and you all have 

very well stated the causes of this current catastrophe, and I was 

raised on a small farm in Tennessee, and it is a catastrophe. I met 

with about 60 of our dairy farmers 6 weeks, 7 weeks ago, and most 

of them are about out. We have had counties that had 50 dairy 

farms down to one. And one of the counties that I live in already 

has a 161⁄2 percent unemployment rate, and dairy is one of the biggest employers in that county. 

I think one of the complaints that I hear from my dairy farmers 

is what Mr. Cook brought up. They say, Dr. Roe, I go to the grocery 

store, Kroger’s or Food City or wherever they shop, and milk hasn’t 

dropped that much in price, and yet my price has dropped by over 

half. I am down from $21 to $9 or $10 or $11 per hundredweight. 

And it looks like—I don’t know, and certainly I want everybody—

I am a free market guy—to make money. But the folks between the 

producer, from the time he ships it out and pays that cost, which 

all of my farmers do, to the time you go buy a gallon of milk, and 

I realize that is just part of it, but liquid milk at the store, that 

hasn’t dropped as much as his profit has dropped. And I think a 

fair question is, those companies are still very, very profitable, and 

the producer out there who is doing too good a job is about to go 

out of business. And so, Mr. Cook, would you comment? 

Mr. COOK. It certainly is their alternative and opportunity to be 

able to price things how they see fit. Unfortunately we do not have 

that opportunity. I think a store manages the supply by what it orders, and it orders what it can sell. It is actually very inelastic. It 

has a certain demand, and it knows what that demand is, and it 

prices that demand for what it wants that aisle to make for money. 

And I believe it is a situation that—and when prices do go up, they 

will go up in price, but I don’t think you will see the price go down 

nearly as fast as it went up. And usually when it goes up, it is the 

farmer that is blamed for its trip on the way up. 

Mr. ROE. Again, a good point is that during this time that the 

milk price on the shelf that I go buy the milk, didn’t drop nearly 

as much as the producers dropped, and that is a problem, and they 

are being run out. Do you see this as—you are a small dairy producer, and there are other larger dairy producers here, too. And, 

Mr. Lang, I want to compliment you on the testimony. It was excellent. I read it last night, and it was very good. Do you see this as 

a competition between the big producer and small producer? The 

folks in our area do. 

Mr. COOK. Well, I refuse to throw a stone that way. I try to represent the members of ours, and we have some very, very large 

ones and small ones all over the United States. And we are all in 

231

the same situation together, and I believe this is something that 

everybody is going to have to really look at. 

There are some of our people that are producers that have already vertically integrated and have the opportunity to create 

those situations you and I have just discussed within their own 

realm, and there are other people who are very, very large, who 

have reason to believe that they can make money with milk after 

the fact, even if they lose it now, and after this next washout of 

producers, which is going to eliminate the dairy producer landscape 

as we see it now. And at 57,000 people that are left in this business, it is getting down to we are in a critical mass, we are below 

our critical mass in realistic terms, and we are losing the associated industries. We are losing the local economic benefit of the 

farm suppliers and the open spaces that are maintained by those 

farmers staying where they are and where they currently can stay. 

Mr. ROE. I agree with that, and I think that, as I told the Secretary here when he was here before, I said about a carbon tax, it 

affects you all. That is another price, a cost that may be coming 

along, but we all eat. And I want to be sure that the producers 

where we are can be seen through, and they told me, they said, 

look, we don’t—we are not worried about a handout; we just want 

a fair price for the product that we produce, the quality product 

that we produce. And I totally agree with him. 

I don’t know, I have read here where herd size, I certainly understand that very well. I have a lot of beef producers in my area. If 

you flood the beef market in my area, you hurt another part, and 

you all don’t want to do that. 

I don’t have much time left, but I certainly, Mr. Cook, was intrigued by your—and will contact you later about your comments 

about how you might help the farmer, the dairy farmer. 

Mr. COOK. Thank you, and I welcome any questions you have. 

Mr. ROE. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from Iowa, Mr. Boswell. 

Mr. BOSWELL. Thank you, Mr. Chairman, for continuing to explore possibilities that we might do for this very important industry. 

I want to address a couple of questions to Mr. Lang, because I 

have known him a long, long time, his family. I drive by their operation from time to time, and I appreciate what they are trying to 

do and over the years with the family. 

But I would like for you to just—if you had this magic wand, 

Craig, that you could wave here for this industry, and we have 

talked short term and long term and all these things, it has been 

a great discussion, what would you do? What would you advise us 

to do? What would you ask us to go to the USDA with? 

Mr. LANG. I think you need to hold steady on the programs that 

you have in place right now and let time work. As unfortunate as 

it is, there will be some dairy farmers that go out of business. But 

it is not only just price. If you are around your cows 24 hours a 

day, 7 days a week, Sunday before church, Sunday after church, 

milking cows, there is an inefficiency there. When the rest of the 

world takes weekends off and has a night out with their wife from 

time to time there is an efficiency that comes with a larger herd 

that allows you to have time away from the herd. 

232

So it is not just price, and it is just not the size of the herd out 

of business because of price. And if you look at the charts that I 

submitted, 25 percent of the dairy industry, even with the lowest 

price, had some profitability in the last 18 months. So that makes 

it very, very difficult to find a price that fits all. 

So I do believe that good policy is the pieces that we have in 

place now with DEIP, as long as they are WTO-compliant, with the 

MILC Program, the co-ops working together, the CCC purchases, 

will bring them around a stable price that gives us some long-term 

financial stability that gives an opportunity for those like my two 

younger sons—they are 22 and 24, they are not kids anymore—to 

grow the herd, to make a decision that probably what they will 

have to do is have a herd—rather than 500–600 cows, have a herd 

800 to 1,000 cows in order to compete in the area. 

Mr. BOSWELL. I assume—well, I know you had to—when you 

took those two young fellows into the operation, you had to figure 

another family income for each one, and it had to come from somewhere. I don’t suppose there is a whole lot of lands for sale around 

Brooklyn, so you had to figure out how to do that. I just want to 

put that point out. You had to massage that pretty hard about letting them come into the operation. 

Mr. LANG. That is right, and there is a certain amount of sacrifice on the part of grandparents and parents to say that maybe 

our retirement will be put off for a few years in order to make sure 

that the next generation has the opportunity to be there as well. 

Mr. BOSWELL. I appreciate that. 

Mr. Chairman, I want to recommend, Mr. Lang and others were 

cut short because of the time constraints which we have to do. I 

understand that, but I would recommend that staff and everybody 

carefully read the charts and look that piece over, because it was 

well put together, as they all were. 

Another thing you bring up, Craig, is the cost of feed is the big 

factor. And we all know, we don’t need to go into a lot of discussion 

about how it went up this last year, months, and now things have 

changed, but your costs are staying up. And, of course, we know 

what happened to the price of milk. So, how do we deal with that? 

Mr. LANG. We own most of the land that we farm. That is fortunate. We paid the bill for high-priced land when the rest of the industry had cheap feed, and right now there is some benefit in that 

for us. But still we use the real price of $7 a hundredweight as our 

feed cost, but that is less than some other parts of the country because we do own the land; there is not the debt against it that 

would come if you are purchasing. The price has come down considerably from what it was certainly a year ago and from what it was 

earlier this spring. 

Mr. BOSWELL. What about the cost of your inputs on the fertilizer and seed, have they come down? 

Mr. LANG. Fertilizer is now down. Seed this spring was not. 

Mr. BOSWELL. Go ahead. I am going to let you have my last 42 

seconds. 

Mr. LANG. And I would say energy costs are a big part of a dairy 

industry because unlike other parts of farming, we use the same 

amount of fuel every day. Energy costs, veterinary costs, labor 

costs, they are all high, but I do believe that if we hold on to the 

233

current practices of supporting milk in the way we have now, that 

this industry will come to better times in the near future. 

Mr. BOSWELL. Thank you very much. 

Mr. Chairman, I might just add this, because I recommend his 

testimony not because he is my constituent, but because occasionally when I get a new legislative assistant that is not really experienced, I send him out to their farm to get their hands dirty and 

also to sit around that kitchen table to talk about what it is all 

about. 

Mr. LANG. And we show them how to haul manure. 

Mr. BOSWELL. We call it getting their hands in the grease. 

The CHAIRMAN. Absolutely. The value of each of these testimonies is just immeasurable, and I agree with you those charts on 

dairy margins will be very helpful to us. And the staff really leans 

very heavily on each of your testimonies, for they have been very, 

very helpful throughout each of these hearings, to help guide us 

forward in finding some help in the industry. 

Now we will hear from the gentleman from Pennsylvania, Mr. 

Thompson. 

Mr. THOMPSON. Thank you, Mr. Chairman. Thanks again for the 

privilege of allowing me to join you in this very important hearing 

as dairy prices are down about half of where they were before, and 

we are struggling. 

I really appreciate Mr. Boswell’s line of questioning in terms of 

inputs. I am not going to go too much further down there because 

that is a balance of cost, and supply and demand, and cost. Frankly, just to make a statement, one of the things we really could do 

to protect our farms and our farmers and our agriculture is avoid 

costs like some of those what I consider very ill-conceived programs, cap-and-tax, cap-and-trade, and frankly a food safety bill 

that is going to raise the cost on producers that we are going to 

be looking at here maybe even this week. 

We have talked a lot about short term, and that is important because I see that is a life preserver for dairy farmers who are 

drowning, because we can ill afford to lose our dairy farms, any 

farm. Frankly, the biggest threat to our national security would be 

turning our food sources over to other countries. 

But I want to focus just a little lit bit on the long-term side. We 

need to figure out what the life preserver is right now. But long 

term, just a show of hands of the folks on the panel, and thanks 

for being here, how many on the panel would support the fact that 

we need to simplify the pricing system? 

Great. Those who—looking for just a real quick thought on what 

would you do to do that? What would you recommend? What would 

you implement? 

Start with Mr. Lang and then any of those others who agree with 

that. 

Mr. LANG. Well, certainly have more population buy fluid milk 

would help us in the Midwest, but a single order, we would be open 

to that. We would be open to certainly more transparency in the 

pricing of all dairy products both at a retail level and at a—certainly a store level, but what price really is the price of milk that 

farmers receive. 

234

Mr. THOMPSON. So single order, transparency. Any additional 

thoughts on how we do that simplifying? 

Dr. GUTERBOCK. Competitive pricing, allowing processors and 

producers and co-ops to arrive at prices based on their needs rather 

than based on the current system. 

Mr. BOSTWICK. I agree with that; one order, and an all-milk 

price, transparency, and just simplification in the overall process. 

Mr. CONTENTE. We have in the current pricing system, we have 

fixed values for cost production at the plants; however, the producers don’t have those same values, so I believe that should be 

cleaned up one way or the other. 

Mr. COOK. I think something to stabilize the amount of milk produced and to meet the market demand, and also perhaps more 

transparency in the marketplace. Maybe our product-pricing method is taking away milk moving toward the most profitable means 

for it. I know it stopped having tilts instituted for skim versus fat, 

but it has also caused other problems and maybe masked where 

milk really should go, and sometimes sent it in another direction. 

Mr. SUBER. Without specifically citing a mechanic of the pricing, 

I would say the outcome that should be focused on is to diminish 

the volatility that is in the marketplace. We hurt our producers on 

the low side; we damage our buyers globally, domestically and 

internationally on the high side; and the peaks, valleys and the 

shortness between them is killing both ends of that equation. So 

dealing with that through these mechanics would be important. 

Mr. THOMPSON. What is the industry doing in this? Is it doing 

enough to create demand and markets for our products, given the 

strains our industry now faces? 

Mr. SUBER. The issue on demand is constantly under pressure. 

Dairy farmers invest 15¢ for promotion. Part of that goes in the export side, part of it is used domestically, and the attempts there 

to build demand in fluid and in cheese have reached new successes 

in a variety of ways that I can certainly provide to the Committee 

if it needs it. 

But working with the processors and the people who control access to the market, meaning whether they are retailers or quickservice chains, are all part of trying to make sure that you build 

promotion in a way that moves product, not just simply building 

awareness. 

So the issues there are important. There is always a need for 

processors to be listening to the market, though; not just promoting, but listening to what the market needs. And the issue of 

diversity of protein supply is very important. One of the other 

questions was about imported proteins. Those proteins can be made 

here if our pricing system adequately reflects the signals that the 

processors need to meet that demand. 

Mr. THOMPSON. I see I am out of time. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

The gentleman from New York, Mr. Massa. 

Mr. MASSA. Thank you very much, and thank you for conducting 

this, and a series of very critical hearings, probably one of the most 

important issues we face back in my home district. 

235

Just by a show of hands if I could ask, please, lots of information 

to cover, do any of you support the concept of the execution of a 

single-dairy national pricing order starting immediately or as 

quickly as we could make that happen? Just a show of hands so 

I can just get a feel. I know there are lots of diverse opinions. It 

comes down almost on the same side as the previous question. 

I would also like to explore two things that are critical to what 

I have heard. This is first, Mr. Suber. You mentioned from your 

point of view as a trade expert that we have seen a drop in exports 

from 11 to 8 percent. Is that a correct characterization of your testimony? 

Mr. SUBER. As a percent of production, that is correct. 

Mr. MASSA. You also characterized it has had a significant effect 

on the overall dairy environment in the United States? 

Mr. SUBER. Correct. 

Mr. MASSA. And I have heard others at this table discuss what 

is a near catastrophic meltdown in the dairy market. I am using 

words, but would anybody—perhaps, Mr. Contente, would you 

agree with that characterization that we are facing a truly dire 

dairy situation. 

Mr. CONAWAY. Most definitely. 

Mr. MASSA. So here back to you, Mr. Suber, I don’t understand. 

From 11 to eight percent in dairy exports, that has been in some 

individuals’ minds the driving factor. How could a three percent 

drop in dairy exports be so very responsible for everything from 

suicides, to families selling the farm, to the incredible hardship 

that I have witnessed firsthand? How do we let ourselves get into 

a position where foreign countries and our market access to them 

by a ratio of three percent could do this to us? 

Mr. SUBER. Three percent is 6 billion pounds of milk and the various products that it turns into. If it cannot be sold like any commodity system, it now becomes priced against what a buyer will 

pay in the face of that amount of supply. Corn, oil, any commodity 

will have that issue if demand suddenly stops. The issue is that the 

export market became a growing part of our demand picture, and 

it will become so again when you have catastrophic circumstances 

happening in economies. We are a globalized dairy economy, much 

as we may not like to think of it, and therefore we are tied to it 

and bear the consequences of it. 

Mr. MASSA. So just in summary, you are relatively certain in 

your position that that three percent drop is, in fact, as it had been 

characterized, a significant factor in the overall pain being suffered 

in the U.S. dairy industry? 

Mr. SUBER. Yes, sir. 

Mr. MASSA. Would you agree with the following statement that 

we have very little control over foreign governments to change that 

in the short term. 

Mr. SUBER. The issue was not caused by the action of foreign 

governments, unfortunately, but——

Mr. MASSA. Foreign markets. 

Mr. SUBER. Foreign markets. We generally cannot control markets, period. 

236

Mr. MASSA. So whether or not individuals in foreign countries decide to eat our cheese or drink our milk is really a governing issue 

in this particular swing in the dairy industry. 

Mr. SUBER. Yes, as we have to compete domestically for share of 

stomach at any time. 

Mr. MASSA. I appreciate your candor. I don’t disagree with you. 

For the record, however, you and I are very much in opposite spectrums of the world. I think that by engaging ourselves in these 

open-door, free-trade policies that have allowed this to happen is 

at the very core of negligence on the part of our Federal Government that has surrendered a great deal of our economic, agriculture, manufacturing sovereignty to the whims of foreign populations, whether they are intentional, or whether they are marketdriven, or whether they are anything. 

And, as I know, it counters your testimony, and I stand in fierce 

opposition to increasing these free market agreements that I think 

will grossly exacerbate the problem and the pain and suffering that 

I have to witness and deal with every single day, not to use a metaphor, back on the farm. And so I very strongly believe that my 

number one duty as a Member of the United States Congress is to 

protect the interests of the individuals of the United States of 

America, and not the proclivities of individuals in foreign countries, 

whether or not they want to buy or sell our milk or cheese. 

So I believe that we must look aggressively in the immediate 

term to doing whatever is necessary to stabilize the situation, and 

then we can have all the philosophical arguments we want to have 

to figure out how to prevent this in the future, et cetera. But the 

pain is real. The call to action is right now. And frankly, I have 

had it up to my eye teeth as a new Member of Congress with ivory 

tower economists talking about what is going to happen 12 to 18 

months from now. I will associate myself with any immediate action that will make the lives of our farmers better, and, frankly, 

double damn the consequences. We will figure that out 6, 7, 8 

months from now. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

The CHAIRMAN. That deserves a bow. Well stated. 

Let me just ask a couple of questions right quick, and we will 

recognize a couple of more here. But, Mr. Suber, last week in our 

hearings, it was stated that imports such as MPC cause our domestic price of milk to be suppressed. What do you say in that regard? 

Mr. SUBER. We analyze imports. We do not have programs directed at imports. When times are tough, any imports are a problem. Today they are less than what they used to be. But I repeat, 

at times of stress, any imports are a problem. 

The CHAIRMAN. Thank you very much. 

Mr. Cook, in your opinion, does the Holstein plan take into account the interdependence of regions, as Dr. Guterbock stated in 

his testimony. 

Mr. COOK. Yes, it does. The Holstein plan does not affect any 

program that is currently in place. And the reason the Federal 

order system is in place is to make sure that there is a regional 

dairy production system. I think we are down to nine Federal orders from 30 some-odd just a little while ago, and I think that is 

probably a minimal number where we need to be if we are conVerDate 0ct 09 2002 13:01 Nov 12, 2009 Jkt 041481 PO 00000 Frm 00242 Fmt 6601 Sfmt 6601 I:\DOCS\111-24\53102.TXT AGR1 PsN: BRIAN
237

cerned with maintaining a production dairy industry throughout 

the United States. 

The CHAIRMAN. Thank you. 

Now, Dr. Guterbock, are there any short-term suggestions, shortterm suggestions that you believe could help producers make it 

through these tough times? 

Mr. GUTKNECHT. I am afraid I don’t have any short-term solution 

that would not contribute to the long-term problem. 

The CHAIRMAN. Ms. Hughes, may I ask you a question? Can you 

explain what the pending Agriculture Department’s producer-handler hearing is about? And why do you believe it should be suspended? 

Ms. HUGHES. We actually have not taken a position on the current producer-handler hearing. 

The CHAIRMAN. You do not believe it should be suspended? 

Ms. HUGHES. We just haven’t taken a position on it. 

The CHAIRMAN. Let me ask that question to you, Mr. Bostwick. 

Mr. BOSTWICK. Well, we view the producer-handler controversy—

producer-handler is really just a risk-management tool. It is a riskmanagement tool that has been in place for 70 some-odd years, 

which basically allows a producer and a processor, in essence, to 

be the same person so that we milk the cows, and we bottle the 

milk, and we also make ice cream and all the things that a producer does. 

We have been free from the Federal Milk Marketing Order system as a producer-handler. There are those that believe that we 

should be part of the pool and be subject to these very archaic and 

unfair rules and problems that we have been discussing here all 

day long today. And that is why we kind of take a position that 

the producer-handler is a valuable tool, that they generally are 

closer to the consumer, they do things like grass-fed product, they 

put their product in glass bottles. We concentrate our nonfat solids 

in our lower-fat milks because our customers like that. So it is just 

a different business model, and on this particular issue reasonable 

minds are disagreeing. 

The CHAIRMAN. All right. Mr. Contente, let me ask you if you 

think that California should be part of the Federal Milk Marketing 

Order? 

Mr. CONTENTE. Most definitely. It is kind of like having a football game with two separate rules. I might get 11 players, and the 

guys in Federal order might only get nine players. So we should 

all play by the same rules. 

The CHAIRMAN. Let me ask each of you very quickly and for the 

record if each of you supports a national supply management program? 

Mr. Lang. 

Mr. LANG. We do not. 

The CHAIRMAN. Mr. Bostwick.

Mr. BOSTWICK. We do not. 

The CHAIRMAN. Mr. Contente. 

Mr. CONTENTE. Yes, we do. We support the Holstein plan. 

The CHAIRMAN. Dr. Guterbock. 

Dr. GUTERBOCK. No, we do not. No. 

The CHAIRMAN. Ms. Hughes. 

238

Ms. HUGHES. We do. 

The CHAIRMAN. Mr. Cook. 

Mr. COOK. We certainly do. 

The CHAIRMAN. Good. 

Mr. Suber. 

Mr. SUBER. We do not. 

The CHAIRMAN. All right. That is about three to four. That is 

about an even split. That is the big question we have, not only 

what to do, but what to do that the industry can agree on. But we 

will—we will find answers to these questions. Thank you very 

much. 

Now we will recognize Mr. Thompson again. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

I really appreciate the discussions between short term and long 

term. I think that there is a need for both, but it has to be the 

right one. 

Dr. Guterbock, I appreciate the sense of caution that I hear from 

you, because it is not about just taking action, but it is the right 

action. We can’t make matters worse. We really do need to look at 

the long term, and we need to be doing both at the same time, I 

believe. It is that kind of a crisis right now. 

If Congress—there are a lot of proposals right now. I know there 

is one on the Senate side. It has to do with establishing kind of a 

price floor. If Congress were to enact an $18 per-hundredweight 

price floor, as some have proposed, what would the impact be on 

government purchases? Does anybody have an opinion of that? 

Mr. LANG. It would be huge. 

Mr. THOMPSON. In what way? 

Mr. LANG. I believe that we support the current price floor as it 

exists today, but I believe that you will have production that is unbelievable because you have a lot of growers out there that can 

produce milk very, very profitably at a lower amount. And what 

happens when you have a price that is profitable, you get overproduction. And I believe that is exactly what will happen so that 

surplus needs to be purchased in some manner. 

Mr. COOK. I agree with—I agree with him, very much so. I think 

something like that would help immediately and would do most of 

the farmers in this country an awful lot of good. But without a 

Dairy Price Stabilization Program, exactly what Mr. Lang said 

would happen. So, we are looking at something that must be done 

in concert. What you are talking about would certainly help this industry short term and be a quick fix, but let us look at something 

long term that will stop these quick fixes from becoming necessary 

all the time. 

Mr. THOMPSON. Mr. Contente. 

Mr. CONTENTE. I don’t believe that the amount, the burden to 

the government would be that large simply for the fact that if you 

look at the last couple of weeks of CCC purchases, especially last 

week that was under 1 million pounds, so our production is coming 

in line with the market, and there is probably not as much production excesses as we suspect there is. So that would just bring the 

price up to a level that the market would have to pay. But I would 

agree with Mr. Cook that the supply management would be a necessary step further on. 

239

Mr. THOMPSON. For those of you who advocate for that or a similar propose, do you have a cost estimate on what that cost would 

be? 

Mr. COOK. The cost estimate for a Dairy Price Stabilization Program? 

Mr. THOMPSON. Yes. 

Mr. COOK. To the government, it would be no cost to the government for it. In fact, we expect that the government would reap 

huge benefits in the fact that they—we would hope that the MILC 

payment would not be necessary, we would hope that it would reduce requirements, we would hope that it would help an awful lot 

of things with the price support program as well. 

Mr. THOMPSON. Now, how about with that type of a mandatory 

supply management, how do you envision such a program would 

manage domestic production with the prospect of additional imports, and setting that ceiling at $18 per hundredweight, and do 

you see where there might be potential for, unfortunately, more imports to flood in? And what would the impact of that be on our producers? 

Mr. COOK. I think as far as—these are two separate issues. I 

think currently, it was said earlier, if we increased short term an 

$18 price, you wouldn’t buy an awful lot more product. You would 

pay more for the product you bought, but you wouldn’t buy an 

awful lot more product, I don’t think, right now, because of the demand and supply is where it is. There is too much milk, but you 

are already buying it. You won’t buy more, you will just pay more 

for what you buy. 

But, if you institute the Dairy Price Stabilization Program, 

which, by the way, would be funded by no more than 2¢ by all the 

milk produced by the people producing milk today, you would stabilize these peaks and valleys and not have to continue going 

through this large purchase amount that you buy. 

And as far as our exports, I just want to go on the record and 

say that our exports are at the level they are now, being very highly subsidized through DEIP, thank God. DEIP is a program that 

is mandated, and I am glad we are using it. But we are subsidized 

through DEIP, and we subsidize through some other methods a little bit lately as well. If it is eight percent, that is good, but it is 

not all eight percent just by free market trade. It is eight percent 

because of some of it is being subsidized. 

Mr. THOMPSON. Any others have opinions on what may happen 

to potentially increased imports? 

Dr. GUTERBOCK. I think an artificially high price in the United 

States would certainly encourage imports and increase them, and 

those would also increase purchases by the CCC, and all those surpluses eventually have to be sold and would depress future markets. 

The CHAIRMAN. Thank you. 

I will now recognize Mr. Costa of California. 

Mr. COSTA. Thank you very much, Mr. Chairman. I once again 

want to thank you and Chairman Peterson. When the meltdown 

first began late last fall, we came back in January, we asked to put 

together a meeting with you, with Chairman Peterson and the new 

Secretary of Agriculture Mr. Vilsack, and we have been working 

240

continuously since that time to try to address both the short-term 

and the long-term aspects of this. So you are to be commended by 

the series of hearings, and we will have to stick with it. 

Our friends with the Holstein Association nationally and other 

organizations that have been working together on the proposal that 

has been just discussed about a supply-side management, we hope 

to have a draft of that out here soon that can be vetted. A number 

of other dairy organizations around the country are interested in 

it, and we hope to continue to vet that with you during the month 

of August. And we want your feedback, because I really think that 

if we are going to deal with these long-term boom-and-bust cycles, 

that is going to have to be a critical part of the long-term solution, 

it seems to me. 

I do want to ask unanimous consent for the record to submit information, I think, of data that is missing from the United States 

Department of Agriculture, USDA, on the role that caseins, 

caseinates, milk protein concentrate has on the U.S. dairy market 

that was produced by the National Farmers Union by Mr. Joaquin 

Contente and his organization. Without objection? 

Mr. SCOTT. Without objection, so ordered. 

Mr. COSTA. Thank you very much. We will submit that for the 

record. 

[The document referred to is located on p. 243.] 

My question is this, because we have covered most of the issues 

here today, and I heard—it gets back to supply and demand, and 

I heard it referenced earlier with same-sex semen, and I am getting 

conflicting information. And we know that it is a new technology 

through genetics that allows us to—and since I came from a dairy 

farm, it used to be kind of 50/50 between your young heifer calves 

and your bull calves, and now with same-sex semen, with the genetics, we are able to get 80 or 90 percent heifer calves. 

And even if we do the herd thinning or the Herd Reduction Management Voluntary Program that has seemingly been working in a 

couple of months here, and we are reducing herd size, I have heard 

numbers say that we may have as much 4+ million heifers waiting 

as replacement heifers. Then I have heard other numbers that say 

that it is much lower than that recently. 

Do any of you want to, on that question, have some information 

on that is most reliable to us? Maybe we will start with the Holstein guy. 

Mr. COOK. I believe that Select Sires’ information is recently 

available in Hoards Dairyman is at 8,000 in 2008, 63,000 this year, 

161,000 next year, maybe as much as 300,000 year after that. I believe there is going to be—the government currently takes biannual 

reports of the heifers available, but usually they talk to the farmers 

themselves, and an awful lot of these heifer calves now are bought 

by heifer ranches. And I don’t know if information that we will be 

receiving when the next level comes out will actually show these 

heifers in line yet, but I know they are there. And I know they are 

going to haunt us, and it will take maybe 6 months before we actually find that level. 

Dr. GUTERBOCK. I don’t know the exact number. I believe it is 

about 4.8 million heifers. 

Mr. COSTA. I have heard 4.2. 

241

Dr. GUTERBOCK. As a percentage of the milking herd, it is at a 

record high, and we do expect more of these same sex-semen heifers to be spawned. 

Mr. COOK. Mine are only extra heifers, sir, extra heifers because 

of the use of sexed semen. I believe the actual number of replacement animals that is regarded now is about 3.9 million replacement availability. 

Mr. COSTA. Mr. Chairman, we need to get a handle on this as 

we move forward on whatever long-term solutions we find only because the numbers I have been using—and I think they are in the 

ballpark, 9.3 million cows being milked in the country today, 

through the herd reduction effort we have been trying to reduce 

that below nine million—I have heard some numbers that say we 

are about halfway there. I don’t know what the current count is on 

that, but if we get below nine million milking cows in the country 

by the end of this year, let us say, and that is an if, if we have 

anywhere from 3.2–4 million replacement heifers, I just don’t understand how, in terms of the long term, we are not going to be 

back into the this boom-and-bust cycle. 

I know dairies are very efficient. Sometimes after your third or 

fourth calf, you are culling and replacing and bringing these new 

heifers in. But I don’t know that any of our dairies are that efficient or that we can export all that additional milk product. So, it 

is an area that we are going to have to get a better handle on. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Costa, and let me thank all of 

you, each of you, for your expert testimony. We have a very serious, 

serious problem, a critical one. Of course, it cannot be solved without your inputs. We have had over 20 witnesses to come before on 

our three panels. We are determined to hear from everybody. We 

want to get as much intelligence as we can before our Committee. 

We want to get the Agriculture Department back over here. We 

want to have conversations with the Secretary. 

What we want to do is help the industry as quickly as we can, 

but as witnessed from the testimonies that have been given, that 

is not going to be an easy thing. We have to get agreement on exactly what the approach will be. But one thing is for certain that 

these hearings have done to this point, it has certainly dramatized 

the critical nature and the urgency of this issue. And it has been 

deeply felt by the Chairman of this Subcommittee as well as each 

Member of our Committee, and we are committed to helping the 

dairy farmers and to bring some price stabilization to this very critical, critical and important industry worldwide. 

And so under the rules of the Committee, the record of today’s 

hearing will remain open for 10 calendar days to receive additional 

material and supplementary written responses from the witnesses 

to any questions posed by a Member to the panel. 

This hearing of the Livestock Subcommittee is now adjourned. 

[Whereupon, at 12:30 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

242

243

SUBMITTED MATERIAL BY HON. JIM COSTA

The Role of Casein, Caseinates and Milk Protein Concentrate on the U.S. 

Dairy Market 

The U.S. dairy market is the world’s largest single commercial dairy market. This 

market last year reached and exceeded 200 billion pounds of milk including exports. 

However, the USDA ERS fails to include any usage data for casein, caseinates and 

MPC in its commercial disappearance of milk data. Therefore, the commercial disappearance or utilization reports from USDA ERS are not complete or accurate. An 

assessment of what information is used on supply and utilization ERS reports reveals the following:

1. total milk production for the year. 

2. imports—added in. 

3. beginning stocks—added in. 

4. total supply—total. 

5. ending stocks—subtracted. 

6. total—total. 

7. exports—subtracted. 

8. shipments (to U.S. territories) subtracted. 

9. fed to calves—subtracted. 

10. human (domestic) final total. 

11. per capita—per capita.

Lcnsd cheese 109,994.8 MT 

Non Lcnsd cheese 38,938.5 MT 

Lcnsd cheese items 21,386.7 MT 

Total 170,320 MT 

The flaw in the USDA ERS supply and utilization of all dairy products reports 

is in the information numbers for the import category. In order to recognize this discrepancy, first one must check the Foreign Agricultural Service (FAS) Imports Commodity Aggregations report. After careful analysis and calculations of this report it 

becomes clear that something is missing. The cheese imports on that report for 2008 

total 170,320 metric tons of cheese imports. This is equal to 375,487,472 pounds of 

cheese imports. Using the basic standard of 1 pound of cheese is equal to 10 pounds 

of milk, this would translate to 3.75 billion pounds equivalent of milk imported in 

2008 just for cheese. 

Now the amount of imports on a milk equivalent basis as stated in the commercial disappearance: Milk in all products, 2008 report is 3.94 billion pounds. With the 

total imports of 3.94 billion pounds for 2008 and the cheese imports of 3.75 billion 

pounds, the flaw as you can see becomes quite evident that something is missing! 

Once all the different categories are included such as casein, butter, MPC, and lactose the total for imports surpasses 15 billion pounds of milk equivalent. Herein is 

the Missing Data!

Æ