Preface On September 7 and 8, 1994, the Extension Education Committee of the Cornell Program on Dairy Markets and Policy sponsored a workshop for dairy economists and policy analysts in Minneapolis, Minnesota. This proceedings summarizes the workshop papers and discussions. The Extension Education Committee consists of dairy marketing economists from several land-grant universities, as listed below. Their purpose is to conduct educational programs and provide informational material relative to dairy policy and dairy markets. Andrew Novakovic Robert Jacobson Project Director Committee Chair Cornell University The Ohio State University Robert Cropp Hal Harris University of Wisconsin Clemson University Ronald Knutson Joe Outlaw Texas A&M University Texas A&M University Robert Yonkers The Pennsylvania State University Special thanks are also due to Larry Hamm (Michigan State University), Albert Ortego (Louisiana State University) and Jerome Hammond (University of Minnesota), who led discussion groups, and David Dyer (L-D Associates) who provided a special commentary. Wendy Barrett provides support to the committee and prepared this proceedings for publication. Fran Howard edited papers and wrote discussion sumnmaries for this proceedings. The work of the committee is made possible by grants provided through the Cooperative State Research Service and Agricultural Marketing Service of the U.S. Department of Agriculture. If you would like additional copies of this publication or further information about the Committee of the Cornell Program on Dairy Markets and Policy, please write: Wendy Barrett ARME Department • Cornell University 349 Warren Hall Ithaca, NY 14853-7801 WORKSHOP PROCEEDINGS ii TABLE OF CONTENTS Introduction Robert Jacobson, The Ohio State University 1 Major Issues for the 1995 Farm Bill Ronald D. Knutson, Texas A&M University 3 Dairy Policy and Price Regulation in the 1990s Robert Cropp, University ofWisconsin 9 Dairy Trade Liberalization and Its Impacts Andrew Novakovic, Cornell University 13 Factors Defining and Shaping Dairy Markets and Farms in the Next Ten Years Mark Stephenson, Cornell University 19 Changes, Choices, and Challenges David R. Dyer, L-D Associates 27 Workshop Summary Bob Yonkers, Pennsylvania State University Hal Harris, Clemson University Joe Outlaw, Texas A&M University Fran Howard 33 Discussion Group #1 Facilitated by Andrew Novakovic, Cornell University.......................................................................... 39 Discussion Group #2 Facilitated by Robert Jacobson, The Ohio State University 43 Discussion Group #3 Facilitated by Robert Cropp, University ofWisconsin 45 Discussion Group #4 Facilitated by Mark Stephenson. Cornell University 49 Discussion Group #5 Facilitated by Larry Hamm, Michigan State University 53 Discussion Group #6 Facilitated by Al Ortego, Louisiana State University 57 Discussion Group #7 Facilitated by Jerry Hammond, University ofMinnesota 61 Epilog 63 Appendix A: Workshop Participants 65 Appendix B: Workshop Evaluation.................................. 67 WORKSHOP PROCEEDINGS III Seven Rules for Successful Negotiations Adapted by Harold M. Harris, Clemson University 1. Go first. Tell the other party in the negotiations honestly and up front what you hope to accomplish. 2. Go wide. Go beyond the traditional boundaries of the issue. or 3. Go narrow. Instead of trying to solve the entire problem, solve narrow segments. 4. Go longer. The negotiation process takes time. Be willing to spend that time. 5. Go play. Get to know the person you are negotiating with. Have fun. 6. Go over. Go over to his place-her country. 7. Go simple. Don't complicate every issue and every goal. WORKSHOP PROCEEDINGS iv INTRODUCTION Robert Jacobson, Program Chair Professor Emeritus, The Ohio State University "Toward the 1995 Fann Bill and Beyond" was the Our substance objectives were lofty, and perhaps, theme of the first Invitational Workshop for Dairy unreachable. Nonetheless, all were touched upon in the Economists and Policy Analysts. The workshop was short, one-and-a-half day program. Participants were held from noon September 7 to noon September 8, asked, rhetorically speaking, to remove their uniforms 1994, at the Radisson Metrodome in Minneapolis, and as representatives of particular organizations and oper­ was conducted by the Dairy Markets and Policy Exten­ ate solely as dairy economists or policy analysts for the sion Education Committee, a group of land-grant uni­ duration of the workshop in an attempt to achieve four versity economists. The program consisted oftwo parts: objectives: presentations designed to brief participants on some of the issues and details that will be involved in upcoming • Examine the implications on the dairy industry policy debates and discussion groups that allowed par­ of the realignment of milk production and mar­ ticipants the opportunity to further define and offer keting in the U.S. solutions to those issues. Too often in the field of dairy economics we get • Provide ideas to assist the dairy industry in caught up in different postures of reaction, rather than making a best adjustment to the new world trade action. This workshop is a step toward action, an at­ order. tempt to offer ideas for action rather than arguments in reaction. The discussion part of the program offered an • Define a dairy title for the 1995 fann bill that is unprecedented opportunity for 60 of the nation's dairy consistent with public policy objectives. economists and policy analysts to define and develop solutions to some of the more crucial issues facing • Identify strategic adjustments in the Federal today's dairy industry. More important, perhaps, is that Milk Marketing Order Program that will help it the outcome of the workshop offers the industry at large achieve its objectives of orderly marketing and the opportunity to develop a plan of action instead of price stability through the next decade. waiting until forced to develop an argument in reaction to upcoming policy changes, some of which undoubt­ All of the substance objectives were discussed edly will be inevitable over the next decade. during the workshop portion of the program. However, In holding the workshop, we had both process and some issues-those viewed as most critical by the substance objectives. Our process objective, success­ participants-took precedence over others. Federal or­ fully accomplished, was to receive input from each der adjustments, international trade, and more loosely, individual in attendance on the topics presented by the U.S. government's role in dairy policy were of top conference speakers and on the issues that surfaced in concern to workshop participants. the discussion groups. Put another way, we wanted all Both the workshop and this proceedings booklet of the participants-including the committee mem­ are an expansion of the committee's usual activities. bers-to benefit from each other's expertise. This pro­ Since the first meeting of the Dairy Markets and Policy ceedings booklet offers those not in attendance that Extension Education Committee on Jan. 6, 1989, output same opportunity: to benefit from the expertise and has been mostly in the form of leaflets covering dairy work ofsome ofthe industry's top dairy economists and marketing, dairy policy, and federal orders. To date, we policy analysts. Participants were chosen carefully and have published nearly 50 leaflets that we believe are represented all sectors of the industry. A list of work­ useful to both the industry in general and to extension shop participants can be found in the appendix of this services throughout the land-grant system. For those booklet. This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project of Cornell University's Program on Dairy Markets and Policy. who are interested, information on how to obtain the is timely and of a practical nature. Our hope is that the leaflets can be found in the preface of this proceedings. industry will not only gain insight from the effort put Overall, the first annual Invitational Workshop forth by all in attendance, but also will use this informa­ for Dairy Economists and Policy Analysts exceeded our tion as a base from which to develop solid policy expectations. The information contained in this booklet recommendations for the next decade. .. WORKSHOP PROCEEDINGS 2 Introduction MAJOR ISSUES FOR THE 1995 FARM BILL Ronald D. Knutson, Professor Texas A&M University The 1995 fann bill could be quite different than A controlling point in the budget process is that previous fann bills, where the emphasis was on fme­ expenditures above the budget constraint must be off­ tuning past program provisions. The content ofthe 1995 set, or revenue neutral. Therefore, any change in dairy fann bill will be driven by issues of budget, market­ policy is subject to "a budget point of order," which orientation, environment, and politics. Significant po­ raises the question as to what the source of funds will be litical challenges to the whole concept of agricultural to pay for increased program costs. The limit on total subsidies exist, as do proposals with new approaches for fann program spending combined with the budget off­ dealing with fann issues, including income assurance, set mentality is a source ofdivisiveness among agricul­ green payments, and means testing. In the current tural interest groups, with each vying for a larger share budget-cutting, market-oriented environment, dairy of the pie. While assessments are not popular with interests need to be aware of the need for coalition producers, they have provided a means of continuing to support. Such coalitions not only involve other fann operate a dairy program. Like it or not, assessments groups, but also environmental, food assistance, and could become even more important in the future. international interests. Without such coalitions, dairy Market-Driven Policy could be hanging in the political wind by itself. The trend toward freer trade affects everyone. Budget-Driven Policy While dairy has been protected by Section 22 import Fann programs have been subject to budget con­ quotas, the Uruguay Round Agreement (URA) of the straint since 1983 when government costs peaked at General Agreement on Tariffs and Trade (GAIT) elimi­ more than $26 billion. The 1995 fann program spending nates this protective policy tool that underlies the dairy constraint likely is between $10 billion and $15 billion. price support program. In its place is a tariff rate quota The lower figure is close to the minimum $9 billion that gradually will be reduced. Dairy needs to begin level of expenditures required to run the type of fann figuring out how its programs fit within the URA and program that exists today. In other words, there is how it can compete in a world market for dairy products. legitimate danger that current U.S. fann policy could Potential impacts to dairy from freer trade are unravel in the 1995 fann bill due to budget constraints. reflected in the evolving controversy surrounding the Dairy's budget constraint is not well defined be­ North American Free Trade Agreement (NAFTA) and cause of the use of producer assessments to cover the Canadian-U.S. Trade Agreement (CUSTA). The program costs. Regardless of actual costs, current law Mexican dairy industry is beginning to experience the requires producers to pay about $150 million annually tunnoil of adjusting to increased imports of lower cost toward program expenses. At 7 billion pounds of esti­ U.S. fluid milk. And U.S. federal milk marketing order mated milk equivalent product purchases on a total policymakers are beginning to worry about the possibil­ solids basis, the dairy price support program triggers ity that milk exported to Mexico at prices less than those additional assessments to cover program costs. Dairy mandated for U.S. plants will be reimported into the Export Incentive Program (DEIP) product sales count United States as finished products-or maquiladoras in within this 7 billion pound limit. Purchases beneath the milk. Likewise, the Canadians are worried about the 7 billion pound limit cost about $800 million annually potential for monumental adjustments in their industry at current product purchase prices. Some of the dairy when and if Canadian production control programs are • products purchased by the Commodity Credit Corp. dismantled. Competitive large-scale dairies in Canada (Ccq, however, are sold back to the industry, then are less prevalent than in either the United States or exported underDEIP. As a result, USDA's 5-yeardairy Mexico. Moreover, U.S. dairy producers and proces­ price support budget estimates run closer to $350 mil­ sors look to the lucrative Canadian market as an outlet lion annually. for exports of raw and finished products. This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7and 8,1994­ a project of Cornell University's Program on Dairy Markets and Policy. While the URA has foreboding implications for • International food aid is GAIT legal. There­ the potential invasion of foreign competition in U.S. fore, mandated reductions in DEIP under the manufactured dairy products markets, it also contains at URA could be shifted to food aid. That would be least four loopholes that dairy interests need to be aware more costly per dollar of exports, but could be of, study, and potentially utilize: more long-term effective in expanding markets. • Green payments, or subsidies for environmen­ Whether the proposed self-help marketing board tally sound management practices, are legal. concept would fit within the context of these loopholes Therefore, cost sharing subsidies to dairy pro­ is an interesting issue. Ifthe board were purely an export ducers for the installation ofwaste management operation and producers uniformly shared in the costs systems apparently would be legal. Moreover, of exports through a mechanism, such as a class IV crop producer income and price support subsi­ price, it would appear to be legal in that producers are dies (target prices, loan rates, and deficiency subject to market regimens. If USDA continues to payments) may be legally green under the URA operate the price support program, however, a self-help because arguably they are made to pay for the board could be illegal unless justified as green pay­ costs of soil conserving practices. That is, farm­ ments ordecoupled. Ifproduction controls are included, ers participating in a crop program are required the chances of GAIT legality should be further en­ to file and implement a conservation plan that hanced to the extent that exports are constrained. But reduces soil erosion. Similarly, dairy might legal opinions or final answers on GAIT legality will justify its price support program by requiring eventually be determined by the new World Trade that producers submit and implement waste/ Organization (WTO). nutrient management plans. Environment-Driven Policy The GAIT legality of green payments has major • Income and price support payments are legal if implications for both environmental policy and dairy they are decoupled from production. Crop pro­ policy. Environmentalists perceive that farm programs ducers have accomplished partial decoupling have negative environmental impacts because they re­ by placing a crop yield limit on deficiency sult in more intensive farming and foster larger farms. payments. They also have reduced the percent­ Large farms are perceived as being less environmen­ age ofacres on which payments are made. Dairy tally friendly than smaller farms. Moreover, environ­ programs could potentially become decoupled mentalists contend that all farm programs should be by limiting output per cow or the number of environmentally driven. The policy options available cows to which the price support program ap­ for achieving environmentally-driven farm programs plies. include: requiring that farmers have conservation/waste management plans if they are going to receive program • Price and income supports appear to be legal in benefits; retiring environmentally sensitive land, per­ the presence of production controls if the mini­ haps even environmentally sensitive dairy farms; pay­ mum market access provisions are met. While ing farmers for best management practices, including these controls are clearly production distorting, the installation of waste management systems (green this policy is rationalized; if production is prop­ payments), but whether producers should receive pay­ erly controlled, the excess is not placed on the ments for already installed waste management systems world market at subsidized prices. Ironically, is uncertain; and regulation without any payments or therefore, while the Canadian dairy policy may compensation. be GAIT legal, it may be NAFTA illegal be­ cause it represents a huge barrier to trade be­ Political Forces tween the United States and Canada. Canadians -It takes 218 votes in the House ofRepresentatives argue, however, that GAIT legality means to get a farm bill enacted into law. At most, only 70 .. NAFTA legality. representatives have significant constituent ties to rural America. Therefore, at least 146 additional votes will be required. These votes will be garnered largely through WORKSHOP PROCEEDINGS 4 Knutson . :-, the fonnation of coalitions with either environmentally (NOM) prices could also decline inasmuch as periodic interested or food-assistance interested representatives. purchases occur. Declines in butter and powder prices It is critical that dairy interests work with these environ­ would lead to correspondingly lower cheese prices. mental and food assistance groups. Likewise, the posi­ Increased international competition is an additional tion of the Clinton administration on dairy, environ­ consideration. How far prices fall would be a function mental, food assistance, and trade policy will be impor­ of what happens to European Union (EU) subsidies. tant in framing the dimensions of the 1995 fann bill Without a U.S. price support program, the U.S. manu­ debate. factured product price would equal the world price, Commodity Programs adjusted for transportation. Eliminating the dairy program would also result in Before designing a position, dairy interests need more unstable prices. How much more unstable? Sub­ to be aware of at least three critical issues facing the stantially more! Granted, the price support program 1995 fann bill. Those issues relate to the existence of currently is not very effective in stabilizing prices, but commodity programs (including the dairy title), the prices could be considerably more unstable without conservation reserve program (CRP), and the potential intervention by either CCC or milk marketing orders. for payment limits/means testing. The price support program offers support to both butter Dairy interests should not take the existence of a and NOM and federal and state orders stabilize pro­ dairy title for granted. Some members of Congress ducerpay prices within markets. At a minimum, federal would just as soon see no commodity programs-no orders set rules for the competitive game. The problem dairy price support and no marketing orders. These of increased price instability is not limited to dairy. It senators and representatives favor a free market that cuts across feed inputs as well. dictates milk prices and the future structure of the dairy Eliminating the dairy program would also result in industry. This can be accomplished in one of three more financial instability. The greatest competitive ways: eliminate all programs; eliminate individual pro­ pressure is on moderate-size dairy fanns that have little grams; ornot appropriate funds to implement programs. or no off-fann income. These fanns are not sufficiently In the 1990 fann bill debate, a floor challenge to efficient and scale competitive to be able to replace particular programs was unsuccessful. However, in a outdated infrastructures. Moreover, the operators often floor debate during the 1993 appropriation process, lack the marketing skills that could lead to the ability to funds were cut off for the honey, wool, and mohair manage risk. The result would be unprecedented re­ programs. Although these are minor commodities rela­ structuring ofthe milk industry. The most severe adjust­ tive to dairy, the action should be a warning shotthatthe ment pressure would be east of a line from Laredo, dairy program is not secure. The dairy, rice, sugar, and Texas, to Bismark, N.D., where about 73 percent ofthe peanut programs have all been recommended for elimi­ milk is produced. nation by the U.S. General Accounting Office (GAO), Less food and trade security would also result the auditing branch of Congress. The cotton program from the elimination of fann programs. Shortages have also is being studied by GAO for possible elimination. seldom been a problem in the United States, but in the Actions that could make the dairy program more secure early 1970s, a milk shortage came close to becoming a include making it more export competitive, more envi­ reality. Government price support and stock policies are ronmentally friendly, and more GAIT compatible. major reasons for this high level of food security. In the Fanners, including dairy producers, would be absence of government programs, stocks can be ex­ considerably worse off without commodity programs. pected to decline as CCC inventories vanish. While this Eliminating commodity programs would result in lower action encourages the private sectorto hold more stocks, market prices. How much lower is a matter of specula­ it is unlikely that commercial stocks would fully com­ tion that requires more research, but surely the butter pensate for reduced government stocks. Less food and price would fall. Initially, this drop would be substantial trade security would increase the incentive for countries as CCC stocks are dumped on the market, and in the importing from the U.S. to strive for self sUfficie~c~. longertenn, prices would be lower because CCC wo~ld Governments do not dare run short of food because It IS no longer be buying butter. Granted, butter productIOn a major cause of political instability. would probably decline in response. Nonfat dry milk WORKSHOP PROCEEDINGS 5 Knutson And finally, more environmental degradation would result. The projection that environmental degra­ Table 1. Impact of Release of CRP Lands on Crop dation would increase without farm programs is con­ Prices and Dairy Net Cash Income. trary to environmentalists' perception that farm pro­ grams contribute to pollution. This perception ignores CRP CRP both the provision in crop programs that requires con­ Enterprise Retained Eliminated 11 servation plans and the positive impact of the Conserva­ (dollars) tion Reserve Program (CRP) on pollution. Wheat pricelbu. 3.65 2.90 A viable alternative impact of dropping the dairy Corn pricelbu. 2.27 2.20 program also needs to be recognized. It involves the Cotton price/lb. 0.60 0.58 resurrection of a series of state programs and/or inter­ Hay price/ton 81.59 72.69 statecompacts designed to offset the adversities brought Dairy net cash incomelcwt 0.35 0.44 about by eliminating federal programs. States could frequently end up in litigation as they attempt to control 1/ Assumes approximately 70 percent of the CRP lands milk movements in order to stabilize prices. The incen­ would come back into production based on expected net tive is thereby created for interstate compact agree­ returns. ments to pit one region against another. It is because of Source: Ronald D. Knutson et al., Impacts of Changing such interstate conflicts that a federal dairy policy was Farm Program Expenditures on the Great Plains, Texas originally developed in the 1930s. Despite the conse­ Agricultural Experiment Station, Department of Agricul­tural Economics, Agricultural and Food Policy Center quences of dropping farm programs, the opposition Working Paper 94-5, September 1994. continues to chip away one program at a time. This strategy plays into the budget process because more resources become available for other programs. cerned about water quality would like to see less wind­ Conservation Reserve Program erodible land, primarily in the Great Plains, and more water-sensitive land, primarily east of the line from The second critical farm program issue affecting Laredo to Bismarck. Great Plains farmers and wildlife dairy involves the future of the 38 million acres of land advocates who desire to see CRP continued would be currently in CRP. Beginning in 1986, farmers enrolled unhappy if the emphasis were on water quality. The land in CRP for a lO-year annual government payment potential for partial reenrollment is being considered. (effectively a cash rent). Qualified land was highly Depending on whether the land eligible for reenrollment erodible and half is located in the Great Plains. If is wind- or water-erosion sensitive, commodity prices nothing is done, this land begins to be released in 1996. would be affected differently. Indications are that the secretary will extend the 1986 contracts for one year-waiting until after Congress Payment Limits/Means Tests decides what to do in the 1995 farm bill. A third critical farm bill issue involves targeting The issue will not be easy to resolve because the the benefits of farm programs toward those having the consequences of release affect people differently. Farm greatest need. In crops, this has been attempted by prices would decline, with the biggest decline occurring placing limits on the amount of deficiency payments a in wheat prices (see table); crop producers would be ."person" can receive. However, the number of eligible unhappy. The resulting impact of lower crop prices "persons" has proliferated to the extent that the limit is would be wider margins for livestock producers; dairy believed to be ineffective. Limits also have been placed producers would be favorably impacted. CCC com­ on disaster payments, CRP payments, and Agriculture modity stocks would rise, increasing storage costs, and Conservation Program (ACP) payments. therefore, deficiency payments to crop producers would The ineffectiveness of payment limits has led to rise. Cost savings associated with reduced rental pay­ increased attention being given to the development of a • ments to CRP farmers could be fully offset by higher means test to provide benefits only to those farmers with costs for storage and deficiency payments.IfCRP lands incomes below a certain level, such as the poverty line. are not released, however, commodity stocks could Ifsuch a criterion were applied, USDA access to income become fairly tight. Environmentalists being most con- tax returns would be required. How a means test would WORKSHOP PROCEEDINGS 6 Knutson be applied to dairy is unclear. Would only that milk GAIT through viewing price supports and marketing from means-test-qualifying producers receive the ben­ orders as benefits for waste management compliance. efits of the price support program? If so, the price Considerable caution is necessary in pursuing any 1995 support program would become less effective-per­ dairy policy strategy. The industry has become highly haps ineffective. As a result, price supports could be divisive over issues such as interstate compacts, pro­ exempt from a means test as they are from payment duction controls, and self-help. Receiving benefits re­ limits. quires that this divisiveness be overcome. Implications for Dairy Finally, the dairy industry-more specifically dairy economists-has earned a reputation for making policy The 1995 farm bill provides many opportunities proposals based on biased analysis or no analysis at all. and challenges for dairy. Opportunities existfor dairy to The industry is often accused of justifying a position be part of the farm bloc, and thereby, affect the overall economically after the policy decision has been made. course of farm policy. Dairy typically has designed its This is bad economics and bad politics. Congressional own farm bill provisions, but this may be the wrong time analytical procedures have become sufficiently sophis­ for dairy to be hanging out alone. Dairy may also have ticated to weed out proposals based on shoddy analysis. the opportunity to receive benefits from the environ­ The industry, therefore, damages its chance for success mental movement through green payments for install­ when it sets forth such proposals and their related ing waste management systems. In the process, progress analyses. could be made in rationalizing dairy programs with • WORKSHOP PROCEEDINGS 7 Knutson • WORKSHOP PROCEEDINGS 8 Knutson DAIRY POLICY AND PRICE REGULATION IN THE 1990s Robert Cropp, Professor, University ofWisconsin Dairy policy of the late 1970s and '80s set the fact, yesterday's policy has only added to the problems stage for the problems facing today's dairy industry. of the small, fmancially stressed dairy operation. The During that time, the dairy industry lost a lot of ground. cost of producing milk and milk prices are somewhat Lack of unity and regionalism began to develop. At the related, with higher production costs following higher insistence of the industry, the government held onto a milk prices. Producers in the 1970s and '80s were not federal dairy policy based upon "parity" much longer given incentives to keep costs low. In contrast, facilities than was economically sound. Huge surpluses devel­ being built today can produce milk for less than $10 per oped. Holding onto a failing dairy program was a major hundredweight. In order to receive loans these produc­ mistake from which the dairy industry has yet to re­ ers must demonstrate that they can break-even at levels cover. below current milk prices. Despite grassroots support By 1981, it became clear that federal expenditures for higherprices, milk prices underexisting dairy policy for the dairy program were exorbitant, and the dairy are not on an upward trend. price support program was removed from parity. Pro­ Arguments For and Against Current Policy ducer assessments were established to help fund federal Is existing dairy policy working? A lot of people program costs and supply management programs, such would answer "yes" to that question. Since 1988, there as the Milk Diversion Program in 1984-85 and the has basically been no milk surplus. Government costs Dairy Termination Program in 1986-87, were enacted have steadily decreased. The money being spent on to reduce surpluses. The process ofreducing the support dairy is minimal-$250 million to $300 million is not a price was initiated in 1985, and the support price for lot of money compared with government expenditures 3.67% fat milk has since been reduced from $13.10 to for other farm programs. The government also has met $10.10. its objective: provide the nation with an adequate milk It is doubtful that a support price of$10.10 accom­ supply. There is no shortage ofmilk. Consumers are not plishes much of anything. Basically, the price support going without. program is a surplus butter program that offers little Even the financial condition of dairy farms has price protection or price stability. Prices cannot remain improved under current policy. The average debt-to­ at support for any period of time because too few asset ratio in 1987 was 0.24: 1, or for every 24 cents of producers can produce milk at that price. When farm­ debt producers had $1 of assets. By 1992, that ratio had level prices near support, sellouts accelerate and the nation's milk supply tightens. Today' sdairy program­ M-W versus Support, 1978-94 although highly regulated-resembles a market-ori­ (@ 3.5% butterfat) 515.00 ,--------------------..--------­ ented dairy policy. Many of the nation's dairy operations are finan­ 514.00 1---------------tI-----­ cially stressed, a situation that has generated grassroots 513.00 +----f---')----------f-Ht------.-­ support at the farm level for supply management pro­ grams and theiraccompanying highermilk prices. These 512.00 1---)",1---------L..tj------=------IlI--+-Y--I+f-'Ht-1---I-A financially strapped producers reason that government intervention and higher milk prices will solve their 511.00 1--I,------~J.--.'l~l+-tr:----t-+--t---v--.:'----- fmancial problems. Under current dairy policy, how­ 510.00 H~---------------'~-=~.....·~.~·--, ever, long-run milk prices are on a flat to downward ~""'WP'" I 3.5% Support spiral. 59.00 .------------------­ Dairy policy of the 1970s and '80s did little to 58.00 .r~~~~~~~~~~~~~~~~~~ alleviate the problems of today's small dairy farm. In 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 This paper is part ofa proceedings oJ a workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8,1994­ a project ofCornell University's Program on Dairy Markets and Policy. improved to 0.19: 1, or 19 cents of debt for every $1 of of cows per U.S. herd has increased 35% in the past 12 assets. Clearly, there has not been a deterioration of the years, from 39 cows in 1982 to 60 cows in 1993. These financial condition of the nation's dairy farms. The U.S. opponents reason that the price support program has dairy industry also has become more competitive inter­ created regional shifts in milk production, enabling nationally under existing policy. There is substantial western states to grow and prosper, while traditional industry support to continue the existing price support dairy regions lose ground. program, and many in the industry would argue that Statistics add weight to their argument. New "things are pretty good." Mexico has shown phenomenal growth in the past Others in the industry, however, would argue that decade. The state increased its milk production by existing policy is not working. Volatile prices, both at 140% from 1985 to 1993. Although that rate of growth the farm and manufacturing level, have created consid­ hasn't been replicated, growth in other western states, erable market risk and market price risk. From 1981 to nonetheless, has been rapid. Texas, for instance, in­ 1993, the difference between the Minnesota-Wisconsin creased total milk production nearly 50% in the same price series' high and low for any particularyear ranged time period, while California, Washington, and Idaho between $1.61 per hundredweight (1992) and $3.95 per showed growth in the 30% range. Growth has also been hundredweight (1989). The M-W price has not even hit fairly rapid in the Southeast, with Florida showing a support since the support price was reduced to $10.10 nearly 20% increase in total production and Georgia for 3.67% milk. Sellouts of U.S. dairy farms also have slightly less than 20%. Contrast that to what has oc­ accelerated. curred in the traditional dairy regions of the Midwest and Northeast. Minnesota down more Number of Operations with Milk Cows than 10%, Wisconsin down about 7%, New York, Michigan, and Ohio all off 350000 2~%. Opponents of existing policy also 300000 argue that the milkfat surplus is proof that the dairy program is not working. 250000 Moreover, as Upper Midwest plants continue to compete for a shrinking 200000 milk supply, excess plant capacity in Minnesota and Wisconsin continues to 150000 sustain prices nationwide at levels higher than warranted. Within the next five 100000 years, one out of every three dairy pro­ ducers in Wisconsin is expected to exit 50000 the industry. Most will leave because they have reached the age of retirement, o not because offmancial difficulties. This 1980 1982 1984 1986 1988 1990 1992 1994 exodus will only increase competition for milk in the Upper Midwest. Many of the smaller commercial farms have been Clearly, the dairy program is not working entirely, unable to show a profit. Since 1982, the number ofU.S. and could become even less effective if changes are not dairy farms has been reduced by nearly half (42%). made. Despite a rapid decline in the number of dairy Many in the industry are concerned about the impact farms, milk per cow and total output continues to grow. that the loss of these 30- and 40-cow dairy farms will The production per cow trendline is pretty straight­ • have on rural communities. Restructuring of the indus­ upward at a 2-3-percent annual clip. Average per cow try at the farm level is inevitable in traditional dairy output in 1985 was only about 13,000 Ibs., but by 1993 states, such as Wisconsin and Minnesota. Opponents of per cow production broke 15,500 Ibs. That's an annual existing policy argue that dairy policy is responsible for average per cow iilcrease of 320 Ibs. While a 2-3% the changing structure of the industry. Average number increase in per cow efficiency will almost certainly WORKSHOP PROCEEDINGS 10 Cropp continue, it's doubtful that a 2-3% increase in sales each than surplus removal. These programs aim to supple­ year can be sustained. ment price support levels, not eliminate them, and would concentrate on authorizing U.S. Number of Cows and Pounds of Milk per Cow the Dairy Export Incentive Pro­ gram (DEIP) to its maximum limit. The big question, however, is 11100 15800 whether these programs are GATT legal. 10900 15300 Another option, and one that ! has grassroots support at the farm 10700 • 14800 level, would be to increase the & support price under some type of ; 10500 .5 14300 I supply management program. ,; ~ 10300 &. These programs can be either vol­ u 13800 ~ untary or mandatory. The stakes j 10100 under voluntary supply manage­13300 E ::I ment programs are not as high as C 9900 12800 those under mandatory programs, such as Canadian program. The 9700 12300 difference can be summed up sim­ ply: under a voluntary program, if 9500 11800 you don't participate, you aren't 1980 1982 1984 1986 1988 1990 1992 1994 hurt too badly, whereas underman­ Policy Options for 1995 datory programs, nonparticipants are big losers. Several limiting factors will determine the policy options available to the dairy industry for the 1995 farm Price Discrimination and Midwest Frustration legislation. The federal budget deficit and budget con­ Pricing regulations of the Federal Milk Marketing straints will be key. Any policy change that increases Order Program (FMMO) will definitely be an issue for federal expenditures doesn't stand a chance. A lack of the Upper Midwest in the upcoming policy debates. The uniform consensus in the industry also will limit policy dairy industries in Minnesota and Wisconsin have been options. Reduced price and income support for other frustrated trying to bring about change. Class I differen­ agricultural commodities and international trade policy tials are an ongoing concern. The Minnesota-Wiscon­ also will playa role. Any new dairy policy will need to sin Price Series is less effective now than it was two increase international market opportunities, besides years ago, and USDA's recommended decision for the being consistent with the General Agreement on Tariffs M-W replacement does too little too late. The recom­ and Trade, or "GATT legal" in more common terms. mendation was an attempt to implement changes that The widely-held attitude that the current "market-ori­ were revenue neutral, but circumstances have changed ented" policy is working will also limit industry options significantly since the 1992 hearings and it is not for developing new policy. possible to maintain revenue neutrality and develop an Dairy policy could take one of several paths in appropriate replacement for the M-W without simulta­ 1995. First, and most probable, would be that no changes neously making adjustments in class I pricing. Califor­ are made in the current provisions. Second, the dairy nia and Section 102 of the 1990 farm bill will also price support program could be eliminated. Under this remain an issue. Efforts will be made to both enforce option, recourse or non-recourse loans could be estab­ and repeal Section 102. And at the processor level in the lished. Self-help programs are another option. A self­ Midwest, a great deal of concern exists regarding the help type ofdairy program would establish authority for high cost of manufacturing milk. an industry board to focus on price stability rather than In terms of class I pricing, using a single basing price enhancement, and on market development rather point, Eau Claire, Wis., to price fluid milk is outdated. WORKSHOP PROCEEDINGS 11 Cropp Compared to Wisconsin producers, producers dairying average farm milk price in the Upper Midwest is equal 500 miles from Eau Claire receive $1 per hundred­ to that in the South, Southwest, and West. Wisconsin weight more for milk that ends up in the bottle, while and Minnesota plants pay the M-W price plus $1 on producers 1,000 miles from Eau Claire receive $2 more, 85% of the milk, but pay the lowest class I price in the and those 1,500 miles away receive $3 more. This is a nation on 15% of the milk. That equates to an average blatant form of price discrimination, considering that farm price of $13 per hundredweight. Plants in the most local markets supply their own fluid needs. South, Southwest, and West, meanwhile, pay the M-W The cost of manufacturing milk is of major con­ price on 50% of the milk, but $2 per hundredweight cern to Midwest processors. Upper Midwest plants more for class I milk on the remaining 50%. That also today are paying the high cost of a declining dairy equates to an average farm price of $13 per hundred­ industry. The difference between what plants are actu­ weight. ally paying for manufacturing milk and the M-W price­ Summary the supposed value ofmanufacturing milk-is substan­ tial. Using figures for 1992, Wisconsin plants paid an Wisconsin producers have come to realize that their problems are not entirely the fault of dairy policy average of99 cents more than the M-W price for milk and that producers in areas such as Texas, New Mexico, used in manufactured products. Likewise, Minnesota and California are here for the long term. In order to plants paid an average of 82 cents more per hundred­ remain, or become, competitive, many Wisconsin pro­ weight. In Wisconsin, the difference was $1 or more in ducers are recognizing that they must begin looking at five out of the 12 months. farm level changes, not to the federal government for California's higher make allowances only exacer­ help. bate the problem for Upper Midwest manufacturers. The Upper Midwest faces major challenges. The Using figures for 1993, the average 4b price in Califor­ rapid decline in the number of dairy farms and dairy nia (the price paid for milk manufactured into cheese) cows will continue, forcing a major restructuring of the was $10.94 per hundredweight, or 86 cents lower than region's dairy industry. The result will be no better than the 1993 average M-W price (the minimum price fed­ a declining or stable milk supply. Excess plant capacity eral order plants are required to pay). Wisconsin plants will continue to be a problem, creating artificially high in 1993, however, paid an average of69 cents more than costs to milk plants that have lower federally mandated the M-W price for grade A milk manufactured into profit margins than equivalent plants in California. The cheese-$1.63 per hundredweight more than Califor­ Upper Midwest is, and will continue to be, adversely nia cheese plants paid. impacted by an outdated federal milk pricing system As milk production has expanded faster than class I and by California's state pricing system that is exempt sales, producer blend prices have declined from a de­ from federal order regulations. cline in class I utilization. The result is that market The dairy industry must make a concerted and forces have helped reduce, or equalize, some of the cohesive effort to develop sound dairy policy that price discrimination of federal regulations. Pay prices removes or reduces some of the inherent inequities in across the nation are coming closer together than ever. the currentpricing system. Just like California and other Average cash receipts in New York in 1993 at $13 per western states, the Upper Midwest is also here for the hundredweight, for instance, were only 11 cents higher long term. The federal order system has not changed than Wisconsin's $12.89. Average cash receipts in with the times, and the Upper Midwest is not going to Washington at $12.3O--were lower than in Wiscon­ tum its back to those inequities. If the industry does not sin-despite a class I differential of$I.95 per hundred­ deal with its issues, Congress may try to tackle them, but weight in the Pacific Northwest order. it's highly unlikely Congress will get the job done right. Are Upper Midwest producers and manufactur­ ers, as a whole, really price disadvantaged? No. The • WORKSHOP PROCEEDINGS 12 Cropp DAIRY TRADE LIBERALIZATION AND ITS IMPACTS Andrew Novakovic, Ph.D. The E. V. Baker Professor ofAgricultural Economics, Department ofAgricultural, Resource, and Managerial Economics, Cornell University Thedairy industry world-wide appears to be poised Production conditions and systems vary widely on the cusp of change due to policies negotiated under across countries and often within nations. With its strict the Uruguay Round of the General Agreement on Tar­ production quota system, Canada's dairy industry is iffs and Trade (GAIT). In some respects, the implied relatively homogeneous, with many small-to medium­ changes are radical and could result in substantial long­ sized farms clustered around its average herd size of term impacts on the structure ofthe world dairy industry about 45 cows. Typically, the family provides most, if and international trade patterns. In other respects, the not all, of the labor, but it is common for several latest GAIT agreement and its potential longer-term families, usually relatives, to share a single farm. Al­ effects may be viewed as part of a logical and historic though the United States has many farms similar in evolution. In this sense, even those who doubt that real structure to those in Canada, it also has a substantial change will result from the new GAIT agreement must number of very large farms. Farms with 100 or more concede that international marketing of dairy products cows represent nearly half of the milk produced in the is undergoing change nonetheless. U.S., but only about 13% of all dairy farms. Milk Production in the Americas Mexico offers an even wider range of production systems: small, dual-purpose herds on the Gulf Coast American countries-North, Central, and South­ and Guatemala border; even smaller, low-input but represent a bit more than one-fourth of the 455 million specialized farms primarily in central Mexico; and tons of cow's milk produced in the world, according to large, intensively farmed herds in the north. These large United Nations Food and Agriculture Organization intensive farming systems average about 500 cows per statistics for 1992. This share has been slowly increas­ farm and are estimated to account for as much as 55% ing over the past few years, with increases in all major of the nation's milk production. Dual-purpose farms countries except Canada. With its long-standing pro­ duction quota program, Canada's experience parallels that of the European Union (EU). World Milk Production Shares The United States produces 57% of total Ocel¥1ia American milk production. Since the dissolution of 3% North America 15% the Soviet Union, the United States is now the largest single milk producing country in the world, Central America producing about 68 million tons peryear. Within the 0% Americas, Brazil ranks second with 15 million tons South America 6% of milk production, followed by Canada, Mexico, and Argentina, all ofwhich produce about 7 million Caribbean 0% tons per year. By comparison, Brazilian production is similar to that of the United Kingdom orPakistan. A~~~a Canada produces about as much milk as New Zealand, while Mexico and Argentina each produce about as much as Australia. Collectively, all of the milk produced in the Americas is less than that produced by the EU, and much less than Europe as a whole. U.S. milk production is only slightly higher than that of the former Soviet Union. This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled ''Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. have an average of 25-30 cows and account for about estimated at an average of 200 kgs. for developed 30% of the total milk supply, while low-input farms countries and 36 kgs. for developing countries. In some typically have 10-15 cows and represent about 15% of cases, per capita consumption was estimated to be as the milk. low as 2.5 kgs. American countries span a wide share of South and Central America's dairy sectors span this range, with Canada and the U.S. at the higher end the range of temperate, sub-tropical, and tropical cli­ and Caribbean and other tropical countries toward the mate zones and milk production systems vary accord­ lower end. While not as high as per capita consumption ingly. Within the tropical zones, farms at higher eleva­ in Europe, American consumption patterns are gener­ tions use the more specialized dairy breeds and manage ally well above those typical ofmost Asian and African their herds more intensively than is typical of lower nations. While U.S. per capita consumption is about elevations. Thus, countries such as Brazil, Colombia, 260 kgs., levels near 100 kgs. per capita are common in and Venezuela have rather substantial milk production, Latin American countries. as do the more temper­ ate areas in Argentina Kilograms of Milk Production Per Capita and Uruguay. Costs of milk production vary SEAsia widely among these pro­ China duction systems and Sub-S Africa across agronomic re­ EAsia gions. Caribbean South and Central SAsia American producers N AfricaIW Asia face challenges. For C America high-yielding, high-in­ WOAI.D put farms, major areas of concern are skilled S America hired labor, both avail­ USiCanada ability and wage rates, animal wastes and re­ lated environmentalcon­ cerns, and scarcity and price of water and the o 100 200 300 400 500 600 700 attendant costs of pro­ ducing high-quality feeds. Producers with lower-yielding production sys­ Along with currentpercapitaconsumption, longer­ tems, often associated with low unit costs ofproduction, term market forecasts must consider population and are faced with the challenge of obtaining higher levels economic growth. Per capita dairy product consump­ of family income. On a broader scale, land use, in tion is strongly related to per capita income, and wide particular deforestation, has been of particular concern ranges in per capita income within countries are easily in tropical areas that have sought to intensify farming. masked by country averages. According to the GAIT A key issue facing many Latin American countries is Secretariat report, "Usually dairy products do not ap­ fmding ways to prevent environmental degradation pear in the food consumption pattern until a certain while providing increases in quality foods and employ­ standard of living has been reached. Compared to cere­ ment opportunities. als, vegetables and meat, dairy products are a luxury." • Dairy Product Consumption The authors found that in all but three of the Asian countries included in the study, Japan, Singapore, and According to a recent report on world dairy mar­ Saudi Arabia, "standard of living is less than average, kets by the GAIT Secretariat, average per capita con­ which means that for the majority of the population sumption of milk and dairy products in 1992 was dairy products are not featured largely in the diet." WORKSHOP PROCEEDINGS 14 Novakovic Nevertheless, they say, "even poor countries like the America, will become a competing ground for countries Philippines, Indonesia and Egypt have inhabitants who ofthe EU, New Zealand, Australia and perhaps the U.S, live well above the average standard of living." For according to the GAIT Secretariat report. "As standard example, they point out, of Indonesia's 180 million of living in the importing countries rises, the exporting people, high-income level consumers may account for countries will increasingly concentrate on whole milk more than the entire population ofSingapore, 3 million powderand cheese at the expense ofbutterand skimmed people. milk powder," the researchers conclude. In addition to growth in import demand due to a shift Per Capita Gross Domestic Product in food consumption patterns, most dairy (in 1992 U.S. Dollars) importing countries will experience growth in import demand induced by Sub-S Afrlc. both economic and population growth. Caribbean "This growth is calculated to be over 30% in the 13 most important non­ SEAsia Western dairy importing countries," they N AtrlcolW Asia add. C_USS.R Food aid may also play a role. Many countries in sub-Saharan Africa S America and South Asia face continuing food CEuropa shortages, which could worsen in time. World Economic growth will be inadequate for these nations and reductions in ex­ port subsidies world-wide will make E Asia matters even more difficult. Hence, one USICanada E~~~~~!!!!e~~!!~~!!~~~~ might ask: What role will food aid play 2000 4000 6000 8000 10000 12000 14000 16000 18000 20000 in international markets? And how will food aid be distinguished from export China is an even better example. About 10% of subsidies? China's 1.2 billion people live in its more prosperous, Uruguay Round Policies coastal urban areas. While per capita dairy product The two basic policy features of GAIT are in­ consumption in these wealthier areas is low, it is still creased market access to importing countries and re­ nearly twice the national average and expected to qua­ duced export subsidies (quantity and value) of export­ druple by 2000. ing countries. Increased market access suggests in­ Dairy products have a relatively high income creased demand, but reduced export subsidies implies elasticity of demand (consumption highly sensitive to sales at a higher price to the buyer and/or a lower price changes in income), but important distinctions exist for the seller. Countries that have been relying on between basic commodities and value-added products. European subsidies to buy dairy products account for a Dairy productconsumption growth in developing coun­ substantial share ofworld trade. An increase in the price tries will occur mostly from an increase in demand for they face will lead to a reduction in imports and encour­ basic commodities, buthigher incomeconsumers within age the usage of non-dairy, substitute foods and food these countries likely will increase consumption of ingredients. Increased market access in developed coun­ value-added dairy foods. These pockets of consumers tries, where domestic prices would still be well above may be viewed as marketing opportunities by world­ world market prices, could result in greater imports, wide suppliers of value-added products. even in countries not currently considered major im­ Prospects for World Trade porters. Population and economic growth along with a As much, or more, attention should be paid to the shift in consumption patterns will help define world potential impact on,domestic prices in supplying coun­ trade prospects. Southeast Asia, as well as the Middle tries. Higher world market prices mean higher domestic East and the more wealthy countries in Africa and South WORKSHOP PROCEEDINGS 15 Novakovic prices for countries such as New Zealand, but increased the country would allow-fluid milk products as well as market access will pull prices down in Canada, the manufactured. Canada is a wealthy country with high United States, and Europe, where internal prices would per capita consumption ofdairy products. To the extent still be well in excess of world prices, assuming domes­ thatCanada opens the door, however, it could be viewed tic policy allows such an impact to occur. as a major opportunity for other competitive suppliers World markets and prices are likely to be more as well. Longer tenn, Canada has ample opportunities volatile as dairy trade becomes more liberalized. Par­ to restructure and become more cost competitive, but tially this will be the result of uncertainty about how to this will require a painful adjustment process, primarily operate in a liberalized and intrinsically less predictable at the fann level. market place due to international deregulation. Re­ Under the administration of President Salinas, gional weather patterns may influence supply or de­ Mexico rapidly adopted broad market refonns to de­ mand in a particular country, but such local impacts are regulate and open its economy. The Mexican agenda more meaningful for the individual nation than for the goes way beyond agriculture. Unlike Canada, prices in world at large. most regions of Mexico are not much different from Even more important than the affects of specific those in the United States. Mexico is a more populous dairy market alterations are changes in the larger agri­ nation than Canada, but also much poorer. Export cultural sector and macroeconomy. As noted earlier, opportunities will be limited by the number of higher­ dairy product consumption has been, and likely will income families and economic growth within the other continue to be impacted by general economic growth sectors of the population. Opportunities for Mexico to and income distribution patterns in developing coun­ expand its dairy industry exist, but the country is likely tries. At the producer level, input costs and income to remain a net importer of milk products for the opportunities within and outside of agriculture may foreseeable future. Similarto the Canadians, most Mexi­ have important implications. For example, GAIT may can dairy producers and processors fear U.S. competi­ result in lower domestic farm milk prices for both the tion for theirdomestic market. Unlike in Canada, though, United States and the EU, but feed prices may change economic growth in Mexico may boost the demand for little here, while decreasing abroad. Therefore, the dairy products (and other goods) sufficiently, allowing value of milk relative to the cost of feed will certainly both Mexican and U.S. agriculture and food processors decrease in the United States, while possibly increasing to benefit. By the same token, the Mexican dairy indus­ in the EU. Likewise, dairy may become less profitable try will need to make investments in capital and labor to in Canada, but relative to other agricultural alternatives, become more competitive. which could worsen even more, dairy may look more South American countries are more difficult to favorable. analyze. Net exporting countries like Argentina and Potential Implications Uruguay likely will focus on opportunities in other South American countries, most notably Brazil, which Reactions to and concerns regarding the impend­ has been a net importer of dairy products despite being ing GAIT agreement vary widely within and across one ofthe largestmilk producing countries in the world. American countries. For the most part, Canadians are Caribbean and Central American countries may offer very nervous. In general, GAIT has been the issue of good, albeit small, market opportunities if and when primary concern in Canada's dairy industry for the past their economies improve and per capita incomes rise. several years. Canadians recognize that their dairy Although potential exists, prior experience suggests sector is highly vulnerable to any serious opening of that South American countries are unlikely to restruc­ their market because of their strict quota system and ture their dairy sectors to become major competitors in high price structure. Their biggest fear is the United world markets, despite adequate agronomic resource States Indeed, Canada may be the U.S.'s best market bases. Similarly, although potential exists, it will be opportunity in a free trade environment. During the difficult for countries ofeastern Europe and the fonner height of its surplus problems, the United States had Soviet Union to restructure their agricultural sectors so surplus production in excess of the entire output of as to become major food exporters any time soon. Canada. That production capacity could quickly be The United States is rather schizophrenic regard­ geared to displace as much of Canada's dairy sector as ing GAIT. It can't decide whether to look at the world WORKSHOP PROCEEDINGS 16 Novakovic through the eyes of the single largest milk producing vert more of its resources to dairying and/or switch to country or through those of the single largest dairy more intensive production systems has been unchal­ product consuming nation. Because the United States is lenged to date. With significant increase in world mar­ a huge producer of milk products and a country blessed ket prices-and therefore in New Zealand's domestic with natural resources and good agronomic conditions prices-no doubt, New Zealand will explore its options for milk production, many believe it can be very com­ and potential. petitive in a world market where export subsidies are The major issue with respect to Europe is the eliminated and markets are open. On the other hand, the continuation of export subsidies. Although European United States is a huge and highly attractive market, and concessions on subsidies are large in magnitude, they its dairy sector, arguably, has been less innovative than are relatively much smaller than U.S. concessions. Europe's in product and process development; there­ Given Europe's dominating position as a world ex­ fore, others believe the United States will be no better porter, as long as it maintains a large amount of subsi­ off than Canadaundera liberalized trade scenario. Even dized product and a significant level of subsidy, many the optimists think that the United States gave up far believe the United States will be unable to compete. The more than it gained in dairy negotiations, particularly Dairy Export Incentive Program (DEIP) has enabled the with respect to continuing European subsidies. United States to penetrate markets previously held by So, who is right? The optimists likely are closer, Europeans, but DEIP will become meaningless before but at the same time, are probably a bit too optimistic. European subsidies are gone. Thebest opportunities for the United States are nearby­ Under these circumstances one can conclude that Canada, Mexico, and the rest of Latin America. Even over the next 10 years, as EU export subsidies are though complete trade liberalization and elimination of reduced, world market prices will slowly increase and domestic programs would allow the United States to per capita trade may well decline. New Zealand and penetrate even European markets, total deregulation is Australia will capture whatever markets Europe can't not yet on the horizon. Asian markets are just beginning buy and slowly increase their share of world trade and to be explored by the United States, but New Zealand milk production. Declining internal supports and prices and Australia have an important locational advantage to will continue to shrink the European and Canadian those markets and obvious incentives to exploit that dairy sectors, but domestic consumption may increase advantage. Even Europeans have an edge on the United in those nations if their domestic prices are allowed to States in Asian markets because the United States lacks more closely reflect world trade levels. experience and sophistication in world marketing of The U.S. will import and export more, but both dairy products, suggesting that U.S. exporters have will continue to be a small fraction of the total U.S. much to learn before they become major world com­ market. U.S. consumers will enjoy somewhat lower petitors. One likely possibility for U.S. companies would prices, boosting dairy product consumption slightly. be joint ventures with European and/or New Zealand U.S. producers also will see somewhat lower prices, exporters. which will hasten the exit of the less cost competitive With respect to other major suppliers, the reigning farms and further the restructuring of the United States view in this country is to concede superiority in cost of dairy sector toward larger and more specialized opera­ production to New Zealand, but rememberNew Zealand tions. U.S., Canadian, and European production sectors produces considerably less milk than California. Most will have strong incentives to restructure as a result of also believe there is limited ability to expand milk downward price pressure at the farm level. Potential production in New Zealand and Australia. New payoffs are perhaps greatest in Canada and Europe, but Zealand's potential in this regard may be seriously U.S. manufacturers are far better positioned to respond underestimated; the potential for New Zealand to con­ rapidly to those changes. • WORKSHOP PROCEEDINGS 17 Novakovic • WORKSHOP PROCEEDINGS 18 Novakovic FACTORS DEFINING AND SHAPING DAIRY MARKETS AND FARMS IN THE NEXT 10 YEARS Mark Stephenson, Cornell University Low-cost milk production areas are considered to Population Growth and Movement Through Time have more export opportunities than higher cost areas. Population growth is probably the single largest These are the countries, regions, or sub-regions within factor that changes demand patterns. Advertising, di­ a country that hold a particular "comparative advan­ etary changes, the economy, and a number of other tage," but differences in factor productivity, such as factors influence demand, but the largest single element available technologies, or climate and soil types favor­ is population, including growth, shifts across demo­ able to milk production, also playa role in comparative graphic categories, and movement. Total population advantage. Certainly, when comparing regions within growth in the United States has been steady for decades, the United States, factors available for producing milk but growth has not been regionally uniform. Looking at differ. The dairy industry focuses much of its attention population growth from 1930 through 1992 is informa­ on issues of "competitive advantage," which concen­ tive. Prior to WWII, population growth was stable. trates on quantity-type goals, such as maintaining mar­ During the War, when a share of the U. S. population ket share through policy efforts. However, a number of moved overseas, the domestic population actually de­ factors that impact milk production fall under compara­ clined. When the veterans returned home, the babyboom tive advantage, including shifts in demand, historical generation was begun, causing a large increase in U.S. production decisions, and regional resource endow­ population, and the total growth hasn't slowed since. As ments, such as land, soil type, and infrastructure. Tech­ Chart 1 shows, U.S. population growth since 1950 has nologies available to produce milk and transportation shown a remarkably stable increase. costs also fall under the comparative advantage struc­ Population growth has not been occurring uni­ ture and are examined in this paper. formly, however. Comparing 1930 and 1940 census Chart 1. U.S. Population in Millions. 300 ..,....,..T"'I""'1I""T'"1'-rrT"T""r-rT"T'T"T"T""I"T"'T"T'T"~r-rT"T'T'"T"T'"1r-r-r"T"T"rn'"TT"T"T"T"T'"1iTT"T'T'"rnr-r-r"T'T"T"T'1iT'1 200 ..........~I-4-l-++ .........++II-+-f.........+I-~I-++++++-I-4-l-+-++++- 100 50 o 1930 1940 1950 1960 1970 1980 1990 This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled ''Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. data, just prior to World War II, New York, Texas, and centroid moved about 45 miles almost directly south. California were the states that had the highest rate of For a lO-year period, that is a fairly dramatic shift. In population increase. In general, all of the states east of 1960, the population once again began moving west and the Mississippi River were growing at a fairly rapid slightly south. By 1990, the weighted centroid for U.S. pace, while population in the Midwest was stable. population had moved nearly across the entire state of Comparing 1980 and 1990 census data, of the three Missouri and is now located near Jefferson City. Popu­ states showing the most population growth in the'30s­ lation has been steadily moving to the west and south. New York, California, and Texas-only California and Historical Production Decisions Through Time Texas continued to show strong growth. A fair amount of increase in the '80s occurred in the Southeast and Population, and thereby local demand, is probably one ofthe largest factors ofcomparative advantage, but throughout the West. Population growth generally oc­ curred along the coasts, while the heartland experienced historical production decisions also have occurred in the context of regional shifts in production. For ex­ slow growth to actual declines. The Northeast continues be ample, in the early 1800s, the population was mostly to a densely populated region, as does the Southeast, Southwest, and West Coast, indicating a widely dis­ centered along the East Coast and, not surprisingly, so was milk production. The nation's dairy farms were bursed U.S. population. Chart 2 indicates recent re­ located heavily along the Eastern Seaboard near Bos­ gional growth patterns across the country. ton, New York, and Washington, D.C. As the popula­ Population movement over time can be measured tion grew and demand for milk became stronger, milk by calculating the weighted centroid ofpopulation, (the production began moving west. The railroad enabled geographically central point of density). Large move­ the industry to move dairy products longer distances. ments of population are required to move the centroid Butter, the most highly desired milk component at the any measurable distance. In 1930, the population cen­ time, could move long distances, and even fluid milk troid was near Decatur, lil. By 1950, the centroid had moved more than 400 miles to the markets. shifted about 65 miles, almost directly west. Post World By the tum ofthe century, population along with War II, however, a fairly dramatic shift occurred. Ap­ milk production facilities had spread across the nation parently, once home the veterans decided not to raise and the Upper Midwest had become a fairly substantial their families in the North; between 1950 and 1960, the milk producing area. The Upper Midwest could pro- Chart 2. Annual Percent Change in Population, 1980-1994. -1.00% to 0.00% • 0.00% to 0.50% 0.50% to 1.25% 1.25% to 3.60% WORKSHOP PROCEEDINGS 20 Stephenson Chart 3. Annual Percent Change in Milk Production, 1980-1994. -4.00% to -1.00% -1.00% to 0.00% 0.00% to 2.00% 2.00% to 12.00% duce milk at a relatively low cost, and new transporta­ to relocate in Wisconsin. State-of-the-art, carbon-copy tion technologies allowed the region to ship dairy prod­ facilities were built throughout the state. ucts east where the population was concentrated. An­ In the early 1930s when Wisconsin's dairy indus­ other, and equally important, reason why the Upper try was on the rise, a pivotal technology was also being Midwest was becoming an important dairy region is developed. In the 1920s and 30s, the 40-quart milk can that dairy farming is perhaps the highest and best use of had just been adopted as a standard. Prior to that, milk much of Upper Midwest's resources. Upper Midwest had been hauled in a variety of containers to processing soils and climate cannot compete with Iowa or Indiana plants. The first bulk handling of milk was occurring in for com and soybeans, but the region's land base is California at the same time canned milk was becoming better suited to dairy production than the drier climate the new standard elsewhere. Perhaps, many of the of the Great Plains. structural changes that we are witnessing today, have Even though the Upper Midwest was rapidly occurred because of that single technology-the bulk becoming a large dairy area in the early 1900s, Wiscon­ tank, which required a large capital investment. Produc­ sin was not the center of production at that time. Dairy ers in the Upper Midwest having just invested in new moved into Wisconsin quite rapidly. At the tum of the facilities, were now faced with additional expenses for century, New York was still the largest milk producing bulk tank units. To justify this large expenditure, fann­ state and Iowa was No.2. Wisconsin- just trailing its ers needed to add cows to facilities that were designed southwestern neighbor at No.3-was the nation's larg­ around a smaller scale of operation. Meanwhile, the est wheat growing state by a large margin. Wisconsin new dairy fanns in California could be built at a scale wheat growers, however, grew wheat upon wheat upon designed to accommodate bulk tank shipment of milk. wheat, which left the crop and soils susceptible to The rapid population growth in the West gave Califor­ disease. W.D. Hoard, a journalist at the time, stood on nia producers the incentive they needed not only to his soap box exhorting the people to "give something invest in the bulk tank, but also in new and different back to the land." Hoard was successful, and dairy facilities. By this time, California was a large milk­ producers moved out of Iowa and other states in droves producing state, but the Upper Midwest was still far dominant. WORKSHOP PROCEEDINGS 21 Stephenson Chart 4. Centroid Movements of Population and Milk Production, 1930-1990. Milk Production Movement 1 90 " 1990 Missouri industry is following the shift in population. So, what Production Shifts Through Time does that mean for the next 10 years? The magnitude of As with population, it's possible to calculate and population movement has slowed, but also shifted. plot the centroid of production and demonstrate how Currently, the movement is more to the south and not so production has shifted through time. Between 1930 and rapidly west. Therefore, the expectation for the next 1940, the production centroid was fairly stable and decade is milk production will still move west and situated about 35 miles southwest of Hannibal, Mis­ south, but not as rapidly as it has in the past two decades. souri. Between 1940 and 1950, however, the production This may be an indication that California's dairy indus­ centroid actually moved about 50 miles east into Illi­ try is becoming mature. nois. The movement east had a lot to do with the rough Assuming uniform consumption of milk or dairy times agriculture had experienced in the previous de­ products across the country, one can also determine cade, orduring the Dust Bowl years, when even western which states have more milk than they need on a per dairies headed back east. During the 1950s, production capita basis and which are shy of milk. In the 1930s, the did an about face and began moving west once again. entire West, Southwest, Great Plains, Southeast, and Production took another tum in the '60s and began much of the Northeast were milk deficit. Even New moving southwest. The centroid in 1970 was located York, a very large milk-producing state at the time, was just north ofSt. Louis. In the past two decades, however, milk deficit. The Upper Midwest had a large residual the production centroid has traveled almost directly surplus of milk, between 200 million and 900 million west across the entire state ofMissouri to the suburbs of pounds of annual surplus in Wisconsin alone. Many of Kansas City-a large movement for a 20-year time the western states had moved from deficit to surplus by period. 1992, but not to the degree of surplus that still exists in Looking at the movement ofboth centroids, popu­ the Upper Midwest (more than 20 billion pounds per lation and production, plotted side by side shows re­ year in Wisconsin). Even though California has sur­ markable similarities. The relationship between the two passed Wisconsin in total production, California is not is quite appealing. Since 1950, the two centroids have a large net exporter ofdairy products. Likewise, Minne­ paralleled each other fairly well, with production fol­ sotamay have lost substantial market share over the past lowing population within 10 years. In general, the dairy few decades, but the state is still a major exporter of dairy products. Chart 5 shows that New York and WORKSHOP PROCEEDINGS 22 Stephenson Chart 5. Milk SurpluslDeficit States, 1992. ~ -5500 to -1000 ~ -1000 to 0 [J 0 to 1000 • 1000 to 5500 • 5500 to 22000 Chart 6. Maximum Volume of ImportslExports from One State, Billions of Pounds. 25 -r------------------------------­ 20 +------------------------~ Maximum exports from one state 15 +---­ ~ 10+----~ 5 o 1 -5 +------------------------,.;;;;; Maximum imports from one state -10.L------------------------------­ WORKSHOP PROCEEDINGS 23 Stephenson Pennsylvania have become modest exporters of dairy well into the 1980s and currently produces about 3 products, while the South, including Texas, remains a billion pounds of surplus milk per year-not even large importer of milk and dairy products. enough milk to supply the deficit in Texas. For the most part, the degree of surplus or deficit Summary in any particular state has been magnified over time. Population movement accounts for much of the Milk-deficit states have increased their deficit, while regional shifts in milk production that have occurred milk-surplus states have only added to their surplus. That magnification of surplus and deficit through time over the past several decades. Production shifts are probably not the result of policy distortions. Quicker i~ likely the result ofspecialization caused by compara­ tIve advantages that have been realized. In other words, adoption ofnew technologies and relatively new facili­ ties in the West and Southwest make those regions more states that aren't efficient milk-producing states are competitive in some sense than the traditional milk­ importing more milk and dairy products, while states producing region of the Upper Midwest. This is a that are efficient in producing milk are exporting even structural issue, not a policy issue. As the facilities in the more. New York is an interesting case in point. It wasn't Upper Midwest become obsolete, they will be rebuilt. until the mid-1970s after New York had gone through Compared to the West, the Upper Midwest has certain a major restructuring that the state went from being net comparative advantages, such as climate and soils. The deficit in milk to a modest exporter of dairy products. Upper Midwest, undoubtedly, will remain a large milk­ Wisconsin, a good size exporter in 1930, had become a producing region, and will continue to produce the bulk very large exporter by 1992. Even Wisconsin's recent ofthe nation's residual milk over the next decade. At the loss in total milk production is not an enormous volume same time, western production is not an aberration. The when compared to the state's peak production year. West will continue to increase market share. Looking at California, the western state was milk deficit Chart 7. Milk Surplus/Deficit, Selected States-Millions of Pounds. New York Wisconsin 24000 24000 18000 18000 12000 12000 6000 6000 o o -600 1970 1990 -600 California Texas • WORKSHOP PROCEEDINGS 24 Stephenson How will changes in population over the next 20 years impact regional milk production? The Bureau of Census predicts that the western population movement will slow or actually halt and that by 2020 more of the population will have moved to the Southeast. The Bureau's projections may revolve around the theory that as the babyboomers age, they will retire to the warmer climate ofthe Southeast. If that proves true, are the implications for the dairy industry similar to those that occurred earlier? Probably not. U.S. population growth is expected to be steady, with no dramatic increases ordecreases. However, the only demographic category expected to show growth in the next two decades is the 65-years-of-age-and-older category, as the babyboomers age. The remaining age groups, in­ cluding the work horse of the economy (those 25-to 65­ years-of-age) and the younger population (the real milk consumers), are declining at a fairly dramatic rate. The growth is in the aged population. ,. WORKSHOP PROCEEDINGS 25 Stephenson WORKSHOP PROCEEDINGS 26 Stephenson CHANGES, CHOICES, AND CHALLENGES David R. Dyer, Ph.D. L-D Associates The picture that will evolve from the basic politi­ domestic-marketing orientation toward world market cal, economic, technological, and social changes under­ development. way in the dairy industry today is one of an industry in Sorting Out the Changes for the '95 Bill transition, wherein change is one of the few constants. Political support, grows weaker each year, and some Some factors are givens: those that are impossible situations are beyond the scope of legislative fixes. to alter and those that are inevitable. Any proposed Federal responsibility for dairy program costs will program changes that would add significantly to federal recede, with producers picking up direct and associated outlays, for instance, would be dead on arrival. Trends program costs, or programs will simply disappear. toward more consolidation of production and process­ Public support for agricultural programs of any kind is ing units are inevitable changes as are the changes that declining. consolidation will bring to rural communities and Consolidation within the industry will continue changes stemming from urban encroachment. Other issues are unlikely to be affected much by federal farm causing some of the most painful changes. In the future: legislation. Consumer concerns about the amount of fat there will be fewer dairy operations, thus, fewer small­ in their diets would be one example. State and local herd producers. Processors will have fewer suppliers in regulations, particularly those related to environmental close proximity to their facilities, and will face more considerations, might be another. competition for milk supplies in many areas of the Issues that can be addressed by changes in federal nation. Lower prices for raw milk will prompt efficien­ dairy legislation and regulation are the future of the cies and produce financial failures across the industry, federal price support program and what, if any, role while at the same time opening new markets and pro­ trade legislation will play in revising the dairy program. ducing unanticipated profits for survivors. Most policy observers hold expectations that the rules General social and economic trends will force of the game for the dairy program will change, either rapid and complex changes. For example, price and modestly or radically. The disagreements about policy in~ome changes have affected household spending for are usually about the degree ofchange, not the probabil­ daIry products, while social and demographic shifts ity of its occurrence. continue to alter the composition of product demand. Budget considerations are always key. Somepolicy Conflicting dietary and nutritional claims have con­ observers hold the idea that we will see a fundamentally fused consumers and weakened demand for dairy prod­ different economic policy for milk producers, milk ucts. These changes are taking place worldwide. processors, and dairy food manufacturers. They argue On America's dairy farms, milk production tech­ that the minimum pricing provisions cannot withstand nologies continue to push milk output to new records. the weight of political criticism that will result from And the terms of trade in world markets will soon begin growing federal outlays if milk output continues to out­ to reflect more than the largesse of national treasuries. pace d~mand. The dairy program, however, is unlikely While it may be some time in coming, efficient produc­ to be smgled out for criticism on the basis of cost. The ers, wherever located, will be competing for market cost of price support removals has stabilized at about share. Due to changes in government policies, con­ $250 million. That amounts to about $1 per person per sumer demand, and the globalization of markets, the year and accounts for 2-4% of federal outlays for all orientation of the U.S. dairy industry will also continue commodities, depending on what is included in the to shift: away from traditional products that consumers total. identify with high-fat content toward new low-fat foods, While cost is not the only criterion for attacks presented differently, and away from a near exclusive upon and abolition of a federal program, there does not This paper is part ofa proceedings ofa "w hoerlkds"h op for dairy e,c onomists and policy analysts entitled 'Toward the 1995 Fa rm B'II dI an Bey~n d, In Mmneapolls, Minnesota, September 7 and 8, 1994-­ a project ofCornell University's Program on Dairy Markets and Policy. appear to be a growing concern about the federal outlays notion that "fair prices" lead to "a living wage." That is, for the dairy program. Considering the likely advocate the old mathematical identity of price times quantity for restructuring on the basis of cost alone, namely the equals income was sometimes used to justify higher Office of Management and Budget, it is very unlikely prices on the grounds that higher prices are necessary to that the Clinton Administration will be looking for generate a higher income for hard working people who radical changes in farm programs next year. Radical deserve a raise. change comes at a high political price. Without some Over time, the inefficiency ofdealing with income surprises in November, it is doubtful that the Adminis­ problems through various price fixing, or minimum tration will gird for a battle in '95 that it does not have pricing schemes,led to very serious market distortions. to fight. In the crop programs, minimum pricing led to enormous Why We Have Price Support Programs expansion of overseas production of wheat, soybeans, tobacco, and cotton. In dairy, legislated changes in price Price support programs were established to pro­ support, coupled with strident advances in productivity, tect the nation from potential disasters in rural commu­ led to oceans of surplus milk in the early 1980s. nities that came from wide swings in commodity prices Price support programs have been costly. Farm in the 1930s. They were advertised to the urban con­ price support expenditures during the 1980s amou~t~d stituency as necessary to maintain "a continuous to well over $100 billion. Dairy price support aCtIVIty and stable supply ofagricultural commodities adequate accounted for perhaps one-tenth of the cost during that to meet consumer demand at prices fair to both produc­ period. Price support programs have not achieved their ers and consumers," according to a 1936 amendment to social objectives. They have not stabilized rural com­ the Soil Conservation and Domestic Allotment Act. munities. Efficient producers have amassed substantial The first goal of farm programs, and one that has wealth under the programs and simply purchased land endured until today, is to stabilize wide swings in price and facilities at a faster rate than might have otherwise that can occur between harvest and the end of the next occurred. More than one observer concludes that de­ growing season, or in the case of milk, between the pendence on farm program payments has led to a spring flush and demand peaks that occur in fall and at sophisticated income transfer program for relatively holidays. Price stabilization mechanisms essentially high income producers. Even Congress is questioning establish a minimum price for each product. For grains, the wisdom of the nearly open-ended features of farm cotton, oilseeds, and other crops, price support loans are programs. As Rep. Richard Durbin, D-Ill., Cha~r of the the primary tool used to stabilize price swings. For House Appropriations subcommittee for agnculture dairy, the price stabilization tool is the purchase ofdairy and rural development, pointed out, USDA farm pro­ products by the Commodity Credit Corporation (CCC). grams currently are sending "a lot of money to produc­ Just as loan activity isolates a portion ofa crop from the ers who don't need it." In short, isolation from market market during harvest, purchases remove excess prod­ costs and returns have sent inherently bad signals to ucts of milk during periods when milk production is producers. Dairy producers have been caught up in the greater than necessary to serve fluid and hard product vortex ofartificial milk and feed price relationships that markets. these programs have created. The underlying concept ofprice stabilization was, What does the price support program provide? It and has been, that a producer who is forced to sell a provides stability for an industry, not an individual commodity when supplies are most plentiful is at a farm. The distinction between industry benefits and distinct financial disadvantage. Policy is rooted in the individual farm benefits can be lost on small operators notion that all dairy farms are pretty much alike and who are in financial difficulty. Unfortunately, federal variations from the norm can be troublesome. In par­ policy is a poor substitute for market outcomes when ticular, small, undercapitalized farmers are thought to measured in efficiency terms. Time and time again, the be at a disadvantage, compared to large, wealthy opera­ market has proven that it can perform resource alloca­ tors. tion tasks more effectively than decisions made by fiat. Latent to many government price support opera­ So why is there such resistance to exposing agri­ tions has been the idea that stability is not enough. culture to market forces? Necessary resource adjust­ Sometimes, advocates for farmers have hauled out the ment is often discussed as an inevitable and relentless WORKSHOP PROCEEDINGS 28 Dyer part of a dynamic free enterprise system, but the theo­ to establish trading relationships that, while based on retical conditions under which markets rationally allo­ subsidies, will carry them for a long time to come. cate resources are currently not present to back up that The future of the price support program is linked political argument. More directly, the tough part of to what happens in the period after ratification of the resource adjustment is the names, faces, schools, and Uruguay Round Agreement (URA). Its future will be churches that comprise the resources that are adjusted. determined in the context of the general shift in agricul­ The recent costs of the federal dairy price support tural policy related to implementation of the General program have declined dramatically from the 1980s to Agreement on Tariffs and Trade (GAIT) and federal slightly more than $250 million annually. From a fed­ budget realities. A central issue for 1995 will be how to eral budget perspective, the cost of the dairy program is modify the price support program to promote export less of an issue today than at any time in past two market sales ofdairy products. As was the case in 1985, decades. In the past few years, the dairy program cost the 1995 legislation will directly and explicitly link one-tenth ofwhat it did in the mid-1980s and comprises trade promotion and the price support program. In 1985, only 4-5% of the total outlays for all agricultural price the Dairy Export Incentive Program (DEIP) was almost support activity. The dairy program cost is equivalent to an afterthought, an add-on. In 1995, dairy export activ­ $1 per year per person, or less than 10 cents per month. ity will be a central theme. What do American consumers receive for this $1 Trade Legislation and Revision annual investment? An assurance that milk is available ofthe Dairy Program in the stores, on the shelves, nearly everywhere, year To grow and prosper, the U.S. dairy industry must around. The cost of the dairy price support program, become a strong competitor in world markets. That's a borne by the taxpayer, is returned to the consumer in tough undertaking. Demandfor dairy products is heavily terms of supply security. Because of that stability, the dependent on income. In that context, the poorer nations dairy food processing industry has had ample supply to ofthe world offer only a limited market for commercial work with in developing new products. These products sales, while high-income nations are largely self-suffi­ are available because the price support program offsets cient in dairy products. Markets for dairy products can some ofthe risk associated with production, marketing, be developed where incomes permit imports. Aggres­ and distribution. If overproduction takes place, the sive marketing will expose these populations to new federal government is the buyer of last resort. tastes. Almost all the remaining markets will be battle­ What's wrong with a program that provides that grounds for market share. abundance at a relatively low cost? Plenty. First, the In this battle, the United States is way behind. price support program has sapped the marketing initia­ Absent an aggressive, concerted effort to play catch up, tive from the dairy industry. And second, the program the United States will stay behind for some time. In­ simply doesn't work anymore. Both of these flaws can deed, the URA helps the European Union (EU) main­ be fatal over time. The hidden costs of the program are tain its lead by legitimizing its high expenditures for significant and have grown to the point where they may export subsidies. In 1995, the EU will be able to apply be dangerously threatening to the nation's dairy indus­ subsidies, in aggregate, to approximately 15% of its try. The price support program has insulated the dairy domestic milk production. By 2000, the EU will still be industry from pressures that, while painful to deal with able to subsidize 12% of its production. The subsidies in the short term, must be dealt with. available to the EU for butter exports in 2000, for For many years the difficulty for U.S. food policy example, will exceed the total volume of world butter has been abundance, not scarcity. How to hide the exports last year (excluding intra-EU trade). Compare overabundance from the market has been a policy that to the figures applicable to the United States. In challenge for decades-in fact, for most of the 20th • 1994, about 2% of U.S. milk production will be ex­Century. While the American dairy industry was able to ported under DEIP. In the year 2000, U.S. exports under "dump" its products on the federal government, our DEIP will amount to only about 1% of domestic milk future competitors abroad were developing an exten­ production. sive and sophisticated marketing network around the This comparison of the respective export arsenals world to take advantage of the slightest prospect for is not intended to intimidate or discourage, but rather to market development. They are using that network today WORKSHOP PROCEEDINGS 29 Dyer indicate the magnitude of the marketing effort that will of U.S. assistance to least-developed countries in the be needed. It also has major implications for the direc­ form of dairy products. Indeed, the URA includes a tion ofU.S. domestic dairy policy. If world markets are Ministerial declaration that commits well-off nations to indeed the source of prosperity, the domestic price provide increased levels of food aid to least-developed support program must be modified so as to enable-in countries that are not expected to benefit from the fact, compel-sales to export markets, in lieu ofsales to liberalization of agricultural trade. the federal government. Some of the ideas that have The area of food assistance is one in which con­ been proposed for an export federation, or an export certed political effort by the dairy industry can make a market coordination agency, are worth exploring. difference. The amount and kind of aid, where it is Supply will not be a limitation on U.S. exports. To granted, and the terms of its delivery represent the kind the contrary, milk supplies will be abundant: long-term, of political, economic, and moral trade-offs that may annual average milk production has increased 1.5-2% become central to alleviating world hunger in the next (only with catastrophic events, such as the 1993 flood­ century. ing in the Midwest, will milk production decline); the Constructing a Framework for the '95 Bill introduction of production enhancement technology, Domestic price support policy and international such as rBST, will probably increase the rate of milk trade will be two pivotal issues for the dairy industry in production; better herd management, genetics, and di­ the 1995 farm bill. Based on the economic and political rect pricing signals, such as multiple component pricing evidence, it is up to the dairy industry to face these systems, will also boost milk output and quality; and challenges, to anticipate changes, and to identify realis­ increased milk output is taking place despite faltering tic policy positions that can take the industry into a new domestic demand for dairy products and without adjust­ age of restricted federal budgets and globalization of ment for the continued large surplus of milkfat. Thus, markets. How can an industry with such diversity for­ U.S. output at levels exceeding U.S. market demand mulate a comprehensive, meaningful, and defensible will continue. In all likelihood this burgeoning milk public policy? output will be a continual spur to the development of It is difficult to think of a mechanism, or a forum, new dairy market outlets abroad. for surfacing and reviewing needed changes in dairy While the U.S. dairy industry will remain a major policy. This conference is a good start, but no routine, economic segment of the food industry, the sources of comprehensive means exists by which needed changes milk, its costs, its processing, and its use by consumers can be surfaced and thoroughly reviewed. Almost all will change in the coming years. For trade, some of problems, inconsistencies, and quirks end up as the these shifts can be advantageous. For example, milk subject of periodic congressional debate-at least once production has increased rapidly in the Pacific states every 4-5 years. Yet, debate in the House and Senate and the Southwest, due to relatively lower cost of represents the most inefficient problem identification production in those areas. This milk, in its processed and solution forum imaginable. forms, is well situated for export to Mexico, Latin It will take time and effort to formulate a consis­ America, and the Pacific Rim nations. tent policy framework that accounts for domestic and Not all market development will or should take international demand. The industry should be working place through commercial activity. What about food collectively toward constructing that framework. And it aid? In the early 1980s, overseas food assistance was a needs to work quickly because this is a timed exercise major outlet for dairy production. Since the surpluses with the EU holding the stopwatch. But even if th; have diminished and the price of nonfat dry milk has industry succeeds and develops a workable, judicious increased substantially, only small amounts of butter set of policies and programs, how do those ideas be­ and cheese have been exported through overseas dona­ come public policy? tion programs. If access to world markets is limited by They often don't. Even more frequently, the pro­ the number ofpeople who can afford to pay commercial cess of changing policy takes too long to effectively or near-commercial prices for dairy products, should meet the economic or social situation that the policy we consider ways to keep a tight lid on U.S. milk change was supposed to influence. Sound policy devel­ production? No, that clearly would be a mistake. In­ opmentrequires constituency building. Top-down ideas stead, the lid could be loosened by committing a volume WORKSHOP PROCEEDINGS 30 Dyer are very hard to enact into law. This lack of grass roots care initiative, for example, recently became unraveled constituency was one of the downfalls of the proposed as rhetoric was reduced to specific legislative propos­ dairy "self-help" legislation in 1993. Many House and als. As the gray tones of a nebulous concept of health Senate staffers said that among their constituents, the care reform became black-and-white provisions, sup­ silence was deafening. port eroded. Building a framework for the future involves One key political point will affect the farm bill: education and eventual support from a solid political PresidentClinton waselected without having a majority base. The industry has not performed well in this area. of the popular vote. The lack of majority support has The framers of the U.S. Constitution provided ample translated into down-to-the-wire votes on each major safeguards against creating laws willy-nilly. They made piece of legislation the White House has backed. It is sure that without the support of a solid majority, a bill difficult to imagine this President going directly to the was nearly impossible to pass. Congressional proce­ people, as some of his predecessors have done, to seek dures have the effect of wearing down extreme posi­ support for one or another idea. For issues like agricul­ tions. The votes are simply never enough. This process tural policy that have never been part of the Clinton tends to move radical or reactionary policy ideas toward legislative program, the administration is unlikely to the center, so the outcome of legislation looks gray, take or hold strong positions. rather than black or white. The administration's health • WORKSHOP PROCEEDINGS 31 Dyer WORKSHOP PROCEEDINGS 32 Dyer WORKSHOP SUMMARY Bob Yonkers, Pennsylvania State University Hal Harris, Clemson University Joe Outlaw, Texas A&M University Fran Howard By far the topic that generated the most concern ­ mantling the program would help solve the problem of among workshop participants was federal order pric­ pricing. ing. The main frustrations were the speed of the admin­ "The Midwest is saying 'We need to look at the istrative decision making process, a lack of means for entire pricing system,' " noted Economist Bob Cropp, private handlers to forward contract for milk supplies, University of Wisconsin, who spoke at the conference. and class IIIIllI-a pricing. The appropriate role of gov­ "I don't think we have kept it up to date." Cropp's ernment in federal dairy policy, along with international sentiment was echoed by all seven discussion groups trade and market development, ranked a distant second, during the workshop portion of the conference. Four of while market stability and environmental regulation the groups chose pricing as the most compelling issue lagged further behind yet. facing the industry, two ranked it second, and one The various groups offered a wide range of solu­ placed it third. tions to the problems of federal order pricing. Several The failure of USDA to make a timely recom­ groups and many participants acknowledged that ineq­ mended decision for an M-W replacement was made uities within the systemhavecreated divisiveness among even more acute by the solutions developed at the regions of the nation. Some thought that because of that workshop to the problem of class IIIIllI-a pricing. very divisiveness, federal order pricing should not be Although the M-W was discussed by nearly all of the tackled by Congress in the upcoming policy debates. groups, not one suggested a competitive AlB price like Others disagreed. This division among workshop par­ that favored three years ago at the national hearing. ticipants illustrates just how difficult it will be for the Solutions offered by this group were far more geared to industry at large to solve its problems. the rapid changes occurring in today' s industry and took The Problem ofPricing into account the Midwest's ongoing frustrations. In other words, the group questioned whether the M-W Much frustration was voiced about the delay in was worth fixing. "Something has to come after the M­ USDA's recent recommended decision for the Minne­ W," said one participant. "The industry has to move to sota-Wisconsin Price Series replacement. Even federal something else." and state regulators voiced concern regarding the pro­ Two groups suggested decoupling class I and cess. "All of the i's have to be dotted and all of the t's class III prices and using a standard, national class III have to be crossed" at several levels of government, price. Two other groups suggested using product price noted one regulator. The slow pace of USDA, however, formulas and two recommended eliminating or revisit­ has not only frustrated the industry, but also has inten­ ing class III-a pricing. The group that suggested elimi­ sified the view among some that perhaps the industry nating class III-a pricing also recommended imple­ would be better off without the order program. "Pro­ menting market balancing payments. Other suggestions grams like that we don't need," said one processor. were to eliminate class III pricing altogether, deregulate "Waiting for the M-W. Waiting for class III. People a region, such as the Upper Midwest to allow a larger under that program don't need a market administrator. • volume of milk to set the class III price, and using a It's not efficient for consumers." Another participant national standard price. went so far as to suggest that the order program be Some groups chose not to focus on class IIIIllI-a suspended for 18 months to evaluate its worth. Even pricing alone, but rather tackled a much broader topic­ though four of the seven groups discussed eliminating minimum pricing. -"No one knows what the industry the federal order program, not one concluded that dis­ would be like without minimum pricing, without a This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled ''Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project of Cornell University's Program on Dairy Markets and Policy. class III price," said one analyst. Four groups discussed doing," Knutson noted. Green payments undoubtedly eliminating minimum pricing entirely, with two of will be incorporated into the 1995 farm bill. "It's just a those groups concluding that doing so would help solve question of who will get them," he said, and whether some of the pricing problems facing today' s industry. they will apply to environmental practices or invest­ Eliminating federal order minimum pricing was viewed ments made prior to the '95 bill. as a way to allow non-cooperative handlers a means to The other group took a far more theoretical tack more favorably compete for milk by allowing them to toward developing the goals and objectives of dairy secure milk supplies in advance, thus eliminating some policy. This group thought dairy policy should promote of the price uncertainty they face. efficiency and orderly marketing, or at least, not dis­ Regionalism as a matter of pricing was discussed courage it. Policy should also protect the industry from by several of the groups. Two suggested that class I economic shocks, contrary to recent policy changes, differentials be revisited and that the price/distance and promote market innovation, while at the same time relationships be evaluated-an issue Cropp told partici­ assuring adequate supply at prices reasonable to pro­ pants would not die in the Upper Midwest. One group ducers and consumers. Although it's not the said pricing should be kept separate from the upcoming government's role to assure reasonable prices for dairy policy debates. Regionalism has so divided the industry products, it is the government's responsibility to pro­ that reaching consensus is highly unlikely, this group mote adequate demand through product research and argued. However, two other groups said regionalism market development, the group decided. Policy should has to be dealt with in the farm bill, or regional differ­ also facilitate private action, advance farm performance, ences will only intensify. The regional pricing chal­ and promote equity across regions. lenges facing the industry are as complex as the solu­ Trade & Market Development tions are diverse. In the words of one participant: "We A close second to the government's role in policy, have one region crying for higher prices, while another international trade and market development was the is growing that doesn't need them." issue ofthird most concern discussed at the conference. Government's Role in Policy All seven groups chose trade or international market Two groups chose the government's role in dairy development as a priority issue, but not one ranked it as policy as the most pressing issue facing the industry, the No. 1 issue facing the industry. Three ranked it while a third said it was the second most important second and four placed it third. A lack of information issue. The two groups that actually developed objec­ among participants regarding GATT and its potential tives for dairy policy approached the topic differently, impact on the U.S. dairy industry was apparent in the with one developing broad objectives and the other discussions, and acknowledged by a Canadian partici­ more concrete goals. The group that took the narrower pant. Not surprisingly, it follows that several groups approach said the farm program needs to be consistent thought the government needs to assist the industry by with government trade objectives. Rural initiatives supplying better international market data and forecasts should be developed to first help farm families, and for potential market impacts of the new trade agree­ secondly small farms. Finally, this group thought "green ments. payments" should be issued to producers who comply Speaker Andrew Novakovic, Cornell University with waste management laws, a recommendation that economist, told participants on the first day of the follows the suggestion made by a conference speaker. conference that by some estimates world prices for milk Economist Ron Knutson, Texas A&M Univer­ and dairy products will increase 30-40% by the year sity, strongly recommended green payments as a policy 2000. "As soon as this happens, there will be a search for option for the 1995 farm bill. Green payments, or substitutes," he said. Because dairy products are highly government subsidization for compliance with envi­ elastic (sensitive to changes in price), lower-income ronmental regulations or waste management laws, sectors of the population will look for food alternatives Knutson said, is legal under the General Agreement on and market opportunities will occur in pockets of high­ Tariffs and Trade (GATT), and the dairy industry needs income consumers within nations. For example, he to determine a way to put subsidies into the form of said, high-income consumers in Mexico "will look for green payments. "That's what the crop people will be quality. That's the angle we need to pursue." Consistent WORKSHOP PROCEEDINGS 34 Summary with Novakovic's recommendation, participants were according to Cropp. A support price of $10.10 for not sold on the idea of an export board used to sell 3.67% fat milk does little, if anything, to stabilize commodity products overseas, but rather thought U.S. prices, he added. Dyer took an even dimmer view of the exporters would do better focusing on developing mar­ support price program by saying it has insulated the kets for value-added products. Only two of the seven industry from inevitable change. The hidden costs ofthe groups thought an export board would help develop program, he said, have been high, especially in terms of international markets. U.S. competitiveness in international markets. While A combined U.S. subsidy limit of Dairy Export the U.S. dairy industry was dumping surplus products Incentive Program (DEIP) sales and government-to­ on the government, he added, "our competitors abroad government Commodity Credit Corporation (Ccq were developing an extensive and sophisticated mar­ sales that will equal only 1%t of 1993's total production keting network around the world." by the year 2000 has put the United States at a severe Only two groups chose market stability as a prior­ disadvantage to the European Union (EU), noted Wash­ ity issue, however, one put it first and the other third. ington-based economist David Dyer, another speaker at Neither group thought raising or eliminating supports the conference. In contrast, the EU still will be able to were long-term solutions to current price instability. subsidize 12% of its milk production by 2000. "The Both groups, however, said a lack of sufficient and U.S. has nothing to lose by advocating no more sub­ timely data is a major cause of price instability and that sides," Dyer argued. Yet, only one group suggested that better and more timely data would help stabilize prices GAIT negotiations be reopened to try to cut EU subsi­ by reducing overreactions to market changes. Produc­ dies, and not one group recommended that all subsidies tion controls also were not viewed favorably by these be eliminated. Access to the Canadian market, how­ groups, but use of forward contracts, a self-help pro­ ever, was ofmajor concern among groups as was access gram, and better use of the Coffee, Sugar & Cocoa to other nations, but gaining access to Canadian con­ Exchange dairy contracts through increased speculator sumers took precedence. "It does no good to talk about investment were considered solutions to price instabil­ opening up markets in Europe if we can't reach an ity. agreement with our northern neighbor," noted one par­ Environment ticipant. Twogroups placed increasingenvironmental regu­ Dyer also told the group that the United States has lations among the priority issues, one placed it second been viewed as a fickle partner in trade. U.S. exporters and the other ranked it third. Participants viewed in­ have been in and out of international markets, waiting creasing environmental regulations as a cost and equity for the government to allocate DEIP sales. EU nations, issue, not as a problem in itself. In other words, they did in contrast, have been busy building long-term relation­ not think solving the problem was a matter of stopping ships that will carry them for some time to come. or reducing regulation-similar to the way some pro­ Despite that strong and well-accepted statement, only ducers view the issue-but rather a matter ofgetting the one group listed developing long-term relationships as job done in the most equitable and least expensive way. a solution to the potential impact freer trade will have on The group that chose environmental regulations the U.S. dairy industry. Other solutions offered to as its second priority issue solved the problem by minimize the domestic impact of the new trade agree­ saying, "The industry needs to improve its interaction ments included government development of interna­ with society and place more importance on societal tional markets, using quality as a marketing tool, imple­ values and preferences." The other group approached menting stronger import rules, and finding an alterna­ the issue from a more internal perspective and devel­ tive to DEIP that is consistent with GAIT. oped a plan of action for the industry. This group • Market Stability thought the industry should develop and propose stan­ Ever since the government began to reduce the dards rather than wait for environmental interests to support price in 1985, market stability has become an develop provisions for the dairy industry-a stance ever increasing challenge for both processors and pro­ consistent with the recommendations oftwo conference ducers. In anyone year, the M-W from high to low has speakers. Environmental standards also need to be fluctuated by as much as $3.95 per hundredweight, uniform across states and regions to promote equity WORKSHOP PROCEEDINGS 35 Summary within the industry. To accomplish this, the group inability to make timely recommended decisions re­ suggested using a regulatory forum similar to the Na­ garding pricing. This frustration has led to even less tional Conference on Interstate Milk Shippers. acceptance ofcurrentprice regulation. Furthermore, the Farm Bill solutions to the current problem ofclass IIIIllI-a pricing problems developed at the conference were far more Only one group actually defined a dairy title for reflective of a rapidly changing industry than USDA's the 1995 farm bill. This group thought an extension of recent recommended decision for an M-W replace­ the 1990 farm bill with only minor adjustments was ment. The view that regional pricing is a problem that likely and that all pricing issues need to be handled needs to be faced also appears to be gaining support. outside the context of the '95 bill. In contrast, the group Moreover, by choosing the appropriate role of said export/import and international market orientation government in policy as the most important issue facing needs to be addressed within the bill, but that budget the industry, two of the groups appeared to be saying constraints would ultimately define the bill's param­ that the entire purpose of the dairy program needs to re­ eters. Dairy must also take an active role in developing evaluated, or at least better understood. Most of the conservation and environmental provisions. Interest­ solutions developed to industry pricing issues lead to ingly, all ofthe conclusions---except one-were based further deregulation regardless of the fact that recent on recommendations given by conference speakers. steps toward deregulation have created more volatile Despite Cropp's warning that the Midwest would ad­ markets. Price instability-often thought of as the dress its pricing concerns within the upcoming policy industry's most pressing problem-actually received debates, this group thought pricing issues were too much less attention than other issues. What participants divisive to be addressed by Congress. wanted most to deal with market instability was better Production Shifts and more timely market data-not more regulation. The changing structure of the dairy industry and From the trade discussion it was apparent that the shift of milk production west was of concern to all participants needed more information than they cur­ seven groups. Despite a presentation given by econo­ rently had in order to even define and develop solutions mist Mark Stephenson, Cornell University, that showed to the potential impacts freer trade could have on the a close correlation between population movement and industry. This lack of information may be one reason milk production shifts over time, workshop participants that trade ranked lower in priority than the more familiar viewed some of the production shift west as an issue of topics ofpricing and government's role in dairy policy. policy. "I'm not convinced that regional shifts in milk Participants made their requests for more information production represent any real policy distortions," openly by asking for government assistance with data Stephenson said. "Population shifts appear to explain and forecasts. The tone of the trade discussions bor­ much of the change in national supply." dered on pessimistic. Despite an ongoing push by the Still, Section 102 of the 1990 farm bill was raised National Milk Producers Federation for a self-help as an issue by two groups and regional pricing was program that includes an export marketing board, most discussed by several, with two recommending that workshop participants concluded that an export board class Idifferentials be revisited. Some participants even to help sell commodity products overseas was not the thought that price regulation was so distorted that the best long-term approach to develop international mar­ industry would be better off deregulated. Others were kets. A far more advantageous strategy, these econo­ not so much concerned with current regulation, but mists and analysts said, would be to develop markets rather sought to develop ways in which the industry based on quality and value-added products. could help facilitate adjustment to a rapid structural Overall, the tone of the meeting was one of accep­ change, both in terms of where the industry is locating tance. Acceptance that the industry cannot control the and the shift to larger, intensively managed farms. course of current events, including a move toward a global market, increasing environmental regulations, Conclusion fewer funds delegated for farm programs, and the chang­ Several conclusions can be drawn from the work­ ing face of the U.S. dairy industry. Participants of the shop portion of the conference. First, and perhaps workshop in general were more concerned with how to foremost, the economists and policy analysts who at­ facilitate those changes than with stopping the inevi­ tended the conference were frustrated with USDA's table. WORKSHOP PROCEEDINGS 36 Summary Priority Issues 30 • Pricing lEI Government's Role • Trade & Market Development D Market Stability ~ Environmental Regulations 20 10 o - WORKSHOP PROCEEDINGS 37 Summary • WORKSHOP PROCEEDINGS 38 Summary GROUP #1 Facilitated by Andrew Novakovic, Cornell University Group No. I was the only group to pick four The group's No.2 issue was the General Agree­ priority issues. The group was well represented by the ment on Tariffs and Trade (GAIT) and international various sectors within the industry, but not by region. trade in general. Participants decided that to remain Regional representatives were from the Northeast and competitive in world markets the industry needs to Midwest. expand export markets, while making internal adjust­ As its top priority issue, Group No. I chose the ments to export opportunities, and exploit GAIT loop­ objectives and goals of federal dairy policy. The issue holes. was brought up and chosen because one person new to In terms of expanding export markets, the group the industry did not understand the "why's" offederal suggested that the industry coordinate export marketing dairy policy. As other participants tried to articulate the activities and that exporters-including the govern­ objectives, group members mutually agreed that, in­ ment--develop long-term, committed relationships with deed, the industry ought better articulate and under­ international buyers. To accomplish these goals, how­ stand the goals and objectives of federal dairy policy. ever, the U.S. government needs to assist the industry by Federal dairy policy should promote efficiency providing international market information and foster and orderly marketing, or at least not discourage it, the market development. group said. Also, policy should protect the industry The group saw access to international markets as from economic shocks. "Policy has been moving to­ a definite problem. "Forget the Northeast compact. ward promoting economic shocks. At some point, Let's guarantee supply into Canada," said one group shouldn't the goal be to reduce economic shocks?" member. Access to the Canadian market was viewed as argued one participant. The government also should essential. "It doesn't do any good to talk about opening promote market innovation, or at least not discourage it, up markets in Europe if we can't reach an agreement and work to assure adequate supply at prices reasonable with our northern neighbor," noted another participant. to both producers and consumers. At this point, a An effort to obtain market access to other nations was participant suggested that assuring adequate demand suggested as well. also be a goal of federal policy, which set off an intense As a way to exploit GAIT loopholes, the group discussion. suggested that the industry exploit the use of a GAIT­ "Why is it the fed's responsibility to guarantee a legal class IV export program. During the discussion, market price for your product," said one group member. however, it became apparent that the group lacked Another responded with, "If you talk adequate supply, adequate information regarding GAIT provisions and you have to talk adequate demand, or let's just take the what will be considered "legal" under the new trade whole issue (of supply and demand) off the table." The agreement. discussion then turned to whetherit was the government's Federal Milk Marketing Orders, including pric­ role to assure adequate demand, or allow the industry ing, pooling, and the administrative decision making ways in which to develop programs that expand mar­ process-along with the varying impact those regula­ kets. The group decided that policy should promote tions will have on regions-was the group's third most adequate demand by encouraging both market and important issue. Due to time constraints, however, the product research development. Finally, the group said group summed up its pricing discussion by asking: • policy should help facilitate private collective action "How do we justify or establish what prices should be?" • and promote equity across regions and markets. While As mentioned earlier, Group No. I chose a fourth farm performance is an issue policy can address, farm priority issue: increasing environmental regulations at structure is not. both the farm and plant level and the resulting impact those regulations will have on regional production This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. costs. This issue ranked a distant fourth and was chosen Priority Issues only on the facilitator's insistence that the group choose 1. What are the objectives and goals of federal policy? four issues. Again, participants did not have time to • Promote efficiency and orderly marketing, fully address solutions, but did say the industry should or at least not discourage it accept the reality of increasing regulation and strive to • Protect the industry from economic shocks develop cost-sharing mechanisms. • Promote market innovation, or at least not Several problems were identified and discussed discourage it that did not make it to priority status. Those issues fall • Assure adequate supply at prices reasonable under one of four categories: public perception and to producers and consumers consumer demand; processing; policy and industry • Promote adequate demand by encouraging structure; and education. Problems ofpublic perception both market and product research develop­ and consumer demand were: animal care and welfare; a ment need to identify, counteract, and take advantage of • Facilitate collective private action consumer trends; and lack of coordination between • While farm performance is an issue, farm processor and producer promotion programs. Problems structure is not areas in the realm of processing were: food safety; • Promote equity across regions and markets impact of increasing yields, coupled with the lack of development and utilization of new technologies; the 2. GAITrrrade need to market milkfat in non-food industries; and lack A. Expand export markets of uniform product identity standards. In terms of edu­ • Coordination of industry export marketing cation, the group saw a need for more funding of activities research and education and a lack of industry mecha­ • Develop long-term, committed relationships nisms for dialog and discussion. with international buyers In the broader category of policy and industry • Government assistance in providing market structure, the group identified four problems. First, information and market development some participants thought policy should facilitate farm • Push for market access of other countries, exits and entry. Second, the necessity of the price not acess to U.S markets support program was questioned. Third, price enhance­ • Access to the Canadian market ment through the creation of interstate dairy compacts B. U.S. reaction and adjustment to freer trade was considered a threat. And finally, the changing • Internal adjustment to GAIT opportunities structure of the industry has unequal and negative C. Exploit GAIT loopholes and opportunities impacts on regions and rural communities. • Exploit the use of a GAIT-legal class IV Several comments made by participants of this program group concerning regional pricing and cost of produc­ tion are worth noting. First one participant said: "I'm 3. Federal Milk Marketing Orders: pricing, pooling, waiting for western dairy producers to come to the and administrative processes, plus regional impacts Upper Midwest and say, 'Wow, there's $3 more that I • How do we justify or establish what prices can get for my milk.' " Ironically, another noted a short should be? time later that "We have one region crying for higher prices and another growing that doesn't need it." The 4. Environmental improvement at both farm and plant policy and regulation underlying these issues were level and the resulting regional impact on cost of among the most discussed and controversial at the production workshop, reflecting an industry-wide challenge. • Accept reality: go for cost-sharing • This area needs lots of thought • WORKSHOP PROCEEDINGS 40 Group #1 All Issues: Environmental Taxes Federal Orders • Livestock unit taxes • Pricing (class I, M-W, class III-a • Discharge waste taxes • Pooling • Administrative Process Food safety • Antibiotics (E. coli) Expand Export Opportunities • Pesticides • What are policy goals/objectives? • Pricing of new products: intermediate, and! Interstate dairy compacts or new product forms. (e.g. dry solids-wet • Price enhancement solids) • Order pricing a deterrent to exporting cer­ Regional dispersion of plant milk cost and "mailbox tain products. price" Impacts of yields increasing Funding for research and education • Development and utilization of technolo­ gies Ability to produce at low cost; dispersion of cost of production GAIT adjustments • Implementing legislation How environmental regulations impact cost of produc­ • domestic/internal responses tion, regional or other competitive advantages Improve export marketing (management) skills Consumer trends • identify Animal care/animal welfare • counteract • take advantage of Current CCC assessment, especially as supply manage­ ment tool and implications for "GAIT legal" Impact of changing dairy sectors/regions on rural com­ munities Push marketing of milkfat into alternative uses Coordination of producer and processor generic adver­ Policies to facilitate tising and promotion • Transitions (farm exit/entry) Product identity standards Price support program • Can we live without it? Industry et. al. mechanisms for dialog, discussion, and research. Environmental Improvements • Farm level • Plant level • WORKSHOP PROCEEDINGS 41 Group #1 WORKSHOP PROCEEDINGS 42 Group #1 GROUP #2 Facilitated by Robert Jacobson, The Ohio State University Participants in Group No.2 focused quickly on To guarantee that this process be completed, the group problems in federal order pricing. Discussion was in­ voted to make it a provision of the 1995 farm bill. tense, but only in terms ofthe degree ofchange required This group's other priority issue was international not the need for change. The group concluded that the trade and its main concern was trade with the nation's government's role in pricing is flawed in its cumber­ northern neighbor. The only Canadian representative in some decision making process, especially in long-de­ the group expressed surprise at the low-level of infor­ layed federal order decisions. mation othergroup members had concerning the impact Two opposing views developed within the group. that the General Agreementon Tariffs and Trade (GATT) The first side wanted radical reform in federal order would have on the U.S. dairy industry. Participants pricing, primarily to deal with the issues facing the voiced concern regarding the potential for increased Upper Midwest. This side went so far as to suggest that competition between two nations and suggested the the federal order program be suspended for 18 months possibility of a consolidated CanadianlU.S. "national" to determine if the industry would be better off without pool. it. The other camp acknowledged that the federal order To deal with the CanadalU.S. dairy trade stand­ program needs to adopt significant change, but thought off, group members recommended that a process be changes should be made through the more conventional established in both countries that would permit a por­ hearing process. tion of the milk supply to move across borders at world A long discussion as to whether the order program market prices. To accomplish this, national subsidies was necessary ensued. "At some point we have to could be established, such as optional quota in Canada decide ifwe are going to keep the federal order program. and a class IV, or export price, in the U.S. Uncertainty And, if so, how?" said one participant. Another sup­ remains, however, whether either optional quota or a ported retaining the order program because it provides class IV price would be GATT legal, and whether the industry a framework in which to work, especially Canada would even allow such a process to occur. when implementing change. "Retain and review, or Other problem areas that were defined by the retain and restructure?" was the next question. "It's not group, but which did not receive priority status can be just review," responded one participant. While another classified into four main categories: demand; supply; stated that "the problem with the federal order system is environment; and education. In the area of demand, the that it is so ingrained in everyone we can't envision an group acknowledged both a need to expand U.S. ex­ industry without it." ports of dairy products and the fact that dairy products The group finally agreed that a national commis­ increasingly compete with other sources of fat and sion on milk pricing and milk price regulation be protein in the diet. Supply was discussed only in terms appointed to evaluate the federal order program. The of how to control it, with management options defined commission would be charged with five tasks: examine as either through price, program, or vertical structuring. the consequences of eliminating federal order mini­ In terms of the environment, the group suggested mum pricing; review and examine the need for classi­ developing market-oriented plans to address environ­ fied pricing; review the purpose of class I differentials; mental concerns, but was unsure how to incorporate consider the potential for regional or national pooling; environmental changes into the structure of the dairy and, finally, evaluate the administrative decision mak­ industry and still remain competitive internationally. • ing process. The commission should be required to Coordinating efforts among environmental interests complete its evaluation offederal order price regulation and the dairy industry to develop environmental regula­ within one year, the group said, with a national public tions for dairy was also suggested, a stance consistent hearing held shortly thereafter to review the findings. with recommendations made by conference speakers. This paper is part ofa proceedings ofa workshop for dairy economists alld policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8,1994­ a project ofCornell University's Program on Dairy Markets and Policy. One participant thought the industry's educational Expanding U.S. exports of dairy products focus needs to shift toward a market orientation and away from government subsidization. Of concern to Have agricultural policy address restructuring prob­ another was the apparent lack of information and lim­ lems caused by expanded trade ited innovative thinking that producers and processors have regarding alternative price and policy options. Develop market oriented plans to address environmen­ Finally, on unrelated issues, the opinion was voiced that tal concerns future dairy policy needs to address the structural prob­ lems that will result from expanded trade, and the group Comprehensive reform of pricing identified interstate compacts as a problem rather than a solution in milk price regulation. Major order consolidation, maybe one order CanadalU.S. consolidated national pool Priority Issues: CanadalU.S. increased competitiveness among dairy l. Government's role in pricing is flawed producers and processors A. Inefficient decision process in Federal Milk Marketing Order Program Reduced product differentiation in both industry and B. Delayed DEIP allocations government C. Review, study, and evaluate Federal Milk Mar­ keting Order Program (maybe a national com­ Supply exceeds demand; should production be con­ mission) to look at: trolled by price or program? • eliminating minimum pricing • examine classified pricing Review of classified pricing, including export class • purpose of Class I differentials • pooling, maybe regional or national Vertical structuring to control production • administrative decision process Consumer demand; how dairy products compete with Group concludes that written into 1995 farm bill other sources of fat and protein should be the requirement that a national hearing be held within one year Coordination of dairy with environmental issues 2. Trade Changing the educational focus away from historic • Establish a process in Canada and the U.S. program and toward market orientation that permits a portion of the milk supply to move across borders at world market prices Review the Federal Milk Marketing Order Program under national export subsidies decision making process and speed it up * Canada = optional quota, for example * U.S. =class IV price, for example How do we incorporate environmental changes and remain competitive? All Issues: What is the appropriate role of government in Price Support Program and Federal Milk Marketing Order Program impede change in the industry • Pricing? • Consumer demand? - • Environment? Interstate compacts are a threat • International trade? • Structure, including Federal Milk Market­ Producer and processor ignorance of alternatives and ing Orders? limited innovative thinking WORKSHOP PROCEEDINGS 44 Group #2 GROUP #3 Facilitated by Robert Cropp, University ofWisconsin Of all seven groups, Group No.3 appeared to regulator. Group No.3 was one ofonly three groups that reach consensus most easily and efficiently. The group did not list "eliminating federal orders" as a problem was represented well across sectors of the industry, but issue facing the industry. not across regions, with western representation lacking. The most interesting solution-in light of the fact Members not only agreed on which issues were impor­ that no Californians were present-offered by this tant, but also on which three should be given priority group to reduce current pricing inefficiencies was a status. The main disagreement arose when trying to rendition of"Ifyou can't beat 'em,join 'em." The group rank the importance of the three priority issues. decided the industry should consider decoupling class I "Thepurpose ofthe farm program," broadly speak­ and class III prices and adopt a California-type pricing ing' was chosen as the No.1 issue by members of this system. However, participants warned that doing so group, who developed concrete objectives for the would "have implications for both the price support nation's farm program. First, the group concluded that program and current make allowances," both of which provisions in the 1995 and future farm bills need to be likely would lower fann-level prices. consistent with international trade objectives. To ac­ Another solution offered by the group to reduce complish this, the dairy industry needs to forget about current problems in pricing was to speed up administra­ price enhancement at the farm level and focus on tiverecommendations and procedures for change in the expanding international markets. Thegroup also thought federal orders. The group voiced two other opinions "green payments" ought to be incorporated into farm related to pricing. First, they said, a national hearing to legislation to compensate producers who comply with address problems in pricing is not recommended be­ waste management regulation. Funding of rural devel­ cause it will be extremely difficult for the industry to opment initiatives to create jobs and services in small reach consensus. And second, rigorous evaluation would communities is needed to first help rural families, and remedy most, if not all, of the pricing issues, but both second to help "small farms." Moreover, the group industry and government needs to quit dawdling and concluded that states, not the federal government, need speed up the process for change. to address structural changes at the farm level. As its third most important issue, Group No.3 The "need to rationalize milk pricing" was the No. chose international trade, and developed concrete plans 2 priority issue of the group and an area where disagree­ for action and strong policy stances. First, the group ment arose among group members. Section 102 of the said, the U.S. government should insist on minimum 1990 farm bill was a point of dissension despite the access to the Canadian market. For the industry, the absence of California representatives, and one area group recommended that it consider an export board where the group could not reach consensus. "102 should independent of a "self-help" proposal, utilize all tools be shot. I don't think it's going to do what it's supposed that are legal under the General Agreement on Tariffs to do," said one Midwest participant. Another Midwest and Trade (GATT) to boost U.S. competitiveness, and analyst replied, "I disagree. I want it written into the take advantage ofquality standards as a way to develop next fann bill." international markets. Plus, the industry should try to As in all groups, a discussion evolved whether acquire federal funds in the context of the '95 farm bill government should be involved in pricing at all, but the to be used for international market development. Fi­ group was a little softer than outright suggesting that nally, this group wanted USDA to conduct a study to federal orders be eliminated. "The government could be determine the costs of milk production for major milk­ separated in terms of pricing, but totally involved in producing nations and to project world milk prices and terms ofquality. You could have government in all of it U.S. milk prices over the next several years. USDA, the or only in a portion of it," argued a federal order This paper is part ofa proceedings ofa workshop for dairy economists alld policy analysts entitled ''Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. group said, needs to answer the question: would the • Evaluation will take care of problems; how­ world milk price level the international playing field? ever, we need to speed up the process Other less pressing issues defined by this group reflected concerns about declining growth in consump­ 3. International trade tion of dairy products and structural changes within the • GAIT: hold tight on minimum access to industry, as well as the impact that consumer attitudes Canada have on those issues. The group thought that expanding • Consider an export board independent of demand when consumer attitudes are negative regard­ self-help ing rBST and other technologies could be a challenge, • Use all tools that are legal under GAIT as could overcoming the adverse publicity that these • Use quality standards as an international new technologies generate. The industry also needs to marketing tool work on improving quality standards, both in raw milk • Consider federal funds for international and finished dairy products, and help facilitate struc­ market development in '95 farm bill tural change within the industry, including those changes • Need USDA to study cost of production brought about by increasing environmental regulations. among major world milk producers: What A lack of solid information regarding costs of produc­ would be the world milk price? U.S. milk tion for individual farms, regions, and the nation also price? Would world milk price level inter­ creates problems, the group concluded. national playing field? All Issues: Priority Issues Purpose of farm program 1. Purpose of farm program • Price support and income support • Farm bill provisions need to be consistent • Small vs. large farms with international trade objectives, which • Farm structural changes involves a trade off between price enhance­ ment to producers vs. international expan­ Need to rationalize milk pricing sion of exports • Federal Milk Marketing Order Program re­ • Environmental: subsidize waste manage­ form,M-W ment compliance to assist producers • Pricing of nonfat solids is eroding producer • Rural development initiatives to create jobs returns: class III-a in orders; Class 4a and and services in small communities to help 4b in California farm families, and secondly, help small farms • Section 102 • Some of the structural changes need to be assisted by state initiatives Environmental regulations 2. Need to rationalize milk pricing Demand expansion • Need to speed up administrative recommen­ • rBST and other technologies dations and procedures for change in the • Consumer attitudes Federal Milk Marketing Order Program • Because it will be extremely difficult to Improving quality standards as a marketing tool build consensus for appropriate change, a • Farm to consumer national hearing is not the answer. Question • Plant to consumer whether Section 102 ought to be addressed in '95 farm bill International trade • Consider decoupling class I from class III • GAIT access to Canada and adopt California-type pricing. This has • Strategies for competitiveness implications for both the price support pro­ • Relative values of milk gram and current make allowances • Proactive on exports; export board WORKSHOP PROCEEDINGS 46 Group #3 Identify costs of production for individual farms and nationally Overcome adverse publicity from rBST and the impact of other bio-technologies Facilitating structural change Price and income support • WORKSHOP PROCEEDINGS 47 Group #3 WORKSHOP PROCEEDINGS 48 Group #3 GROUP #4 Facilitated by Mark Stephenson, Cornell University Members of Group No.4 had no problem identi­ industry. Besides those more extreme positions, the fying issues and, in fact, identified 31 in all. By the end group offered three other more middle-of-the-road so­ of the session, however, it was clear that pricing domi­ lutions to class IIIIIll-a pricing. Product price formulas nated the participants' thinking and was the foremost could be used. The industry could revoke class llI-a concern of the group. pricing, instituting market balancing payments instead Members ofthis group represented a cross-section to avoid the inequity that could result to the co-ops that of the dairy industry, with representatives from various offer market balancing services. And, finally, the group regions, including the West, East, and Upper Midwest, suggested deregulating a region, such as the Upper as well as from sectors within the industry, including Midwest, to allow a large volume of milk to competi­ producers, processors, regulators, and government offi­ tively set the value of manufacturing milk. cials. Representatives from different sectors within the The other two priority issues chosen by this group industry reached agreement more readily than did rep­ were developing an industry with self-regulation rather resentatives across regions. In other words, disagree­ than public regulation and the need to increase demand ment was more heated among representatives from for dairy products both at home and abroad. Due to time different regions than it was among sectors. constraints, however, the group was unable to develop This group followed a slightly different procedure solutions to its second and third priority issues. than other groups, and thus their priority issues were A number of the group's pricing issues did not more narrowly defined than those ofothergroups. Once make it to priority status: volatility; class I differentials; identified, individual issues were not categorized as in economic regionalism; inequities in federal order pool­ other groups. When choosing theirtop-3 priority issues, ing; pricing not reflective of regional production shifts; participants then decided to identify three majorcatego­ regional vs. national pricing; current price support level; ries from which to choose one priority issue each. On and uncertainty as to whether to continue the Price the recommendation of the facilitator, however, the Support Program at all. group agreed to chose priority issues across all catego­ One suggestion related to price offered by a par­ ries as well as one from each of the top-3 categories. ticipant of this group-eliminating federal order mini­ Interestingly, the top-3 issues were identical whether mum blend prices-never made it onto the group's chosen across all issues or the three main categories. "issue list." Interestingly, though, two other groups For its No. 1 issue, Group No.4 chose "pricing offered elimination of minimum blend prices as a solu­ milk for manufactured products." This was the most tion to current federal order problems. "Whether you're narrowly defined issue chosen by any of the groups, and a co-op or proprietary plant, you can pay what you can thus, was the one issue of the entire workshop that afford, saying that co-ops and processors are equal," solicited the most solutions. All ofthe groups discussed said the participant who offered the suggestion. An­ pricing of manufacturing milk as an issue, but only other responded, "You are eliminating classified pric­ Group No.4 let it stand alone. Participants developed ing if you do that." The first participant then said, "No, five alternatives to the current system of pricing milk I'm not. Milk would account to the pool for pricing, but used to manufacture class 1lI, including llI-a, products. processors would not have to pay the minimum blend First, the group thought the industry could abolish price. I draw from the pool, but I don't have to pass it on • regulated prices for manufacturing milk, letting local to producers." A discussion then ensued as to whether markets determine the value of class IllIIll-a milk. At eliminating federal order minimum blend prices would the other extreme, the group said, the industry could use mean an end to classified pricing. The group could not a standard and uniform manufacturing price, which reach consensus, so the suggestion was dropped. would lessen those issues that currently divide the This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994-­ a project of Cornell University's Program on Dairy Markets and Policy. Three regulatory issues also did not make it onto Pricing of milk for manufactured products the group's priority list. Those issues were major time delays in the federal order decision making process, Increasing demand, both domestic and international legislative solutions to problems rather than administra­ tive solutions, and the lack of infonnation among legis­ Role of government in industry lators regarding the importance of food and agriculture to both the nation's well-being and the national economy. Surplus handling mechanisms Under markets and international trade, this group identified nine problems: the General Agreement on GA'IT is a threat to domestic industry Tariffs and Trade (GAIT) is a threat to the domestic industry; inability of government to enforce current Class I differentials and basic fonnula price trade agreements; the need to retool the industry for export channels; the need to define trade goals as Legislative vs. administrative solutions international market development rather than surplus disposal; the need to coordinate market expansion with How to globalize trade promotion efforts; the unsolved processor/producerdis­ pute ofraising nonfat solid standards offluid milk in the Economic regionalism federal orders; whether to eliminate federal orders; the need for better surplus handling mechanisms; and gov­ Federal order pooling vs. pricing issues ernment purchases for domestic and international mar­ kets. National pricing changes to reflect changes in produc­ Miscellaneous issues defined by this group in­ tion cluded the threat from anti-animal and anti-food groups, equity issues across farm size, and environmental con­ Enforcement of international agreements cerns regarding clean water and waste management. Raising nonfat solid standards of fluid milk Priority Issues: Elimination of federal orders 1. Pricing milk for manufactured products • Abolish prices for manufacturing milk Coordination of market expansion and promotion ef­ • Product price fonnulas forts • Deregulate a region (M-W) • Eliminate class III-a pricing Structural change at both the farm and processor level • Institute market balancing payments • Use standard manufacturing milk price Anti-animal and anti-ag/food groups 2. Industry regulation vs. public regulation of dairy Industry regulation vs. public regulation ofdairy indus­ industry try 3. Increase demand, both domestically and interna­ Environmental concerns tionally • Clean water • Waste All Issues: Time lag in the Federal Milk Marketing Order Program Regional vs. national pricing decision making process Equity issues across farm size Price volatility Educating legislators about importance of food (agri­ New basic fonnula culture) WORKSHOP PROCEEDINGS 50 Group #4 Retooling industry for export channels International market development vs. surplus disposal Component pricing Price support level Whether to continue price support program Government purchases for domestic and international programs WORKSHOP PROCEEDINGS 51 Group #4 • WORKSHOP PROCEEDINGS 52 Group #4 GROUP #5 Facilitated by Larry G. Hamm, Michigan State University Participants in Group No. 5 unequivocally fo­ cluded that import product rules need to be reviewed cused their full attention on the pricing issues at hand, and industry-wide institutions considered to implement but the make-up of the group prohibited members from and police exports and imports. reaching consensus. Representatives from a large na­ For its third priority issue, Group No.5 chose tional bottler and a national farm advocacy organization environmental and animal welfare issues. Uniform en­ created a group setting in which opinions were often vironmental rules were favored, but whether to imple­ polar opposites. ment those rules at the state or federal level was not The group's No.1 priority issue, to "rethink or re­ determined. Consensus was reached that water is the engineer the milk pricing system," could not be re­ principal environmental concern and that large dairy solved. The closest members came to developing solu­ operations, as opposed to small dairies, are responsible tions to the pricing problems they defined was to recom­ for a major share of water problems. "We have to mend that pricing issues "not be incorporated into the equalize environmental laws. Big feedlot operations are 1995 farm bill because there is not a consensus point more prone to effect ground water than the family farm within the industry." The pricing issues defined by in the Midwest or Northeast," noted one participant. members of this group were similar to those chosen by Another agreed that "water is the key thing, and it's not other groups, such as the need to reconcile federal order cows standing in the stream creating the problem." pricing with California state pricing, develop a work­ Group No. 5 was the only group that actually able replacement for the Minnesota-Wisconsin price, succeeded in defining a dairy title for the 1995 farm bill. think about decoupling fluid and manufacturing mar­ Even though pricing issues will be discussed within the kets, and consider consolidating or eliminating federal context ofthe bill, the group decided those issues should orders. be resolved through the hearing process, not within the USDA's recentdelay in releasing its recommended legislation. Whether the industry can hold onto the basic decision for an M-W replacement was also a point of structure of the federal order program and whether it frustration for the group as a whole as well as among wants to continue the Support Price Program will be the members. "Programs like that we don't need-waiting two major pricing issues facing the dairy industry in the for the M-W, waiting for class m. People under that '95 policy debates. program don't need a market administrator. It's not Unlike pricing, international market orientation efficient for consumers," said one participant. A federal and import and export regulations need to be addressed order employee responded by saying that even though within the context of the 1995 bill. The group wanted processors may not see a gain from the order program, stiffer regulations for imports oflow-quality dairy prod­ it definitely benefits producers. ucts and extension ofthe promotion assessment to apply Consensus was reached more easily on the group's to imported dairy products. Whether export authority remaining two priority issues. "The relationship of the can be extended to the industry and remain consistent U.S. dairy industry to global changes" was the group's with GATTprovisions, or GATT-legal, also needs to be No.2 issue. Participants concluded that first the indus­ explored in the context of the '95 farm bill. Moreover, try needs to better understand international trade issues, the dairy industry should take an active role in develop­ and then respond accordingly by developing export ing conservation and environmental provisions, and not markets. Although trade rules are currently stacked wait for outside influences to impose provisions on the • against the U.S. dairy industry, the group said it's not industry. Federal budget constraints will define the time to panic as major changes are unlikely to immedi­ parameters of the legislation, but Congress likely will ately follow implementation of the General Agreement extend the 1990 fann bill with only minor adjustments, on Tariffs and Trade (GATT). Participants also con­ the group added. This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8,1994­ a project ofCornell University's Program on Dairy Markets and Policy. Three other issues of interest addressed by the Conclusions Regarding 1995 Farm Bill group did not make it to priority status or into the 1995 Pricing issues "should" be handled outside the context farm bill discussion. Participants voiced concern re­ of the '95 farm bill, even though they will be discussed garding the impact export initiatives would have on within the context of the bill U.S. dairy consumers in terms of affordability of dairy products. Also of concern was the impact other farm Export/import and international market orientation programs, such as feed subsidization, would have on the should be addressed in the '95 farm bill dairy industry. And, finally, the group said, as export subsidies are reduced, the industry needs to determine Budget constraint will define '95 farm bill parameters where to allocate the $250 million currently being used for Commodity Credit Corporation (Ccq purchases Dairy must be involved in conservation and environ­ and Dairy Export Incentive Program (DEIP) sales. ment discussion and provisions There is a significant probability that there will be an extension of the 1990 farm bill, with only minor adjust­ Priority Issues: ments 1. Rethink/re-engineer the milk pricing system • This should not be incorporated into the '95 All Issues: farm bill because there is not a consensus point within the industry Examination of the Federal Milk Marketing Order Program 2. RelationshipofU.S. dairy industry to global changes • Within AMAA of 19377 (GATTINAFTA) • Within the rules and implementation pro­ • Export markets cess? Problem with timing and speed of • Import product rules administration • Industry-wide institutions to deal with inter­ • Do we even need federal orders? national issues? • Should examination and/or changes be in­ corporated into the '95 farm bill? 3. Environmental and animal welfare issues • Federal Milk Marketing Order Program in­ • How the industry interacts with general citi­ terface with GATTINAFTA zen and societal values and preferences GATT and farm bill interface • Examination of promotion issue on imports Issues for the 1995 Farm Bill • Examination of phyto-sanitary issues GATT • Lower quality products imported Export orientation: create institution for all things af­ • Promotion assessment forded by GATT • Is there a need for this? Do we support the continuation ofthe support program? • If so, in what form? • Self-help? What is the industry's ability to hold onto the basic • Do we adjust current institutions or a create structure? new one in light of GATT? Fiscal constraints Sharpen focus in context of consumer • Willingness and ability ofconsumers to pay Export authority for the industry (e.g., impact of export initiatives) Will we have a "new bill" or an extension of the 1990 Basic formula price farm bill? • What should the government's role be? WORKSHOP PROCEEDINGS 54 Group #5 Decouple fluid and manufacturing markets How much burden can be placed on fluid markets? Environmental issues • Uniform rules; state vs. federal • Water principal concern, but also chemical use Effect of other farm programs, such as feed subsidiza­ tion, on dairy Effect ofothernon-farm programs, such as CleanWater Act and Coastal Zone Management Act, on dairy Who and what will be traded-off in the next farm bill How do we build coalitions? • Inside the dairy industry • Outside the dairy industry The entire milk pricing structure • Federal Milk Marketing Order Program • State orders (California/Section 102) • Unregulated pricing Animal welfare/animal care issues Where to allocate the $250 million currently used in the CCC purchase/DEIP program? WORKSHOP PROCEEDINGS 55 Group #5 WORKSHOP PROCEEDINGS 56 Group #5 GROUP #6 Facilitated by Ai Ortego, Louisiana State University Group No.6 was one ofonly two groups that chose in the recent past. Members of the group concluded that market stability as a priority issue and the only group to the industry needs to make a strong effort to reconcile its make it the No. 1 issue facing the dairy industry. differences in this area and review the distance/price However, heated disagreement arose within the group relationships of class I differentials. "Production shifts as to whether market stability or federal order pricing have created a need for more than one basing point," the deserved top ranking. group noted. Market stability was defined as an issue of farm Because USDA's long-delayed decision on the level pricing and production control. The group con­ replacement for the Minnesota-Wisconsin price series cluded, however, that raising the price support level was is only a temporary solution, Group No.6 developed not an option and that implementing production con­ what it thought were more workable solutions to the trols is not realistic due to lack of industry support. problem ofcurrent pricing ofmanufacturing milk. Stop­ Therefore, Group No.6 was left with the challenge of ping short of recommending repeal of III-a pricing, developing solutions to limit price instability within a participants concluded that "class III-a pricing is not market-oriented dairy policy. consistent with economic efficiency and proper re­ Group members developed three solutions to that source allocation and should be revisited for long-run challenge, but not without disagreement. First, they impacts." The other two solutions offered to the prob­ said, use of dairy contracts on the Coffee, Sugar, & lem of class IIIIIII-a pricing were reflective of the fact Cocoa Exchange could be enhanced by enticing specu­ that a class I processor from the East was a member of lators. Next, a self-help type of program could be the group. First, the group suggested that class I prices implemented to help stabilize prices. And finally, better be decoupled from the M-W price-which is often market information could be provided to the industry. higher than the true value of manufacturing milk, not However, all members were not sold on the group's only in the Upper Midwest but also nationwide-and solutions. "For the average co-op that sells fresh cheese, tied to a national average for class III values. Or the futures are unnecessary. Ifyou don't have inventory, it class III price could be allowed to float, which would be does you no good," said one participant. Regarding self­ more reflective of local markets, and pooling would be help, another thought it could be used to police produc­ extended to only class I differentials. In effect, this tion, while yet another said, "I think self-help will just would allow processors to draw from the pool, while drive more farmers out of business faster." eliminating their obligation to pay federal order mini­ For its No.2 priority issue, this group chose the mum blend prices. Federal Milk Marketing Order Program (FMMO) and Market development was Group No. 6's third defined three main problem issues: administrative deci­ most important issue. The group first gave the promo­ sion making process, regional pricing, and class IIIIIII-a tion programs a thumbs up, then turned to international pricing. In terms of the administrative decision making markets. This group wanted Congress to re-open nego­ process, the group thought a limit of six months should tiations on the General Agreement on Tariffs and Trade be placed on USDA to publish a recommended decision (GAIT) to try to convince the European Union (EU) to following a hearing. And reducing the bureaucracy, the reduce its level of export subsidies. Participants also group added, would "help solve other federal order thought the industry should work to find an alternative problems" as well. to the Dairy Export Incentive Program (DEIP) that is The problem of regional pricing was defined as consistent with GAIT provisions and fund a self-help the current levels of class I differentials and using Eau type of export development program. Claire, Wis., as the single basing point. Surprisingly, Overall, this group was very pessimistic about the this group had no participants from the Upper Midwest. ability of the U.S. dairy industry to penetrate foreign However, at least one member had worked in the region markets and the government's current role in develop- This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. ing foreign markets. "DEIP is a joke. All we are doing a. recent M-W revision is temporary solu­ is selling powder overseas instead of to the CCc. There tion is no development strategy," said one group member. b. decouple class I price from M-W, but tie "I'm very pessimistic about the international mar­ it to a national average price for class 1lI ketplace. I don't think we'll break into it within the next values five year," said another. A third, however, saw some c. class llI-a pricing is not consistent with hope: "We'll never be able to meet $8 milk, but if you economic efficiency and proper resource take away EU subsidies...." allocation and should be revisited for Very few of this group's problem issues either did long-run impacts not make it to priority status or into a solution to a d. let class ill price float, pooling only class I problem. Issues that remained "problem issues" only differentials. were environmental challenges, an ineffective price support program, current size of federal orders, and 3. Market development food aid and nutrition programs. • Continue promotion programs • Find an alternative to DEIP that is consistent with GAIT Priority Issues: • Re-open GAIT negotiations to get Euro­ 1. Market stability: farm level pricing and production pean Union to reduce export subsidies control • Industry funding of finance export develop­ ment program (a type of self-help) • Reduce price volatility a. no chance of raising supports b. improve futures market by enticing specu­ All Issues: lators Market development c. specific goal of self-help should be to • Domestic promotion provide more stable prices • International d. production controls have no support and it is not realistic to pursue at this time Environmental challenges e. better market information Market stability 2. Federal Milk Marketing Order Program • Farm level pricing • Recommended decisions out within six • Production controls months of hearing a. no extensions Federal Milk Marketing Order Program b. reduce bureaucracy • Decision making process c. would help solve other federal order prob­ • Regional pricing lems ·M-W d. political pressure • Regional pricing Structure of industry a. class I differentials and basing point * structure to conform more to economic Price support program theory • Ineffective * review distance/price relationships * production shifts have created need for Federal order price for class 1lI more than one basing point • Class llI-a pricing not the best solution • * industry needs to make strong effort to • Component pricing reconcile differences in this area • M-W price, class 1lI and llI-a pricing Industry advertisement and education WORKSHOP PROCEEDINGS 58 Group #6 Federal order class I pricing • Decoupling • Geographic structure • Order size Self-help Supply management Food aid and nutrition programs WORKSHOP PROCEEDINGS 59 Group #6 • WORKSHOP PROCEEDINGS 60 Group #6 GROUP #7 Facilitated by Jerry Hammond, University ofMinnesota Group No.7 focused heavily on the problems of regulators, industry, and Food and Drug Administration current federal order pricing and developed concrete (FDA) representatives. A similar environmental con­ recommendations to "improve" the system, as well as ference may include state, or county, regulators and adapt order pricing to a changing dairy industry. The representatives from industry and the Environmental group's No.1 priority issue was defined as "rationaliz­ Protection Agency (EPA). ing federal orders, state orders, and the Support Price The group's final priority issue was "facilitating Program." industry adjustment to a market with greater price This group took a positive approach to pricing instability and international components." An interest­ problems by saying that the "loss of a workable manu­ ing discussion regarding the need for more timely facturing base price provides the industry with an op­ market statistics developed regarding this issue. Partici­ portunity to re-examine the nation's pricing system." pants acknowledged that federal order data provides the Members of the group, represented heavily by the industry with far better information than what other processing sector, concluded that to avoid the potential commodity industries have available, but in the realm of problems associated with trying to develop a replace­ inventories, sold data is sorely lacking--creating even ment for the Minnesota-Wisconsin price as a mover of more price instability. "Did the cheese exchange just class prices, the industry should simply set class I and move 2 cents because it wants milk? It's out of inven­ class II differentials, then pool only those differentials. tory? Or because inventory is of the wrong form?" said This would eliminate federal order minimum prices, one participant, describing his frustration with inven­ including the minimum blend price, and allow proces­ tory data. "Panic shoots prices through the moon. It just sors to forward contract for milk supplies. The result not gets crazy," he added. only would put cooperatives and privately held proces­ To reduce price instability, the group suggested sors on a more equal footing when competing for milk, wider use of forward contracts-which coincides with but would also reduce market risk. its pricing recommendation-and better industry data The group further decided that pooling over larger on both inventories and consumption. How to reduce manufacturing areas would help reduce regional con­ the even greater price instability that could result from troversies regarding the current level of class prices, or international trade was addressed, but no concrete rec­ Class I differentials. In the extreme, participants said, ommendations made. Group members were not sold on pooling could be national. The group also noted a need current proposals for an export board. to mesh federal order pricing with California price Other problems defined by the group that did not regulation, but offered no recommendations. make it to priority status can be classified into three As its second most important issue, Group No.7 main areas: farm operations, marketing and interna­ chose environmental regulations at the farm level. Par­ tional trade, and ongoing issues that impact the future of ticipants suggested that the dairy industry develop envi­ the industry. In the first category, the group saw a need ronmental standards, rather than wait for environmental for policy to address the changing structure of the groups to propose standards for the industry-a stance industry at the farm level, facilitate improved farm consistent with recommendations made by conference management, and create better ways for producers to speakers. Regulations should be uniform and consistent evaluate new technologies, such as rBST, and facilitate across regions of the country to reduce inequities at the faster adoption of such technologies. farm level, the group said. To accomplish this, the In the realm of marketing and international trade, industry could consider using a forum modeled after the this group defined the issues well, but had more ques­ National Conference of Interstate Milk Shippers tions than answers: how can the U.S. compete interna­ (NCIMS). NCIMS is a biannual conference of state tionally, given its high domestic price of milk? How This paper is part ofa proceedings ofa workshop for dairy economists alld policy analysts entitled ''Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project of Cornell University's Program on Dairy Markets and Policy. should the marketing industry respond to the use of • Price security and stability biotechnology? And what can the industry do to resolve • Improvement of dairy farm management the conflict between international trade and domestic price instability. A suggestion was also made that mar­ Markets and international trade keters focus on value-added products rather than com­ • Howcan U.S. compete internationally, given modities to carve a niche in international markets. high domestic price? Ongoing problems impacting the future of the • How does marketing industry respond to industry as defined by this group were the continuing use of biotechnology? decline in per capita consumption of dairy products and • Inadequate market infonnation intense regionalism that leads to divisiveness on all • How would industry operate in freer mar­ issues. The group questioned whetherregionalism should ket? be addressed through legislation. • Products vs. commodities in export markets • Conflict between international trade and price stability Priority Issues • Marketing board or private exporters? 1. Rationalizing federal orders, state orders, and price support Dairy policy • Loss of manufacturing base price is an op­ • Declining per capita dairy consumption portunity to re-examine entire system • Industry adjustment to fewer or no govern­ • Fixing differentials only, pool differentials, ment programs eliminate minimum pricing • Regionalism leads to divisiveness on all • How to mesh federal orders with California issues; should it be dealt with by legislation? regulation • Challenge of a nationally coordinated pric­ ing system 2. Environmental regulations and dairy farming • Federal Milk Marketing Order Program • Industry proposed standards a. base price • Unifonn and consistent b. component pricing • Consider fonn and procedures of the Na­ c. differentials tional Conference of Interstate Milk Ship­ d. procedures pers 3. Industry adjustment in a market with greater price instability and increased international components • Wider use of forward contracts • Better industry data, both inventory and consumption • Is an export board needed? If so, what fonn and functions? All Issues: Milk production and farming • • Environmental issues • Pricing a. management and profit of farms b. changing structure of dairying • Technology a. how to evaluate rBST b. how to change oradapt to new technol­ ogy WORKSHOP PROCEEDINGS 62 Group #7 EPILOG At the time this paper was written, nine months to "level the playing field" through changing or elimi­ • after the Invitational Workshop for Dairy Economists nating Class I differentials-an issue that likely will be and Policy Analysts was held in Minneapolis, several revisited through the hearing process, not within the changes had occurred in the dairy industry and in context of the 1995 farm bill. Likewise, other issues, Congress. But has anything really changed the future of such as orderconsolidation, a permanent M-W replace­ U.S. dairy policy and the dairy industry? No. The ment, and how to reconcile California state pricing with industry continues down the path of consolidation to­ federal order pricing, are likely to be handled through ward larger farms, larger cooperatives, and larger pro­ federal regulation, not legislation. cessors producing ever larger volumes ofmilk and milk To further hinder change, USDA budgets and products. Regional diversity ofopinion as to what dairy departments have been cut drastically in an effort to policy should be is as strong as ever with growing streamline government. The time involved in the hear­ factions within regions in today' s national dairy market. ing process-already a thorn in the industry's side-is The political atmosphere of the nation and politi­ not likely to improve anytime soon. cal makeup of Congress has changed drastically, but Yet, change is upon us. South American countries that is likely to have little affect on the path dairy policy are being considered for accession to the North Ameri­ will take. In the November 1994 elections, the Repub­ can Free Trade Agreement and the General Agreement licans swept both the House and Senate. Sen. Richard on Tariffs and Trade was implemented on Jan. 1,1995. Lugar, Ind., became chair of the Senate Agriculture Information and knowledge about market access to Committee. Rep. Pat Roberts, Kansas, took over the international markets and foreign markets, in general, is House Agriculture Committee, and Wisconsin's Steve sparse in the U.S. as evidenced by participants at the Gunderson now heads the House Livestock, Dairy, and workshop. Change has occurred more rapidly in the past Poultry subcommittee. With Gunderson in charge, hope decade than in any other in the history of the industry, in the Upper Midwest has been renewed that someone but legislation and regulation have been slow to keep friendly to the region's concerns is in a position to make pace-market factors are in control. a difference. Along with the new make up of the The move away from regional dairy markets to­ agriculture committees, the appointment of Secretary ward a national market and the fast-paced decline in of Agriculture Dan Glickman could forestall any major dairy farms, dairy cooperatives, and dairy processors decisions on dairy policy as all try to get a handle on the was of major concern to those who attended the first most complex ofall agriculture programs-dairy. More­ InvitationalWorkshop for Dairy Economists and Policy over, the newly empowered Republicans are unlikely to Analysts. Participants viewed the Federal Milk Market­ make any sweeping changes to agriculture programs, ing Program as inadequate to deal with today's fast­ potentially alienating their rural constituents with the paced change, or at least insufficient to facilitate that November 1996 elections so close at hand. change. Nearly all of those present (88%) indicated that A series of field hearings on the 1995 farm bill they would be interested in attending a future workshop confirmed that the issues in the dairy industry have on the Federal Milk Marketing Order Program. changed little over the past decade, with perhaps one exception: the cry for supply management has lost its poignancy as the producer segment of the industry Thus, the 1995Invitational Workshopfor Dairy accepts the futility of its attempts to enact such a Economists and Policy Analysts has been program in a world moving toward open trade. scheduled for October 24 & 25, 1995, in Kansas Most regions, the Southeast, Northeast, and much of the Southwest, generally support the status quo. City. The workshop will focus on implementation Upper Midwest producers-now joined by Washing­ of the expected 1995 Farm Bill. ton state producers--eontinue to sound their battle cry This paper is part ofa proceedings ofan invitational workshop for dJ:ziry economists and policy analysts entitled "Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and S, 1994­ a project of Cornell University's Program on Dairy Markets and Policy. • • WORKSHOP PROCEEDINGS 64 Epilog ApPENDIX A. WORKSHOP PARTICIPANTS • Mr. Craig Alexander Dairy Institute of California CA Mr. Edward D. Anna Dairylea Cooperative Inc NY Dr. Don Ault Ag-Nomics Research Associates MN Mr. Neal Bjornson Associated Milk Producers, Inc TX Mr. Mike Brown National All-Jersey, Inc OH Mr. Silvio Capponi, Jr USDA-AMS-Dairy Div DC Mr. Rodney K. Carlson Milk Marketing, Inc OH Mr. Paul Christ Land O'Lakes, Inc MN Thomas W. Cosgrove U.S. Senate Agriculture Committee DC Dr. Thomas Cox University of Wisconsin WI ....................................................................... Dept. of Agr. Economics Mr. Nelson Coyle Canadian Dairy Commission CANADA ....................................................................... Policy & Program Analyst Dr. Robert Cropp University of Wisconsin WI ....................................................................... Dept. of Agricultural Economics Dr. Lynn Daft Abel, Daft & Earley VA Mr. Jerry Dryer The Jerry Dryer Group IL Nicole Dumas Kraft General Foods IL Mr. David Dyer VA Mr. Paul Farris Purdue University IN ....................................................................... Dept. of Agricultural Economics Mr. Richard Fleming Market Administrator TX ....................................................................... TexaslNew Mexico Mktg. Area Mr. William G. Francis Market Administrator's Office NY ....................................................................... NY-NJ Milk Marketing Area Mr. John Frank U.S. House Committee on Agric DC ....................................................................... Republican Consultant & Counsel Mr. John Fridirici. Grande Cheese Co WI Mr. Edward Gallagher Market Administrator's Office NY ....................................................................... NY-NJ Milk Marketing Area Marcia Glenn Kraft General Foods IL Steven Halbrook Farm Foundation IL Mr. Bob Hall Upstate Milk Coop., Inc NY Dr. Larry G. Hamm Michigan State University MI • . Dept. of Agr. Economics Dr. Jerome W. Hammond University of Minnesota MN ....................................................................... Dept. of Agr. & Applied Econ. Dr. Harold M. Harris Clemson University SC ....................................................................... Dept. of Agr. & Applied Economics Mr. Monte L. Hemenover Monsanto Company MO This paper is part ofa proceedings ofa workshop for dairy economists and policy analysts entitled 'Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8, 1994­ a project ofCornell University's Program on Dairy Markets and Policy. Mr. John Hitchell The Kroger Co OH Ms. Fran Howard MN Mr. Stewart G. Huber Farmers Union Mlk. Mktg. Coop WI Mr. Cary Hunter Market Administrator TX ....................................................................... TexaslNew Mexico Mktg. Area Dr. Robert E. Jacobson Ohio State University OH ....................................................................... Agricultural Economics Dept. Dr. Ronald Knutson Texas A&M University TX ....................................................................... Dept. of Agr. Economics Mr. Paul Kybun Market Administrator MN ....................................................................... Upper Midwest Mktg. Area (No. 68) Ms. Mary Keough Ledman Stella Foods, Inc IL Mr. Bruce E. Lee Hershey Chocolate Co PA ....................................................................... Commodities Operations Dept. Mr. Tom Little Dairymen, Inc DC Mr. Joseph C. Mathis Eastern Milk Prod. Coop., Inc NY Mr. John Mengel USDA-ASCS-DAAD DC Dr. James Miller U.S. Dept. of Agriculture DC ....................................................................... ERS-CED-LDP-Dairy Mr. Lyle Newcomb Dept. of Agriculture & Markets NY ....................................................................... Div. of Dairy Services Dr. Andrew Novakovic Cornell University NY ....................................................................... ARMEDept. Dr. Kenneth Olson American Farm Bureau Federation IL ....................................................................... Dairy Department Dr. Albert J. Ortego, Jr Louisiana State University Agr. Center LA ....................................................................... Div. Ldr., La. Coop. Ext. Servo Dr. Joe Outlaw Texas A&M University TX ....................................................................... Dept. of Agr. Economics Mr. Michael Reinke Kraft General Foods, Inc IL Mr. Dennis Schad Atlantic Dairy Cooperative PA Dr. Mark Stephenson Cornell University NY ....................................................................... ARME Dept. Mr. Richard Stillman USDA-ERS DC ....................................................................... Leader, Dairy Research Mr. Michael Suever Lehigh Valley Dairies, Inc NJ Ms. Sue M. Taylor Leprino Foods CO Ms. Michelle Thorn Inst. for Ag & Trade Policy MN Ms. Audrey F. Throne Hershey Chocolate Co PA .. Mr. James Tillison Alliance of Western Milk Producers CA Mr. William C. Tinklepaugh Master Dairies, Inc IN Ms. Laura Topel Kraft General Foods IL Mr. John Urnhoefer Wisconsin Cheese Makers Assn WI Dr. Robert Yonkers The Pennsylvania State Univ PA ....................................................................... Agr. Econ. & Rural Soc. Dept. WORKSHOP PROCEEDINGS 66 Appendix A ApPENDIX B. WORKSHOP EVALUATION • Summary cided to attend the conference. All of the participants Overall, both the attendees and non-attendees felt said the subject of the workshop influenced their deci­ that holding the workshop was a good idea. Attendees sion to attend. But the opportunity to talk with fellow conveyed a high satisfaction level and thought the economists and analysts was also a major drawing point workshop was successful. Factors that influenced at­ for participants, with 61 % saying it was a major factor tendance were governmenttravel restrictions and sched­ in their decision to participate and 36% a definite factor. uling conflicts. Cost had a small bearing on the decision The opportunity to hear the views of those making whether to attend or not. presentations at the meeting was also a major drawing The overwhelming response (96% attendees and point for 55% of those who filled out a questionnaire, 94% non-attendees) to holding future workshops like while 30% indicated it was a definite factor in their this gave the committee a clear mandate. Sixty-one decision. percentofthe attendees felt the workshop should be held For the most part, participants felt neutral to every year, while another 35% felt every other year was positive about the cost and location of the conference. sufficient. Holding a workshop on Federal Milk Mar­ Most (85%) thought the cost of the conference was keting Orders was viewed positively by 88% of both reasonable and 82% did not think the location inconve­ groups. Other topics the group was interested in were nient. GAIT and systems, or pricing, of milk. Most heartening of all when analyzing the survey Most attendees' comments were favorable con­ results was the fact that 97% said they would attend cerning the workshop's format and implementation. similar workshops on a regular basis ifgiven the chance. The biggest concerns dealt a more convenient hotel and Nearly two-thirds (61 %) said they would attend such a starting the sessions on time. Favorablecomments were conference every year while 35% said they would made about the content and group interaction. The attend every two years. The remaining 3% said they overall message was to continue with this endeavor. would attend another workshop on the 2000 farm bill. Attendance and participation will continue and prob­ When asked whether they would attend a workshop on ably increase if the content and format address the federal milk marketing orders, 88% responded affirma­ issues dicussed in the first workshop. Specific re­ tively. sponses by attendees and non-attendees are provided in Participants also were asked to suggest topics for the following tables. future workshops. Six people indicated that they would like to attend a workshop on trade and market develop­ Analysis ment. Five topics were suggested by two people each: Of the 33 participants who filled out the post­ update of this workshop; environmental issues facing conference questionnaire, 73% were trained as econo­ the industry; future strategic planning; measuring policy; mists. Twenty-nine, or 88%, were currently working in and alternative forms ofpricing. Other topics suggested the field ofdairy economics orpolicy. All of the various by single individuals were: processor technology; pro­ sectors of the industry were represented. However, motion programs; government's role in the industry; government employees were by far the largest group in how to change the system; industry structure; producer attendance. Nearly half were employed in government. education; class 1lI and llI-a pricing; regional cost of Producer and processor organizations were equally • milk production; and conversion to a market economy. represented, with 18% of the participants working in Participants were asked what they liked best about each sector. Twelve percent were employed by univer­ the workshop. Three-fourths said the professional inter­ sities and 12% represented lending institutions, non­ action. Twelve percent liked the presentations given by profit organizations, or were private consultants. committee members, while a much smaller percentage The subject of the conference, the 1995 Farm Bill indicated that the question and answer sessions follow- and Beyond, was the main reason the participants de­ This paper is part ofa proceedings ofa iVorkshop for dairy economists and policy analysts entitled 'Toward the 1995 Farm Bill and Beyond," held in Minneapolis, Minnesota, September 7 and 8,1994­ a project ofCornell University's Program on Dairy Markets and Policy. ing the presentations, the attempt at future planning, or cation prior to the workshop; too much noise during the the subject of the conference were the most valuable discussion session; discussion groups too small; too aspect of the workshop. much structure; and overall too short. Opinions as to what was the worst aspect of the The general comments made by the participants • workshop were much more varied. Fifteen percent said were mixed. Fifteen percent complained that there was too much time was spent on "backgrounding." Twelve no action plan incorporated into the workshop. Nearly percent thought a lack of focus in the discussion groups the same number of people indicated that they were was the most frustrating aspect. Other aspects deemed pleased with everything about the workshop. Several "the worst part of the workshop" received comments by people thought there should have been more time de­ threeorfewerpeople. Those comments follow: finding voted to the discussion groups and less time to the the hotel or the distance from the hotel to the airport; presentations. Others asked for more focus, more out­ pretense of objectivity; travel cost; being limited to one side input, and more leadership from university econo­ discussion group; lack of a next step; lack of written mists. materials during the conference; lack of issue identifi­ • WORKSHOP PROCEEDINGS 68 Appendix B Workshop Evaluation Attendees Summary • 1. What factors influenced your decision to attend this conference? Percent Responses Strongly Strongly Agree Disagree Mean a. Subject of conference 88 9 0 0 3 1.21 b. Chance to talk with fellow economists/analysts 61 36 0 0 3 1.49 c. Chance to hear dairy economists present information and viewpoints 55 30 12 0 3 1.67 d. Cost of conference, including travel is too high 9 6 43 21 21 3.39 e. My organization's travel budget is too tight 21 3 27 24 24 3.27 f. Location (city) is convenient 24 9 49 9 9 2.69 2. What did you like most about the Workshop? 3. What did you like least about the Workshop? Percent Response 4. Would you like to attend another Workshop like this? a. once a year 61% b. every two years 35% . c. other _ 3% d. never again 0% 5. Would you be interested in a future Workshop a. no 12% focused on Federal Milk Marketing Orders? b. yes 88% 6. What other topics would you like to see covered in future Workshop? 7. Please circle all of the following which apply to you: Percent Response Number a. trained as an economist 73% 24 b. worked in economics/policy analysis 88% 29 c. producer organization 18% 6 d. processor organization 18% 6 e. other industry 3% 1 f. other (list) 9% 3 g. government 49% 16 h. university 12% 4 8. Please give us any general comments you would like to make. WORKSHOP PROCEEDINGS 69 Appendix B Workshop Evaluation Non-Attendees Summary 1. What factors influenced your decision to attend this conference? ___ Percent Responses __ Strongly Strongly Agree Disagree Missing Mean a. Subject of conference 3 0 3 21 44 29 4.46 b. Chance to talk with fellow economists/analysts 3 0 6 15 50 27 4.48 c. Chance to hear dairy economists present infonnation and viewpoints 3 0 3 18 50 27 4.52 d. Cost of conference, including travel is too high 15 18 21 15 6 27 2.72 e. My organization's travel budget is too tight 18 24 9 12 12 27 2.68 f. Location (city) is convenient 3 6 24 21 15 32 3.57 Percent Response 2. Would you like to attend another Workshop a. yes 94% like this? b.no 3% 3. If yes, would you be interested in a future Workshop a. no 12% focused on Federal Milk Marketing Orders? b. yes 88% 4. If yes, what other topics would you like to see covered in a future Workshop? 5. Please circle all of the following which apply to you: Percent Response Number a. trained as an economist 82% 28 b. worked in economics/policy analysis 79% 27 c. producer organization 27% 9 d. processor organization 18% 6 e. other industry 0% o f. other (list) 0% o g. government 35% 12 h. university 29% 10 6. Please give us any general comments you would like to make. • WORKSHOP PROCEEDINGS 70 Appendix B OTHER AGRICULTURAL RESOURCE. AND MANAGERIAL ECONOMICS EXTENSION BULLETINS ., ORDER NO. AUTHOR(S) E.B. 95-02 Eand Succession Planning for Small Businss Loren W. Tauer Owners Dale A. Grossman E.B. 95-03 Micro DFBS: A Guide to Processing Dairy Linda D. Putnam Farm Business Summaries in County and Wayne A. Knoblauch Regional Extension Offices for Micro DFBS St art F. Smith Version 3.1 E.B. 95-04 DFBS Expert system for Analyzing Dairy Linda D. Putnam Farm Businesses, Users' Guide for Version Stuart F. Smith 5.0 E.B. 95-05 The Evolution of Milk Pricing and Eric M. Erba Government Intervention in Dairy Markets Andrew M. Novakovic E.B. 95-06 The Evolution of Federal Water Pollution Gregory L. Poe \ Control Policies E.B. 95-07 An Economic Evaluation of Two Alternative Eric M. Erba Uses of Excess Capacity in the Milking Wayne A. Knoblauch Parlor , A Presentation Guide to: The U.S. Food Edward W. McLaughlin Industry Kristen Park I ~ E.B. 95-09 Dairy Farm Business Summary Stuart F. Smith Western Plain Region 1994 Linda D. Putnam Jason Karszes Michael Stratton David Thorp E.B. 95-10 Dairy Farm Business Summary Stuart F. Smith Northern New York Region 1994 Linda D. Putnam George Allhusen , Patricia Beyer Anita Deming Richard Spaulding George Yarnall ' ..1- L These pUblications should be requested from: Bonnie Gloskey Publications Office Cornell University 42 Warren Hall Ithaca, NY 14853 607/255-2102