[Senate Hearing 117-508]
[From the U.S. Government Publishing Office]
S. Hrg. 117-508
MILK PRICING: AREAS FOR
IMPROVEMENT AND REFORM
=======================================================================
HEARING
before the
SUBCOMMITTEE ON
LIVESTOCK, DAIRY, POULTRY, LOCAL FOOD SYSTEMS, AND FOOD SAFETY AND
SECURITY
of the
COMMITTEE ON AGRICULTURE,
NUTRITION, AND FORESTRY
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 15, 2021
__________
Printed for the use of the
Committee on Agriculture, Nutrition, and Forestry
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
________
U.S. GOVERNMENT PUBLISHING OFFICE
47-196 WASHINGTON : 2022
Available on http://www.govinfo.gov/
COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
DEBBIE STABENOW, Michigan, Chairwoman
PATRICK J. LEAHY, Vermont JOHN BOOZMAN, Arkansas
SHERROD BROWN, Ohio MITCH McCONNELL, Kentucky
AMY KLOBUCHAR, Minnesota JOHN HOEVEN, North Dakota
MICHAEL F. BENNET, Colorado JONI ERNST, Iowa
KIRSTEN E. GILLIBRAND, New York CINDY HYDE-SMITH, Mississippi
TINA SMITH, Minnesota ROGER MARSHALL, Kansas
RICHARD J. DURBIN, Illinois TOMMY TUBERVILLE, Alabama
CORY BOOKER, New Jersey CHARLES GRASSLEY, Iowa
BEN RAY LUJAN, New Mexico JOHN THUNE, South Dakota
RAPHAEL WARNOCK, Georgia DEB FISCHER, Nebraska
MIKE BRAUN, Indiana
Joseph A. Shultz, Majority Staff Director
Mary Beth Schultz, Majority Chief Counsel
Jessica L. Williams, Chief Clerk
Fitzhugh Elder IV, Minority Staff Director
Fred J. Clark, Minority Chief Counsel
----------
Subcommittee on Livestock, Dairy, Poultry, Local Food Systems, and Food
Safety and Security
KIRSTEN E. GILLIBRAND, New York, Chairwoman
PATRICK J. LEAHY, Vermont CINDY HYDE-SMITH, Mississippi
TINA SMITH, Minnesota JONI ERNST, Iowa
RICHARD J. DURBIN, Illinois ROGER MARSHALL, Kansas
CORY BOOKER, New Jersey CHARLES GRASSLEY, Iowa
RAPHAEL WARNOCK, Georgia DEB FISCHER, Nebraska
JOHN THUNE, South Dakota
C O N T E N T S
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Wednesday, September 15, 2021
Page
Subcommittee Hearing:
Milk Pricing: Areas for Improvement and Reform................... 1
----------
STATEMENTS PRESENTED BY SENATORS
Leahy, Hon. Patrick J., U.S. Senator from the State of Vermont... 1
Boozman, Hon. John, U.S. Senator from the State of Arkansas...... 2
Gillibrand, Hon. Kirsten E., U.S. Senator from the State of New
York........................................................... 4
Cindy, Hon. Hyde-Smith, U.S. Senator from the State of
Mississippi.................................................... 5
Grassley, Hon. Charles, U.S. Senator from the State of Iowa...... 7
Panel I
Davenport, Lowell J., Jr., Owner, Tollgate Farm, Member of Hudson
Valley Fresh, Ancramdale, NY................................... 8
Zuiderveen, Christina, Managing Partner, Black Soil Dairy LLC,
Granville, IA.................................................. 10
Ferguson, Mike, Owner, Ferguson Dairy Farm, Senatobia, MS........ 12
Panel II
de Ronde, Catherine H., Vice President, Economics and Legislative
Affairs, Agri-Mark Inc., Andover, MA........................... 27
Wills, Robert, Ph.D., President, Cedar Grove Cheese Inc. and
Clock Shadow Creamery, LLC, Plain, WI.......................... 28
Wolf, Christopher A., Ph.D., E.V. Baker Professor of Agricultural
Economics, Charles H. Dyson School of Applied Economics and
Management, Cornell University, Ithaca, NY..................... 30
----------
APPENDIX
Prepared Statements:
Davenport, Lowell J., Jr..................................... 40
Zuiderveen, Christina........................................ 45
Ferguson, Mike............................................... 48
de Ronde, Catherine H........................................ 53
Wills, Robert, Ph.D.......................................... 59
Wolf, Christopher A., Ph.D................................... 69
Document(s) Submitted for the Record:
Leahy, Hon. Patrick:
Milk Pricing: Areas for Improvement and Reform, prepared
statement for the record................................... 76
Grassley, Hon. Charles:
Milk Pricing: Areas for Improvement and Reform, prepared
statement for the record................................... 77
Question and Answer:
Davenport, Lowell J., Jr.:
Written response to questions from Hon. Raphael Warnock...... 80
Zuiderveen, Christina:
Written response to questions from Hon. Charles Grassley..... 82
Wills, Robert, Ph.D.:
Written response to questions from Hon. Kirsten Gillibrand... 84
Wolf, Christopher A. Ph.D.:
Written response to questions from Hon. Kirsten Gillibrand... 87
de Ronde, Catherine H.:
Written response to questions from Hon. Kirsten Gillibrand... 91
MILK PRICING: AREAS FOR IMPROVEMENT AND REFORM
----------
WEDNESDAY, SEPTEMBER 15, 2021
U.S. Senate,
Committee on Agriculture, Nutrition, and Forestry,
Subcommittee on Livestock, Dairy, Poultry, Local Food
Systems, and Food Safety and Security,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:31 a.m., via
Webex and in room 301 Russell Senate Office Building, Hon.
Kirsten Gillibrand, Chairwoman of the Subcommittee, presiding.
Present: Senators Gillibrand, Leahy, Smith, Hyde-Smith,
Ernst, Marshall, Grassley, Fischer, and Boozman.
Senator Gillibrand. I call this hearing of the Subcommittee
on Livestock, Dairy, Poultry, Local Food Systems, and Food
Safety and Security to order.
Thank you all for joining us this morning as the
Subcommittee meets to receive testimony on the growing need to
modernize the Federal Milk Marketing Order System to bring the
Nation's dairy pricing into the 21st century market. Since this
is the first Subcommittee hearing of the year, I want to start
by welcoming Ranking Member Hyde-Smith, for her leadership and
her work. I look forward to working together to provide our
Nation's farmers with the tools, support, and resources they
need.
To our witnesses, welcome. We have two panels today. Before
I introduce the panels, I am going to introduce the dean of the
Democrats to allow for his opening remarks because he has a
conflict and he has to leave early.
Senator Leahy, if you would like to provide your opening
remarks.
STATEMENT OF HON. PATRICK J. LEAHY, U.S. SENATOR FROM THE STATE
OF VERMONT, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
Senator Leahy. Thank you very much, Madam Chair. I
appreciate the courtesy of my neighbor from New York. This is
an important and timely hearing. Only because of a conflict,
actually, both Senator Durbin and I have, with Judiciary--I
will not be here.
I think every Vermonter knows dairy never takes a day off,
and so I particularly thank our witnesses for being here. I
just talked with Ms. de Ronde, and I have welcomed her here
today. She is speaking for Agri-Mark, which is an indispensable
member of Vermont's dairy community. I would say to her, as I
said before, I could always count on your predecessor, the late
Bob Wellington, to provide sound counsel, and I know you are
going to do the same.
Dairy is a bedrock industry in Vermont and the Northeast.
It anchors our rural economies for generations. The years of
price volatility, consolidation, rising costs have squeezed
many small-sized farms. Vermont has been losing farms at a
devastating rate, even before the pandemic. Since 2012, we have
lost more than 40 percent of our dairies. That is 400 families
no longer milking cows. That is impacting across our
communities, our working landscape. Our farmers continue to
struggle in an economic climate beyond their control.
Last month, I welcomed Secretary Vilsack to Vermont.
Together, we announced $350 million in assistance to dairy
farmers who received lower prices due to market abnormalities
caused by the pandemic.
We have got to look forward to solutions and improve the
resilience and increase transparency, address longstanding
market inequities. I look forward to their perspectives.
Senator Gillibrand, I will put my whole statement in the
record, but thank you for doing this. I know I do not have to
tell you what dairy farms in the Northeast face. You have been
a champion of them in your own State of New York. You have
traveled to those farms. You have talked with the farmers. I
think there is a lot we can work together on. Thank you very
much.
[The prepared statement of Senator Leahy can be found on
page 76 in the appendix.]
Senator Gillibrand. Thank you, Mr. Chairman.
I would also like to recognize the Ranking Member of the Ag
Committee, Senator Boozman.
STATEMENT OF HON. JOHN BOOZMAN, U.S. SENATOR FROM THE STATE OF
ARKANSAS, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
Senator Boozman. Thank you so much, Madam Chair, and thanks
to Senator Leahy and to you, for your championship, nobody has
worked any harder for the dairy industry than you all as the
years have gone by, and it is certainly such an important
industry.
I, too, would like to thank our witnesses for being here
today, in person and virtually. The time you are spending away
from your duties on the farm and from your work is not lost on
us. We greatly appreciate your expertise and your willingness
to guide us as we do our very best to serve you and American
agriculture in general.
Over the August recess, I had the pleasure of visiting
Helms Dairy in Arkadelphia, Arkansas. This fifth-generation
farm, which has survived two world wars, major depressions in
the farm economy, and steadily declining consumption of fluid
milk and dairy products, is one of the remaining 40 dairies in
Arkansas, which is truly amazing that we are at that point.
As Senator Hyde-Smith has shared, the number of dairy farms
has steadily declined in many southern States. I am deeply
concerned about this decline and look forward to examining this
trend and ways to reverse it. While dairy policy may be a part
of that conversation, the items I hear about most from dairy
farmers and all farmers are concerns about higher taxes, higher
input costs, and increasing regulation. Rising to each of those
concerns is the tax-and-spend legislation that is getting ready
to be forced through Congress.
In the last 40 years, the Senate Agriculture, Nutrition,
and Forestry Committee has received budget reconciliation
instructions 15 times. Between 1980 and this year, five
committee chairs from both parties provided the leadership to
ensure that there was some level of bipartisan input into the
reconciliation process, whether that was a committee hearing,
an open markup of the legislation, the bipartisan service of
Agriculture Committee members on a conference committee, or
legislation that was passed with the bipartisan votes of
Senators from both parties.
Consideration of the agriculture provisions of the American
Rescue Plan of 2021 was the first time in more than 40 years
that this bipartisan committee tradition was not upheld. No
hearings were held to listen to the needs of farmers and
ranchers. No business meeting was held to afford committee
Republicans and Democrats input into drafting the bill.
Democrats did not convene a conference committee to consider
any changes. The final bill passed Congress by a party-line
vote.
I am deeply concerned that Democrats are choosing to go
down this road once again. Without input from the agriculture
community and without the input of Senators on this Committee,
Democratic leaders in the House and Senate are preparing a $3.5
trillion tax-and-spend bill that better reflects White House
priorities rather than those of the agriculture community.
Democrats have been saying for months that this legislation
will spend billions of dollars on conservation programs, yet,
earlier this week, the House Agriculture Committee approved an
incomplete bill that included no conservation program spending
as of yet. Apparently, $28 billion worth of conservation and
other spending will be added later, perhaps on the House floor.
The bill did, however, identify something called the
Civilian Climate Corps, which I think is better described as
the Climate Police. We have no information on what the Climate
Police may be, what its purpose is, how it will work, why it is
needed, or any other answers to the most fundamental questions
that American taxpayers expect this body to know and deliberate
on before spending trillions of dollars.
We do know that President Biden's so-called ``American Jobs
Plan'' proposes mobilizing the next generation of resilience
workers to advance environmental justice. We also know that in
this bill Democrats are directing the Climate Police to operate
on Federal forest and private land. That is the last thing
farmers and ranchers need.
The part that concerns me the most is the impact this
partisan process will have on consideration of the next farm
bill. Despite its high final vote tallies, passing the 2018
Farm Bill was no simple task. It took moderation on both sides
and months of thoughtful deliberation to craft legislation that
demonstrated wins for all. By choosing this approach, Democrats
are shattering the farm bill process and putting our farmers'
futures in jeopardy. Throughout this process, I and my
Republican colleagues on this Committee will do everything in
our power to defend American agriculture from the Democrats'
reckless tax-and-spending agenda.
I yield back with that, Madam Chair. Thank you.
STATEMENT OF HON. KIRSTEN E. GILLIBRAND, U.S. SENATOR FROM THE
STATE OF NEW YORK, U.S. COMMITTEE ON AGRICULTURE, NUTRITION,
AND FORESTRY
Senator Gillibrand. Thank you, Mr. Ranking Member.
I would now like to welcome our witnesses. Welcome. We have
two panels today. The first panel includes Mr. Jim Davenport,
Jr., owner of Tollgate Farm and member of Hudson Valley Fresh
of Ancramdale, New York--welcome; Mrs. Christina Zuiderveen, a
managing partner of Black Soil Dairy, LLC, of Granville, Iowa,
and Mr. Mike Ferguson, owner of the Ferguson Dairy Farm, of
Senatobia, Mississippi.
Our second panel, we will hear from Ms. Catherine H. de
Ronde, Vice President of Economics and Legislative Affairs at
Agri-Mark, Inc., in Andover, Massachusetts; Mr. Robert Wills,
President of Cedar Grove Cheese, Inc. and Clock Shadow
Creamery, LLC, of Plain, Wisconsin; and Christopher Wolf, E.V.
Baker Professor of Agricultural Economics at the Charles H.
Dyson School of Applied Economics and Management at Cornell
University, of Ithaca, New York.
I look forward to hearing from you all and thank you all
for sharing your time and expertise with us today.
Milk pricing is rightfully considered one of the most
complicated economic systems in our Nation. When that system is
not working for farmers, the ramifications reach from coast to
coast, including in my home State of New York. New York is the
fourth largest dairy producing State and the Nation's largest
producer of yogurt and home to more than 3,000 dairy farms.
When the milk pricing system leaves those farmers without
adequate pay, the impacts are felt all across our economy.
Dairy farmers are facing rising costs of production, and
current dairy prices are not covering them. Farmers' costs for
needs like labor and fuel have been increasing for years, and
the corn and soy used for feed are seeing a historic price
rally. The consolidation and corporatization of the dairy
industry has only exacerbated these issues. Large dairy
operations have driven prices well below the cost of
production, and family farms cannot compete with the economies
of scale the mega producers have. Too many farmers across the
country have been driven to bankruptcy and, in very tragic
cases, in my own State of New York, suicide. Thousands of
family farmers have been left with no choice but to leave the
industry entirely. Between 2003 and 2020, there has been a 55
percent decrease in the number of dairy farms operating
nationwide. We are in the midst of a modern-day dairy crisis.
Those struggles have only been magnified by the fundamental
change made to the Class I pricing formula in the 2018 Farm
Bill, which switched from using the higher-of Class III and
Class IV to the average of the 2 plus 74 cents and an
applicable differential. The 74-cent addition was based on the
historic price difference between the two classes, but the
historically calculated formula has failed to meet the needs of
the present-day market.
Any time the price differential between Class III and Class
IV is larger than $1.48, farmers are losing money. During the
pandemic, government intervention left the price differential
magnitudes larger than that. Class III prices skyrocketed while
Class IV prices increased only slightly. Using the average of
the two meant the pricing never fully captured the change in
the market. It left Class I prices as much as $4.57 per
hundredweight lower under the new formula than the old. That,
in turn, led to $436 million in revenue lost to pools, record
amount of milk being depooled, and record low producer price
differentials. All told, by the summer of this year, the new
formula had already cost dairy farmers more than $750 million
in lost income.
I want to be clear. The pandemic and the economic downturn
are not the only causes of this problem, but they did
exacerbate it. The system cannot adapt to market conditions
and, thus, is not fairly compensating our dairy farmers. The
2018 formula change is a symptom of the larger problems with
our Federal Orders. The current Federal Milk Marketing Orders
(FMMOs) system is confusing, convoluted, and too difficult to
fully understand. Different Orders have different rules, and
some parts of the country are not even under Orders.
The system is inadequate and out of date. We are using an
almost 100-year-old system, which had its last major reform
more than 20 years ago, for pricing for an industry where no
dairy farmer is running their farm the way they would have 100
years ago. They should not be beholden to a price system that
operates as if they are.
We must put the power back in the farmers' hands, help them
recoup their losses, and build a system that ensures they get
better prices moving forward so they are not put in this
position again. To do that, it is going to take the combined
efforts of farmers, processors, and cooperatives. Today, we
will be hearing from all three on why the current system is in
need of reform. I look forward to their testimony, and I look
forward to working with you, Senator Hyde-Smith, to address
these issues and much more.
With that, I want to recognize Senator Hyde-Smith for an
opening comment.
STATEMENT OF HON. CINDY HYDE-SMITH, U.S. SENATOR FROM THE STATE
OF MISSISSIPPI, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND
FORESTRY
Senator Hyde-Smith. Thank you, Senator Gillibrand, for
holding this hearing today and to discuss milk pricing
challenges. As a former commissioner of agriculture in my
State, this is near and dear to me and has been a challenge for
a very long time.
Thank you to our witnesses, our dairy farmers, and industry
experts for taking time away from your very, very busy
schedules to join us today because I know that is a hardship in
itself, that you stop and take time to testify, but we
certainly appreciate you doing this because it is so vital to
hear from actual producers.
I am especially pleased to welcome Mr. Mike Ferguson of
Senatobia, Mississippi. I know him well. He has been in the
dairy business for over 40 years and runs an operation of
approximately 150 head in North Mississippi. He has held a
number of leadership positions in the dairy industry, has been
very helpful, very vocal, and will bring valuable insight to
the Subcommittee.
I thank you for being available today, Mike. You have
always been so genuine and so concerned and active. You want to
be part of a solution, and that is exactly the kind of people
we need.
Before the pandemic, dairy producers faced multi-year
period of low milk and dairy commodity prices. I am proud that
during the 2020 years of COVID my colleagues and I advanced
bipartisan legislation to support dairy farm families through
the pandemic. Many dairy farm families are still in business
today because of the Coronavirus Food Assistance Program
despite the added price volatility and demand uncertainty
caused by this unprecedented pandemic.
A key component of today's discussion will be the 2018 Farm
Bill change to the Class I milk that has been referenced to
already, the price formula, and a change that was included at
the request of the dairy industry stakeholders. However,
according to estimates by the American Farm Bureau Federation,
this formula change resulted in millions of dollars of
shortfalls. It has already been discussed. We know over $750
million to farmers supplying milk to beverage/milk processors.
The authors of that provision certainly could not have
foreseen the severe market challenges that occurred in 2020 nor
could they have anticipated the unintended economic
consequences of that 2018 formula change. There are certainly
options to address the situation facing dairy producers today,
whether it is another statutory change to the formula or
changes in the--achieved through administrative processes.
On another front, the decline in the number of dairy
farmers in the Southeast is of particular importance to me and
to Ranking Member Boozman. While Mississippi and Arkansas are
indeed milk-deficit States, we consume more than we produce,
and I am interested in examining whether aspects of the Federal
Milk Marketing Order system make it more difficult for our
producers to stay in business. The number of Mississippi dairy
farms and farms across the Southeast has fallen dramatically
over the last 40 years. I would like to help reverse that trend
and be a part of seeing this come back. I am glad we are here
today to discuss challenges facing the industry and potential
opportunities to improve the Federal dairy policy.
While today's Subcommittee hearing is about dairy, I would
like to also express my concerns about a more comprehensive
topic which will certainly affect the dairy industry, the
disastrous tax-and-spending packages that are being considered
right now by our colleagues in the Democratic Party. As we
speak, the U.S. House of Representatives is crafting
legislation that aims to spend $135 billion or more just within
USDA's jurisdiction on programs the Agriculture Committee
oversees. The price tag of the overall bill is $3.5 trillion.
This is deficit spending that will be paid for by hiking taxes
on family farms. I expect this legislation will soon make its
way to the Senate for consideration.
I raise these concerns because the Senate Agriculture
Committee has not held a single hearing to consider any part of
this bill and I do not anticipate that we will and this
legislation will be able to pass with a simple majority,
strictly party lines, harming the American farmer. Let me say
that again: $135 billion in new spending on agriculture and
climate programs financed on the back of hardworking family
farmers, ranchers, and foresters across rural America.
Unfortunately, the public has not had any input into this
process. The same can be said about the most members of this
Committee and Republicans as a whole. This is a product being
developed by Democratic leadership behind closed doors, a
reckless tax-and-spend agenda.
Farmers, ranchers, dairymen, consumers, and everyone in
between have long benefited from the professional and
bipartisan manner in which this Committee operates. This is not
just a feel-good talking point. It is the way that we are
expected to serve and the way that this Committee has operated
for many years. I hope my colleagues keep in mind that as they
contemplate going down a very concerning road for our country,
our agricultural community, and for this Committee.
All that said, I am pleased that we are here today to
discuss ways to help the dairy industry. Perhaps, we can even
come up with some common-sense amendment ideas to improve the
partisan package I just mentioned, which at this point,
unfortunately, does not include any dairy-related provisions.
To our witnesses, again, thank you for your time, and I
look forward to your discussion.
Thank you, Senator Gillibrand, for convening this very
important hearing.
Senator Gillibrand. Thank you so much, Senator.
I would now like to recognize Senate Grassley because he
has a conflict at 10, for your opening remarks and introduction
of your witness.
STATEMENT OF HON. CHARLES GRASSLEY, U.S. SENATOR FROM THE STATE
OF IOWA, U.S. COMMITTEE ON AGRICULTURE, NUTRITION, AND FORESTRY
Senator Grassley. I have a privilege of introducing a
witness. Before I do that, I want to put something in the
record that associates my remarks with what the Ranking Member
Boozman said about the irresponsible spending in the
reconciliation bill and the tax policies that are going to be
very detrimental to farming.
Welcome, Christina, Ms. Zuiderveen, Managing Partner of
three dairies: Black Soil Dairy, Granville, Iowa; Mt. Hope
Dairy, Beresford, South Dakota; Dakota Plains Dairy,
Centerville, South Dakota.
On a day-to-day basis, Christina works in bookkeeping and
HR. Christina is also on the Board of the Iowa State Dairy
Association. She is also a member of Edge Dairy Farmers
Cooperative, located in the upper Midwest, and serves on a
regional milk pricing task force. She has previously served on
the Central Plains Dairy Expo Board of Directors.
Christina attended Cornerstone University, received her
degree in business marketing. She grew up on a dairy farm in
California before her family took the operation to Michigan
State. She now resides in Iowa with her husband, Nate, and
their three children.
I last saw Christina in a discussion about all these issues
we are talking about here today, when we had a small dairy
farmers' meeting while the Iowa State Fair was going on in Des
Moines. Welcome.
Ms. Zuiderveen. Thank you.
Senator Grassley. Thank you, Madam Chairman. Will you put
this in the record?
[The prepared statement of Senator Grassley can be found on
page 77 in the appendix.]
Senator Gillibrand. Thank you so much, Senator Grassley.
Then our last witness who has not been introduced is Mr.
Jim Davenport. He is a dairy farmer from Ancramdale, New York.
He has been a member of the Agri-Mark Dairy Cooperative since
he and his wife, Karen, started shipping milk in 1986.
He is also one of nine farmer owners of the Hudson Valley
Fresh. This group of farmers owns a bottling plant in Kingston,
New York, and processes over one million pounds of raw milk
each month into high-quality fluid milk, yogurt, sour cream,
and ice cream mix. Hudson Valley Fresh supplies all the dairy
products used by the United States Military Academy at West
Point.
Thank you very much for being here today, Jim.
We just introduced Christina, and Senator Hyde-Smith
introduced Mike. Mr. Davenport, you can proceed with your
testimony.
STATEMENT OF LOWELL J. DAVENPORT, JR., OWNER, TOLLGATE FARM,
MEMBER OF HUDSON VALLEY FRESH, ANCRAMDALE, NEW YORK
Mr. Davenport. Okay. Thank you. Good morning. I would like
to thank Senator Gillibrand for asking me down to testify
today. On our small farm of 64 milking cows, I am over 50
percent of the hourly labor and over 90 percent of the
management. Therefore, I am fully aware that there are 168
hours in a week. Any week that I work less than half of those
hours is good. Taking time off to be here makes this a good
week.
I would like--also like to thank Senator Gillibrand for her
work on making the current Dairy Margin Coverage (DMC) program
so responsive to the needs of the small dairy farms during this
period of sky-high feed prices and inadequate milk prices.
When we started shipping milk in 1986, there were about
250,000 licensed dairies in the U.S. At the end of 2020, there
were under 32,000. In 1986, the average dairy farm was 43 cows.
Today, it is close to 300. In our Federal Order for a few
years, we shipped about the daily average production for the
Order. Lately, it has shot up to over twice what we produce
each day, and our production has crept up because we are doing
things more efficiently. Keeping small farms viable is critical
for our survival.
As I stated in my written testimony, since its inception,
the Federal Order system has served us well. Recent COVID-
induced market turmoil, especially in the fluid milk business,
showed the pricing system needs to be adjusted to reflect the
current milk product mix in market swings. I know of no large
independent dairy processors to be vertically integrated.
Unlike the pork or poultry industry, dairy processors want
nothing to do with milking cows. All of the vertical
integration in the fluid milk business comes from the bottom-
up. Dairy farmers are trying to capture a larger share of the
consumer dollar.
People in the dairy industry are more knowledgeable than I
are batting around ideas to reform milk pricing. The process
the USDA uses to do this will work, just takes some time. We
just have to be vigilant and keep a watch on what transpires
and be sure it benefits the ones with the hardest job, the
producers, the dairy farmers.
Forty years ago in ag economics class, I learned that
demand for fluid milk is inelastic, meaning that consumers do
not buy more when the price is low or less when the price is
high. I hope that someone comes up with a plan to price fluid
milk off of something less volatile than the cheese, butter,
powder markets. If the consumer demand for fluid milk tends to
be steady, then so should the fluid portion of the dairy
farmers' price.
That is my written part of my oral. I see I have 2 minutes
and 16 seconds left. I will just expound on that a little bit.
Basically, what we are hearing here today from the folks,
Senators from in the southern part of the State, and any place
there is a high fluid usage is it is tough to stay in business
as a dairy farmer. The advantage they have in the heavily
cheese-producing States is fluid is a very small portion of the
milkshed, so it is very easy to serve the fluid processors.
COVID certainly proved in the Southeast United States a
whole lot of milk got dumped; it did in the Northeast, too, but
I think the Southeast wins the prize. It is just a matter of
getting it so that the fluid milk price really reflects, you
know, how much it--how hard it is to provide milk to the fluid
processors.
We have--with our own brand, we are blessed to be two hours
north of a whole bunch of people, eight million, nine million,
Metro New York area, and who appreciate local, who appreciate,
you know, knowing where their products come from. We have been
able to capitalize that and do a consolidation in the dairy
industry. We do school milk bids. We have actually put a price
that can make our farmers a little bit better money than they
would get from a regular processor and still have a low bid,
and that is because of the consolidation in the dairy industry.
A lot of small plants have closed. In New York State, with
all the milk that we make, in some of the areas where most of
the milk is made, a lot of school systems can only get one bid.
New York City currently is spending 17.5 cents a unit on fluid
milk for their students' eight-ounce cartons. In the southern
tier of New York, around Binghamton, some of those schools are
paying 37 cents because they only get one bid. Whoever is
bidding decides that, well, if there is only bid, I might as
well make some money.
I think the fluid business has--that has to be addressed
seriously in milk pricing, and I would really like to see them
decouple the price for fluid milk from the international
volatile cheese and butter, powder price.
Thank you for your time and thank you, Senators, for
staying here and being here. I appreciate it. Appreciate your
hard work. Thanks.
[The prepared statement of Mr. Davenport can be found on
page 40 in the appendix.]
Senator Gillibrand. Thank you, Mr. Davenport.
Our next speaker is Mrs. Zuiderveen. You are recognized for
five minutes.
STATEMENT OF CHRISTINA ZUIDERVEEN, MANAGING PARTNER, BLACK SOIL
DAIRY LLC, GRANVILLE, IOWA
Ms. Zuiderveen. Good morning, it is an honor to be here
representing the many dairy families in Iowa and across the
United States. Chairwoman Gillibrand and Ranking Member Hyde-
Smith, thank you for giving me the privilege of taking part in
our governing process.
I was born into a California dairy family who chased better
market conditions into Michigan in the mid-90's. After we were
married, my husband and I worked on his family's 500-cow dairy
before taking an opportunity in an emerging dairy market, the
Central Plains. I live with my husband and our three children
in Northwest Iowa, but we also work closely with my brother in
Southeast South Dakota. Together, across three locations, we
milk 15,000 cows.
Most milk in the United States is regulated through FMMOs.
This system was put in place decades ago to prevent dairy
processors from making one dairy farmer bid against the other.
In other words, FMMOs promise dairy producers that if their
milk is as good as their neighbors they will be paid the same
price. After decades of decline in sales of fluid milk, that
promise now seems to be broken.
Although these conditions have benefited me personally in
the last year, I am advocating for change because I want a fair
system where everyone can compete on a level playing field. In
2020, cheese prices were very high. We ship to a cheese
processor. Our milk check was high, and we were able to pay
down debt and grow our operations. Meanwhile, some of our
neighbors were forced to implement cost-cutting measures to
stay afloat.
I have spoken to dairy farmers all across Iowa who are
struggling because they are paid far less for their milk
because they are not paid solely on that cheese price. Our
prices are most definitely not uniform. This disparity is not
unique to my region. I have family in California, Indiana, and
Michigan with the same problem.
On the surface, it seems that pooling rules are the
problem, but the deeper issue is that FMMOs do not provide
market-based incentives to move milk to the processing plants
where it is most valuable. For decades, FMMOs encouraged
overproduction of cheap, nonfat, dry milk powder. When fluid
sales were high, they subsidized milk powder returns. With
fluid sales declining, per Federal Order rules, cheesemakers
are left to subsidize powder through revenue pooling, and they
declined to do so in 2020. Good intentions to create a system
with uniform prices has resulted in a distorted system that is
now coming unglued to the detriment of dairy families, whose
income depends on the value of a blend of fluid milk, milk
powder, and butter.
The Dairy Revenue Protection (DRP) and DMC have reduced the
cost for producers to hedge against volatility and poor
margins, but our pricing system must be improved to allow all
producers to manage their commodity market risk. If dairy
producers, like my neighbors in Iowa and my relatives in
Michigan, cannot anticipate what class of milk will participate
in the pool, they will not know whether their milk checks will
be based on the cheese price or the butter and powder price,
and they cannot hedge effectively.
This happened on my sister's dairy, where I was raised, in
Michigan. Just like my dairy, they hedged based on the cheese
price and incurred a loss. However, their milk check took a
dive along with the Class IV markets, so their loss was
compounded. Byzantine FMMO rules make it hard to predict how
her farm's milk revenue will correlate with the main milk price
benchmarks on the commodity exchange. The combination of
unpredictable FMMO pooling and ad hoc government bailouts
creates a moral hazard which further discourages risk
management.
I appreciate that the DRP and traditional risk management
tools are based on free markets. We should be sure to offer the
same market-based freedoms to processors, who invest immense
sums in our industry and also face commodity risks. We can
modernize Federal Order regulations to provide consistent and
predictable benefits and incentivize processors to react more
quickly to shifts in market demand by redirecting milk to
plants that produce the most valuable dairy products. The
current Federal Order system is necessary and provides a
safeguard against the market power of large milk buyers, but
the system should be modernized to stimulate financial
transparency and promote competition and innovation as opposed
to consolidation among both processors and producers.
Promoting competition between processors will give dairy
families a better milk price and incentivize the development of
new products and markets. Competition is good for everyone.
Every day, dairy producers must compete with one another for
land, labor, livestock, and feed. The wide variance in mailbox
prices caused by current pricing formulas creates a sense of
helplessness among producers. While competition is good, it is
unfortunate that Federal policies create an uneven playing
field. When some producers receive as much as $9 less for their
milk than their peers, even the best operator would not be able
to compete in the long run.
As a child, my dreams for the future did not include owning
and operating a dairy. Now that I have had the opportunity, I
cannot imagine raising my kids in any other environment. They
get to learn firsthand the value of hard work, where our food
comes from, and how to care for the land and animals that God
has asked us to steward. I am currently raising one equine
enthusiast, one future vet, and one future dairyman. It is
important to me that we design a system that gives them the
best chance to accomplish their dreams.
Thank you again, Chairwoman Gillibrand, Ranking Member
Hyde-Smith, and the rest of the Committee for your time. It has
been an honor to be here.
[The prepared statement of Ms. Zuiderveen can be found on
page 45 in the appendix.]
Senator Gillibrand. Thank you, Mrs. Zuiderveen. Appreciate
you.
Mr. Ferguson, you are recognized for five minutes. I think
he is here on Webex, yes. Go ahead.
STATEMENT OF MIKE FERGUSON, OWNER, FERGUSON DAIRY FARM,
SENATOBIA, MISSISSIPPI
Mr. Ferguson. Chair Gillibrand, Ranking Member Hyde-Smith,
and members of the Subcommittee, thank you for the opportunity
to testify before you today. My name is Mike Ferguson, and I
have operated a Holstein milking herd of 150 head in Eastern
Tate County, Mississippi, for 45 years.
The dairy industry in Mississippi currently consists of
about 60 family farms. We are considered a milk-deficit State,
where we do not produce as much milk as our State consumes, so
milk must come in from other States. Mississippi is steadily
and rapidly losing dairy farms. Over the past five years of
extremely low milk prices, producers have struggled to put food
on their families' tables while providing it for the rest of
us. We have lost approximately 26 dairies over this time, from
86 in 2016 to 60 at the present time, a 30 percent decrease.
Many of our 60 family farms in the State will not be here in a
few years if things do not change.
I would like to focus my brief testimony today on areas of
improvement that Congress could review to make an impact, to
reverse this trend of the loss of dairy farms in the Southeast.
Congress subsequently modified how Class I milk prices were
calculated in the last farm bill to dairy farmers at the
request of the industry. Under these new provisions, Class I
milk is calculated based off the average of advance Class III
and Class IV prices plus an adjusting factor, which defines the
Class I mover. Previously, Class I price was based upon the
higher of Class III or Class IV, considered the higher-of
method.
During the initial onset of the COVID-19 pandemic, the
traditional pricing mechanisms of Class I were skewed
tremendously due to the unprecedented purchases of cheese by
the Federal Government that set Class III prices significantly
higher than Class I and created a vast disparity in the true
value of Class I milk. While dairy farmers were, no doubt,
grateful for the needed relief through the purchase of cheese
products during the pandemic, the way it was done had
significant unintended consequences that no one could have seen
coming. While dairy farmers are eager to do everything possible
to help people consumer our products, it should have been done
in a balanced way to minimize price disruptions.
I would like to mention a few recommendations to alleviate
this issue for the future. Congress should consider immediately
going back to the higher-of until the dairy industry can
proceed to a national rulemaking process through USDA's dairy
programs to consider alternative Class I milk pricing rules. A
more frequent and thorough review of the national adjusting
factor in the Class I mover calculation could be considered by
either the transparent rulemaking process or congressional
action.
Another potential solution to alleviate the decline of the
dairy industry in the Southeast is consideration of multiple
component pricing. In light of the recent economic realities of
the dairy industry, there has been a renewed interest in the
Southeast U.S. to consider abandoning the existing pricing
system, skim fat, in favor of adopting multiple component
pricing. In the Southeast region's Federal Orders 5, 6, and 7,
milk is not priced based on all the components of milk. Rather,
milk is priced on skim and fat alone, ignoring the value-added
of protein in the milk.
In the Southeast, the rising value of milk proteins,
combined with the region's alternative milk pricing scheme, is
believed to have contributed to the challenges related to milk
procurement. It is likely that milk proteins will continue to
be a major nutritional and an economic value-added dairy
product in both domestic and international markets.
Implementing a more uniform pricing scheme across large
portions of the U.S. will help to improve component
productivity and drive milk to its highest value and best use.
Multiple component pricing is a very equitable idea. It is
based on the concept that the regulated price of milk received
at the farm level should reflect the functional and economic
value of the milk. Importantly, for farms like mine in the
Southeast, component pricing could improve the price for the
milk we receive, and it could facilitate innovation and
investment in the Southeast dairy industry. This, too, can be
addressed through a rulemaking process, but I urge the
Subcommittee to carefully consider this issue in our
conversations.
In closing, thank you for the opportunity to testify before
you today, and I look forward to working with you to reform
milk pricing for the betterment of all producers and stand
ready to answer any questions that you have. Thank you.
[The prepared statement of Mr. Ferguson can be found on
page 48 in the appendix.]
Senator Gillibrand. Thank you to our witnesses for your
introductions and your statements.
I would like to ask the first panel some questions about
the challenges facing smaller dairies. As I noted in my opening
remarks, the loss of dairy farms this century has been
staggering, with many of them being small dairies. Can you
please share some of the challenges that small farmers face in
the Federal Order system that larger and mega dairies do not
have to overcome?
Mr. Davenport. I guess basically, in our Federal Order 1,
the smaller dairies, well, they are at an advantage--a
disadvantage. A lot of them have--just do not have the ability
to expand due to geographic concerns. I feel that the Order
system--we get paid fairly through the Order system. I do not
know that the Order system is responsible for us getting a
lower price than, you know, our neighbors that make much more
milk.
I will say as far as the fluid part of the business I think
that if we could have a better fluid portion of our milk price
it would be, you know, very helpful. A lot of small farms, they
end up serving the fluid market in Federal Order 1, and I think
it would be beneficial to get a better price.
I just think it is unfortunate, but I think the last
secretary of agriculture said something that raised the hackles
of small farmers. He said something to the effect of: In the
dairy business, get big or get out. Those of us that choose to
stay small and nimble and do some value-added stuff are going
to try to keep in business by doing that. Just do not want to
expand, and you just try to do a much better job with as few--I
figure if you can milk as few cows as possible once a day that
would be ideal. Just try to be very efficient.
I do not really know. Other than fluid milk price
discovery, I cannot think of anything the Order could do to
benefit the small farmers. A lot of the programs we have had--
the DMC is awesome. That has worked really, really well on our
farm. We feed a high-forage diet, so totally takes care of our
issues with high grain prices.
I just--off the top of my head, and hopefully economists
have some better ideas, I really cannot think of anything that
the Order could do to benefit small farmers. I think it can do
things to benefit all dairy farmers and the price of milk, but
I honestly cannot come up with anything that would be
reasonable.
Senator Gillibrand. Do the other two witnesses want to add
or contribute to that question?
[No audible response.]
Senator Gillibrand. Okay, Class I mover modifications. As
has been noted in the hearing today, because of the unforeseen
circumstances due to the pandemic and subsequent economic
downturn, the 2018 Farm Bill change to the Class I mover
resulted in hundreds of millions of dollars in lost income for
dairy farmers. There have been various proposals from industry
stakeholders suggesting modifications such as temporarily
returning back to the higher-of formula until a new proposal
that garners consensus can be reached. What changes to the
Class I mover would you all suggest?
Mr. Ferguson. Senator, I think that the Class I mover--
there are a couple of things that could be done in my
estimation. One is that if we go back to the higher-of a
thorough investigation, or not investigation, but a thorough
study of it could be done to find out the true effects of where
we are and the improvement in the adjuster portion of that, a
more timely review of it. As now, I do not believe there is any
review of that. If we could look at it on a yearly basis or
something of that nature, that would be very beneficial for us,
but the DMC is a huge, huge plus for us. I just want to echo
that while I have that moment.
Senator Gillibrand. Thank you.
Mrs. Zuiderveen?
Ms. Zuiderveen. Yes. I would just like to say that I am
opposed to a temporary solution. I think that we need to have a
committee study this fairly in depth so that we can solve this
long-term and not have to address it multiple times in the next
few years.
Senator Gillibrand. Agreed. Mr. Davenport?
Mr. Davenport. Yes, I--currently, right now, I think the
current pricing system we might be making--doing a little
better than the higher-of than we had before at this current
time. The only thing I would say is I do not feel that we are
out of the woods yet on the COVID thing and supply chain
disruptions, and I personally--as a stop-gap measure, I would
have no problem going back to the higher-of for now. It may
upset the processors a little bit, but I hope they made a lot
of money when our price was not so good, that they could have a
little cushion to fall back on.
I do certainly believe that we do need to not get rid of
the Order system but get it straightened out so that every
farmer can get a fair price for their milk and it gets to the
highest and best use, the way that Order was intended.
Senator Gillibrand. Thank you.
Senator Hyde-Smith.
Senator Hyde-Smith. Thank you, Senator Gillibrand.
Mr. Ferguson, another recommendation you provided was a
more frequent and thorough review of the national adjusting
factor in the Class I calculation. What role does the adjusting
factor play in this process? Could this change, more frequent
and thorough reviews of the adjusting factor, be done
administratively through the rulemaking process? Then would
that be more ideal rather than waiting on the next farm bill?
Mr. Ferguson. Senator Hyde-Smith, that would be a ``yes''
to that. The rulemaking process is where that should occur, and
it would be advantageous because even through the rulemaking
process, sometimes that moves along as slow as molasses. As far
as the next farm bill, if we have another year like we had in
2020, there will not be that many dairy farmers, especially I
think in the Southeast, that are going to be in business to
have the opportunity to take advantage of any changes that
would be made to have us to be above water as opposed to
underwater in our operations. In my particular case, it was
catastrophic. We had a 30 percent loss from month to month on
how the mover moved in unprecedented ways. Yes, it would; the
rulemaking process is the route for this.
Senator Hyde-Smith. In your testimony, you also provided
some recommendations to what would help alleviate these
problems, such as going back to the pre-2018 Farm Bill higher-
of price method. Are you looking more at going back to that as
a temporary, or what are your thoughts on--or your additional
details that you can give us on--the long-term solution instead
of going back immediately to the higher-of?
Mr. Ferguson. I think we need to use that as a temporary
solution because what we heard on the first, when it came out
of the farm bill, was that there was not really enough time to
have an extended study that would come up with the correct
amount of the adjuster and things of that nature, that--where
that adjuster actually helps that Class I price find its true
value. If we have things in place, a study that shows exactly
what that adjuster should be, how often it should be before we
review it, that would be very beneficial.
Senator Hyde-Smith. Thank you.
Senator Gillibrand. Senator Boozman, would you like to ask
some questions?
Senator Boozman. Thank you, Madam Chair.
Again, thank you all for being here. This has been just a
great hearing with a lot of thoughtful testimony and also some
answers as to how we move forward.
According to my colleagues, the justification for the
reckless tax-and-spending legislation that we are about to
address, is the climate infrastructure needs of the United
States. Dairy, livestock, and poultry production accounts for
nearly half of all agriculture cash receipts at approximately
$191 billion annually. Yet, at this point, this legislation
provides no funding for the animal agriculture sector for
research, climate mitigation, or any other priority. Yet, you
are going to be on the hook for paying the taxes for it.
There is millions in the bill for urban agriculture,
billions for tree equity, whatever that is, but there is not a
dime directed to assist the dairy industry. The bill does,
however, include $2.9 trillion in additional taxes.
As farm groups have continuously shared, if proposed
changes to stepped-up basis are included, which is still a
possibility later in this process, it will be devastating to
family farms. Texas A&M came out with a study, and according to
the representative farms studied by them, dairy farmers would
be among the hardest hit.
In addition, the bill contains changes to estate tax
provisions that would force many farmers urgently to modify
their estate plans just to ensure the future of their family
farm.
Mr. Ferguson, how would the proposed changes in stepped-up
basis impact your family business?
Then the other thing that is included in this is the Green
New Deal, which would significantly increase your electricity,
your energy costs, your oil, gas-the things that you rely on an
everyday basis. How would that affect your bottom line?
Mr. Ferguson. Senator, anytime you have increase in
expenses you have got to look at ways to cut in other areas.
Well, I am telling you the small dairy farmers in the
Southeast, we do not have those resources where we can cut in
those other areas. We cannot afford this additional tax burden.
These farms that have been in the family for generations, they
will be going by the wayside. Our security net of a safe and
effective food source for our consuming public would be out the
window.
I think it is in someone else's statement earlier; there
was talk about fresh and local, basically. You would have these
pockets where all your food would be produced, and some of the
things that would be produced would have a hard time getting to
market. We have a huge problem with trucking as it is now.
I just see no way that we can add anymore tax burden to the
farm as it is, as a unit now. The thing is we have worked all
of our lives to establish these farms, and in a lot of cases
you have got other family members waiting in line.
On the stepped-up basis, there are farms that have gone up
three, four-hundred percent in value. How can we possibly tax
these farms at that rate, adding this extra burden to the local
farmers? I just--I cannot see the logic in that.
Senator Boozman. Would anybody else--would you all like to
share in that also, very briefly, or the Chairwoman is going to
gavel me down.
Ms. Zuiderveen. I would like to share that my family--I am
one of five siblings, and we are currently going through some
transitioning with those siblings. Talking about what the
future looks like without stepped-up basis is detrimental to
our operations. Through this process, my husband and I are also
doing our own estate planning, and it is very scary to look at
what that will look like for my children and how they would
keep our dairy together if the stepped-up basis was taken away.
Mr. Davenport. My opinion on that whole matter is if a
family has been in farming for generations and have built
something up--and a lot of times the value of what they have is
influenced by local real estate, which may not be, you know,
farming--I strongly feel that if the farm stays in farming they
should not be burdened with any extra estate taxes.
Now if, which I have seen in my neck of the woods way too
often, a family farm goes out and one sibling wants to stay
going, the other four see dollar signs and they cash in, at
that point I feel that they should pay the estate tax because
it is not producing food anymore. You know? As far as if it is
going to stay a farm, then I think there is no reason that they
should be--have extra burden of transition taxes to the next
generation.
Senator Boozman. Thank you, Madam Chair.
Senator Gillibrand. Thank you very much, Senator Boozman.
We have Senator Smith by Webex.
Senator Smith. Good morning, Madam Chair, and good morning,
Ranking Member and to all of our panelists. It is great to be
with you virtually.
Madam Chair, if I may, I would like to just issue--just to
clarify something following on the Ranking Member's questions
about stepped-up basis. I just want to make it clear that the
budget resolution that the Democrats have passed, and in fact
the work that we are doing right now on the Build Back Better
Budget, specifically excludes any changes to the stepped-up
basis. There has been a lot of talk about this. I have had many
conversations about this with farmers, family farmers in
Minnesota. I just wanted to be clear about that issue.
To the topic at hand, what is going on with dairy farmers
across the country, I want to start out by talking about
Minnesota a little bit. Dairy farmers in Minnesota tell me that
they are squeezed in the marketplace. They would hear the
stories that you all are telling today and say that they sound
familiar to them. They find that milk prices are consistently
below the cost of production for them, and slim to negative
margins forced many dairy farmers to use up their equity and
their savings to keep from going out of business over these
last few years. I think we all know that there are 40,000 fewer
licensed dairy herds in this country than there were in 2002.
You all, I think, make the case for the lack of
transparency and the problems with lack of farmer input into
the milk pricing system, which has played such a significant
role for dairy farmers. The reality is that the milk--Federal
Milk Marketing Order is 80 years old. It is an 80-year-old
system, and so it is not easy to understand. One statement I
read really sums this up. It said, so many variables are
involved that the typical farmer knows what their milk check
will be worth, but only an economist can explain it.
It also--the Federal Milk Marketing Orders are regionally
based. I know that there are discussions around evaluating the
individual sections of this system. Dairy farmers in Minnesota
and in the Midwest have said that they need to take an approach
that evaluates the entire system and that any other way would
be really counterproductive.
What I would like to do is hear from the witnesses about
this question first. How can we modernize the milk pricing
system in a way that takes into account the differences amongst
dairy producing regions and ensures that our system matches the
realities facing dairy farmers and their cooperatives that
process and market the milk that they produce across regions? I
would be happy to hear from any of you or all of you. Maybe,
Mr. Davenport, would you like to start?
Mr. Davenport. Sure. Thank you for attending virtually.
Yes, I think basically we have seen the prices of the
commodities--cheese, butter, and powder--reflect the world
market, and there is also a futures markets. I think that they
have become less reliable.
As I have said before, I think because fluid demand is sort
of steady we ought to have a steadier price on the fluid and
find a different way to price fluid milk. I think it would be
especially beneficial to the higher fluid Orders that do not
have a lot of options to send their milk--the farmers have no
options a lot of times to send their milk to another processor
and get a fair price, trucking, a lot of times being the
limiting, you know, factor in that.
I do feel that the Order system can be corrected, and we
just have to get some ideas and make sure that they are good
with the farmers and everybody involved in the business.
Senator Smith. Thank you.
Would the other panelists like to comment? I would love to
hear your perspective on how we can account for regional
differences as we think about reforms.
Mr. Ferguson. Senator, thank you. This is Mike Ferguson. We
in the Southeast, we are in a different area than any other
part of the country. We are in such a--it is such a tremendous
milk-deficit area, where we--for the whole Southeast, we only
provide like 45 percent of the fluid that is consumed in the
Southeast. It is only going to exasperate because our farmers
are leaving, yet our consumers are growing by leaps and bounds
if you look at the numbers where the population is growing, and
one of the biggest problems we have, most of the milk in the
Southeast is co-op-based.
I mean, the farmers are members of co-ops. It is on the
back of the co-ops to bring in this supplemental milk or the
milk to fill the needs in the market. The cost of transporting
that milk in is on the backs of the dairy farmers because there
is no mechanism where we can recoup that cost of bringing that
milk in, to provide milk for the consumers. If we have
something and I am sure you are familiar with something like
milk allowance for transportation or balancing the market--that
would be very beneficial to our part of the world and would be
of great help.
Senator Smith. Thank you very much.
Madam Chair, I realize I am out of time. I want to just
thank you for holding this hearing, and I am grateful to be a
part of it and some good food for thought as we think about
where we go from here. Thank you very much.
Senator Gillibrand. Thank you, Senator Smith.
Our next Senator is Senator Ernst.
Senator Ernst. Thank you, Madam Chair. Thanks to all of our
witnesses for being here today, and a special thank you and
welcome as well to Christina Zuiderveen, and it is great to
have you here and representing our home State of Iowa and our
dairy farmers.
I would like to ask all of you, but, Christina
specifically, I will start with you. The pandemic was really
difficult on so many of us, and I remember many of those days
sitting in Red Oak, Iowa, on Zoom calls or Skype calls with
commodity groups and just hearing the stories evolving and
growing out of the pandemic and the challenges that all of our
farmers and ranchers, dairy producers were going through.
If you could maybe explain to us a little bit about some of
the issues, experiences you had. You talked a little bit about
the Federal Milk Marketing Orders. From the Iowa dairy
perspective, can you talk about some of the other issues that
came out of the pandemic and what should be the greatest
takeaway that we have?
Ms. Zuiderveen. One of the biggest issues that was sort of
exasperated by the pandemic was the ability to hedge. Like I
said, we ship to a cheese plant. We know that 100 percent of
our check is going to be based on that cheese price. When you
ship to a different processor that has some fluid milk or
softs, different classes of production, their milk check will
be based on a blended number. So they are--they cannot
effectively guess from month to month what that percentage is
going to be and where that number is going to come from, and
they are effectively out of the option of hedging and
protecting themselves from losses that come in with market
volatility. Then obviously, if anyone could have predicted the
pandemic, we could have predicted our milk price, but that is
not going to happen. So we need the ability to better predict
our milk price so that we can protect ourselves with the
programs that are offered.
Senator Ernst. Yes, thank you. I did note through some of
my discussions last year as well that because we had school
closures and the school lunch milk program they were not using
those same cartons anymore. Then it became an issue of how do
you ship milk maybe in a different form, rather than to the
schools then to our marketplaces. Any thoughts on that as well?
Ms. Zuiderveen. Absolutely. That is a production line
issue, which I think we saw in every industry. You cannot just
take the equipment that is producing those cartons and make it
a sour cream container. It does not work. That takes building a
new plant, building a new line, having the employees to do
that. I think that is one of the biggest things we look at.
One of our fears right now is that there is not enough
truckers. What happens when we cannot haul our milk, a
perishable product, to the facility that can take it? What
happens when that facility does not have the staffing to take
it? This is not something we can just put in the freezer and
use next week.
Senator Ernst. Absolutely. Any other thoughts from our
witnesses?
Mr. Davenport. I agree with Christina. Definitely, that was
a problem. Just the food chain really got upset a lot. I know
that it was great; our own little group, we did an awful lot of
food pantry. One of the good things the former Governor of New
York did was have the Nourish New York Program, and we were
paid, you know, a fair price, the price of us processing the
milk into gallons and sent it to food pantries. It was all--no
waste happened there. Every bit of it went to people that
needed it.
I--you know, I truly feel that the supply chain needs to be
more robust. We all know, at least in our neck of the woods,
there are ``help wanted'' signs everywhere. I do not know what
is keeping people from working, but our Cabot plants in
Vermont--during the pandemic we had sales staff, you know,
working double shifts, running the plant. We had demand for
more cheese, and God knows we had plenty of milk to make the
cheese, but we had to shut down production on the weekend
because there was nobody willing to work. It is foreign to me.
As I said, I tend to work some pretty long hours and much to
the chagrin of my family, but I am still in business. It is a
problem, and we have to address it.
I think one thing that has not been said yet, but I do
believe whole milk in schools would definitely be a big boon.
All milk tastes better--no matter who processes it, their
whole-fat milk always taste better than the low-fat milk.
In the consolidation industry, a lot of small dairies that
really care about quality--it is a whole other story, but they
have not--they have been replaced. They sold out to a large
dairy. Plants were closed. Like I said, some schools in our
State are paying over twice what they pay in New York City for
milk, and they are right by the producers.
Senator Ernst. Wow.
Mr. Davenport. That is something that needs to be
addressed. Kids should be drinking milk. This is a true plant-
based beverage. I mean, that is all our cows--80 percent of our
diet sometimes is plants for our cows, and they are the natural
factor that makes the awesome stuff.
Senator Ernst. Outstanding.
Mr. Davenport. In your neck of the woods, our neck of the
woods, we do not do any irrigation. It is all what Mother
Nature provides.
Senator Ernst. Yes. Right. Well, I appreciate that. I
apologize, my time is expired. I do appreciate the input and
not only as we look at pricing and how we can modernize the
pricing system but then also those supply chain management
issues that so many faced over the pandemic.
Thank you, Madam Chair.
Senator Gillibrand. Thank you, Senator Ernst.
I agree with you, Mr. Davenport. I think whole milk in
schools would be wise. I know my children only will drink whole
milk. It is better, more delicious, and very healthy. Children
will feel fuller, so they will eat less junk food. I am in
favor of that recommendation.
Our next Senator is Senator Marshall.
Senator Marshall. Well, thank you, Madam Chair and Ranking
Member, for doing this. Guess what? I agree with you. I just
want to be on record today that I think that milk is the most
delicious, most nutritious drink known to mankind, that mankind
has never made a drink that could supplant it, and whether you
are trying to develop an immune system to fight RSV or the
common flu or COVID-19, that milk is a very important part of
that nutritious diet, and whole milk especially because it
helps us absorb fat-soluble vitamins A, D, E, and K.
That is so important, as an obstetrician, a gynecologist,
that we have that whole milk and to grow strong bones as well,
that we now have a generation of men and women who are going to
have osteopenia and osteoporosis 10 to 15 years younger than
their predecessors because of a Federal nutrition policy that
basically disallowed whole milk.
Whole milk is what gives us the flavor, the taste. That is
why kids drink it; because it tastes good. I do not like one
percent milk. I get so mad at my wife when she does not bring
me some whole milk home. I try to drink it for lunch every day
here, two cartons of whole milk. We got it back on the diet for
the Senators. I want you to know that.
I am excited to talk about dairy because it is personal. My
dad, his family, had a 30-head Holstein dairy farm 30 years.
Like Senator Leahy said, did not miss a day of work. Right? You
do not miss a day of cow. The cows have to be milked twice, now
three times, a day.
I am excited to be on this Subcommittee, helping out our
dairy farmers. I think they have probably been more negatively
impacted than any other ag sector that I can think of over the
past four, five years. It just feels like the seven plagues of
Egypt have hit the dairy industry.
Madam Chair, I am excited to learn that you are the largest
producer of yogurt; New York is. I did not know that, so that
is great to learn.
Kansas has the fastest growing dairy herd in the Nation as
well, and we are very proud of that. Additionally, Arizona,
California, Colorado, New Mexico, Oregon, South Dakota, Texas,
Washington State, and my home of Kansas are responsible for
about 40 percent of milk production, and all operate in Federal
Milk Marketing Orders.
The year 2020 exposed some very significant vulnerabilities
in the way we price milk in the Federal Milk Marketing Order
systems. Neighboring dairies producing the same quantity and
quality often receive different prices based on who they were
selling their milk to. The difference was not based on sound
economic principles but was based on the impact of the Federal
Government opting to mandate the purchase of millions of pounds
of cheese, providing a milk price windfall to any dairy farmer
supplying cheese manufacturing.
I am all in favor of cheese. I love cheese. It is very
nutritious and so glad we could get more cheese out to folks
who needed the nutrition help. There is no such price relief
for those neighboring dairies who supply local bottling plants
or the butter manufacturers.
Then the USDA announced last month they would provide some
mitigation for that 2020 inequity. They put a cap on the relief
that ensures my dairies in Kansas and throughout the U.S. only
a tiny fraction of aid on a representative basis. Our policy
should not pick winners and losers based on the farm size or
geography.
As I look out and consider the challenges in the dairy
industry right now, my biggest concerns are the taxman and
rules and regulations. I think that several of us have talked
about stepped-up basis, that that would be the end of the
family dairy.
Maybe our witnesses could talk a little bit about just
concerns about input cost, inflation, Waters of the U.S., how
those might impact your dairies if those regulations are dialed
up. Mr. Davenport, any thoughts about inputs and concerns about
rules and regulations?
Mr. Davenport. Yes. The input costs have always gone up
since I have been milking cows. I mean, that is just a fact of
life. Fortunately, we have gotten more efficient and learned
how to feed the cows better. We can kind of counteract some of
that.
Regarding the Waters of the U.S., I am all for clean water,
and you know, and trying to keep it clean. I just think that we
probably ought to not overburden the EPA with rules that they
cannot possibly enforce. They do not have enough staff to run
around and check everything.
I firmly believe that the algae bloom in the Chesapeake,
the western part of Lake Erie, and the mouth of the Gulf of
Mexico--I think we can do a better job. I mean, we are all
cover crops. We do not have any soil that is open. We have
highly erodible land, which the acronym for that, short of one
L, but it is a tough farm when it is wet.
We basically have everything. Our soil stays in place, and
we do use, you know, a little bit of herbicide. We do no
tillage to speak of. We--you know. Dairy farmers are all about
that because it is more profitable. You know? Wasting money on
fertilizer? If it is not going to grow your crops, why bother?
I think that is all laudable.
We just have to make sure that we do not have enforcement
of rules, you know, sort of like if you have a vendetta against
somebody you can pull something out of your pocket they cannot
normally enforce for the whole industry. You know, it is the
sort of thing where we just--we need sensible water cleanliness
regulations, and we do not want to go overboard.
Senator Marshall. Thank you, Mr. Davenport, and thank you
for sharing that farmers and ranchers are the greatest
conservationists in the world.
I am sorry for going over my time, Madam Chair.
Senator Gillibrand. No worries. Our next Senator is Senator
Fischer by Webex.
Senator Fischer. Thank you, Senator Gillibrand, and thank
you to our panelists today. Appreciate you taking the time to
be here to give us some information that we find very valuable.
Mrs. Zuiderveen, in your testimony, you discussed that in
2020 with your Class III milk you received large gains as Class
III milk prices increased. Meanwhile, you also mentioned that
Class I milk prices fell. I appreciate your sentiment that we
need to ensure a fair dairy pricing system. I have heard from
producers in Nebraska who received negative producer price
differentials because of the increase to Class III prices while
the Class I milk prices fell.
You mentioned you are a member of a regional milk pricing
reform committee. Have they discussed what recommendations
would be most helpful for Congress to consider to ensure a fair
milk pricing system? In particular, how can we address events
like what we saw last year during the pandemic with negative
producer price differentials?
Ms. Zuiderveen. I will try and address as best I can. You
did cut out a bit. The negative PPDs are experienced by lots of
people, in fact, not just those with a blended milk price. We
saw that on our check within the last couple months. This goes
back to fundamental shifts in the milk market. We are no longer
a fluid-based market. That market share has decreased by a lot
over the last decades, and we really need to focus our
production and our pricing more on the export market that has
emerged, which is great for us. That trade and offering that
market to our farmers is another area we can compete and earn
more money.
Senator Fischer. What do you think Congress should do? Is
there anything that we can do to be able to ensure that we can
address some of these events, like the pandemic, that would
help producers?
Ms. Zuiderveen. While I have been a part of some
discussions, we do not have any public answers yet. I think
there are a lot of great ideas out there, and I would love to
see--some of our academic and processors that are on the next
panel, I would love to see some of their ideas in this
department.
Senator Fischer. Okay. Thank you. You have also mentioned
the impact that unpredictable pooling can have on producers'
ability to utilize risk management programs like the Dairy
Margin Coverage Program. This is a concern I have also heard
from Nebraskans, who found the fluctuation in price caused by
depooling made it difficult to use risk management tools like
the DMC. Could you elaborate on how unpredictable pooling and
price fluctuations can impact the effectiveness of risk
management programs?
Ms. Zuiderveen. Nebraska, I believe, is part of the Central
Marketing Order, which Iowa is also a part of. The Central and
Midwest Marketing Orders do not have nearly the fluid
processing power as someone like the Northeast would have, and
so they are under different rules. I think it is a lot harder
to depool in the Northeast. If they had those same regulations
within the Central and Midwest Marketing Orders, the
cheesemakers just would not participate and the other
processors would then have to pass on those negative PPDs to
their producers.
Obviously, there needs to be some change in the milk
pricing system, but it needs to be something that we all work
on together so that it can benefit both producers and
processors.
Senator Fischer. Thank you very much.
Thank you, Madam Chair.
Senator Gillibrand. Thank you.
I have three additional questions that I am going to put
forward, and each of you can answer them if you have an
opinion. Over the past years, you have all seen your operation
costs continually rise, whether those costs be for feed, fuel,
or labor, and more often than not, the prices you receive for
your milk hardly ever cover the cost of production. One of the
pricing reforms that we are looking at is more closely aligning
milk prices with the cost of production. Could each of you
briefly explain the disparity between the current prices you
receive for your milk and what it costs to produce the milk,
and what are some additional ways that the prices you receive
could reflect the cost of production?
Mr. Davenport. Well, for my own operation over the last,
oh, I do not know, 15 or so years, the price of milk exceeded
the cost of production like maybe two. Of course there is an
expression called ``living off depreciation.'' That is a large
part of it. Most businesses--well, it is a cost. Depreciation
is a cost. You know, if you have some farm machinery that is
fully depreciated, it still keeps working. You just got to fix
it a little more, and it is a little less reliable. As a small
producer, I do a lot of fixing.
I think I do not really know how you would align because
everybody's cost of production is different. I think that any
artificial subsidies to production anywhere make it hard to try
to get a level playing field for everyone.
I sort of keep coming back to decoupling fluid milk price
from volatile cheese and butter, powder. If we can come up with
a way to price the most perishable, the least elastic in demand
product that we produce, so that in the heaviest fluid markets
they are not going to be hurt by crazy commodity price swings,
and in the less heavily produced fluid markets that their
cheese processors will still participate in the pool, I think
it is just going to have to---somebody much smarter than I
should come I would endorse a plan if I heard one I liked, but
so far we have not.
I think that would be great to be able to do that because
I--you know, the bottom line is, you know, you want businesses
to thrive, and you want to be able to produce at a lowest cost
possible, but the ``too big to fail'' thing I have seen happen
in very large dairies in the Northeast, where the bank
basically tells them: No more money. You take it out of your
vendors, and they are the ones who are going to have to support
you.
I have always paid my bills on time. I have a good line of
credit, and I am not afraid to use it. I know there are some
large operations that have outrun their ability to manage, that
are just like a speeding train with no brake. I would like to
see that, you know, they were not allowed to keep going when I
have friends that are the same size that are doing really well
and do just as good a job as I do with the cows and milk
quality. I just would like to see these large farms that are
out of control maybe get cutoff a little sooner to sort of
teach everybody else that expand within your abilities of
management. That is just something personal that I see.
Senator Gillibrand. Mrs. Zuiderveen?
Ms. Zuiderveen. I would like to echo that I do not think
subsidies based on the cost of production are going to be
effective. Part of the beauty of living in the United States is
that we have the freedom to take on things in a way that we
want to. We can take on as much debt, build and expand to the
size that works for us, for our families. Even between our
three locations, we have different sizes of operations, and
they all have different operating costs. We have different
loans, different feed costs, and we milk different breeds of
cattle based on where they are located and how much space they
need. I would like to maintain that freedom.
There is no way that I should be told to make a decision
based on someone else's farm or what someone somewhere else
wants to happen. That is something I get to do based on each
individual input in my operation.
Mr. Ferguson. Senator, from my point of view, I agree with
the other two that subsidies are not necessarily the solution
to this. On a going-forth basis, we are going to be looking at
a lot of changes that have to be made, improvements to protect
the environment, to become more energy-efficient. I will say
that grants and loans availability for operations that are
undergoing these changes, and are doing it even on a voluntary
basis, are a central part of the future of us maintaining
viability.
Senator Gillibrand. The last question is about make
allowances, processors are credited for some of the cost of
processing certain dairy products, such as cheese and butter,
through make allowances. Should future FMMO reforms include a
make allowance for farmers to credit some of the cost of
producing milk?
There has been criticism of the FMMO hearing process
including the length of time required to request and hold
hearings and implement changes. What are some changes that can
be made to make this process more simplified and reactive to
farmers' needs, if anyone has a thought?
Ms. Zuiderveen. I do not know a lot about the make
allowances. I think it is a pretty complicated topic. I do know
that the changes that we make in the system, I would like to
see them encourage innovation, and processors should have the
freedom to expand and discover new markets so that we can
continue to export, trade our product, and compete for the best
price for our dairy producers.
Mr. Davenport. The make allowance--I think that in some
areas of the country there is a service provided to take extra
milk and put it into a product that has a longer shelf life and
can go into international market, providing those containers
that wait a long--wait around long enough to get on the boat
full of dairy products and not go back empty, but that is in my
testimony, written.
I think that--you know, I think that somehow someone has to
just keep an eye on make allowances and if there is something
that is a little bit untoward for the dairy farmer that we can
adjust them. Just how the mechanism I do not really know.
The second part of the question was? Sorry.
Senator Gillibrand. Whether you recommend any changes to
the length of time required to request and hold hearings and
implement changes.
Mr. Davenport. Oh, yes. I think it would be nice to make
the process move along faster. Never having participated in it
myself, I probably should leave that to the economists who have
some ideas on that. I believe that as long as that process has
the input from all the concerns in the industry, that is very
important. You know, I would rather see it take a little longer
and be complete and done well than to be rushed and then have
to go back and redo the whole process again. Thanks.
Senator Gillibrand. Mr. Ferguson, any remarks?
Mr. Ferguson. Yes, Senator. As I think I mentioned earlier,
as far as make allowances are concerned, it would be very
beneficial in the Southeast to have a make allowance for help
with the balance in cost because that is a huge issue in our
marketing area.
The rulemaking process, sometimes it is a very tedious
process. Could there be some efficiencies gained that would
shorten that process? I would think that any operation that
tells you that they cannot take--you know, by tightening things
up, they cannot do just as good or a better job, I think they
are kind of on the wrong page. I think that the process could
be a little shorter because it is a very--as it stands now, it
is a very frustrating process. Yes, I think there could be some
shortening of the length.
Senator Gillibrand. Thank you. Thank you to our witnesses.
Your testimony has been extremely helpful. If you would like to
add anything additional to your testimony, you may write a
letter to the Committee. Thank you so much.
We are now going to introduce our next panel. I will
introduce them while they get settled. We will hear from Ms.
Catherine H. de Ronde, Vice President of Economics and
Legislative Affairs for Agri-Mark. We will hear from Mr. Robert
Wills, President of Cedar Grove Cheese Inc. and Clock Shadow
Creamery, and Mr. Christopher Wolf, the Baker Professor of
Agricultural Economics at the Dyson School of Applied Economics
at Cornell.
Catherine de Ronde is the Vice President of Economics and
Legislative Affairs at Agri-Mark Dairy Cooperative. Catherine
joined Agri-Mark in 2017 and is responsible for watching dairy
market trends, forecasting milk prices, working on State and
Federal legislation affecting Agri-Mark members. Catherine was
previously employed as an agricultural economist with the
Massachusetts Department of Agriculture Resources. Catherine
holds a bachelor's and master's degree in resource economics
from the University of Connecticut. Thank you for being here,
Catherine.
Mr. Bob Wills is owner of Cedar Grove Cheese since 1989,
founded Clock Shadow Creamery in 2011, and is a Wisconsin
master cheesemaker. He served on the Board of the American
Cheese Society and was Chair of the American Cheese Education
Foundation among numerous other volunteer stints with dairy,
sustainable agriculture, and community boards. Prior to buying
the cheese factory, he worked as a research associate and
instructor in the Department of Agriculture and Economics at
University of Wisconsin, the Economic Research Services of the
U.S. Department of Agriculture, and some State and Federal
legislative staff positions. His academic credentials include a
B.A. from American University in international relations and
economics, a Ph.D. in economics, and a J.D. from the University
of Wisconsin. Thank you, Bob, for being here.
Then Dr. Christopher Wolf is the E.V. Baker Professor of
Agricultural Economics in the Dyson School of Applied Economics
and Management, Cornell University. He moved to Cornell in 2019
after more than 21 years on the faculty of Michigan State
University. He conducts research, extension, and teaching
focusing on dairy market and policy, farm business management,
risk management, farm animal welfare. Dr. Wolf has published
widely in academic and industry outlets. His extension program
stresses the effect of public policy on farm behavior and final
outcome, aiming to focus on issues of current and future
importance to policymakers and industry decisionmakers. A
native of Wisconsin, Dr. Wolf received his bachelor's degree
from the University of Wisconsin and his Ph.D. from the
University of California-Davis. Thank you for being here, Dr.
Wolf.
Again, I thank all of our witnesses today. As a reminder,
we ask that you keep your testimony to five minutes each, and
your written testimony will be submitted for the record, as you
may hear me tap the gavel should your time expire.
Ms. de Ronde, you are recognized for five minutes.
CATHERINE H. DE RONDE, VICE PRESIDENT, ECONOMICS AND
LEGISLATIVE AFFAIRS, AGRI-MARK INC., ANDOVER, MASSACHUSETTS
Ms. de Ronde. Chairwoman Gillibrand, Ranking Member Hyde-
Smith, and members of the Subcommittee, good morning. On behalf
of the 720 Agri-Mark dairy farmers, thank you so much for
spearheading this hearing and for the opportunity to testify
before you today. It is a great honor to share the voices of my
farmer members.
Milk pricing is front and center for our farmers,
particularly with the year we just lived through. We applaud
you for your continued support of our dairy farmers and
industry and greatly appreciate your efforts to secure the
latest Pandemic Market Volatility Assistance Program as well as
the Dairy Margin Coverage adjustments. Your involvement and
your leadership is why I am here today and why it was so
important for Agri-Mark to be a part of this hearing.
As was mentioned this morning, dairy farmer--dairy farming
is a 24-7 commitment 365 days a year. Besides the physical
labor, the mental and financial side can be equally draining.
As our Nation and global economy have evolved in recent years,
the issues facing today's dairy farmers are far more complex
than what was faced by generations of farmers before them. Our
dairy farmers are resilient, but they are not impervious to
these compounding forces.
Today's challenges encompass the impacts that global trade
has on our markets, labor pressures at all levels of the supply
chain, and changes in consumer desires. Together, they have
placed a tremendous amount of stress not only on our dairy
farmers but supply chains and their cooperative businesses as
well. Collectively, we must work to ensure that our dairy
supply chains are strong and viable, starting with our dairy
farmers. Dairy farmers help feed America, and they are playing
an increasing role in providing sustainable nutrition to the
world. Our dairy farmers are critical to our local and regional
economies, creating jobs, conserving land, and supporting local
food systems. We must ensure that they have the markets,
programs, and tools to continue to operate and be sustainable
for generations to come.
At Agri-Mark, I engage with our members every day,
discussing the current marketplace and forecast. Milk pricing
is something that our farmers are particularly concerned about
and something that Agri-Mark is actively working on to improve
on a national level. Our cooperative is a member of the
National Milk Producers Federation as well as the International
Dairy Foods Association. I serve on the Economic Policy
Committee of each organization, both of which are working on
milk pricing and policy issues. In 2019, both of these
committees started a deep dive into widespread pricing reform
conversations until the pandemic put an abrupt halt to those
efforts.
Last year's extreme volatility and unique market
circumstances unveiled underlying flaws in our Federal Order
system and drew acute attention to three key elements: negative
producer price differentials or PPDs, depooling, and the Class
I mover. For farmers, this showed up as unfamiliar milk checks,
causing a lot of unease, misunderstanding, and many questioning
if the system was working properly or not, and it gave the
industry an even greater urgency to revisit the need for
Federal Order reform.
The Federal Order system provides significant value and
safeguards to dairy farmers, cooperatives, and processors. They
are critical to price discovery, orderly marketing, and ensure
timely payment to dairy producers. Yet, as we have discussed
here today, the industry has changed significantly since the
last Order reform in 2000. Industry growth, increased cost, and
participation on the export market are all viable reasons to
thoroughly revisit the Orders and revise them to better reflect
today's marketplace. We want our Federal Order system to evolve
and to be supportive of the needs of today's dairy market
participants, especially those of our farmers.
As we work to improve Orders, it is critically important
that we recognize the intersections in milk pricing and how a
change in one area can have an impact and change another. In
this context, the current Class I mover has caused significant
depooling and substantially reduced producer revenue, which was
not intended. This needs to be addressed.
While I deeply and personally understand the urgency to
resolve our challenges, thorough analysis of these
intersections, considering all perspectives, is essential to
guaranteeing reform success. Changes should be made through the
formal rulemaking process to ensure that a comprehensive
approach is taken and that producer, processor, and consumer
voices are heard and considered.
There is much work to be done to evolve this Federal Order
system, and the industry is on board and hard at work. We must
continue to strengthen pricing mechanisms, provide aid to all
farmers when needed, and build consumer trust domestically and
in emerging markets across the globe. This hearing is an
important step in the early stages of this dialog. Once again,
I thank you for your advocacy, investment in our industry, and
once again, the opportunity to share my thoughts with you
today.
[The prepared statement of Ms. de Ronde can be found on
page 53 in the appendix.]
Senator Gillibrand. Thank you very much. Mr. Wills, you are
recognized for five minutes.
STATEMENT OF ROBERT WILLS, PH.D., PRESIDENT, CEDAR GROVE CHEESE
INC. AND CLOCK SHADOW CREAMERY LLC, PLAIN, WISCONSIN
Mr. Wills. Senator Gillibrand, Madam Chair, thank you for
the opportunity to address the Committee today.
My two cheese factories are supplied by about 28 farms. Ten
years ago, when I started Clock Shadow Creamery, the green
cheese factory in Milwaukee, I decided that we would be
supplying consumers throughout the State. I have always viewed
my role as supporting dairy producers who supply milk to our
factory as well as supporting the health and safety of our
consumers, but today I fear for the future of the dairy
industry.
The subject of today's remarks is tough to condense, but
let me try in just a few sentences. federally administered milk
pricing established by Congress now functions opposite of its
intent. Our Federal Milk Market Orders have features that cause
higher dairy prices for consumers and create lower milk prices
for farmers. The Order system responds slowly and inadequately
to changes in cost and demand shocks, and encourages
inefficient trucking and location of dairy facilities, and the
complexity of the system creates opportunities for anti-
competitive behavior and promotes consolidation. Here is the
thing; the 90-year-old structure of the Orders creates the
problems I noted below, but the outside pressures today are
exposing how this system threatens the continuing existence of
dairy farming in the United States.
Today, the dairy industry faces increased international
competition. We face rising costs and uncertainty from climate
change. We face disruptive bio-culture technologies that
threaten to produce dairy ingredients from genetically
engineered microbes. Milk pricing administered in the Federal
Orders has not been able to evolve to fairly address the
changing dairy industry, and this old mechanism definitely has
no tools to address global competition, the need for more
sustainable production, and disruptive self-cultivated
replacements. The survival of the dairy industry depends on
your decision to end the rigidities of the Market Order system
as soon as possible.
Originally, Milk Market Orders were intended to get
nutritious fluid milk to consumers, especially children,
throughout the country. In practice, the Orders raise the price
of fluid milk and pay farmers to dump milk, a horrible practice
that is disrespectful of the animals, hardworking farmers, and
hungry citizens.
In the heart of--the heart of the system is milk pricing.
Milk is priced by class. A pool from the premium added to sales
of bottled milk is shared among farms that ship to
manufacturers of yogurt, cheese, and butter, and milk powder.
Farmers are only better off if that premium on fluid milk
exceeds the value the loss in value from lower prices in the
other classes. Plus, inefficiencies are created by the process.
Precise conditions are required for the monopolistic market
segmentation to increase the overall value of milk. Although
the redistribution system makes it appear that all farmers are
winners, evidence suggests the classified pricing reduces total
milk--total farm revenues.
Federal Milk Orders are immensely complicated. Eleven
different regional Market Orders have different prices and
rules, and changing a single regulation and Order requires a
costly hearing process that stretches on for years. Large
companies and cooperatives unnecessarily transport milk to take
advantage of price differences among Orders. Order shopping
gives those large companies a competitive advantage over
regional processors. Their superior understanding of the
intricacies of the system and the ability to take advantage of
regional differences gives big companies a stake in continuing
the Market Order system.
The dairy industry has worked around the fossilized
structure of Federal Orders for decades, but new challenges are
coming that require efficiency and innovation that the Orders
prevent. Milk pricing in Federal Orders has zero provisions to
recognize costs associated with exporting dairy products or the
ability--or the added cost of developing unique, new products
tailored to the taste of consumers in other nations.
The newer challenge facing this old dairy system is
imitation or clone dairy products. Plant-based milk
substitutes, such as soy and almond drinks, provide an
important alternative for people who are unable to consume
dairy. The sales of these products have grown, but only a small
amount of consumption has seemed to replace milk.
The next wave of fermentation-based technologies, using
genetically altered microbes, to produce specific dairy
proteins in large tanks--as unnatural as that sounds, business
startups are attracting large investments from international
investors. These companies have dabbled in products like
animal-free ice cream, but the first really large threat they
pose is large-scale production of mimicked whey protein, the
by-product from cheesemaking. Without a whey market, cheese
plants would struggle to make a profit, would have fewer
dollars to pay dairy farmers, and would face the environmental
challenge of disposing of perfectly good whey. Beyond
replicating individual proteins, some entrepreneurs even claim
to be able to copy milk exactly by using cloned mammary cells.
None of these challenges to milk sales, including
international competitors and processors of vegetable analogs
or biotech replacements are saddled with the burden of
conforming with Federal Milk Marketing Orders. Our farmers
should not lose the competition just because they are not
allowed to compete fairly.
[The prepared statement of Mr. Wills can be found on page
59 in the appendix.]
Senator Gillibrand. Dr. Wolf, would you like to give five
minutes?
STATEMENT OF CHRISTOPHER A. WOLF, PH.D., E.V. BAKER PROFESSOR
OF AGRICULTURAL ECONOMICS, CHARLES H. DYSON SCHOOL OF APPLIED
ECONOMICS AND MANAGEMENT, CORNELL UNIVERSITY, ITHACA, NEW YORK
Mr. Wolf. Chairwoman Gillibrand, Ranking Member Hyde-Smith,
and members of the Committee, thank you for inviting me to be
part of this hearing.
The U.S. dairy industry is diverse in terms of farm size,
production technology, geography, and markets served. Major
trends that influenced the industry in recent years include
changing consumption patterns, the rise of international trade
as a major outlet for U.S. dairy products, and consolidation at
all levels of the supply chain.
Federal Milk Marketing Orders, using multiple component
pricing, which handle the majority of production in the
country, pay farmers based on component value plus a producer
price differential that reflects the pool value in excess of
the components. In 2020, record negative producer price
differentials occurred, which were not just abnormal in
magnitude; they were unpredictable and greatly contributed to
farm milk price volatility. Recent research found that the
large declines in producer price differentials were caused by a
whole host of factors, including trends in utilization, driven
by consumption trends, trends in milk component production, the
change in Class I skim milk pricing mover, and depooling of
milk by Class III processors.
The impact of each of these factors varied both across
Federal Milk Marketing Order and over time. The regional
impacts depended on utilization, processing capacity, and other
market factors. On average, across Federal Milk Marketing
Orders, the largest impact contributing to negative producer
price differentials in 2020 was depooling of milk while another
significant impact was the aforementioned Class I pricing
change. Both of these factors were exacerbated by the
historically wide divergence in Class III and Class IV milk
prices in 2020 due to the change in consumption from food away
from home to almost exclusively at home, as well as government
purchases of dairy products.
With respect to consumption, beverage milk consumption has
trended downward on a per capita basis, with the rate of
decline increasing since 2010. In contrast to beverage
consumption, cheese, butter, and total dairy product
consumption have been growing. The rise of exports has
coincided with increasing U.S. milk production. Since 2005,
dairy exports have grown from accounting for about five percent
of milk production to currently accounting for more than 16
percent. Export markets assist in balancing the production of
butterfat and milk proteins. There are farm milk price
implications of growing dairy exports, including the influence
of international supply and demand factors, as well as the
political impacts of trade.
The issues that motivate this hearing relate to farm milk
pricing under the Federal Milk Marketing Orders. When the
Orders were created, the majority of milk in those Orders was
used in fluid products. Shrinking relative share of Class I, or
fluid consumption milk, means that there is less money in the
revenue pool. Given the age of the Federal Milk Marketing Order
system, the length of time since the last major reform, and
changes in the market from both the production and consumption
sides, it is likely time to reexamine aspects of the Federal
Milk Marketing Orders. Issues that are widely regarded as in
need of attention at this time include the Class I mover and
make allowances.
Class I milk pricing methods were changed in the 2018 Farm
Bill and implemented in 2019 to make the Class I skim milk
price mover be the average of Class III and Class IV advanced
skim milk price, plus a fixed 74 cents, rather than the higher
of those advanced prices. The 74-cent per hundredweight
differential was chosen to be revenue-neutral. One implication
of this rule change is that when the difference between Class
III and Class IV advanced skim milk price exceeds $1.48 per
hundredweight the resulting Class I price built from this new
formula is less than it would have been using the higher-of.
Price differences of this magnitude were not unheard of
previously, but the pandemic resulted in a wide and prolonged
divergence in Class III and Class IV prices in 2020. This large
divergence in butter and cheese prices meant that the Class III
milk--Class I, excuse me, milk prices were lower than they
would have been under the former pricing rule and focused
attention on this aspect.
Make allowances are the amount of the wholesale dairy
product price that accounts for the manufacturing costs when
calculating the component farm value of milk. All else equal,
increasing the make allowance for a product such as cheese or
butter means the amount of the wholesale dairy product price
that is passed on to farmers is lower. If make allowances are
inadequate, however, processors with higher costs will either
be driven out or must make up the difference elsewhere.
The entire supply chain, from farmers to processors, must
be healthy for a prosperous dairy industry. The current set of
markets and institutions that we have has evolved around the
existing Federal Milk Marketing Order system, and the ripple
effects of reforms should be carefully considered to balance
the interests of all involved parties, including equity as well
as economic efficiency.
Thank you for your time, and I look forward to any
questions or comments you might have.
[The prepared statement of Mr. Wolf can be found on page 69
in the appendix.]
Senator Gillibrand. Thank you, witnesses.
Ms. de Ronde, I know that Class I is the only milk class
required to participate in the Federal Milk Market Order pools,
but the new pricing method and depooling clearly caused
disorderly marketing conditions for farmers last year. Can you
talk more about this? How were producer risk management tools
impacted?
Ms. de Ronde. Yes, and thank you for the question. I think
there is really three parts to that. The first one, you asked
about Class I being the only class that is required to
participate in the pool. You know, as was mentioned here, our
Federal Order systems were designed for a fluid marketplace and
pooling revenue to make sure that every farmer is equal. In
order for that to work, Class I needs to participate in that
because traditionally Class I has been the highest price. It is
absolutely essential for at least how the Orders were designed,
if we want to have pooling, we need to make sure that Class I
participates.
To get to your second question about disorderly marketing,
disorderly markets caused by the pandemic--Chris, I think you
just did an excellent job talking about that, but I will just
sort of echo some of those comments there. When we had an
extremely fast rise in Class III prices due to the pandemic,
crashing prices and then the food box program coming in and
recovering those Class III markets, it was that rapid rise that
got us into an unfamiliar pricing relationship. It caused the
Class III price to exceed far beyond what we had ever really
seen, and the difference between the Class III and Class IV
became extremely wide and, as was mentioned, was not--was so
wide that the new pricing mechanism with the Class I had not
intended for that to happen and did not account for that, and
producers were not revenue-neutral.
To your last question about risk management, when this
takes place, when we have volatility in the marketplace, that
makes it extremely hard for a producer to make an accurate risk
management decision. Producers make risk management decisions
based on what they think the futures markets might do and, you
know, what traditional relationships may look like. What we saw
last year was really an anomaly, and producers' risk management
decisions were not based on the anticipation of a food box
program or a COVID pandemic happening. Just generally, that
market volatility was what drove some really significant
challenges in risk management decisions.
Senator Gillibrand. Mr. Wills, we know that FMMO pool
deficits from depooling affected producers. How were different
processors affected in terms of profit and loss? What would you
recommendation be for reforming and updating pooling rules?
Mr. Wills. Well, I think as I indicated, there is no other
industry that is priced like this, and my recommendation would
be to eliminate the pooling rules because I do not believe they
are actually increasing the value of milk overall.
On the other hand, depooling, the option of depooling is
absolutely necessary if you are going to keep people in
business. Depooling is pressure relief when the Market Order
forces companies or would put companies in the position of
having to pay a higher price than what they have earned for
their products.
Now you know, the bizarre thing, of course, in milk pricing
is that today or yesterday I learned what the milk cost me that
I bought August 1st and my producers will find out tomorrow
when they receive the checks what they got for the milk that
they produced August 1st. That delay system is what creates the
negative PPDs and puts people in a position where they both
cannot make good planning as to where their--as to how to run
their businesses and how much milk to produce, but also forces
them to have that option of depooling at times because the
prices are not reflective of value.
Senator Gillibrand. Dr. Wolf, based on your years of
research and analysis of Federal milk pricing what suggestions
do you have on pricing reform that would help farmers receive a
fair price for their milk? Given falling prices and volatility,
how can small dairy farmers survive in this environment? What
policies could be implemented to help?
Mr. Wolf. Thanks. Yes, well, I think updating the Federal
Milk Marketing Orders to reflect some of the current realities
of the market are very important if we are going to continue to
have this system be the foundation.
I think it is important to also consider the fact that the
farm milk prices built up from several components. The farm
Milk Marketing Orders--the Federal Milk Marketing Orders,
excuse me, are a major part of it, but the regional and
cooperative aspects are another part of it. Part of what has
been driving the volatility has been kind of the differential
experiences from the market access and the--what has been going
on in the different product markets around the country. That
has been greatly contributing. What we have seen is at the farm
level there is a pretty wide variation in the price received,
and you know, 2020 was a particular stark demonstration of that
as some farms seemed to weather it pretty well and others were
devastated by the market situation that they had.
You know, I think the biggest thing that can help the
smaller farms, to the extent that we want to consider that, is
to make certain that they continue to have market access, that
they continue to have bargaining power to the extent that they
can, and that they have the market information they need to
make the proper decisions. That is actually one place that I
would argue that the Federal Milk Marketing Orders are pretty
important is in providing leveling market information for
everybody to have.
Senator Gillibrand. Thank you.
Senator Boozman.
Senator Boozman. Thank you, Madam Chair.
Dr. Wolf, did you see the article that Secretary Vilsack
wrote last week regarding stepped-up basis?
Mr. Wolf. Yes, sir.
Senator Boozman. Okay. In that article--and again, correct
me if I am wrong, but my reading of it was that, he essentially
said that the only people that would be affected by stepped-up
basis would just be a handful of corporate farmers and that
everybody else, it did not matter, and that he felt like they
should go forward with stepped-up basis. Is that correct?
Mr. Wolf. Well, if I remember correctly--I am sure that you
are right. If I remember correctly, I think he said something
like two percent would be affected.
Senator Boozman. Exactly.
Mr. Wolf. That is of the USDA's number of farms.
Senator Boozman. Exactly. We have asked USDA for that
information to back that up, and it is silence. The only reason
I say that is we have had others say today that stepped-up
basis is over, but you have the Secretary of Agriculture coming
out as recently as last week saying: No, we need to push
forward with this.
According to a study completed by Texas A&M University, on
the impacts of the proposed changes to stepped-up basis on
representative farms, Texas A&M found that the Northeast would
be subject to hundreds of thousands of dollars of increased
taxes. In your review of farm financial data, can you share
what impacts these additional tax liabilities, in your opinion,
would have on dairy farmers in the Northeast?
Mr. Wolf. Sure, Senator. I am not an expert on this topic.
I have no reason to distrust the analysis that Texas A&M did,
and I have not done detailed analysis myself.
I can tell you from working with farms on farm business
management that estate planning is--to bring the next
generation is a very large challenge for--you know, especially
for commercial farms. Modern agriculture is very capital-
intensive, and farmers do not tend to be overcapitalized
because it is expensive to be. They do not tend to have more
capital than they need, but they certainly need enough capital
to make a living. You know, it is not the same as passing on
non-business investments. I can see that that would be a
significant concern for farmers, to make certain that they
could make the next generation viable.
Senator Boozman. Right. Dr. Wolf, you are one of the
leading dairy economists in the country. Have you recently
provided any academic input to policymakers in the development
of the $135 billion in agriculture reconciliation provisions
with regard to what might best address the specific needs of
dairy producers and the dairy industry?
Mr. Wolf. No, Senator, I have not.
Senator Boozman. Okay, which is sad. If you had that
opportunity--I want to give you that opportunity now. You
mentioned market access and things. What suggestions--summarize
for me. This has been such a great hearing. Tell us in your
opinion some of the most important things, if you could give
that advice, which you are now. What do we need to be doing to
make things function better?
Mr. Wolf. Well, Senator, I think that there are a lot of
opportunities to help the dairy industry. In particular, the
issues that they are struggling with right now largely have to
do with input costs, with the labor situation in particular,
with feed costs. Market access is a big issue. Then the one
that is kind of looming that everybody is going to need to deal
with at some point probably relates to greenhouse gases and
environmental change. I think that, you know, there are many
opportunities there too, both in the research side and helping
at the farm-level side with, you know, making certain that
farms are resilient and that they are contributing to the
solution, you know, of the problem because I think U.S. farms
can be a big part of the solution there.
Senator Boozman. You mention input costs. With the
inclusion of the Green New Deal and significantly increasing
gasoline prices, which again with delivery is such an important
part of dairy and just operating the farm, rural America, gas
prices, electricity prices. What would that do to the input of
our dairy industry?
Mr. Wolf. Energy costs are very important for the dairy
farmers because they use a lot of energy, both in milking cows
but also in producing crops. I also think, if I might add, that
you know, to the extent that we take advantage of the potential
gas production from dairy manure and others, that they could be
benefiting from the energy markets there as well.
Senator Boozman. Very good. Thank you, sir.
Thank you, Madam Chair.
Senator Gillibrand. Thank you.
I think that is all we have. No. Senator Marshall, you are
here. Thank you.
Senator Marshall. Thank you, Madam Chair. I will start with
Ms. de Ronde. You represent 700 farm families. What would be
the impact of stepped-up--losing stepped-up basis and cutting
the death tax limits in half to those families over their
future?
Ms. de Ronde. Let me just talk a little bit about what our
membership looks like. 720 members, very diverse. We range from
a five-cow Amish farm to--all the way to, you know, over 1,000-
head. One thing that is incredibly important for us as a
cooperative is sustainability and sustainability of the next
generation to come. We work incredibly hard to foster
relationships, provide professional opportunities for our young
farmers, to make sure that they are ready to be that next
generation for us. You know, we worry about what opportunities
they have and what challenges are going to be before them.
Anything we do that is going to impact their ability to
continue to farming on the land that their families have been
on for generations is going to be detrimental to the next
generation.
Senator Marshall. Being a fifth-generation farm kid myself,
I mean, I would suppose if we would lose the stepped-up basis
we would have to sell a third of our farm to pay the taxes. Is
that a fair statement, that people would have to sell land in
order to pay the stepped-up basis and the dairies would be
getting smaller rather than bigger?
Ms. de Ronde. We have not looked at in detail what the
impacts of that would be in terms of how much land we would
lose, farmers, et cetera, but we do know that it would have a
massive impact.
Senator Marshall. Yes. Thank you.
Mr. Wills, you make cheese, right?
Mr. Wills. Yes, sir.
Senator Marshall. I am not sure how many producers you are
involved with, but I bet there is a place in town where you
guys go and have coffee together, and maybe when they bring
their milk to you guys you have a place to share a cup of
coffee. If those farmers/producers were here today, or when you
sit down with them, what are their biggest concerns when it
comes to agriculture going forward?
Mr. Wills. You know, I think for a lot of my producers they
tend to be smaller producers, and I think a lot of them are
concerned about continuing to have access to the market. As the
buying industry consolidates, that they are--even in Wisconsin,
where there is more competition probably for dairy than in most
of the country, there have been incidences where we have had a
very hard time finding homes for some farmers who have been cut
loose by the bigger plants. There is a tendency for the big
plants to only want to pick up milk from places where they can
get an entire truckload of 50,000 pounds of milk rather than
from making a lot of stops at small places.
Now you know, the impact of losing all those producers, we
have gone from 140,000 dairy farmers in Wisconsin down to fewer
than 7,000 now, and we are losing about 10 percent a year. That
just hollows out the communities. When you are talking about
sitting down and having coffee with the producers, there is not
a restaurant in town anymore to have a coffee at. You know, we
have lost our hardware store, our grocery store, and a lot of
it has to do with the rural communities being hollowed out. You
know, the ability to maintain and support small farmers is not
only important for those farmers but also for our communities.
Senator Marshall. Thanks. Well, certainly as agriculture
goes, so goes rural America.
Dr. Wolf, I will probably finish up with you with a
question. The Federal Milk Marketing programs that have come
out for the past couple years, just in a broad stroke, what has
the impact been on small producers versus larger producers, and
is there fairness there in your opinion as an economist?
Mr. Wolf. Well, the Dairy Margin Coverage Program is very
much aimed at the smaller producers, and I think in particular
with the changes that have been made recently it is much better
for them. You know, so I kind of look at it as the Dairy Margin
Coverage Program more aimed at small-sized and dairy revenue
protection and Livestock Gross Margin Dairy Programs for the
bigger farms. I think that, you know, with those two programs
in place we are in a pretty decent situation from a risk
management point of view although, you know maybe not
necessarily for what was hopefully a once-in-a-lifetime
pandemic.
Senator Marshall. Well, would you agree with me that the
small producers are much more--been successful from the
programs and the bigger producers have not had much help
through these tough times?
Mr. Wolf. Well, maybe the--certainly, the bigger ones get
less relative help from like the Dairy Margin Coverage Program,
but the bigger herd operators are also much more likely to be
doing their own risk management programs like Dairy RP. If they
had that in place entering 2020, then they probably did pretty
well from that.
Senator Marshall. Okay. Thank you so much, Madam Chair.
Senator Gillibrand. Does anyone have any additional
questions and anyone on Webex?
[No audible response.]
Senator Gillibrand. Well, I want to thank our panelists for
your excellent testimony. If you would like to supplement your
testimony in any way, please just submit it to the Committee.
With that, our hearing is adjourned.
[Whereupon, at 11:34 a.m., the Subcommittee was adjourned.]
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