Guest Columnist
Perspective:
Industry Issues

Dairy economic recovery: Think cash for clunkers, not Wall Street bail out

Connie Tipton

Connie Tipton is president and CEO of the International Dairy Foods Association. She contributes this column exclusively for Cheese Market News®.

As we approach the last quarter of 2009, it looks like the economy may be slowly on the rebound. While many debate the wisdom of the congressionally passed “stimulus bills,” I’ve always had my doubts. Our deficit this year alone will be around $1.6 trillion, and a trillion dollars is a sum that is nearly impossible to comprehend.

Yet, some economists say it was necessary to spend that kind of money to keep us from falling into an even deeper recession. Let’s just say that I’m hopeful we have seen the worst of these economic woes — and that Congress wakes up to the fact that we need to put the brakes on spending.

I’m no financial policy guru, but I think the stimulus idea was to get more money into the hands of consumers in order to get the economy moving again. This theory certainly appears to have worked for the automobile industry. The “cash for clunkers” program has very effectively increased sales, at least for the short term, by making cars more affordable for consumers.

Thankfully, Congress has rejected the idea of even more “stimulus” spending, at least so far, but it seems some legislators are starting to get their economic theories confused.

I’m referring to an action on the Senate floor just before the August recess regarding the agriculture appropriation bill; Sen. Bernie Sanders (I-Vt.) and a majority of his colleagues added $350 million in that bill to help dairy farmers. The amendment passed with few constraints on how the money would be spent, but Sen. Sanders’ intent was clear — raise the dairy price support purchases to increase milk prices.

Believe me, IDFA and its members are very concerned about the current problems facing our nation’s dairy farmers. They need support. But to be effective, government spending needs to offer more direct help for farmers, not a convoluted approach that may do more harm than good.

You might think that spending $350 million extra would help stimulate the economy even more, but not in this case. Raising the price of milk takes money away from consumers — nearly one billion dollars over the next few months — at a time when Congress is trying to put more money in their pockets.

This strategy is “cash for clunkers” in reverse. Instead of helping consumers buy more dairy products, legislators would be making dairy less affordable, particularly for families with children because they consume the most dairy products. It’s no wonder that competitive beverages, such as sports drinks and bottled waters, continue to gain market share.

And, of course, the whole notion of raising the price support levels to well beyond the temporary increases already put in place by USDA will encourage more milk supply when there is already too much. This action will surely prolong the low price period that farmers are struggling through right now.

Higher support prices mean that our government’s nutrition and other feeding programs will need more money to serve the same number of people. Higher support prices will result in our exports becoming less competitive, creating pressure for Congress to spend even more money, this time for export subsidies. Instead of encouraging the production of milk protein concentrates, caseins and other value-added ingredients that are in demand, price supports are an incentive to produce nonfat dry milk powder for USDA. More government money will then be spent to store the powder and for USDA to transform it into a product that is wanted by food banks and other food aid programs.

Instead of raising product prices, I say let’s spend that money to do something to help dairy farmers in both the short and long terms. Farmer safety net programs were reauthorized in the 2008 Farm Bill, including the levels set in law for the Dairy Product Price Support Program. But the agricultural appropriations committee has historically offered emergency short-term relief for disasters, including for dairy, so let’s use some of the money there. To help keep us from getting into the same fix a few years from now, USDA could subsidize dairy farmer participation in risk management markets similar to those routinely used by all farmers of other commodities.

There are many other ways that government can help without prolonging our nation’s economic problems. Congress could use the extra money to make more milk available to school students by increasing the funding for USDA’s Special Milk Program, which subsidizes the cost of milk in the a la carte line in school cafeterias. Or we could include yogurt as an eligible dairy product in the supplemental food program for women, infants and children, as recommended by the Institutes of Medicine.

We need to find a path for dairy that combines sensible short-term and long-term solutions.

They say the definition of insanity is doing the same thing over and over and expecting different results. Isn’t it time to address the underlying dairy programs that aren’t working for our industry? Isn’t it time for a change?

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.