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Perspective:
Dairy Markets

Food box still alive and kicking

Nate Donnay

Nate Donnay is the director of dairy market insight at StoneX* and has been applying his interest in complex systems and statistical analysis to the international and U.S. dairy markets since 2005. He contributes this column exclusively for Cheese Market News®.

On Monday, March 22, USDA held a 12-hour listening session to hear feedback from the public about the Farmers to Families Food Box Program. The program was created almost a year ago at the peak of the pandemic lockdown and was designed to quickly move surplus commodities from farmers to consumers in need and hopefully support some idled workers and distribution systems in the process. A win-win-win. But the goals were broad, and the rules were loose.

About four months into the program (around September last year) USDA tried to put more structure around the program. At that time, the program shifted toward providing food for people in need rather than supporting farmers or the supply chain. By this time, USDA was also providing direct payments to farmers and the media had stopped reporting on crops being plowed under and milk being dumped. There was, however, plenty of TV news footage of cars lined up for miles to receive the food boxes.

That shift to helping consumers, and the earlier criticisms, led USDA to focus more on cost per box in later food box rounds. And ultimately to where we found ourselves in March, on a 12-hour conference call.

The main takeaways we caught included:

• USDA should have less focus on cost and more focus on providing local commodities through local organizations.

• The lead time between being awarded a contract and the first deliveries should be extended; 5-10 days was not enough time to properly ramp up. The contract length should also be extended to more than 4-6 weeks.

• USDA audits of what was in the box to make sure it lines up with what companies said they were putting in the boxes.

• USDA has shifted to all combination boxes (a mix of fruits, vegetables, pre-cooked meats and dairy) during 2021, and that is causing problems on a number of levels. End combo boxes.

Most speakers were previous or current contractors or nonprofits that were distributing the food and made comments about how to make tweaks to the program. But some speakers called for radical changes like providing consumers with vouchers that they could use at local stores and farmer’s markets. That sounds a lot like the SNAP program, which is already getting increased funding from a different pool of money.

Other speakers mentioned the food box program should operate more like The Emergency Food Assistance Program (TEFAP) where USDA makes commodities available to states, with the allocation based on the number of unemployed people in each state and the number of people below the poverty line.

USDA has spent over $4 billion on the food box program so far. They were allocated another $3.6 billion by the American Rescue Plan Act for commodity purchases and grants to support the supply chain, and they likely have about $500 million left for the same purposes from the stimulus package that passed back in December.

USDA must figure out what the food box program is. Is it a temporary program meant to benefit farmers? Should it focus on supporting local supply chains? Should it focus on encouraging healthy eating? Is it an emergency feeding program for people in need? How much should they in-vest in creating rules and structure if this is just a temporary program that will run out of funding in the next six months, or should this become a permanent program?

From a dairy perspective, domestic demand is improving but hasn’t recovered to pre-pandemic levels yet. This leaves us with our current challenge: balancing government purchases to move surplus product without blowing up the Class III-Class IV milk price spread.

Ultimately, it’s a good program. Its heart is in the right place. And the program will run until funding or “need” runs out. And as long as they are giving away free food, people will probably show up to collect the free food, so it will be hard to show the “need” is going away. That means it will probably operate until funding runs out, and you can’t rule out more money being allocated to the program in future stimulus packages or maybe even the next Farm Bill.

If USDA moves back to separate commodity boxes, it’s somewhat predictable that a smaller share of the dollars will be spent on dairy. On the other hand, it would be nice if there was some way to phase out the government purchases when it is clear that domestic demand has rebounded. The consequence of not fine-tuning a program like this could once again create unusually “overheated” markets — like the ones seen last year — at times.

CMN

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

*Comments in this article are market commentary and are not to be construed as market advice.

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