Statement Of Sen. Patrick Leahy,
Senate Agriculture Committee Hearing On Dairy Policy
July 20, 2006
Mr. Chairman, I would like to
thank you for holding this important hearing on the dairy programs
in the 2002 Farm Bill. I would also like to welcome Mr. Leon
Berthiaume, General Manager and CEO of St. Albans Cooperative
Creamery. Leon has provided tremendous leadership for Vermont’s
largest cooperative for many years, and his wisdom on dairy issues
is only exceeded by his practical experience in dealing with them in
the real world. I look forward to his expert testimony.
The 2002 Farm Bill was an historic
accomplishment that resulted in a unified national dairy policy that
has worked for all dairy farmers from Wisconsin to Vermont to the
State of Washington. As we all know, dairy policy has at times been
contentious. Yet the 2002 Farm Bill, and the advent of a new
program that provides support to all dairy farmers, resulted in
tremendous unity among the nation’s dairy producers.
Forging practical solutions to
keep America’s vital dairy farms strong has posed unique challenges,
and much of that has to do with the fact that milk is far more
perishable than other farm products. Farmers do not have the luxury
of storing their milk while they wait for bad market conditions to
improve.
I continue to believe the
Northeast Dairy Compact, which supported dairy producers through the
marketplace, was the gold standard for dairy policy. In theory –
and, even more importantly, in practice – it showed itself to be the
most successful and the most straightforward dairy program that has
yet been tried. After reauthorization of the Compact became
impossible because of opposition by the Administration and through
well-financed opposition directed at Congress, I worked with other
dairy leaders in the Senate and later in the House to create the
Milk Income Loss Contract program, which has come to be referred to
by its acronym, MILC.
The MILC program has proven to be
a vital lifeline to thousands of small and medium-sized dairy
operations. To farmers in my State of Vermont, which depends on the
dairy industry more than any other state, MILC has provided more
than $47 million in support that has helped hundreds of dairy
producers weather severe market fluctuations to be able to stay in
business and on the farm. In a 2004 review, the Government
Accountability Office agreed, finding that, quote, “payments
introduced through the MILC program have kept small dairy farms in
business.”
The Committee can also take some
pride in knowing that MILC is also the best-targeted program that
USDA operates. The program is countercyclical -- payments are made
only when the market price is low. When prices are good, as they
were for most of 2005, the program does not operate. In addition,
there is a firm payment limitation that is targeted to operations of
approximately 125 cows, which makes over 80 percent of all dairy
farmers in this country fully covered by the cap in the MILC
program. In recent days, there has been a great deal of media
attention about large government payments to farms and government
payments that are going to people who don’t even farm. The MILC
program has none of those problems.
The program has proven so
successful that, under the leadership of Chairman Chambliss, and
with the help of many others, we were able to extend MILC for an
additional two years. An overwhelming bipartisan majority of this
Committee and the full Senate supported the extension of the MILC
program during the budget reconciliation process.
The 2002 Farm Bill
also contained other important provisions for our nation’s dairy
industry. The extension of the dairy price support program, which
has proven to be an effective means of providing a minimal safety
net to prevent major disruption to dairy producer prices at
relatively low cost to the government was important. This minimal
safety net has allowed consumers and the industry to have ample
supplies of economical, wholesome and nutritious dairy products. I
am concerned, however, that USDA’s administration of this program
has allowed the price support to effectually drop below the $9.90
level during low price periods. In addition the 2002 Farm Bill
reauthorized the Dairy Export Incentive Program, which helps dairy
producers develop new markets and compete in various subsidized
markets overseas.
Finally, the 2002
Farm Bill made an historic commitment to working lands conservation
programs that have proved valuable to dairy producers. Most
importantly, the increased funding for the Environmental Quality
Incentives Program (EQIP) and the Farm and Ranchland Protection
Program (FRPP) have allowed producers to obtain important financial
support to comply with ever increasing environmental concerns. In
my State of Vermont, EQIP has helped hundreds of producers reduce
phosphorus in our lakes and streams. The Regional Equity
requirement in the 2002 Farm Bill also guaranteed traditionally
underserved states their fair share in USDA conservation programs.
In summary, I
believe we made significant progress on dairy issues in the 2002
Farm Bill. I look forward to hearing from our witnesses today, and
look forward to working with Chairman Chambliss and Ranking Member
Harkin to continue these successful programs in the 2007 Farm Bill.
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Testimony
By Leon Berthiaume
General Manger/CEO
St. Albans Cooperative Creamery, Inc.
St. Albans, Vermont
Review of U. S. Department of Agriculture Dairy Programs
U. S. Senate Committee on Agriculture, Nutrition and Forestry
July 20, 2006
I am Leon Berthiaume,
General Manager/CEO, of St. Albans Cooperative Creamery, Inc.
located in St. Albans, Vermont.
It is a pleasure to
have the opportunity to submit written testimony and participate in
the hearing process as a member of a panel to review the United
States Department of Agriculture Dairy programs.
I would like to thank
Chairman Chambliss and Senator Patrick Leahy and members of the
Committee for their leadership, commitment and support for
agriculture; specifically the dairy industry.
I had the privilege of
joining the St. Albans Cooperative Creamery, Inc. team in 1984 as
the Controller. In 1991, I was provided the opportunity to take the
position of General Manager/CEO of the Cooperative. I have the
pleasure of serving in various capacities and committees serving
both our state and northeast region of the dairy industry.
The St. Albans
Cooperative Creamery, Inc. is a member governed dairy cooperative
serving Vermont, New York and New Hampshire dairy farmers. Our
membership comprises of approximately 500 members, producing in the
range of 1.3 billion pounds of milk on an annualized basis. Our
average member operation produces in the range of 2.4 million pounds
of milk per year. Approximately 20% of our members produce 60% of
the Cooperatives milk volume. When establishing and working on
cooperative and dairy industry policies, it is important to
represent all size farm operations.
Fifty-five percent of
our milk volume is marketed directly to fluid and manufacturing
plants throughout the Northeast. We operate a manufacturing
facility in St. Albans, Vermont that separates approximately 45% of
our milk volume to generate cream and skim solids for various
customers such as Ben and Jerry’s, Franklin Foods, Vermont Butter
and Cheese, Saputo and other processors in New England and New York
markets. Due to the Cooperatives shortage of skim solid markets, it
is necessary to process excess skim solids into nonfat dry milk
powder. We manufacture in the range of 10 to 20 million pounds of
nonfat dry milk powder on an annualized basis.
Our team at the St.
Albans Cooperative is comprised of 70 employees who are responsible
for providing service, selecting stable markets and achieving the
greatest return for our members by offering quality products and
innovative service to customers. The Cooperative also is committed
to providing active leadership for the dairy industry and in the
political environment thereby benefiting all dairy farmers.
My testimony will
reflect on the challenges that Vermont and other Northeast states
are facing in agriculture, and the need to maintain dairy programs
that provide support and economic stability for our agricultural
industry.
2006 is proving to be
an unprecedented year for dairy farmers. Our members are
experiencing the lowest milk prices we’ve seen since 2003 (which
mirrors pricing from the late 70’s), escalating operating costs and
adverse weather conditions.
Milk prices are
currently at their lowest levels in over two years. There is
uncertainty on the price outlook for the rest of 2006 and throughout
2007. Based on current price forecasts, we do not anticipate prices
reaching levels to cover the cost of production during this
timeframe. Below is a price forecast for the remainder of 2006 and
2007 that was prepared by the Vermont Dairy Task Force in June
2006.
Month 2006 Stat. Uniform 2007 Stat.
Uniform
Jan $13.93
$12.83
Feb $13.40
$12.80
Mar $12.58
$12.75
Apr $11.79
$12.81
May $11.76
$12.87
Jun $11.72
$12.88
Jul $12.17
$12.98
Aug $12.50
$13.15
Sep $12.74
$13.27
Oct $12.93
$13.31
Nov $12.91
$13.16
Dec $12.84
$13.03
Average $12.60 $12.99
*Statistical Uniform Prices are
projected using 3.5% butterfat, 2.99% protein and 5.69% other
solids.
** Prices that are
shown in bold are already known for 2006.
***St. Albans, Vermont County location.
Over the course of the past three years, the St. Albans Cooperative
has seen a significant decline in its average pay price to members.
Listed below are the St. Albans Cooperative Creamery, Inc. average
pay price “before premiums” from 2001 through 2006.
St.
Albans Cooperative Average Pay Price “before premiums”
Based
on Fiscal Year (Nov-Oct)
Year
$/cwt Price per gallon
2001
14.92/cwt $1.29 per gallon
2002
12.32/cwt $1.06 per gallon
2003
11.94/cwt $1.03 per gallon
2004
15.83/cwt $1.37 per gallon
2005
15.29/cwt $1.32 per gallon
2006 (thru April)
13.97/cwt $1.20 per gallon
2006 (Projected)
12.40/cwt $1.07 per gallon
In addition to
depressed milk prices, farm operating costs have and continue to
increase putting increased pressure on farm margins.
This decrease in milk price combined with increasing
operating costs will significantly impact the profitability of our
member farms in 2006. The primary increase in operating costs is
due to the increase in energy costs that have been absorbed
by dairy farms over the past 2 years. Energy costs
affect the fuel used to plant and harvest crops, electricity on
farms, transportation costs and a variety of other essential
resources needed to operate a dairy. Dr. David Kohl, Professor
Emeritus Virginia Poly Tech states in the November 9, 2005 “Ag
Lender” “On the cost side, nearly $8 of every $10 spent [on farms]
is linked to the price of oil and energy through fertilizer,
chemical, and other inputs.”
The Northeast has been bombarded
with significant amounts of rainfall through late spring and early
summer. In St. Albans, Vermont, approximately 20 inches of rain has
fallen between the months of May and June, which is nearly triple
the average over the past ten years. These conditions have crippled
farmers efforts in Vermont to plant corn and harvest hay. The
Federal government has recognized this dire situation, approving a
designation making all qualified farm operators eligible for
low-interest emergency loans from the Farm Service Agency. The
emergency designation with an allocation of funds from Congress will
also allow the FSA to assist farmers through the Livestock
Compensation Program, Livestock Assistance Program, Livestock
Indemnity program, and Flood Compensation Program.
The
impact of increased energy costs can also be felt in various areas
at the Cooperatives facilities. St. Albans plant fuel costs
increased from $694,135.65 in FY04 to $892,913.29 in FY05,
representing a 28.64% increase. Fiscal year 2006 already shows
signs of another significant increase over FY05. Lower dairy
commodity prices, coupled with increased manufacturing costs have
impacted the profitability of manufacturing operations. In turn,
the lack of profitability impacts the dairy farmers who own and
operate manufacturing and/or balancing facilities in the region.
The
State of Vermont has seen the number of farms decrease over the past
five years while the overall milk volume has remained level. In
2002, there were approximately 1,415 dairy farms in Vermont
producing approximately 2.6 billion pounds of milk. Today, the
number of dairy farms has decreased to 1,179 with production
remaining steady at 2.6 billion pounds annually. Vermont has seen
at least 46 dairy farms discontinue operations since the beginning
of the year. Based on information from an economic impact study
conducted by the University of New Hampshire, the Vermont dairy
industry directly contributes approximately $1 billion into the
Vermont economy. This figure includes producer payroll, producer
purchases and processor revenues, excluding indirect revenues from
the tourism industry. At the St. Albans Cooperative, producer
payroll for its 500 members is down over $8 million when comparing
January-April 2006 to January-April 2005, which are dollars that
would have been re-invested into the states economy and that would
have assisted in the viability of our farms operations.
The
State of Vermont has taken action to combat the issues negatively
impacting Vermont’s dairy industry. Vermont’s Governor, James
Douglas, through the Agency of Agriculture formed the Vermont Dairy
Task Force in the spring of 2005 to address the changing trends in
the dairy industry in Vermont. The mission of the Dairy Task Force
is to develop a set of strategies to improve the vitality, longevity
and profitability of Vermont’s dairy industry. The goals of the
Dairy Task Force include: reduce costs, increase returns and
increase profitability of Vermont dairy farmers as measured by a
return on assets of 8%, increase the dairy herd to 150,000 animals,
enhance the dairy industry in Vermont by attracting strategically
important dairy processing to the state and to enhance the image and
attitude of Vermont’s dairy industry and dairy products for dairy
farmers, the dairy industry, related agricultural businesses and the
general public. In addition, Vermont’s Secretary of Agriculture,
Steve Kerr recently signed a Memorandum of Understanding with the
Commissioner of Agriculture in New York and the Secretary of
Agriculture in Pennsylvania to make the region’s dairy farms more
competitive and to give producers in the Northeast an opportunity to
gain more market share through coordination of resources with the
states working together as one. Farms in the three states produce
approximately 25 billion pounds of milk per year, accounting for
roughly 15% of the nation’s total production. New York is the
third-largest milk-producing state in the country, followed by
Pennsylvania. Vermont is the 15th largest milk-producing
state.
The
initiatives that the State of Vermont has undertaken are critical to
the long-term success of the dairy industry in Vermont.
Unfortunately, these state programs combined with the MILCX program
have not been enough to cover the operating costs on Vermont
dairies. Hence, Vermont took on a third initiative to assist
farmers financially on a short term basis. The State of Vermont
instituted a Target Price Program in June 2006 to assist Vermont’s
dairy farmers in this time of great need due to the adverse weather
conditions, high fuel prices and low milk prices. The Vermont
Target Price Program is designed to provide payments in the near
term to assist dairy farmers when the milk price is below $14.00 per
hundredweight. The program will pay the difference between the
target price and the combined announced Federal Order Statistical
Uniform Price for the Middlebury, Vermont location plus the amount
of the MILCX payment rate on a per hundredweight basis. This direct
payment program has come at a critical time for Vermont dairy
farmers, assisting in their efforts to remain viable businesses.
I
would like to recognize the efforts of the US Senate Ag Committee
for holding these hearings on the US Department of Agriculture’s
Dairy Programs. Dairy programs are vital components to our
agriculture industry. It is essential to continually review and
assess the need and effectiveness of those programs.
I am a
proponent of the USDA establishing a policy that supports regional
production of milk. Our agricultural and rural communities are an
important part of the individual regions within our country’s
economy. The dairy industry alone generates approximately $1
billion to Vermont’s economy.
I believe that from a bio-security
and environmental standpoint that we would all benefit from ensuring
that our dairy industry and food production is not highly
concentrated in any one region in this country. It is essential
that we maintain minimum levels of production in various regions of
the country.
The 2002 Farm Bill
included several programs that directly affect a dairy producer’s
income as well as conservation programs that provided assistance to
dairy farmers in implementing various environmental initiatives.
Dairy farmers in the
Northeast have many variables that can affect any given years
production. A limited growing season can make farmers in the
Northeast more vulnerable to adverse weather conditions than those
farmers in other parts of the nation. Weather can adversely affect
a farmer’s crop yield, hence increasing the cost to feed a herd of
dairy cows. The Northeast traditionally has had high operating
costs compared to other regions and the Milk Income Loss contract
program (MILC) has assisted tremendously in covering part of those
costs in times of low milk prices. This safety net has enabled
Vermont farms to remain viable during those periods of low milk
prices. The MILC is similar to the Northeast Dairy Compact which
provides counter-cyclical payments that are triggered when Class I
milk prices in Boston fall below $16.94 per hundredweight. The MILC
program provided a much needed safety net when farm milk prices
hovered just below $12.00 per hundredweight in 2002 and 2003.
Vermont dairy farmers received more than $45 million in MILC
payments during that time.
I would like to thank
the Committee’s leadership and support for the extension of the MILC
program. The MILCX program was extended until August 31, 2007 and
payments in Vermont have already exceeded $2 million as milk prices
began to drop dramatically in March of this year.
The one setback to the
MILCX program is that it contains a 2.4 million pound production
cap; discriminating between farmers of differing sizes. We need
farms of all sizes to maintain a strong infrastructure, serving the
needs of dairy farm operations within our region. Approximately 30%
of our members are affected by the production cap. In order to
increase efficiencies in the utilization of labor, management and
capital, many of these members have consolidated their operations,
becoming multi-family farms. The size of the cap should be
increased to take this into account.
The Federal Price
Support Program has served the dairy industry very well over the
last 6 decades and continues to be an important safety net for dairy
farmers in the northeast. Although the federal support price is set
relatively low at $9.90, it does provide a floor for manufactured
products in times of the over-production of butter, powder and
cheese. This program truly is a stand-by safety net program as it
incurred almost no purchases or costs during fiscal year 2005 and
throughout the first half of fiscal year 2006. However, in periods
such as from July 2002 through June 2003 when prices received by
dairy farmers were at 25-year lows, the program kept the industry
from being in an all-out catastrophe throughout the country. The
Federal Price Support Program is an important safety net program
that benefits all dairy producers. The only suggestion that I would
make is that the department should utilize its tilt authority with
the utmost restraint when farm milk prices are on the upswing.
The Dairy Export
Incentive Program is an important program that we need to encourage
the Secretary of Agriculture to utilize to its maximum allowable
levels. We need to market cheese, butter and nonfat dry milk to
levels afforded under the current WTO agreements.
St. Albans Cooperative
manufacturing of nonfat dry milk is not a profitable operation. The
current Commodity Credit Corporation purchase prices for dairy
products do not reflect the increased costs to provide product to
the Commodity Credit Corporation. As a result market prices for
individual products have, from time to time, been less than the
support levels which on a milk equivalent basis provides for a price
of milk at less than the statutory support level for milk of $9.90
per hundredweight at average test.
St. Albans Cooperative
is participating in the self-help program; Cooperatives Working
Together (CWT). Under this program, dairy farmers contribute 10
cents per hundredweight on all their milk produced in order to
adjust the size of the nation’s dairy-cow herd and more closely
aligning milk supply to demand. In addition, the program assists in
the exportation of dairy products, in an effort to market
domestically producer dairy products internationally.
The CWT program has
been effective, however is not intended to take the place of federal
farm programs. Participation in the CWT program is voluntary and it
will always have those who choose to take advantage of its benefits
without contributing to the program. For this reason, federal farm
programs are still needed as well as Congress’s help in providing
policy support to our industry.
As the Committee well
knows, high energy costs have been particularly harmful to dairy
farmer income. Dairy farmers require significant amounts of
electricity to operate their facilities as well as diesel and
gasoline for their equipment. In addition, dairy farmers have to
pay the cost of transporting their milk. All of these higher energy
costs have added anywhere them $1 to $1.50 per hundredweight to milk
production costs. The 2007 Farm Bill’s Energy Title needs to be
significantly expanded to help develop alternative sources of
energy. One important source of energy that has not been fully
tapped has been the use of manure. Although methane digesters are
being built on some dairy operations, this technology, along with
other new and emerging technologies, needs to be developed so they
are economically feasible for various size dairy farm operations.
The Federal Milk
Marketing Order program assures dairy farmers a minimum price,
assure that all competing milk buyers pay the same minimum price,
assure that all dairy farmers share equitably in the returns of the
marketplace and assure that the terms of trade are uniform
throughout the Orders’ marketing area. Although the federal orders
serve as an important marketing structure that helps provide dairy
producers with minimum prices for their milk, the order system
itself needs to be streamlined so that it can respond quickly to
changes that are needed when marketing conditions are altered due to
external forces in the economy. The process for obtaining
administrative changes in the operation of the federal orders is
much too slow.
I would like to add a
couple of additional comments on USDA’s working lands conservation
programs. Conservation programs on working agricultural lands bring
environmental benefits to both producers and the public.
Conservation thus represents a double value for the taxpayers by
supporting sustainable agriculture and also enhancing the
environment. The 2002 Farm Bill added significant authorization for
expanded funding to the Environmental Quality Incentives Program (EQIP).
In addition, the farm bill included an important Regional Equity
requirement which has significantly increased federal working lands
conservation funding for Vermont. When combined with State of
Vermont programs, conservation programs have helped significantly to
reduce run off around barns and other dairy facilities and has
allowed for the increased use of filter strips and other buffers
along waterways. Funding for EQIP and the Regional Equity
requirement should be continued in the 2007 Farm Bill and expanded
as well.
We need the
Committee’s strong support and leadership to clarify the Superfund
law or its counterpart, the Community Right-to-Know Act regarding
animal manure. Getting the law clarified this year should be a
high priority as animal manure is not a toxic waste. Traditional
farming practices should not be jeopardized due to unclear laws that
impose strict, joint and retroactive CERCLA liability on dairy
farmers.
In times of greater
financial stress in agriculture, it is especially important to have
effective loan programs to rely on. The Farm Service Agency is an
important service provider to our member farms. The current FSA
direct loan limit is $200,000 for both the operating loan program
and farm ownership loan program. The limits need to be re-evaluated
as the current levels no longer reflect the needs on farm operations
today.
In Vermont and in many
other states, additional loan funds are necessary to meet the
current demand.
The FSA has worked to
improve efficiencies within the agency. However, there are
continued opportunities to streamlining the administration of this
program. FSA needs to continue to incorporate more technology and
web-based resources into their programs. In addition, FSA has two
very different personnel systems that continue to separate the
activities of the Farm Loan Programs from the Conservation and
Commodity Programs that could be consolidated. Going forward, we
may need to assess whether more resources are needed for these very
efficient programs.
The average age of
Vermont Dairy Farmers is increasing according to the 2002 Ag
Census. The group of farmers over 60 years old own and control a
large amount of farmland. We do expect that farms and land will
continue to transfer to other generations or other farmers. With
the age of the average Vermont farmer being 54 years old, in the
next 10 to 15 years more than half the farms will be changing
hands. This may require modification to the existing FSA programs.
Due to the volatility
of milk prices, there is increased interest and participation by
dairy farmers in risk management opportunities.
In working with
another dairy cooperative we are able to offer our members forward
contracting opportunities. Our members are more apt to work with
their cooperative on milk price opportunities. Capital is necessary
to operate risk management programs. The efforts in working with
dairy farmers are for short periods of duration with minimal risk.
Cooperatives may need access to additional low cost capital to
support this initiative.
Access to low cost
capital for Cooperatives is critical with rising interest rates.
Again costs of capital are borne directly by dairy farmers as owners
of their Cooperatives. Access to low cost operating capital for
dairy Cooperatives and dairy farmers would also be beneficial to
operations. Funding plants and farms with owner equity and debt is
becoming increasingly problematic as cost, improvements, and land
prices continue to rise, sources of patient capital would
dramatically improve this situation.
We must continue to
work with our Agency of Agriculture that support dairy programs and
provide technical assistance to dairy farmers. Funding continues to
be essential to support our initiatives surrounding water quality,
conservation and best management farm practices. Matching dollars
has been important to the State’s effectiveness in supporting the
efforts of dairy farmers and implementing various practices and
required initiatives.
Promoting and
supporting animal health initiatives is essential to protecting our
industry and the image of our products.
The National Johne’s
Disease Control Program continues to be an element of animal health
that should continue to be a priority in reducing the herds
associated with this disease. Sufficient funding of the program is
essential to its overall success. Laboratories have been able to
correctly detect and report this disease with the assistance of the
USDA.
USDA has an integral
role in protecting agriculture from the full impact of market
conditions. There are many complex issues surrounding the structure
of agriculture. We must have a vision for agriculture for the
future of the industry in this country and ensure that we support it
with sufficient resources.
I would again like to
thank the Chairman and members of the Committee for the opportunity
to provide written testimony. Your ongoing leadership, vision and
understanding are critical to the implementation and oversight of
USDA’s dairy program. I look forward to answering any questions you
may have or to provide additional information to the Committee.
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