The Milk Check welcomes guest J. David Carlin to discuss the role of dairy lobbyists in Washington, how they’ve adjusted to the pandemic and industry outlooks during the Biden administration.
Carlin is the International Dairy Foods Association’s senior vice president of legislative affairs and economic policy.
Ted, T3 and Anna talk with their guest about issues like how lobbying via Zoom allows for additional public input, the importance of enforcing international trade deals, volatility in dairy pricing and much more.
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T3: Good morning, everybody. Welcome. Today, we have a guest. I’d like to introduce everybody to Dave Carlin. Dave is senior vice president of legislative affairs and economic policy for the International Dairy Foods Association. Dave, welcome. Thanks for joining us.
Dave: Thanks, Ted. Glad to be with you.
T3: Why don’t you just, kind of, tell everybody a little bit about what you do? What’s your job in Washington?
Dave: Well, I’m one of those lobbyists that probably keeps the town running in a lot of different ways, but we’re not very popular outside the Beltway. So, that’s what I’ve been doing in Washington for the last, oh, I guess, 30, 35 years. And I came to IDFA about six and a half years ago; grew up on a dairy farm in central Kansas. So, a little bit of a homecoming for me and decided at least that I could, if I’m going to lobby, I could lobby on behalf of an industry that I care about and believe in.
So, I’m part of a team of folks over here at IDFA that advocates for policy positions with the Congress and the administration that we think will benefit the dairy industry. And we work with our members to prioritize those policy requests and make sure that whatever we’re working toward is going to be impactful and meaningful.
So we’ve, of course, been very active in the COVID policy debate. We work a lot on nutrition issues and trade issues, given how important trade is to our industry, and a lot of other issues that come up here in Washington. We also do little work in the economic policy area as my title, kind of, indicates. So, milk pricing issues and FMMO issues or other things that we sometimes focus on, and I get involved in here.
That’s, kind of, a 30,000-foot view of what I do. I’m not walking the halls of Congress these days, that hasn’t been possible since COVID started last March. So, my world, like everybody else’s, is very virtual, but we’ve managed to create some new pathways and make it work, from a virtual standpoint. So, advocacy continues here in Washington, and hopefully, as I said, it will benefit our industry going forward. So, that’s my 30,000-foot overview of what I do.
T3: As I was hearing you talk, Dave, you provided what I thought was the perfect segue. Tell us about what lobbying Congress was like during COVID, because so much happened in the last 12 months as this pandemic evolved. Kind of give us a walkthrough of how that played out, from your perspective.
Dave: Yeah, and I will start by saying it played out much better than I would have ever expected when we first got into this mess. Typically, as I said, I’m able to go to the House and Senate office buildings, I can set up meetings with staff and see members, and we did fundraisers and events in the evenings on the political side. That was what I did for 30 years and then COVID hit. And the Congress basically shut down like everything else shut down, all the buildings were closed, members were working from their home states and districts a lot of times, staff were scattered to the wind.
And I really thought, “Gosh, how are we going to find people?”
First of all, they don’t typically give out their cell phone numbers, and you’re at the mercy of an office email account. But what was fascinating to me, and I think it’s been true across the board for all of us, is how accessible people have been including Congressional staff, and policymakers and members of Congress for that matter. In part, because we don’t have travel time between appointments, we don’t have things we’re rushing off to get to it all hours of the day. I mean, a lot of us are based out of our homes.
And I have found that it was, frankly, in some cases, a lot easier to meet with staff virtually, whether it was on the phone, or on a team’s call, or a Zoom call of some sort, and bring in colleagues. And one thing that I think we definitely have taken advantage of, as an association, is the ability to bring our members into these conversations. Typically, it’s me, right? Typically, it’s me and my team and Michael, lobbying on behalf of our members. And so, we’re indirectly communicating with Congress and the administration on our member’s behalf. But because of the virtual world we live in, I was able to invite our members, our Dairy Association members, our dairy company members to join me on some of these calls and be part of these Zoom conversations with members of Congress.
And we can set those up at their convenience, they don’t have to fly to Washington and spend a whole day here, they can take 30 minutes out of their schedule, two or three times a month, and get on the phone with members of Congress and make the case directly about why something matters to them and their businesses back home. That’s what changed. And that’s what I hope continues going forward because, gosh, you know, the direct connection between a constituent and a member is so much more valuable than what a lobbyist brings to the table. I mean, we have the expertise, we, kind of, know how to shape the questioning and frame the questions and all sorts of things like that. But to hear directly from a constituent in a Zoom meeting is so much more impactful. So, Ted, I hope that answers your question. It certainly played out a lot in COVID. And like I said, I hope it continues because it’s really proved to be quite a valuable tool.
Ted: I think it will continue. I am looking forward to getting back in the office one day where I can get to know everybody again. But by the same token, once you are very familiar with someone, whether it’s a congressperson or whoever, it’s not necessary to hop on a plane every time you visit.
Dave: That’s true.
Ted: So maybe you’ll reduce your flying for each individual by a factor of about eight or 10, and that does expand your time.
T3: You’ll increase your touches, you’ll be able to talk to people more often because the amount of time it takes to have those conversations is drastically reduced. You still need the two people in the same room, you know, opportunities from time to time. We’re human beings. we’re social beings. But Zoom has done a lot to bridge that gap. And I don’t think it’s going away any time soon.
Ted: I agree.
Dave: I don’t think so either, yeah.
T3: So, Dave, I’ve got another question for you, actually a couple of questions. My first would be, when you’re lobbying — and I don’t want to spend too much time today talking about lobbying, I more want to talk about, what do we expect with the new administration — but when you’re lobbying, do you spend more time talking directly to, let’s say, a congressman or a senator, or is it their staff who does the majority of the work?
Dave: Well, it’s a little bit of both. And I’ll tell you, we usually would start with a staffer, hopefully, it’s somebody we know. And we have cultivated, over the years, dairy champions in Congress, and the staffers that work for them, and tried to educate them on the industry and, kind of, our issues. Because a lot of our issues carry over from Congress to Congress, not that there’s not progress that’s sometimes made, but a lot of times, the same issues crop up over a period of years.
So, staff and members become quite comfortable talking about those issues but it’s good usually to start with the staff. And then after the staff has been briefed, they can often talk to the member and help set up the conversation. And again, a lot of times when we’ve got the member of Congress having a meeting there, we would try to bring in our own members, our dairy processing members, to have those follow-up conversations at that level. But I’d say most of the day-to-day work is done at the staff level. And then some of the deal closing, if you will, might be done at the member level.
T3: OK, interesting. So, as we were going through COVID, we had the Food Box Program, we had other initiatives on ways to help the economy, not just nationally, but almost globally. And obviously, dairy and agriculture was very involved in that. And things happened much more quickly than usual in 2020 because of COVID. Talk us through, for example, how the Food Box Program came to be, you know, from your perspective as a lobbyist.
Dave: Yeah, that was a really interesting phenomenon, right? One of the first things that happened in March, from an industry perspective, was we got together with our board members, and also with National Milk, and we said, “What do we want to do as an industry?”
We need to be united. I think one of the things that is also a truism in lobbying is that if you’ve got a divided industry, it makes your ability to achieve goals on Capitol Hill much more difficult. So, we wanted to be united with National Milk.
And we came up with a number of priorities that both organizations agreed on. First and foremost was to protect the producer. And there are programs that were put in place during the COVID pandemic to provide direct payments to farmers, and we wanted to make sure dairy farmers were not buffeted around during this time of great volatility, so we agreed on that.
We wanted to make sure that workers in the industry, in the plants, and also on the farm, were considered to be essential so that they could have access to PPE on a preferential basis. And now, of course, vaccines as they’re being rolled out, making sure that they’re, sort of, at the front of the line, right behind perhaps the healthcare workers.
And then finally, we wanted to make sure that families, lower-income families who needed help and needed food had access to good nutritious dairy products. And that’s, kind of, where the Food Box Program came from. Not that we came up with that idea, we didn’t, but USDA came up with that program. And we wanted to be a part of it, along with other food groups and people in those industries.
And we wanted to make sure that a wide variety of dairy products were included in those boxes. We wanted to make sure that fluid milk was a big part of those boxes. And we worked really closely, over the many months that those food boxes had been rolling out to make sure that we were part of that, and to make sure that the cheese that was included was a lot of different types of cheese, and not just cheddar and not just mozzarella. We made sure, as I said, fluid milk was a big component there. We’ve worked also to encourage that butter be included. And all this, hopefully, happening in a way that, again, first and foremost made sure that needy families were getting nutritious food products, including nutritious dairy products, but also that it was hopefully happening in a way that minimized market disruptions, from an industry perspective.
So, the Food Box Program, of course, continues. With the last COVID bill that was enacted in December, there was, like, another $1.5 billion for food boxes included in that bill that will take those boxes into April and May of this year.
One of the questions we’ve been asking at Dairy Forum is, what’s the future that program look like?
We’ve asked that of the new chairwoman of the Senate Agriculture Committee yesterday, Senator Debbie Stabenow, “Is the new administration likely to continue the Food Box Program? Is it going to instead focus on increasing SNAP benefits and things like that? Where are we headed?”
And I don’t think there are any definitive answers yet. But I think those are the kinds of things we’re going to be paying attention to, with changing administration, in particular.
Ted: With the change in the administration, what are the things that you think are gonna most likely change? What was the Trump administration like? What were the kind of things, from a dairy perspective, that were important to that administration that maybe is different from the way that the Biden administration is going to start looking at things?
Dave: It was a signature program, I think the Food Box Program. And the Biden team has been more interested in increasing the level of SNAP benefits that are available to families that are already enrolled in SNAP and also increasing eligibility for the SNAP program. So, there’s a difference in focus but the same goal, right? That to try to make sure that needy families have access to food. That’s one example.
One other differentiator, perhaps we won’t know until we get a little further into the administration is, one of the victories that our industry achieved in the last three years was a change in the school meal rules that allowed 1% flavored milk to be served again in schools. And that happened in 2017, not too far after the Trump administration came into office.
And we had, up to that point, then only able to serve skim milk, skim-flavored milk, I should say, in schools, and kids just didn’t like the taste of that product. And while 1% isn’t, you know, nirvana, it’s not whole flavored, it’s not 2% flavored, it’s at least better than skim flavored. And we were convinced that if we could put that product back into schools, and that was the best we could do under the Dietary Guidelines limitations, that we would be in good shape. And I think it’s proven to be true. We have seen since that program, or that role change was made in ’17, we’ve seen more orders for milk, we’ve seen less food waste in cafeterias. And anecdotally, at least, we’re seeing a real positive trend line as opposed to a negative trend line in terms of school milk consumption.
Now, what we don’t know is what the Biden administration will do there. We know that Secretary Vilsack obviously now has a strong familiarity with our industry. But what his team will do, in that particular case, if they will move us back to a skim-flavored rule only for school milk, you know, we’ll have to wait and see.
We’re certainly going to be working hard to hopefully convince them to keep 1% flavored in schools. And that’s one of the priorities that we’re working on together with our friends at National Milk who, of course, represent the cooperatives. But that’s something that we’ll continue to see. And that could be a difference between the two administrations.
Another thing that we got at the end of the Trump administration that is also helpful, from a nutrition standpoint, was, for the first time, fluid milk was added to the Emergency Food Assistance Program catalog.
T3: Oh, good.
Dave: Food banks can now turn to that catalog and order milk. And it will be part of what USDA will provide to them. Now, that was happening with Section 32 purchases and other purchases. So, it’s not like the food banks haven’t had fluid milk. We’ve worked hard over the last few years to put more gallons of fluid milk in food banks, because it’s frankly, one of the top requested items in a food bank. And there are certain challenges there, of course, it’s refrigeration and storage, etc., but we’ve been able to do a good deal there. But one of the last things that Trump administration was able to do on their way out was add fluid milk to the EFAP catalog, if you will. We hope that continues in the new administration. We hope that that is not changed in a negative way.
Those are just some examples of some of the things that we were able to achieve during the Trump administration and some things we hope will continue into the Biden administration.
T3: You brought up Secretary Vilsack and for those of our listeners who don’t know, Secretary Vilsack was the Secretary of Agriculture for all eight of Barack Obama’s years of presidency. And then in the four years during the Trump administration, he ran the U.S Dairy Export Council, and during those four years became very familiar with all of the issues in the dairy industry. How much of a benefit is having someone in that position, as Secretary of Agriculture, who knows dairy that well? How good for the industry is that going to be? And how do you think that’s going to benefit us?
Dave: I think it’s great. I think it’s a tremendous situation that we find ourselves in, in terms of his going back to the department for a lot of reasons. Not only because he knows our industry so well after having spent four years as the head of USDEC, as you mentioned, but also because he knows his way around the department already. He won’t be learning how the building is structured or who to call when he needs a light bulb changed. He knows exactly how that building runs. And so we’re gonna see, not only because of the dairy background, but also just again, his experience and familiarity with USDA, he’s gonna hit the ground running. And I think that’s one of the reasons, frankly, that the President selected him for that job.
There is a lot that President Biden wants to accomplish quickly, and we’ve seen that already, right? We’ve seen a number of executive orders roll out over the past five, six days, you know, where I think it’s number 35 or 36 and counting. And that’s just an indicator that this administration wants to hit the ground running, felt it had to hit the ground running, and the USDA is going to be right in the thick of things. And in order to make sure we have a department that can be part of those conversations, you need an experienced person at the lead role. And that’s what Tom Vilsack provides, is that leadership and that, again, that familiarity with dairy is a positive, it’s a wonderful thing. But I think in addition to that, just his experience at USDA is also going to be beneficial.
T3: And I agree, I think it’s a huge benefit. And it’ll be interesting to see how the next few years play out with him in that role.
What do you think are the things maybe that we need to worry about, as an industry, at least in terms of how things may evolve in Washington, D.C? Is there anything that stands out to you that might be of concern?
Dave: A couple of things. One is an area I haven’t touched on yet, and that’s trade. We as an industry, trade is so important to us, 15% of our milk already, and more is going to overseas markets. And that number is only going to grow over the next 10 years, 20 years. I think another 33 billion pounds of milk is going to need a home, in like, 2028. And where’s that milk gonna go if we can’t find markets that are gonna be open to us? And that means not only preserving the market access that we have with our trading partners, but also growing our access and finding new markets in Southeast Asia and other places around the globe.
And what I’m concerned about, Ted, is the new administration, again, is very focused on COVID and very focused on the economy domestically, and rightfully so. But what they have also said is that they’re probably not going to spend too much time on trade, until they get some of the domestic policies addressed, that they care about. And what I’m concerned about is that every day that passes where we’re not in the game, from a trade standpoint, meaning we’re not negotiating new trade agreements or we’re not trying to get back into multilateral trade agreements like the Trans-Pacific Partnership that we pulled out of when Mr. Trump came into the office, is a day we lose ground to our exporter competitors.
That worries me, honestly. So, that’s an area that I think we do have to keep an eye on. And we do, as an industry, have to continue to advocate for and put pressure on the new administration to move forward more quickly there, perhaps, than they would like to.
Ted: Before COVID hit, one of the things, let’s call it one of the themes of the Trump presidency, seemed to be trade wars and renegotiating a lot of the arrangements that we did have. And of course, it felt like we were dealing with trade wars rather than trying to improve the situation we already had. One of the senses I get is that the Biden administration is not going to be like that, we’re not going to feel like we’re in a battle about where tariffs should be on both sides. But it almost sounds like, what you’re saying is the biggest fear is that they may not be involved in a war, but they’re not going to be doing much to improve it either. It’s just going to, kind of, go quiet.
Is that kind of the right way to look at it or there’s some other things that we need to be thinking about?
Dave: Unfortunately, that is, kind of, the posture we find ourselves in at the moment. Now, that’s not static, that can change and that can change quickly. And there’s, you know, some people who observe trade matters more closely than I do. Have seen some positive comments out of the White House in the administration in the last 48 hours on trade that may indicate that they’re willing to move a little more quickly, for example, to get back into TPP, which would be a very positive thing for our country, if we could do that.
But I do agree with you. I think that the overall posture is one of prioritization. And again, for legitimate reasons, the new administration is going to be focused on COVID and it’s going to be focused on domestic economy.
And what we have to do is make our case, as an industry, along with other industries that are benefited by global trade, that global trade is a significant part of what we have to do to grow our economy and turn our economy around again. And we can play a productive role if we are able to achieve greater trade agreements with more countries than we would if we sit on the sidelines, continue to sit on the sidelines.
And that’s where we’re gonna have to play a role. That’s what people like me are supposed to do. We’re advocates, and that’s our job, is to bring those messages to the new administration, and hopefully convince them to move more quickly on that debate.
T3: Dad, Anna, I’ve been kind of dominating the questions. Are there any questions that you guys have before I tee up the next one?
Ted: Let me interject a little bit on trade.
I think trade is ultimately important, and probably the most important thing for the industry. But we have issues that I think the former administration was trying to address with regard to access to markets. We’ve had almost no access to the European market, for example. And that was just put on the table here in the last year or so. And then, of course, access to the Asian markets, a lot of strings are attached, particularly with regard to China, which of course, was part of the discussion that we’ve been having with them lately.
Do you think that the new administration is willing to look at those issues?
I mean, from the standpoint of USDEC, where Tom Vilsack came from — and he did a great job, I might add — but market access for the U.S is what’s ultimately important. And that’s going to involve some arm twisting in order to get it, and I’m questioning whether or not the new administration is capable of doing that.
Dave: I think they’re capable of doing it. I just don’t know that they’re going to dedicate the political capital necessary to do it, at least in the short term. I do think the low hanging fruit for this new administration in the trade agreement space, may be reviving old trade agreements, like, TPP, the Trans-Pacific Partnership that I mentioned earlier that includes a lot of countries that are important to our industry. And we were part of it under the Obama administration and, of course, Mr. Trump pulled us out of that agreement when he came in office. So, we can get back into the agreement. That’s something in the short term that could be positive. I agree with you, though, that the EU is a critical market for us, and we’re nowhere there, from a dairy standpoint.
Another market that you might also think about, that we did make some progress on, frankly, during the Trump administration was Canada. You know, because we did re-negotiate NAFTA, and we have a USMCA agreement, U.S.-Mexico-Canada Agreement, now in force. And another sign of progress was at the end of the administration, USTR initiated consultations with the Canadians on some of their dairy policies that we believe are not consistent with the obligations, the commitments, that the Canadians made as part of that new USMCA agreement. And well, that sounds like, sort of, diplomatic code words there, you know, “initiate consultations,” my trade colleagues tell me that that’s a fairly serious step.
And it will hopefully be something that we, again, have to encourage the new administration to follow through on because we do want to continue to hold Canada’s feet to the fire on its administration of its TRQ program, and to make sure that its milk pricing classes are as committed to under USMCA 6 and 7 are gone, and are not revived under some new number or some new class of milk, so we don’t find ourselves back in the same position we were in a year or two ago, where skim milk powder was being exported out of Canada and flooding the global marketplace and depressing prices, and really affecting our ability to market that product in a meaningful way to our trade partners.
So, that’s the kind of thing that doesn’t require trade negotiations or a new treaty partner. It requires enforcing an existing agreement, and that’s something that we will be advocating for very strongly in the early months of the Biden administration.
Ted: I think you’ve hit a nerve in enforcing existing agreements, because that’s been the problem all along with the old NAFTA agreement.
We used to ship a lot of milk for over 15, 18 years into Mexico, for example. And then all of a sudden, it was cut off, which was obviously in violation of NAFTA in those days, but nobody cared. Nobody was willing to do the hard work of getting in there and saying, “Hey, this is in violation of our agreement.” And so, guess what? Raw milk was shipped into Mexico. And as far as our company was concerned, that was a big deal. In Canada with their Class 7 price, I think the new agreement has, sort of, affected that, as you say, quite a bit. But there was also a lot of milk, also filtered milk and blends and so on that moved into Canada. And I’m not sure whether under the new agreement that’s going to continue or not. So, enforcement is a big issue and enforcement is probably something that most people don’t have the tummy for.
T3: You know, Dad, I’ll get I’ll take it a step further. To me, some of those issues are where having Secretary Vilsack so familiar with the dairy industry ends up being very important to us. Most secretaries of agriculture, who don’t have the dairy background that he has, aren’t going to understand the issue of what’s really going on with Canada, how the way they set up those tariff rate quotas would effectively block our ability to take advantage of the way the agreement was set up.
Ted: That’s right.
T3: Secretary Vilsack understands that. Fingers crossed, that’s going to play a role in helping us expand our market share in Canada.
Dave: I agree with you Ted, both Teds there. I think that’s right.
I mean, I can tell you that Michael Dykes, who’s my boss, spent a significant amount of time getting Bob Lighthizer, who was USTR, of course, for Mr. Trump, up to speed on Canadian dairy practices when they were negotiating USMCA. And there were several late nights and lots of hours spent explaining the nuances of dairy and milk pricing and Canadian practices to Mr. Lighthizer. But it paid off because he was an eager learner. And again, I think dairy really benefits from the new agreement provided it’s strongly enforced.
And you’re right, we won’t have to do that with Secretary Vilsack. We started in a much better place there. The new USTR, Katherine Tai, is someone who also has a strong policy background on trade issues, having worked for the House Ways and Means Committee before, of course, being named as the USTR designate. I don’t know enough about her background to know how familiar she is with trade, I’m sorry with dairy trade, but I do, again, at least from a policy and substance standpoint, I think she’s going to be, if she doesn’t know all the ins and outs of Canadian dairy practices, I bet she’s going to learn them pretty quickly, because she strikes me as a very smart person who is again, well-steeped in trade policy. So, we start, at least, in a strong position there as well.
T3: Anna, any questions from you?
Anna: The majority of my calls this year from producers have been about pricing, Federal Milk Marketing Orders, their concerns, issues with prices, kind of, really not looking like they expected at all. Is there anything on the horizon that we should be looking at, that’s being discussed right now?
Dave: It’s interesting, right? The COVID pandemic has, of course, had a lot of impacts. And one of the impact it certainly has had is volatility in dairy pricing, particularly this summer and into the fall, and it continues, obviously, in the Class III and Class IV space primarily, and it impacts everything else pricing wise.
So, I think it’s something that we have to kind of keep our eye on.
The point I have made in the past, recent past, is that one of the things we should probably avoid doing is making major policy decisions on milk pricing in the middle of a crisis, while there is such high volatility, when hopefully, as the new president is seeming to say here today and yesterday, you know, we may be in a better position as a country by summer and early fall.
Not to minimize that’s a long period of time for people to put up with volatile conditions between now and then, but I guess my point would be, as somebody who’s worked around policy matters for my entire career, you’re better off making longer-term policy decisions in a time of stability, then you are in a crisis. That isn’t to say that we will not engage as an organization with other stakeholders to look at possible solutions or changes or tweaks, if you will, to those issues as necessary. We’re open to that. We certainly will engage on those issues. There’s nothing concrete yet, but I can certainly say that that’s something that we’re working with our economic policy committee to, kind of, discuss and to consider.
So as proposals are put forward, as folks are thinking about things, again, we’re happy to engage.
It would be better if we could wait a bit and let things settle down before we make any radical changes to a policy. Because then obviously, what could happen is you do that, and then, six months or a year later, find yourself needing to change it again. And given how policy changes work, you don’t want to move that around too often. So, that would be my only caution.
T3: If the dairy industry wants to make significant changes to something like the Federal Order system, it’s practically a requirement that National Milk and IDFA are on the same page. Is that a fair statement?
T3: OK, because that’s one of the things that I know always tends to be the issue is it’s a lot more than two steps. But there’s a two big step process, which is first for farmers and processors to get aligned and agree on a system that both think is a better system than what we have now. And then secondly, to take that to the administration and suggest that these are the changes that they’d like to have happen.
Dave: That is correct. And if I may, I’ll, kind of, walk you back in time with an example of that, that’s relevant to our current discussion. Which is in 2017, we were getting ready for the next Farm Bill, which would have been the 2018 Farm Bill, and as part of that, IDFA and National Milk got together and said, “Is there something we can do to improve the FMMO pricing structure for a wide range of stakeholders?”
And one of the rubs that had been there was, particularly for Class I, was a lack of access to risk management tools. The other classes had a dairy forward contracting program that had been in place for several Farm Bills that provided those tools. And Class I had been excluded from that program. We were originally, IDFA, looking to try to add Class I to that program, but we weren’t able to get consensus to do that with our cooperative friends.
So, we came back to the table with another idea, which was to change the higher of Class I mover from the higher of III and IV to a simple average. And because we did that, and because if we were able to do that, we would have Class I stakeholders, market participants able that to use the Class III and Class IV futures products that are already in place at the CME and other places to hedge their risk a bit, because they would know. It was a simple average, as opposed to every month not knowing which one of those class prices was going to be the mover in a particular month. So, that was the advantage.
And then, what we did, though, to take care of producers, to be fair to producers — and again, both sides wanted to do this — was look back over 17 years of data, monthly data from the FMMO system, all the orders, and basically run the numbers and say, “Okay, if we’d had this new mover in place for that period of time on a monthly basis, what would that have meant for producers?”
And what we found was — and, by the way, National Milk came to the table with exactly the same number, 74 cents — was that it is, that’s what we had to add to the mover price is 74 cents, because on average, that’s what it was going to cost producers on a monthly basis. Some months producers were going to be ahead, some months behind, but on average 74 cents. And that was 17 years’ worth of data.
So, we added that without hesitation. I’ll tell you a little story. We had our folks on our Economic Policy Committee, just representatives from that committee, coming to Chicago. National Milk had its representatives coming to Chicago for what we were hoping was not going to be more than a six- or seven-hour meeting at the Hilton, at the airport. We got into the room at 10:00, and we put our data on the table, they put the same number on the table. We were out of there by 11:30.
So, absolutely Ted, what you said is true. And then here’s all… I’ll prove it. When we finished and we were all agreed, we took it to the House and Senate ag committees, they said, “Oh my god, you people have agreed on a position? Well, that’s fine, we’ll put it in the Farm Bill.”
We put it in the House Farm Bill, we put it in the Senate Farm Bill, and it was the easiest piece of lobbying I’ve ever done, because National Milk and IDFA agreed.
And so, you’re absolutely right, whatever we come up with next, whether it’s on something having to do with the mover on Class I or something on pooling or something, who knows? Bank allowances are coming our way at some point as well. And I suspect all these things could get, kind of, wrapped up together at some point. But whatever we come up with it, we’re much better off as an industry. We can work it out amongst all stakeholders, and then if it’s going to have a congressional component to it, go to them with an agreed-upon position. Because if we do that, it will make it a lot easier to get what we want, as an industry.
T3: And that makes great sense. Of course, when it comes to the Federal Order, COVID wasn’t nice to how that change looks today, because the volatility of the last year caused dairy farmers, who traditionally would hedge with Class III prices, kind of, blew up those hedges because the volatility caused a whole bunch of depooling, which caused that 74 cents to really get distorted over the last 10 to 11 months.
I’ve heard from a number of different farmers and, Anna, tell me if you’re hearing it a little differently, that now they’re regretting the decision of moving away from the higher of. But the reality is, the real cause of the problem wasn’t the math that led to 74 cents and away from the higher of, but the fact that handlers were allowed to depool, causing the ultimate payment price to the dairy farmer to no longer correlate well with the way, perhaps, they hedge their milk. Is that a fair statement, Anna?
Anna: Honestly, the bigger issue that I’m hearing, whether it’s putting in protections or hedging, or however they’re managing things, no one really knows what to expect.
T3: Depooling is making hedging now more difficult on the dairy farmer’s side.
Anna: I think it makes it more difficult. I think depooling has a variety of issues, even just in terms of what it does to a Class I, you know, a bottling plant and the disadvantage it puts them in. It’s got a ton of issues.
Ted: I think perhaps one of the bigger parts of that issue is that most of the farmers don’t understand it. They think that depooling is money coming out of their pocket. And since 90-plus percent of the milk is cooperative milk anyway, the cooperatives depool because it helps the bottom line of a co-op, but the co-op’s money by law goes back to the dairyman anyway, it just doesn’t come back at the same time. So yeah, the depooling does interfere with the risk management but the perception that it’s coming out of the dairyman’s pocket is wrong. But where it does make a difference is proprietary handlers who we rely on to sell Class I milk for qualification purposes, are put at a severe disadvantage because they can’t really do it.
T3: Oh, yeah.
Ted: And proprietary handlers, particularly the bottling plants, got a big problem, because obviously Class I sales are declining. And their ability… Well, most of them don’t have their own milk supply, a few still do, but most of them these days deal with the co-ops who can depool. And it’s presumed that when they do that, they pass some of the money on to the bottler. But given the decline in Class I sales and so on over the years, and the bankruptcies on the Class I side, it would appear to me that there’s some inequity there that probably needs to be addressed.
Ted: Dave, I’m going to steal a line that I’ve heard Michael say many, many times and say, thank you, thank you, thank you for joining us. Really appreciate it, and good luck in Washington, D.C. Thank you. Thanks a bunch.
Dave: You’re welcome. Thanks. It was great to be with you. And I really enjoyed the conversation today.
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