STATEMENT of

BILL BREY, PRESIDENT

WISCONSIN FARMERS UNION

on behalf of the

NATIONAL FARMERS UNION

presented to the

SENATE COMMITTEE ON

AGRICULTURE, NUTRITION AND FORESTRY

"THE NEED FOR FEDERAL DAIRY POLICY"

FEBRUARY 9, 2000

WASHINGTON, D.C.

Statement of Bill Brey, President of the Wisconsin Farmers Union, on behalf of the National Farmers Union, presented to the Senate Committee on Agriculture, Nutrition and Forestry, regarding the Need for Federal Dairy Policy, on February 9, 2000, in Washington, D.C.

On behalf of the 300,000 farm and ranch families of the National Farmers Union, I would like to thank you for the opportunity to testify. I am Bill Brey and I serve as president of the Wisconsin Farmers Union. I am a full time dairy farmer from Sturgeon Bay, Wisconsin, where I farm with my wife and family. We milk 95 cows and raise 600 acres of alfalfa, corn, barley, canning peas, and soybeans.

Many people would say that Wisconsin is ideally suited to produce milk. Yet, nowhere is the economic devastation brought on by low prices more evident. My state has dropped from over 40,000 dairy farms in the 1980's to just 21,000 dairy farms as of January 1, 2000. With prices hovering between $9.00 and $10.00 per cwt., farmers will continue to be put out of business.

National dairy policy has become very contentious with one region pitted against another. However, it is the strong belief of the members of National Farmers Union that only by working together can we move forward to a national solution.

I have worked to implement this strategy in my home state. When we made plans for our annual Wisconsin Farmers Union convention, which occurred on February 4-5, I invited producers from all regions of the country to participate on a national dairy producer panel. Our panel included dairy farmers from Vermont, Alabama, Texas, Minnesota, California, and Wisconsin.

My testimony today will include two sections: 1) National Farmers Union's support for continuation of dairy policy at the federal level, and 2) the principles of agreement reached by panel participants.

NATIONAL FARMERS UNION POSITION

National Farmers Union believes there is a strong need for federal dairy policy. NFU supports continuation of the federal milk market order system, the dairy price support system, dairy nutrition programs, and dairy export programs.

Federal Milk Market Order System

While the federal milk market order system is not perfect, it provides important protection for both producers and consumers. The system provides testing and standards and helps ensure the orderly marketing of dairy products throughout the United States. It ensures producers are paid for the product they deliver. It has provided consumers with a safe and healthful supply of dairy products wherever they live.

We believe some changes are needed. National Farmers Union supports reform of the federal milk market order system on Class III and IV, as directed by Congress. In particular, we are concerned that the new, higher processor manufacturing allowances set by USDA will result in less producer income. Farmers are questioning why processors should receive a guaranteed "cost of production" for manufacturing, even while farmers are left at the mercy of the market. We are considering the benefits of a variable manufacturing allowance that would adjust in relationship to the producers' milk price.

Dairy Price Support Program

The dairy support price sets a floor on the price received by all producers, regardless of region and regardless of how each producer's milk is used. National Farmers Union favors a dairy price support program that is set at a level sufficient to curb market volatility. The current level of $9.90 per cwt. is too low to act as a stabilizer. (The graph submitted for the record shows that the support price was an effective price stabilizer, until the late 1980's, when it was reduced too far below the average market level.)

The five-year average base price for milk, i.e., the basic formula price, is $12.78 per cwt. Therefore, our members believe a support price of $12.50 per cwt. would protect against the huge drops producers have experienced in the past few years. Commodity Credit Corporation purchases may need to be capped to limit government costs and avoid surplus product.

A stable supply benefits processors by keeping plants operating at capacity levels. Decreased volatility would also benefit consumers who pay more when farm prices increase, but seldom see a corresponding decrease when farm prices go back down.

Immediate Relief

In the short-term, immediate action is necessary to help producers survive the extraordinarily low market prices producers are currently facing. This could be provided in a number of ways. Congress could authorize a temporary support price increase, set at a level that would allow the Commodity Credit Corporation to remove current surpluses until the price recovered.

In the absence of policy to help producers earn their income from the market, additional emergency payments should be considered. We appreciate the $125 million appropriated by Congress in last fall's emergency funding. However, assuming that funding is distributed in a manner similar to 1999, this year's payments are likely to be in the range of 14 cents per hundredweight, with a maximum of $3,600 for any producer. This would be a payment of approximately $1,486 for the average Wisconsin producer. The feed alone for that same size producer costs about $7,000 for just one month. Since USDA is projecting a significant drop in dairy producer income for the year 2000, emergency assistance will be more important than ever.

Dairy Compacts

Our members have called for a nationwide solution that will enhance opportunities for all dairy farmers, regardless of region. National Farmers Union will support dairy compacts to the extent they are coupled with a support price that is high enough to stabilize price and enable producers to earn a fair return from the market.

National Dairy Trade Policy

There is often discussion about whether various U.S. dairy programs are allowable under the World Trade Organization and how our programs will affect the United States' ability to negotiate future agreements. We would point out that U.S. farmers produce 160 billion pounds of milk per year and export only 3 billion pounds. Since the lion's share of our milk, 98.2 percent, is sold in the United States, it is imperative that the United States maintain its ability to operate domestic programs for food security. There is no financial advantage in supporting policy that lowers the market price to producers on 98.2 percent of the milk just to increase exports.

In addition, since the world market is heavily subsidized, we support maintaining the Dairy Export Incentive Program (DEIP).

Food and Drug Administration Standards

National Farmers Union members are very concerned about the current petition by processors that asks FDA to change the definition of natural cheese, thereby allowing the use of imported milk protein concentrate, which would displace domestic milk used for manufacturing, resulting in greater program costs and lower prices to dairy farmers.

Regional disagreements have caused some people to ask whether total deregulation would be preferable to maintaining national policy. However, we believe the benefits provided by a federal dairy program far outweigh the items of contention.

NATIONAL DAIRY PRODUCER PANEL

On February 5, the Wisconsin Farmers Union convened a panel of eight dairy producers from across the nation. The panel included both Farmers Union members and those who were members of other farm organizations. We specifically included a representative who was instrumental in establishing the Northeast Compact. The panel also included a member who was interested in establishing a southern compact. The panel also included farmers who had large farms and those with small farms. We found that even with these differences, there were many areas of agreement. (The points of agreement reached by participants on our national panel are attached.)

We plan to have future dialogue with our producer representatives and want to come to Washington D.C. as a team to discuss dairy with Members of Congress.

In conclusion, I would urge Congress to try the same strategy. Only when we overcome our regional differences and work together for a national solution can we achieve successful policy. Once again, thank you for the opportunity to present this information.

NATIONAL DAIRY PANEL - POINTS OF AGREEMENT

Panel convened on February 5, 2000

Eau Claire, Wisconsin

All members of the panel agreed that dairy producers are facing a serious economic problem.

· Current support price is at a level too low to stop volatility.

· In most areas of the country dairy prices are too low to sustain viable family farms. This is resulting in the loss of individual ownership. Too often, ten farms owned by ten farmers are becoming one farm with one owner and many indigent employees.

· The new manufacturing allowance is a concern. The higher manufacturing allowance will reduce producer income, particularly at a time when the producer price is low.

PRINCIPLES OF AGREEMENT AS TO THE SOLUTION

We support maintaining a federal dairy program, including the federal milk market order system, the federal dairy price support, and the Dairy Export Incentive Program.

Any longterm solution has to incorporate some type of supply management.

Federal dollars will provide the maximum benefit to dairy farmers if funding is targeted toward buying excess commodities rather than used for direct payments to individual farmers. However, until the federal dairy program is amended to improve the balance between supply and demand, thus enabling dairy farmers to earn their income from the market, direct payments help provide limited, temporary relief.

In negotiating trade agreements, we must maintain our ability as a nation to continue domestic programs for food security.

Societal demands placed on family farmers, including the cost of compliance with rules and regulations, should be shared by all citizens.

We support increasing dairy farmers' income through a comprehensive dairy program. We support compacts when they are coupled with an increased support price. The current support price at $9.90 per cwt. is too low.

The national milk standard for solids-not-fat should be increased from the current level of 8.2 percent.

We urge the Food and Drug Administration to maintain the current standards for natural cheese.