Testimony Before the Senate Committee on Agriculture, Nutrition and Forestry

John Neal Scarlett

New Market, Tennessee

South East Dairy Farmers Association

February 9, 2000

First, I would like to thank the members of the Senate Agriculture Committee for holding these hearings and for giving a family dairy farmer from East Tennessee the chance to be here. My family and I milk just over 200 cows on a family farm started by my grandfather in 1930. We market our milk as independent producers through Piedmont Milk Sales, a marketing organization for about 260 producers. Piedmont is a member organization of the South East Dairy Farmers Association.

I would like to begin my testimony by thanking the members of the Senate who made sure that a flawed attempt to change the federal milk regulatory system last year was reformed. I'm all for making the system work better, and that's what the Congress did last fall. There are a couple more changes to make, but those will work their way through the regulatory process at USDA this year.

My purpose this morning is to let you know how important the Federal Milk Marketing Order Program is to the dairy industry in my part of the country. The main purpose of the Federal Order Program is to provide for an orderly flow of fresh fluid milk for the consumer. In the Southeast, for most months of the year, that is a very serious challenge.

As most of you are aware, the Southeastern United States has a rapidly growing population. That rapid growth makes it even more difficult to keep the market adequately supplied with milk for drinking. But the transportation cost of moving milk from areas of the country where there is more than enough for drinking makes it more cost-efficient for consumers to maintain a local supply of milk.

For instance, hauling milk from northeastern Wisconsin to east Tennessee adds $3.39 to the price of a hundredweight of milk. That's 29 cents per gallon. From upstate New York it adds $3.16 or 27 cents a gallon. Now those figures aren't somebody's estimates, they're actually what my milk company has paid to have milk hauled when we needed some to fill an order. Two charts attached to my written testimony demonstrate hauling charges to several southeastern locations.

This is nothing against dairy farmers in Wisconsin or New York. I have friends who are dairy farmers in Wisconsin and New York and I hope we stay friends. But you cannot pay those farmers the going rate for milk, compensate the plant that gave up the milk, haul it to east Tennessee and put that milk on the store shelf for less money than you can put my milk on the same store shelf. Federal Order minimum pricing, in the interest of farmers and consumers, provides a financial incentive for keeping at least some milk production local.

The local economic impact of dairy farming just cannot be underestimated. In my county alone the $6 million in annual milk checks, using the multiplier effect of six dollars for every dollar of agriculture sales means an additional $36 million in local spending. And in Tennessee, tax revenues generated from that spending are how we build our schools, educate our children and provide the other essential county services.

A local supply of milk is also a much more dependable supply than milk from far away. Those of you here in Washington, DC will remember the travel problems caused by the snowstorm a couple weeks ago. If it was that hard for you to get to work for several days in a row, imagine what it is like trying to get milk trucks moved between farms and plants and delivery trucks between plants and stores within the Southeast during that time.

Bottling plants in the area were begging for milk two weeks ago to meet consumer needs. Milk was readily available in other parts of the country but weather conditions prevented it from reaching the market - store shelves were empty in some areas, sales opportunities were lost and some consumers were without milk. Now imagine what it would be like if all the milk needed in the region had to come from far away.

It's consumers going without milk and the lost sales opportunities for farmers that the Federal Order Program helps us avoid as much as possible. Providing financial incentives to help keep milk readily available for everybody every day and at a reasonable cost is exactly what the Federal Order Program helps us do. And that is good for farmers and consumers alike.

The Federal Order Program also provides other functions that are important to the entire dairy marketing chain. Processing plants and milk handlers are regularly audited to ensure that producers are paid the Class I price when the milk is sold as beverage milk, the Class II price when the milk is used to make yogurt or cream cheese, the Class III price for cheese manufacturing milk and the Class IV price for milk used to make butter and powder. Producers are also assured that they are paid for the components of their milk, such as protein and butterfat, and weights are checked so that producers are paid for what they ship and processors are paying only for what they are getting.

The Program, however, is only as good as the quality of the information it gathers. The need for accurate and credible auditing was pointed out last fall when a substantial amount of cheese inventory was missed one month. The resulting market signal was that more milk needed to be produced. Once that cheese was discovered in the warehouse, however, a milk price drop that was already coming was amplified severely.

An entirely understandable question after all this, of course is, "Does the market still get to work?" I can tell you from recent experience and in no uncertain terms that it does. In parts of 1998 and 1999, with weather-related production difficulties in just a couple areas of the country keeping milk supplies tight, we had record-high farm milk prices. Now, that situation is reversed and we have the lowest milk prices we've seen in

20 years. To put that into context for all the non-dairy farmers in the room, imagine trying to feed your family, pay your mortgage and educate your children if the paychecks you'll receive in 2000 are going to be 40% less than the paychecks you received in 1999.

Another reason we need the FMMO program is that as a dairy farmer, I am required to get my milk to a processing plant every day. That means I find myself in a situation where I don't get to hold on to my product to bargain for a better price. Let me put it another way. Most of us have been in a grocery store and seen a gallon of milk marked down to $1. It's usually marked down that low because the "Sell By" date is within a day or two. Well, that's the position I'm in as a farmer every day. If the milk produced on my farm today doesn't have a buyer today, I have a product that I can't sell at all. That is one of the most critical features of the Federal dairy program - keeping dairy farmers on an equal basis in a given market area prevents farmers from being pitted against one another to lower the price.

We've heard a lot of talk about deregulation for dairy pricing. First, let me say that the current Farm Bill did not authorize deregulation for dairy. It did not require changing Class I differentials and it most certainly did not authorize a program that would lower dairy farmer income. That is why it was so important for this Congress to intervene to repair the flaws in the Federal Milk Marketing Order Reform Final Rule last year. Without those changes, entire investments in farm facilities, processing and distribution facilities in some parts of the country would have been worthless.

Another aspect of milk price regulation that I haven't talked about yet is Dairy Compacts. On Compacts, I'd like to say that a Southern Dairy Compact would be a great help to the industry in keeping the fast-growing market in the Southeast adequately supplied with reasonably priced fresh milk. Compacts also allow everyone involved in the milk marketing chain to have a say in how milk is priced at the farm.

Also on the subject of Compacts, I'd like to make a call for a higher level of honesty in the debate about this issue. For instance, calling Compacts un-democratic simply isn't the truth. Over five thousand state legislators in 25 states have voted in favor of dairy compacts. And, last summer when an amendment with Dairy Compact language came before the Senate, it received 53 votes - a majority. Still, we do not have a Compact in the South. People in those states, even after their state legislators have spoken, are being denied the opportunity to have their input in keeping all the benefits of local dairy farms near their communities.

One other reason I wanted to be here today is to have the opportunity to remind this body and the American people that there is one group that is clearly not sharing in the general economic boom the country is experiencing right now. Virtually everywhere you look in agriculture right now, there are record-low commodity prices. As I said before, milk prices are at levels we haven't seen in 20 years. The Federal Milk Marketing Order Program helps provide at least a small degree of stability. But more is needed.

I urge the United States Senate to continue looking for ways to keep farming economically vibrant. America's farmers and rural communities are depending on it. Thank you again for the opportunity to be here today.