Dairy program says it’s a success

SALEM, Ohio – Milk prices are up, farmers are happy, and a voluntary dairy program helping to make it happen has the green light for another year.

The program, Cooperatives Working Together (CWT), started paying producers last fall to either cut their milk production or sell their cows.

Coming on the heels of sluggish milk prices, the program was designed to trim the milk supply and drive up the price in farmers’ milk checks.

It worked, said the National Milk Producers Federation.

Dairy farmers saw a return of nearly 60 cents a hundredweight thanks to CWT, the group said.

Last month the federation, which represents 70 percent of dairymen nationwide, voted to continue the program for another year.

A full 60 cents? Things are looking a bit brighter in the dairy world, but how much of a role has this new dairy program really played?

It’s hard to tell, said Wayne County dairy specialist Tom Noyes.

“Did CWT contribute (to the increase in milk prices)? Yeah. Did it contribute 60 cents? I don’t know,” he said.

The theory behind CWT is if there’s less milk produced, the price of it will increase.

And several reasons other than CWT may account for the drop in milk supply and 60-cent return in milk checks. This includes poor forage quality and high feed prices, the OSU Extension agent said.

With recent high feed prices, dairymen aren’t feeding as much grain so the production isn’t as high, Noyes said.

In the Northeast, hay quality is low because of all the rain last summer. With poor quality forages, production isn’t hitting those high numbers, he said.

A record number of cows were also culled in the last eight months, Noyes said.

With previously low milk prices and high feed costs, farmers were culling any cow not paying her bills, he said. Again, the milk supply took a hit from this, he said.

Limited supplies of bovine somatotropin (bST), a protein given to dairy cows to enhance production, is another reason supply numbers dropped, Noyes said.

How it works. Farmers in participating co-ops are automatically assessed 5 cents a hundredweight.

The money raised, approximately $60 million in one year, was paid to farmers whose bids were accepted for a drop in production or herd retirement.

More than 32,700 cows were slaughtered across the country this fall in CWT’s herd retirement program, and another 77 farms voluntarily slashed their milk production by an average of 17 percent for one year.

The goal was to cut 1.2 billion pounds of milk, or .7 percent, in 12 months, and raise the all-milk price by 23 cents.

The second year of CWT, beginning July 1, has the same basis.

Although a date hasn’t been set, farmers will be able to submit herd retirement bids later this summer.

One major change, however, is farmers won’t be paid to pare their production, said CWT spokesman Chris Galen.

It wasn’t as cost effective as the other programs and participation is harder to monitor, he said.

The third pillar of CWT is an export program that pays manufacturers and exporters to sell dairy products to foreign commercial markets.

Will it last? The program has been praised for encouraging farmers to influence the milk price without government intervention, however Ohio State dairy economist Cameron Thraen says the program will not work in the long term.

Although the milk price may briefly increase, it won’t last, he said. With higher milk prices, other producers have an incentive to produce more milk, which is the antithesis of CWT.

These “free riders” have no obligation to reduce their production, Thraen said.

This means, if the program is effective and drives up the price of milk, other farmers will make up for the drop in production, he said.

Eventually, to keep the same 60-cent return in the milk check, that 5-cent assessment will have to increase to 7 cents and then 10 cents, he said.

Although CWT may have some early success, Thraen said it will be too expensive to maintain.

Looking back. Thraen points to the dairy buyout and diversion programs in the 1980s. Although they were at the federal level, both were voluntary programs.

From 1986 to 1988, there was a drop in milk production, but by the new decade, production was back to where it was before the programs.

Voluntary programs don’t work, Thraen said. They’re self-defeating because there isn’t 100 percent participation. “Free riders” will always take advantage of the system.

“If the goal is to achieve a permanent, lasting increase in milk prices, then the program will have to be permanent, too,” Thraen said. “And then it will no longer be voluntary.”

(Reporter Kristy Hebert welcomes reader feedback by phone at 1-800-837-3419, ext. 23, or by e-mail at khebert@farmanddairy.com.)