National Milks' Kozak calls for federal order reform
Jerry Kozak, President and CEO of National Milk Producers Federation, spoke at the National Farmers summer board meeting July 16.
He covered several topics, including the most recent CWT bid acceptance in its herd retirement program. 209 bids were tentatively accepted, representing 25,474 cows and 440 million pounds of milk.
Here are some of Kozak’s comments, along with questions from National Farmers leaders.
Kozak updates board on CWT
“I was very pleased with the response of this herd retirement. I didn’t know what to expect because we are in a different paradigm. It’s not the year of high milk prices or low milk prices anymore, it’s the year of net margins. So, we have to be flexible. What we did last year won’t serve us very effectively this year, because we are dealing with a whole different set of circumstances.
There were a lot of people who said I should not have announced the herd retirement program this year because milk was $20. They were worried about consumer demand and the public’s reaction to dairy farmers being greedy and reducing supply at a time when milk prices are high.
We took all of that into consideration, but at the end of the day, I only have one constituency and that’s dairy farmers. We thought the timing was right, and the response we got bears that out.
I think what we saw on the bids was far different than what we saw in the other herd retirements. When you look at the nature of the bids, and the size of the farms, this time around most of the bids were from smaller producers…in the 25-50 cow range. I think that’s reflective of input costs and some of the stress that is out there on the type and size of those farmers.
We had far fewer bigger farms this time than in the four previous ones. I think it is commensurate with the fact those larger farms have put more cows on, they deal with volume in a different way. They are able to forward contract their feed costs, etc. I think this year you will see the production on a national average per cow is down, and the national production of herds we are taking out is lower than in the four previous herd retirements.”
Kozak addresses the CWT Bred Heifer Option
“We incorporated a bred heifer option, and Don (National Farmers Wis. Director Don Hamm) is on the herd retirement committee, and we’ll review this again in August. The committee chose to incorporate it as part of the whole herd retirement, so it was voluntary, not mandatory. And it’s a first step, there was a lot of discussion on whether we should have a bred heifer program or not.
As far as the administration of it, I was pleased, there were a number of farms that selected the bred heifer option. It’s not a great deal, only several hundred, maybe more than that.
I think it (the Bred Heifer Program) is something the committee will have to look at when we get to the task force meetings in August. And, consider a separate bred heifer program that would facilitate more. When we announced our heifer price of $1050.00, that excluded the slaughter value, so the farmer also gets the slaughter value.
If you look at the national average of production of the herds we’re taking out, generally the quality of heifers taken from the farm is going to represent the quality of the milk production, so in our opinion, if we’re getting out a lower average farm, we thought that our heifer price is pretty good.
I think we would have overpaid for heifers if we had increased it, and that would not have been efficient use of your 10 cents.
I’m in a job where people can easily second guess, and I understand that, but I think for the most part we’ve been right on track with our timing and the execution of the program, and the results we have demonstrated.”
Kozak entertained a question and answer session with the national board.
We are all producers of food and we are seeing a large concentration of power in the retail food sector, what can be done about that? Kelly Shockman, North Dakota Director 
“It’s a good observation and one that concerns us. It’s one of the things that led to formation of CWT. Because we didn’t have any control over the power of these retailers. As you know as a farmer, when you look at the dollars spent at the retail level for dairy products, you get 30 or 28 percent of that.
So that’s why we looked at some of the self-help programs like CWT, that brings together a critical mass of people to try to effectuate some change in what we’re doing. But, we can’t stop there. One of the things I want to concentrate on is how cooperatives can come together in other ways.
Someone said once the reason farmers were given the Capper-Volstead-Act, is because Congress knew they would never use it. That’s why people got scared when we put the CWT program together.
CWT is [all about] cooperatives working together. But, a lot of it is farmers working together. I’m not sure all of our co-ops are working together in a way that they should to bring that kind of power to the marketplace to fend off the Wal-Marts of the world.
That’s why the promotion guy started on the sustainability issue, Tom Gallagher, and he has it right. Because Wal-Mart would have picked apart all of the individual processors who sell to them, but instead we went to them, and said we wanted to be treated as one industry.
So we have to have a Market-Agency-in-Common that is run by co-ops with hired employees who work for us, and not for some foreign corporation.”
As milk production has increased, plants have been shut down in some areas and it’s becoming increasingly hard to process all the milk. Is there anything National Milk can do? Mark Rohr, Minnesota Director.
“I just spoke to the California Creamery Operators Association, and quite honestly, that was a major part of their concern out there— the lack of plant capacity.
One of the things we talked about in our June planning meeting, is to see how National Milk can bring people together, both from the processing and the co-op side to address some of the issues of plant capacity. Now, it isn’t that easy I know, but our organization offers that ability for them to discuss those issues. Because you’ve got to get the people with various business interests to come together.
I will be candid and say that part of the equation has to be a reform in the federal order program, because I do believe there are parts of the federal order program, the make allowances as an example, that are creating winners and losers…and it shouldn’t be that way.
That in itself is preventing proprietary plants in some cases, and some co-ops from attempting to build a plant in a certain location, because they don’t think from a business perspective through the federal order program, they can make it.
So, I think we can bring them together, we do have a federal order reform package that we’re presenting right after the CWT committee on Aug. 20, to the task force which addresses some of those issues.”
For several years we have been talking about the need for price consistency in milk. Earlier this year at our national convention we had a panel including CWTs’ Jim Tillison, Hoards’ Steve Larsen, Dr. Richard Levins and Dr. Jim Beatty from Louisiana State University. In that workshop, the need for a new pricing system was brought up. What do you think about it? Wayne Prichard, Michigan Director.
Jim came back and we discussed it. And we talked about the creation of a MAIC. It’s going to be pretty difficult to impose another government pricing system, I don’t see it happening.
So, I don’t think pursuing some other kind of additional pricing system will work. But I do agree, having control of our own destiny...of the products that we market under a MAIC, and bringing the co-ops together is the way to get to that point.
In addition, the present pricing system under the federal orders, in our opinion, is actually hampering producers. We think, in the long term, as radical as it sounds, that restructuring the federal order program will yield higher producer prices, in the long term. So, I think they have to be coupled.
It appears to me the industry struggles with make allowances... and ends up pitting processors with producers in that area. We have seen a lot of processors go out of business, so they probably need the money. But why does it always have to come on the backs of the dairy producer, by lowering those class prices. Is there a way to price the formula further out through the system? Brad Rach, Dairy Division Director
You hit on the heart of the problem. I agree completely. The make allowance issue is the worst thing that came out of the federal orders. It creates winners and losers. When they increase the make allowance, they decrease the producer revenue. On the processing side, you have the plant saying: I can’t build the plant because I can’t recover my costs. We’ve had seven meetings of our federal order committee this past year.
The conclusion is, you can’t deal with it, you have to eliminate the federal order system...you can’t fix the make allowance. And, by the way, that wasn’t an industry invention, that was a federal AMS (Agricultural Marketing Services). The M&W (Minnesota and Wisconsin) price actually worked a lot better.
So we are on track to get rid of the make allowance, and create a system that doesn’t impact the farmer getting a lower price, but allows a producer to recover their costs and it’s called the competitive pay price.
