26 May 2011

3 minute read

North America

The economic review, "A Look at Dairy Market Price Volatility and Options for Dairy Policy Reform," was released today by the International Dairy Foods Association.

Written by IDFA Chief Economist Bob Yonkers, Ph.D., the economic review examined all available data and published research on the proposed Dairy Market Stabilization Program (DMSP) included in a dairy policy package sponsored by the National Milk Producers Federation. NMPF's program would periodically restrict the US milk supply by imposing new federal taxes on dairy manufacturers based upon each dairy producer's production base.

"Existing research clearly shows that policies that attempt to manage volatility would limit industry growth and reduce US dairy exports at a cost of thousands of US jobs," said Yonkers. "By looking at recent analyses of the DMSP by the Food and Agricultural Policy Research Institute (FAPRI), Informa Economics and others, we concluded that dairy policies designed to help farms and firms manage milk price volatility are preferable to policies that attempt to insulate the United States from global dairy price fluctuations."

The review highlights impacts in four areas:

Reduction of US Dairy Exports

Contrary to NMPF's claim that the program would encourage exports, the FAPRI data directly predicts that US dairy exports would have dropped significantly if the DMSP had triggered limits to farm milk production during the dates reviewed. Study results from the appendix table show that during three months – March, April and May of 2009 – US exports of nonfat dry milk would have fallen by 38 per cent, butter exports by 16.4 per cent and American cheese exports by 8 per cent.

Reduction of US Jobs in Agriculture

The Foreign Agriculture Service of the US Department of Agriculture recently estimated that 8,400 jobs are created for every $1 billion increase in agriculture exports. Applied to the increase in dairy exports, this formula estimates that more than 20,000 new jobs were created in the last decade by dairy export growth. Although the FAPRI data alone would translate to US job losses in the hundreds, a 14 per cent decline in exports in 2009 would have resulted in losses of more than $300,000 in dairy exports and a loss of nearly 2,000 jobs.

Decrease in Worldwide Food Security

Demand in many countries will outstrip the available farm milk supply, creating a demand gap that can only be filled by increasing world trade in dairy products. A recent report, "Price Volatility in Food and Agriculture Markets: Policy Responses," authored by a collaboration of international agencies, concurs that government efforts to control volatility have significant negative impacts. The report notes that agricultural policies designed to insulate domestic prices from world markets actually "increase world price volatility" and that "policies that distort production and trade in agricultural commodities potentially impede the achievement of long run food security."

Increase in Domestic Price Volatility

Another key finding noted in the FAPRI study appendix table shows that US dairy market prices would be much more volatile when the DMSP would trigger actions to limit farm milk production. This program, intended to stabilize prices, actually would work to destabilize them.

"IDFA concludes that dairy policies designed to help farms and firms manage milk price volatility are preferable to policies that attempt to insulate the United States from global dairy price fluctuations," said Yonkers.

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