Stanton, Bernard F.

English

Research Papers in Economics

REGIONAL  CONFLICTS  IN DAIRY POLICY
BJY. Stanton, Workshop Organizer
Cornell University
When  supply consistently outruns  effective  demand there is  a nat-
ural urge to find someone or something to blame for the problem. The
recent dairy surplus situation in the United States is a good example.
While at first  most of the dairy industry  wanted to think that the
need for the Commodity  Credit Corporation  (CCC) to buy as much as
seven percent  of total marketings  in 1980 was a temporary  phenom-
enon, the steady need for the government  to purchase  ten percent  or
more  of the total  in  each  of the last three  years  removed  all doubt.
The problem is not temporary but real. The substantive questions  are
how to reduce  supplies equitably and how to maintain  a balance be-
tween supply and demand.
In this kind of setting,  regionalism  and local  partisanship  is most
likely  to surface.  Recent changes  in milk production  for  each  of the
states, additions to herds, and interregional price and cost data provide
the basis for lots  of "arguments  using facts"  to  support  a particular
point of view.
For example  in March  1983,  Hoard's  Dairyman published  a series
of comments  from dairymen  in  response  to a proposal  developed  by
farm leaders in Wisconsin and Minnesota  and introduced  as a bill by
a group of Wisconsin  Congressmen.  The proposal  was called the Vol-
untary Incentive Plan (VIP) and gave dairymen an incentive payment
of $10  for every  100 pounds of milk they cut back output below their
1982  production  base.  The  responses  were  mixed  and  regionalism
showed.
"I think the states that are creating the surplus should do the
cutting or pay the 50 cents the government wants.  When I start
creating a surplus at my plant, I will cut production at that time."
(Alabama)
"This plan  does  not penalize  the  person that has caused  the
problem.  Investors  came  on  strong after the  support price  was
raised under Carter, flooding the market.  Drop the support $3 to
$4  and get them back out."  (California)
"I  give  two  reasons  for  not cutting  back.  I  understand  that
California and Wisconsin are the states with overproduction,  not
129Virginia. Our boys are  at the age to take interest  in  dairying -
farms are too expensive  to buy so we would like to expand." (Vir-
ginia)
"I don't  believe  that  the  government  should  pay  for  not  pro-
ducing milk because the farmers that are in trouble  are the ones
that spent too much on sealed silos and  milking parlors so they
could have it easier.  I believe  they should let some of those  big
farms go bad.  I blame the whole problem  on the  loan companies
- kept giving them money three years ago for everything." (Wis-
consin)
These responses  show an inherent tendency to find  someone else to
blame for problems  which extend across an industry.  Dairymen want
Table  1.
APRIL-JUNE  MILK PRODUCTION  BY STATES
United States,  1981  and  1983
Milk production  1983  as  percent
State  1981  1983  of 1981
Million  pounds
1.  Wisconsin  6246  6239  100
2.  California  3625  3651  101
3.  New  York  2988  3089  103
4.  Minnesota  2843  3009  106
5.  Pennsylvania  2331  2443  105
6.  Michigan  1301  1396  107
7.  Ohio  1179  1266  107
8.  Iowa  1106  1136  103
9.  Texas  957  1052  110
10.  Washington  780  886  113
Other  40 states  11904  12286  103
United  States  35260  36453  103
Source:  SRS, USDA,  Milk Production,  July  1983
Table 2.
PERCENT  OF MILK COWS  BY HERD  SIZE
Major Dairy States,  1982
Number  Herd Size
States  of cows  Under 30  30-49  50-99  100 or more
thousands  percent of total
Wisconsin  1827  14  39  37  10
California  943  1  3  96
New York  933  7  22  44  27
Minnesota  890  18  41  32  9
Pennsylvania  733  14  33  35  18
Michigan  403  10  22  37  31
Ohio  399  27  24  35  14
Iowa  388  18  33  41  8
Texas  335  4  2  22  72
Washington  217  3  8  19  70
United States  11068  12  22  32  34
130Table  3.
ESTIMATES OF MILK PRODUCTION  COSTS AND RETURNS PER CWT.
Regions of the United  States, 1981
Cost and returns items
Hourly returns to
Returns from  Direct  Ownership  operator's labor
Region  milk, cull  cows  Costs  Costs  and management
Dollars per cwt.
Upper Midwest  $14.88  $ 8.28  $4.17  $2.43
Northeast  15.28  9.27  3.70  2.31
Pacific  14.40  9.88  2.46  2.06
Southern Plains  15.87  11.16  2.98  1.73
Corn Belt  14.69  9.57  4.36  .76
Appalachian  15.19  11.02  3.47  .70
United States  9.28  3.72  1.97
average  $14.97
Source:  ERS,  USDA,  Cost  and Returns  of Producing Milk  in the United States  1979,
1980, and 1981
other individuals  or groups to accept  lower prices, reduce  production
or take  whatever change  in behavior  is mandated.  No  region  of the
country is immune from such behavior.
Roger Barber, the Commissioner of Agriculture in New York State,
argued this spring for a proposal,  soon termed the "Barber Plan", which
would have frozen  Class  I milk  prices  while trimming  the manufac-
turing milk price by  $1.70  per hundredweight.  Not surprisingly this
was  greeted  with favor  in the  Southeast  and  loudly  opposed  in the
Midwest.  The  potential  cost of this proposal  to dairymen  in the  two
regions was  very different  because  of regional  differences  in  Class I
and Class II  sales.
One  of the reasons  why  dairy  policy  generates  both national  and
regional interest is because milk is produced in every state. The dairy
industry  has both economic  and political  importance  throughout the
country,  even though two-thirds of the milk supply  is produced in the
10 largest dairy states. And while dairy systems and cropping patterns
are  quite  different  in  Southern  California  and Northern  Wisconsin,
additions to supply have been a common phenomenon.
The latest available evidence about production increases for the spring
quarter of 1983 compared with two years earlier are presented in Table
1. Production increases over the two years have been surprisingly uni-
form  throughout the country.  One  reason  to present these data  is to
show that  no region  is immune  from some  responsibility  for what is
so commonly described  as the "surplus problem."
The  structural  differences  within the dairy industry are  suggested
by the  proportion  of all  dairy cows  in herds of different sizes  in the
major dairy states (Table  2). In the Pacific States and Southwest most
of the milk is produced  on farms with  100  cows  or more.  In  the Lake
131States and Corn Belt more than half of the  cows are located in herds
with less than  50  cows.  This  presents distinctly  different  cost  struc-
tures, problems,  and policy solutions.
One  of  the important  challenges  in  working  with  dairy  industry
leaders  in  this  environment  is  to  help  create  understanding  of the
diversity  that exists and how  differently  individuals  will  respond to
any alternatives  that are proposed.  Solutions that hurt no one  do not
exist. There are dairymen with cash flow problems in every state and
region for a wide range of reasons, not all related to the current price
structure.  It is natural that some  would like a program with historic
production bases and others want prices to be the production adjusters.
One approach to thinking about policy alternatives is to discuss how
dairymen  in different  situations  could  be expected  to respond  to  dif-
ferent options. The key variables in describing these situations might
well be:
(1)  Present herd size and current rates of production.
(2)  Recent  history of expansion,  contraction  or steady state.
(3)  Age  of operator, likelihood of children taking over business.
(4)  Debt load and equity position.
(5)  Structure  of production costs - variable costs as a percent of
the total.
(6)  Quality  of land and fixed dairy resources  and the likelihood
of other possible uses.
(7)  Alternative  employment  opportunities in area.
This is not an exhaustive list. It does  suggest that even within one
relatively  homogeneous  marketing  area,  farmer  responses  to  policy
alternatives will  be  far from uniform.  It also draws attention  to the
differences  in incentives that are  likely to  be associated with each  of
these different sets of circumstances.
One other way to help create some awareness of the reasons for basic
cost-returns differences  between areas of the country is to discuss the
most recent  USDA estimates  in some  depth.  Simply to present these
numbers  in  a  fashion  similar  to Table  3  without  discussion  of why
these averages differ within and between regions is not enough.  More
insight can be provided about the key differences.  Moreover,  the places
where  individuals  can influence their own  costs can be examined.  Some
of the common misconceptions about the nature of differences between
regions can  be explored as well.
All dairymen as well as dairy industry leaders need to be reminded
occasionally  that the dairy price  support  program  is  a national  pro-
gram that undergirds  prices throughout the country.  The connections
between  price-supports,  the  Minnesota-Wisconsin  price  series,  and
classified  pricing  are complex  but understandable.  What happens  to
milk supply in one region has an effect in all the other regions just as
it does  for corn  and soybeans.  Trying to build  walls around  regions
doesn't solve  problems.
132Regional conflicts within different sections of agriculture  are likely
to persist  in  a competitive  environment.  Discussions  about  alterna-
tives can help leaders  understand the basis for differences in opinion
and the rationale  for  opposing  views.  If intelligent  compromise  is to
be achieved this kind of understanding  deserves additional  attention.
133

REGIONAL CONFLICTS IN DAIRY POLICY

Abstract

Similar works

Full text

Available Versions

Research Papers in Economics