The use of risk management tools will still be an important option for producers to use even if they choose to be protected by the DPMPP, which is designed to protect them from a serious loss of equity, but not lock in an upside profit – typically the function of puts and options or forward contracting.
The University of Missouri Food & Agriculture Policy Research Institute (FAPRI) conducted an independent and unbiased analysis of the dairy policies in the Dairy Security Act using a global economic model that examines dairy product prices and milk production under a wide range of future market conditions. The analysis concluded the following:
It is not realistic that the Congress will increase barriers to dairy product imports. However, the proposed dairy policy concepts in the Dairy Security Act will allow U.S. dairy product manufacturers to compete with imported dairy products. The current Dairy Product Price Support Program has made the U.S. the world’s balancing plant. When world dairy supplies are high, foreign exporters take business away by undercutting U.S. manufacturers’ prices. Eliminating the price support program levels the playing field, allowing producers to maintain their markets at home by discouraging imports, while assisting with the maintenance of markets abroad.
The export market is a major factor in the growing demand for U.S. dairy products and a key to stronger U.S. dairy producer margins. In this environment, the Dairy Product Price Support Program is detrimental to maintaining export markets. It interrupts the flow of U.S. dairy products to world markets, resulting in longer term low margins for U.S. dairy farmers.
Ending the price support program as proposed by the Dairy Security Act will allow the U.S. dairy industry to remain competitive in world markets. It will encourage dairy product manufacturers to develop, produce, and market competitively-priced products the world’s consumers want.
Several other dairy organizations have developed various policy initiatives. However, the concepts from the Dairy Security Act address the dairy industry’s needs from an integrated policy perspective, taking into account the many factors affecting dairy farm viability.
Through its margin protection component, the Dairy Security Act safeguards equity, which is valuable to bankers and ag lenders and encourages them to extend loans to producers.
At least three bills have been introduced that contain the concepts in the Dairy Security Act. The budget pressures on all programs requiring government support make it more likely that the concepts of the Dairy Security Act will be adopted sooner rather than later.