Forward Contracting Leads Farm Bill Battle

by Stephen Barlas
Washington Editor

Early House action on the dairy section of the upcoming 2007 Farm Bill gives manufacturers of cheese, butter, ice cream and other products hope there will be some positive changes to the dairy price support, milk marketing order and forward contracting programs administered by the U.S. Department of Agriculture.
The bill the House Agriculture subcommittee on livestock, dairy and poultry approved in late May touches all those issues. “Chairman Leonard Boswell and Ranking Member Robin Hayes have clearly worked together in a bipartisan manner to forge a solid compromise bill that lays an excellent foundation for the committee’s Farm Bill deliberations,” says Connie Tipton, president and CEO of the International Dairy Foods Association (IDFA).
Whether those dairy provisions stay in place as the Farm Bill moves through Congress is another story, however. Trade-offs will be rife as the bill moves first through the House — the Ag Committee was expected to approve the bill prior to the July 4 recess — and then to the Senate. The current Farm Bill expires on September 30, 2007, so lawmakers are under pressure to move the bill expeditiously to the White House.
Of course, the biggest fights affecting the dairy section of the bill will be between dairy processors, represented by IDFA, and milk producer cooperatives, represented by the National Milk Producers Federation (NMPF). The two groups’ best interests are often at odds.  
One of the most intense intramural battles on the dairy section will focus on forward contracting, the subject of a USDA pilot program that ended in December 2004. That program allowed proprietary milk handlers — that is, dairy food marketers regulated under the Federal milk order program — to contract for future deliveries of milk from milk producers or their cooperative associations at prices exempt from minimum federal milk marketing order blend prices.
The IDFA has been trying to convince Congress to reinstate forward contracting ever since the pilot ended. The House agriculture subcommittee bill does that. However, the NMPF wants the program to end when the term of the 2007 Farm Bill ends in 2012, and wants any temporary program to have restrictions.
Chip Kunde, IDFA senior vice president, explains that cooperatives can already forward contract with their own members who make cheese and ice cream. That gives manufacturing co-ops a competitive advantage over private processors. “There were producer protections in the pilot program, and the USDA reviewed them and said they were effective,” Kunde adds. Those would be included in the permanent program endorsed by the subcommittee, so Kunde thinks additional protections sought by the NMPF are unnecessary.
Not surprisingly, Jerry Kozak, NMPF’s president and CEO, disagrees. “We have serious reservations about the absence of producer safeguards in this measure,” he says, referring to the ag subcommittee dairy provisions. “Our support for forward contracting is conditioned on getting those protections included with the overall Farm Bill.”
Kunde explains the subcommittee bill is carefully balanced between meeting the needs of the private processors and the co-ops; both have received and made concessions on multiple issues within the dairy section. But he acknowledges that as the bill works its way through Congress, any provision in the bill — dairy or otherwise — is subject to change.  
Stephen Barlas has been a full-time freelance Washington editor for business and trade magazines since 1981.