National Milk Producers Federation

There are some speeches you don't want to give and there are some that you need to give. This one has both of those elements. Let me start with that part of the speech I really don't want to give, and that is to acknowledge that our Chairman Charles Beckendorf is retiring. When Charles told me earlier in the year that he was considering retiring, it hit me both professionally and personally.

I think you all will agree with me when I say that Charles is one of the most thoughtful and affable people in our industry. For the past five years, he's been NMPF's leader, and we couldn't have asked for a better one. He has always been open to new ideas, has been engaged in our daily activities, and has made a point of not only knowing each of our staff, but our families as well. Charles has been totally committed to NMPF, and we have accomplished much under his leadership. At the same time, we have had a lot of fun in doing it. Charles's easy going manner and congenial personality has been a great complement to the intensity of my own personality. His sense of humor helped get us through some difficult times. I think Dwight Eisenhower summed it up best:

Charles started as our Chairman just a few months after CWT was created. He rose to the challenge of bringing our industry together - not just NMPF's members, but others as well - to build support for an historic brand-new program that many said couldn't get done, or wouldn't last. He has believed in me, and when others thought some of my ideas were unrealistic, he stood beside me at every twist and turn. For that, I will be forever grateful.

He consistently phoned in to every regular NMPF Monday morning staff meeting, not only so that he knew what was going on day-to-day,  but also so that we would have the benefit of finding out how things would play on a typical dairy farm.

That last point, without a doubt, is one of the things that served us the best - Charles has a keen sense of what is truly important to the dairy farmer. Time after time, over the past five years, he left his farm and his family to serve the best interests of our industry. Although Charles may not be our Chairman after tomorrow, he will, more importantly, remain a true friend to all of us long after tomorrow has come and gone.

So, let me again publicly thank him for his leadership and his service during the past five years as our Chairman. I also want to thank Mary for sharing Charles with us, and for her significant contribution in allowing Charles to spend so many nights and days away, in service to our industry. Please join me in wishing him, Mary, and his family, Godspeed, good fortune and longstanding health, as they embark upon a new and hopefully more restful chapter in their lives together.

Well, that was the part of my talk this morning I didn't want to give, especially since I knew it was going to be tough to get through it without getting emotional. But this next part is the part I need to give. I say that because I believe it is my responsibility to provide leadership and a vision that gets you thinking about where this industry needs to go in the future. What I want to do with the rest of my time is outline five key areas that I believe we need to focus on going forward. I think it is important for a leader to not only look down the street, but also around the corner.

As Charles noted yesterday in his speech, we had great success in the past 18 months in helping write, and getting passed, the 2008 Farm Bill. Our staff was bold in presenting new ideas, pragmatic when politics demanded it, and resolute when we had to defend our core objectives. I'm extremely proud of the final result. If you ask anyone inside Washington, you will most likely hear that dairy came out the best among all of the commodity groups in the Farm Bill. I am proud of our staff's considerable efforts and the results. Please join me in thanking them for their commitment to our organization.

So with that being said, you might be wondering why we even need to begin looking beyond the present Farm Bill? Why don't we just relax and let the thing play out? Because, ladies and gentlemen, we will never see another Farm Bill like the one passed into law this summer. We created our own good luck by preparing thoroughly, working hard, and getting a relatively generous bill passed. But we can't count on that good fortune in the future, regardless of who becomes our next President, or who controls Congress. We need to develop a bold and more market-oriented plan to meet the domestic and international needs of the U.S. dairy sector in the future. One just has to recognize the chaotic and disturbing events of these past few months, concerning the economic situation in this country, to begin to understand the future of government programs.

John F. Kennedy said:

So here are five specific areas where, I believe, we need focus our energies to create a better future for all of us.

Number one: Achieve Immigration Reform

It is has become quite apparent that the issue of a stable and available workforce is of paramount importance to the dairy industry. No other issue has the potential to cause catastrophic results with respect to the production and marketing of milk in this country than the failure of our leaders in Washington to pass meaningful immigration reform. For producers large and small, your ability to access and maintain a viable and consistent workforce is of central importance to the core of your business. A lack of legislative reform by the Congress, coupled with an intensified enforcement policy by the Administration, have created anxiety on the farm and in our communities, and the potential to severely impact the financial status of many dairy farmers.

This issue must be dealt with by the new President, and it must be dealt with early on in his tenure. Producers and processors must rally together on this issue for the common good of the industry. Our own membership must be as vocal and committed to our cause, as those who are in opposition. We must be as ardent in our support for meaningful reform, as those who would shut us down, and we must be on the playing field, not sitting watching from the sidelines.

Number two:  Reform and Revitalize Federal Orders

I believe we need to seriously reform the Federal Milk Marketing Order program. It's clear that the structural changes made by the 1996 Farm Bill, which resulted in the formulation of make allowances, have created more bad than good. While it is also clear that there are a number of healthy aspects to the Federal Order system, it is also clear that some changes are necessary. To put it more simply, we need to remove the old fabric from the chair, but keep the frame.

Manufacturing or make allowances have created an unfortunate win-lose dynamic between farmers and processing entities - which include our own coops. Therefore, I believe we need to consider replacing the make allowance structure with a competitive pay price that will allow processing plants to pay what they must for the milk they procure. Some will pay more than others; that's the inevitable result of competition, and where we need to go. After all, isn't it the fundamental purpose of cooperatives to negotiate an adequate price for their members' milk?

Competitive pricing will encourage milk to flow to its highest valued use, by making processors react to the true market value of milk. This will help even out the butter/powder and cheese/whey values of milk, in the U.S. and internationally, and better balance milk markets for all processors in the long run.

At the same time, I support having Class I differentials be pooled among qualifying producers in each market, while a range of credits would provide compensation to producers and cooperatives who shoulder the burden of balancing fluid milk markets.

NMPF's Federal Order task force has wrestled with how to make this concept a reality. Unfortunately, they couldn't come to agreement. It's been a tough process, but I am convinced that it is the right thing to do. I truly believe that only a dramatic break from the current system will suffice to get us away from the zero-sum dynamic of the make allowance issue.

I am reminded of something that Winston Churchill once said:

Number Three: Consider Alternatives to the Dairy Product Price Support Program and MILC Program

Another perennial problem we've had, stretching back even more than a decade, is determining what constitutes the proper nature of a government safety net. In the late 1970s, the price support program was ratcheted ever-higher, reaching more than 13 dollars per hundredweight. Milk production soared far beyond the capacity of the market to absorb it, so we spent the 1980s ratcheting the support price back down, and cleaning up surplus production.

In 1996, the so-called Freedom to Farm bill eliminated the price support program - but NMPF has worked diligently to get it reinstated nearly every year since. It was reinstated largely because there was no transition offered, and its looming absence created a great deal of uncertainty. At the same time, Congress started appropriating direct payments to producers, leading to the creation in the 2002 Farm Bill of the MILC program. And, as you know, the MILC program was expanded in the 2008 bill, and thanks to our help, it now includes a feed cost adjuster. The Price Support Program was also modified to make it more reliable, and was restructured to better meet the constraints of a potential new WTO agreement.

That's all well and good, but I think we're fighting a rear-guard battle with these initiatives. So what I am proposing today is something far different. I think in the next Farm Bill, we should consider asking Congress to end both programs, and replace them with programs that will benefit the entire industry in a new global marketplace. For those who believe they will not be able to operate successfully without these government supports, and will feel compelled to exit the business, I believe we should look at mechanisms to facilitate that process as other segments of agriculture have done both here and abroad.

Please understand, however, that I'm not advocating the complete withdrawal of government involvement in dairy whatsoever. But I do think the PSP and the MILC baseline funding should be replaced with tax incentives and other initiatives that will reward the use of new technologies and innovation. I also think that we should consider a feed-adjuster type mechanism, as part of government-run margin protection program, similar to crop insurance, to help mitigate risk, and protect operating margins. There are already some well-designed proposals out there to do what I'm suggesting. I believe we should sink our efforts into expanding these ideas, rather than hanging on to the ideas of the past.

To use the words of JFK again:

Clearly, both the price support program and the MILC will be of little value to dairy farmers in this new high cost of production environment, where milk prices are too high to trigger meaningful assistance, but too low to cover the cost of high feed and fuel expenses - not to mention labor, health care, and taxes. So we need to look for a new type of safety net, one that doesn't focus as much on government payouts in various forms.

This is a bold statement, but I clearly believe it is the right thing to do.

Number Four: Take a more comprehensive approach to Animal Care and Well-Being and Environmental Initiatives

The fourth area where we need to make improvements is on-farm, and particularly in the areas of animal care and the environment. One of the biggest changes in the entire food marketing system during the past decade is the intense focus - some would call it an obsession - with how food is produced.

First, let's recognize that it's been driven, to an extent, by animal rights activists, opponents of modern science, and a variety of other fringe elements that will never be satisfied with whatever changes are made in agriculture. But it's also a reflection of the fact that many people are concerned more and more about the environment, their own health, and the quality of the food they consume. You can bet one billion Chinese know more about dairy production today than they ever did two months ago.

So, I believe we need to have a comprehensive dairy quality assurance program for all producers, one that will address both customer and consumer concerns. That's why NMPF is assimilating the programs of the Dairy Quality Assurance Center in Iowa, into a new national program that will be made available to all producers. I view this as an investment in a resource center that we will provide our members and others, so that we can build confidence in the integrity of our dairy supply - including dairy beef.

I know many of our cooperatives have embarked on similar initiatives of their own, and I applaud them for being proactive. We can all see that this is an issue we certainly must be in front of. Eventually though, we must have a consistent, universal, verifiable program that is both practical and credible.

On another front, we also need to be aggressive in capitalizing on similar opportunities for proactivity in the environmental arena. The Farm Bill contains incentives for producers to make improvements in the areas of renewable energy and conservation. Our cooperatives would be well-advised to look into providing a new set of services that deal with environmental remediation for farms of all sizes.

One example we will be investigating is the carbon credit market. There is a market today for the credits that many farms could obtain by reducing their greenhouse gas emissions, and we expect it to expand considerably in the not-too-distant future. This isn't just about installing costly digesters, but other less expensive approaches as well. But just as cooperatives help market milk, they could also help aggregate and market another product of dairy farms, carbon reduction. Such an effort reinforces the value of dairy cooperatives and the value proposition they offer their members.

If a new Congress does pass a cap and trade system to control greenhouse gases, there will be an explosive growth market in carbon trading. Dairy will be well-positioned to take advantage of that new market. We need to start working for that new day, today.

Thomas Edison said:

Number Five: Maintain, Adapt and Expand CWT

We have to build on the successes of Cooperatives Working Together. Precisely because the government won't have the resources or the inclination to help farmers as much in the future, now more than ever, we need to have a self-help program, without government involvement.

It's been five years since CWT was formed, and they have been five years of great results. I hope you all were able to see the latest assessment from Professor Scott Brown during our Town Hall meeting yesterday. The program has evolved in size and scope since 2003, but it needs constant refurbishing if it is to stay relevant in the future. I will admit that CWT has sometimes been challenging to manage because there are some who are constantly second-guessing us - all I can say is something that Eleanor Roosevelt said:

Do what you feel in your heart to be right - for you'll be criticized anyway. You'll be damned if you do, and damned if you don't.

But it is our responsibility to take positive and thoughtful comments into consideration. That is why we utilize special task forces composed of experts within the membership to continue to analyze ourselves and offer improvements.

So what exactly should we be considering for the future? First, we should expand the export assistance side of the program by exploring the creation of a U.S. Marketing Agency in Common (USMAC) to take advantage of the enormous untapped potential of our cooperative structure. We should use the vast potential and broad membership of CWT to ensure that we will control our own milk supply, rather than rely on foreign interests whose loyalty will always first be to their own constituents.

I also think we should consider how CWT can create financial incentives to produce from American milk the type of products, such as casein, various new protein products and cheeses, that our customers want and need, both domestically and internationally. Let me assure you that these ideas are not intended to create competition with our own members, but rather try to fill voids where they exist, avoiding duplication but stimulating innovative and bold thinking for future alternatives.

I also want to assure you that I recognize that the herd retirement program must be kept, not as an afterthought, but as a very vital and essential part of our multi-faceted effort.

Finally, the other challenge we know CWT will continue to face is the issue of free riders. Our membership base has been stable, but not growing, in the past two years. Like all voluntary efforts that benefit members and non-members alike, it can be a hard sell to get new members on board.

So I believe we have to find new creative ways to reward CWT's members, above and beyond those who don't contribute to the program. Such an effort will make CWT more attractive to its existing members, while hopefully compelling others to sign up as well.

I realize that much of what I have said today might make some uneasy and uncertain of my intentions, but be assured I remain a fervent champion of cooperatives and the producers who own them.

However, I take seriously my obligation to tell you what I think you need to hear, not what you want to hear. What better time after the success of our efforts on the Farm Bill and the challenges of a new Washington, to begin exploring a new direction for our industry that will position us, both domestically and internationally, as the global dairy leader in the world?

There is a song by Jimmy Buffett and Alan Jackson called "Boats to Build" that captures what I've tried to express to you this morning:

Ladies and Gentlemen, I am asking you to put aside your fears, doubts and uncertainties, and join me in a new quest. Now is the perfect time to build a boat that will sail our industry in a new direction, and position us to meet the challenges of a global marketplace. We are indeed privileged to work for an industry so full of promise and opportunity.

Let me assure you that I still have that fire in my belly to serve your best interests, but I need your continued trust and help because we've got new boats to build!

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