cows in field

From the NODPA Desk, April 2020

By Ed Maltby, NODPA Executive Director

Once again, we see the conventional dairy market collapse. Conventional milk is being dumped by the tractor trailer load into manure pits while many consumers are restricted in the amount of milk they can buy at supermarkets like Walmart. While the cause of the oversupply in the conventional market, this time, is something that was difficult to predict, the supply-side structure can only continue to function with massive amounts of milk being dumped.

There was no capacity to deal with system-wide demand for processing resulting from a pandemic that has been predicted by government for many years. There are no supply controls in place that could have been activated in February to reduce production in a fair and equitable way, or divert milk to other manufacturing uses, or divert existing inventories of dairy product to Food Banks and other food access programs. While individual cooperatives are probably initiating some supply controls as they lose contracts, this is not the same as a nationwide system for supply management, which is long overdue.

Congress was relatively quick to appropriate massive amounts of money with the $2 trillion CARES Act to agencies ill-equipped to distribute the monies quickly. For producers, it is difficult to discern which programs they are eligible for, and which one is the most useful program to spend their limited amount time on in applying and working through their paperwork.

For organic dairies, there was not the massive drop in demand and no reported drop in a pay price, which is already below break-even. Sonja Tuitele, director of communications for Aurora Organic Dairy, is reported in the Missourian as saying that their Missouri processing plant has experienced an increased demand for milk. Aurora Organic Dairy processes and bottles milk from large scale organic farms in Colorado and Texas. “Our milk plant in Columbia is working hard to build inventories so that we may continue to meet the demand of our customers,” Tuitele said. The most recent report on March 25th from CROPP Cooperative is that the pay price will not change from 2019, but will no longer be made public. Travis Forgues, Executive Vice President of Membership said, “Organic Valley is not putting our pay price out on the website anymore currently, as the information was then used to try and get cheaper pricing from our customers.” CROPP Cooperative has initiated an increase in hauling. Instead of $180 per month, it has now moved to $220 a month, plus $0.05/cwt.

Producer Eligible Disaster Programs

For those with a Small Business Administration (SBA) guaranteed 504 or 7A loan, the administration acted quickly, and immediately started a program to pay the principle and interest for those loans for the next 6 months. It was implemented automatically.

Farms are not eligible for the SBA Economic Injury Disaster Loan advance of up to $10,000.

The SBA Paycheck Protection Program is the best program to spend some time on for small to mid-size operation that may have a few employees. This loan turns into a grant if you use at least 75% of the loan for payroll over the four months after you receive the loan. For those businesses that are sole proprietors, partnerships, or LLCs, they can include the gross income based on tax returns for 2018 or 2019 in calculating what loan payment they can apply for. The recommendation is to work with a bank that is familiar with your situation and finances so that you spend less time explaining the idiosyncrasies of organic dairy. This program will need more money from Congress, so do not rely on any rapid deposits into your bank account.

The CARES Act earmarked $9.5 billion in COVID-19 relief for livestock producers, specialty crops and local agriculture systems and provided $14 billion more to replenish USDA’s Commodity Credit Corp. spending authority. Asked about the $9.5 billion, Perdue told reporters on Wednesday, April 8th, that USDA’s “goal is to get it done sooner rather than later, but we want it done very inclusively as well.” Apparently, the quickest USDA can determine how to spend the money is by the end of summer. The National Organic Coalition and the Organic Farmers Association sent a letter (letter is at the bottom of this column) to Secretary Perdue, suggesting ways in which this money could be spent. For organic dairies this can be summarized as two major areas: direct cash payments to dairy producers; and opening up the enrollment for the Dairy Margin Coverage Program (DMC). Cash payments would be the easiest and most straightforward way to support farm families. Providing direct payments to farmers, including organic farmers, in order to keep them solvent during this critical production season as they face the loss of or disrupted markets, is the most direct way to bolster the long term survival of farm-sized organic and conventional dairies crucial to the rural economy. In making direct payments, it is critical that the criteria used to distribute those payments is large enough to be effective and with payment limitations to ensure that farmers that need the help get it. This could take the form of a dollar per cwt (there is speculation of anywhere between $3-9 per cwt) based off March 2020 or of March, April May production with a cap to prevent the large dairies from receiving multi-million dollar checks. The other option would be to re-open the 2020 sign-up period for the Dairy Margin Coverage Program to allow new participants into the program. In addition, reopening the sign-up period would allow existing DMC participants to reconsider their coverage decisions for 2020 given the extraordinary and unforeseen dairy market collapse related to the pandemic. Organic dairies would be eligible to apply for DMC. National Milk Producers Federation predicts that using the DMC formula and prevailing futures prices, farm margins over feed costs, are projected to be $5.80 per hundredweight for the second quarter and $6.76 for the third quarter of 2020. The re-opening of the enrollment for the DMC would require the USDA to ask for congressional action to approve this move using the argument that it is the best way to distribute money through an existing program.

The NOP has been instructed by Congress to publish a Final Rule on the Origin of Livestock on or before June 16th 2020. While the COVID 19 does affect almost everything, those writing the rule can do so remotely with perhaps more time if they have fewer distractions of endless meetings. One concerning aspect of the comments on the Proposed Rule received from processors and their trade organizations, is their advocacy for tying the one-time transition exemption to an operation rather than a person (as defined by USDA). The National Milk Producers Federation stated their opinion that “NMPF and many others in the organic industry are not supportive of changing the rule to only allow one transition to organic per producer as this would be overly restrictive and unnecessary.” They used CROPP Cooperative’s comments in 2015 to support their argument and also inaccurately stated that, “Organic milk sales have continued to increase over the years, creating a need for more organic fluid milk.” Comments from Horizon, WhiteWave, Danone and the International Dairy Foods Association (IDFA) agree with that provision. IDFA stated that ‘we recommend that the one-time transition be assigned to a “certified dairy operation” rather than a “producer.” IDFA members include Aurora Dairy, Lactalis, DFA, Organic Valley, Organic West, and Scott McGinty, CEO Aurora Dairy is a Director on the Executive Council. NODPA and many others supported not tying the exemption to the operation. Tying it to the operation means any one individual can set up new operations repeatedly to make use of the exemption multiple times. New operations owned by the same individual/LLC/company are then either managed separately in 2-3,000 cow milking ‘operations’ or joined together once the one-year transition period is up. The NOP can still receive opinions and comments on the rule, as can the Small Business Administration and the Office of Management and Budget. Please pressure your buyer to correct the statement that their trade associations have made that implies all of organic dairy supports this interpretation of the exemption. The Final Rule will probably not be perfect but we need to keep the pressure on for the best we can get.

I wish you all the best of health as you continue to be the heroes that we know you are providing the best of food, services and support that the country relies on during this crisis. Remember when you visit with your neighbors, keep the pick-up truck between you!

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