JUNE 24, 1999

Mr. Chairman, as we examine the proposed legislation before us today, it is important to review the amount of work that has gone into USDA’s final rule on federal milk marketing order reform. As we all know, the 1996 Farm Bill directed the Secretary to consolidate and reform the federal system by April 1999. Through a very thorough process, USDA sought public input, held public meeting throughout the country, and, in time, released a final rule. The Department followed the process Congress outlined and they have put an enormous amount of time and energy into answering all of our questions at every step of the way. I also believe, Mr. Chairman, that through your leadership, the Subcommittee has been very accommodating to all viewpoints.

When the final rule was released, a barrage of wild doomsday economic forecasts followed. Where there was conflict in the economic models, you wisely sought common ground, Mr. Chairman. At your request, USDA worked closely with the economists and producer groups to reach consensus on the true economic impacts. In sum, I believe that USDA’s final rule on federal order reform sits on very solid ground. It is unfortunate that political wrangling would attempt to change that. It is also disappointing that we are once again attempting to circumvent the process.

Although today’s debate will focus on Class I differentials and there is continued talk of regional dairy compacts, the most important reform issues are often ignored. In my judgment, the most important aspect of this rule is the replacement of the current BFP with a new manufacturing market place on a timely basis. It is also significant that USDA plans to consolidate the current 31 federal orders into 10. In short, consolidation will help eliminate some of the utilization distortions that have skewed the market. Although the new system is not expected to correct future volatility, it should help prevent enormous price drops, like we’ve seen recently, that are based on old and inaccurate market information.

Multiple component pricing also adds to greater market reality by pricing the value of milk in a more complete manner. The added benefit of this method is that it moves the federal system closer to the California system. Because of California’s strong influence on the national manufacturing milk price, our dairy industry benefits by having the federal system reflect elements of California’s state system. We would benefit more if California would vote to join the federal system.

Mr. Chairman, in my opinion the differences between Option 1a and 1b and the importance of the bill before us are completely overblown. The difference is not as dramatic as many would report. FAPRI will offer testimony later on the projected efforts of the final rule versus Option 1a – in the aggregate, the effect is very small. It is a complete disservice to our nation’s dairy farmers to spread misinformation based on loose analysis.

I believe it would be in the best interest of everyone if we delay any legislative involvement until USDA completes the referendum process. It is my opinion that, when given a chance to vote on current reform, farmers and cooperatives will overwhelmingly approve the package. If I’m wrong, it will be relevant to consider legislative proposals at that time.

I would also challenge those who support Option 1a and Compacts while singing the praises of the free market, free trade and Freedom to Farm. I do not understand how these opposing viewpoints meet in the dairy barn. We passed Freedom to Farm which pushed us further into the world market without a safety net (which has not worked very well in the northern part of my district) and we are here today saying, “well, yes, but dairy is different.” If the free market is healthy for American agriculture, why attempt to legislate market distortion. USDA has issued a final rule with Class I differentials that are based on the cost of moving fluid milk to deficit areas. Legislating higher levels goes against the market. Some push for free trade saying, “American agriculture will succeed in the global market.” Yet somehow the same people don’t trust our own domestic dairy market? We push for national agricultural policy while demanding regional compacts that offer local benefits at the expense of others.

Mr. Chairman, I can understand why many of the major cooperatives support this legislation but I am still confused as to why free marketers support the proposal. The bill stops our movement forward and pushes our dairy farmers and the industry backward. Proponents of Option 1a complain that the current system means the demise of their farmers, yet they propose to make the current system law.

It is critical that we move our dairy industry into a brighter future; one that is able to respond to market forces and is not hindered by government distortion. The final rule moves the industry in that direction. We must shy away from proposals that offer regional advantages while fracturing our national dairy industry.

I’ve traveled abound the country talking to dairy producers and cooperatives. The one issue that unites producers and co-ops across the country is an extension of the price supports which are set to be eliminated January 1, 2000. In my opinion, it would be in the best interest of our national dairy industry if we enact my proposal to extend the price support at the current level through 2002. Furthermore, we should shelve the Option 1a proposal, shelve any compact proposals, and let the final rule go into effect.

I welcome my colleagues and our witnesses to today’s hearing and I look forward to the debate.

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