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2001 Dairy Forum Address Monday, January 22, 2001 Title: "Working Together in the Future Tense" Before we look forward this morning, to the year ahead, I want to take just a moment to sum up a few projects that IDFA was able to successfully take part in over the past year. And I want to thank you all for making those achievements possible.
These are just a few areas where real progress was made last year, and I thank all of you for your hard efforts in supporting these projects. Now, let me make a few comments about where we are, as we look at a new year of dairy policy. I think it helps to make note of how far we've come. As John said in his kind introduction, I've now had the honor of working on dairy policy for 35 years. It's hard to believe it's been that long. It feels like yesterday, and you know what a terrible day yesterday was! But seriously, I've had the privilege of seeing this industry change and grow in enormous ways. And, taken over time, we really have gotten a lot smarter about policy. Making dairy policy is like making sausage - You know the old adage, if you like sausage and respect the law, don't watch either of them being made -- close up. It's better to look at the process from a distance. And from a distance, over time, we've clearly managed to reduce some unnecessary regulations and bring this industry closer to the market Today, we find ourselves once again ready to jump into another hard year of policy issues, particularly as we plan for the next Farm Bill. Once again, we are at a crossroads. We have choices to make about our collective future. Once again, we need to ask how we can work together to achieve growth and prosperity in this industry. But I'm concerned that lately -- over the past few years -- the environment in which we try to conduct this dialogue has changed. The spirit and tone of our conversation is more charged, more derisive and divisive, and less constructive. I chose the title of "Working Together in the Future Tense" because as we begin the new Millennium, I believe learning how to work together, as an industry, is our single most important challenge. Someone on my staff suggested we place a comma in the title of the speech right after the word "future", and that might sum up how people are feeling -- "tense". But I decided that really wouldn't set the right tone. The question is, will working in the future - this year and in the years ahead - create more division between processors and producers, and producers and producers? Or, can we undertake a "new millennium resolution" and pledge ourselves to working together in a more productive and constructive manner. I want to explore with you what I think "a more productive manner" means. I was listening to one of those Washington talk shows last week, and two advocacy groups were arguing with each other about the new Bush cabinet. Finally, the spokesperson for one of the interest groups said to the other, "My fervent hope is that you'll spend all your time and money on this issue, because you're going to lose, and we'll win in the end, anyway." That's the way a lot of advocacy groups think. But what happens when our industry is actually fighting itself, like two different advocacy groups? If one succeeds and the other fails, is there really a winner? When our attitude is that the other guy is the adversary, rather than a partner, all of us spend a lot more money, time and energy on advocacy, and a lot less money, time and energy on building the business -- the business that belongs to all of us. We need to think big to compete in the global food industry, but fighting with each other makes us hunker down and think small. We become our own worst enemy. Gregg Engles, the Chairman and CEO of Suiza, who is with us this morning, framed this message well at the annual meetings of the National Milk Producers Federation and Dairy Management Inc. last fall. He talked about how this is an industry of many parts and many players, all who depend on the others: producers, processors, manufacturers, suppliers.... all are partners that allow us to deliver high-quality dairy products to our customers. Gregg said of processors and producers, and I quote, "If either side is not strong and viable, neither side has a business.... We are one industry. We share the same future." One result of our inability to work together more closely, is that the government has been taking too much of a leadership role on our policies. Part of the reason is that no-one in this room, by themselves, can drive dairy policy, and we are not talking together about where we should be going, and what our priorities need to be. By default, the government becomes the main driver. It is my observation that much of the legislation that has been pursued in the past several years was not necessarily sought by industry. Instead, it was initiated by members of Congress, who perceived a political advantage in offering legislation to benefit their own region, and their own political standing with their voters. This is certainly true in the case of the Northeast Dairy Compact. An obvious problem with working this way is that it doesn't consider whether the law or regulation is good policy, but only considers what kind of political advantage it brings to the party pushing for it. I want to commend the National Milk Producers Federation for its work in trying to pull the producer side of the industry together to realistically discuss options for dairy policy. This is not an easy task, especially since Federal Order reform has only increased regional tensions. While I commend this effort, I know that it can only go so far before it is ineffective. A producer dialogue on policy must, at some point, invite participation from dairy processors and manufacturers. The reason is simple: We are all forced to live by these dairy policies together, and we cannot ensure that any of our policy goals will be met, when we work apart. I was fortunate to be at the Bush inauguration in Washington two days ago. It was a wonderful event, full of celebration and great expectations. I thought about how prophetic President Bush was, when he campaigned on the banner that he was a uniter not a divider. Clearly, the only way he can successfully govern is to unite enormously divergent interests. As a first step, he will try to grow the total economic pie, so that as many people as possible get more, not fewer, economic benefits. He will have to do this, as he has said, with compromise and compassion. This is the direction we, too, should take. Our common goal should be to grow the total pie, to enhance the entire industry -- not just those groups with the most political power. And there is some urgency to our mission. We do not operate in a vacuum. We are part of a global food and beverage industry that grows more competitive each year. The global economy continues to fuel consolidation for everyone in the food business. For dairy manufacturers, that means we continue to see rapid consolidation of our customers - retailers, foodservice operators and distributors. Dairy companies, in turn, have to be larger and more efficient than in the past, to serve these national and international customers. Our dairy policy must recognize this new reality. The measure of our success will be how competitive we are as a player in the global food and beverage industry. That's the ball we have to keep our eye on. That means being competitive within the United States, and also being competitive with dairy industries in other countries, so that we can export dairy ingredients and foods, and compete with imported dairy foods from abroad. The U.S. dairy industry cannot be an island unto itself. I believe there are two steps we can take today, to move closer toward a better working relationship. The first is that we could agree to try to have an honest dialogue between parties. The second is that we could look at the issues on the table before us, and try to identify which ones are of the highest priority. Just to identify those core issues that truly need attention -- that would be a great start. So, to the first point: How might we begin a better dialogue between processors and producers, and producers and producers? I think first of all, we must restore civility and honesty to our policy debates. We have not always debated one another using the facts, and this hurts all of us. Sometimes, the rhetoric around an issue gets so heated, that the facts become obscured - and even seem irrelevant. For example, in 1999 -- one of the industry's most contentious years ever -- USDA had proposed a position called "1-B" for Class I price differentials, a position so controversial that Congress became involved. Some groups asserted that the only way to ensure that the Class I price level would be equal to what it had been before Order Reform, was to put in 1-A rather than 1-B. It was often asserted that 1-A was, quote, "the status quo", even though all of the economic analysis said 1-A on top of the new base prices would certainly raise prices. Well, just as many experts had projected with 1-A, Class I prices have gone up. Last year, they were $1.80 above where they would have been before reform. On the face of it, that may seem like a clear victory for dairy producers, but certainly not for all dairy producers. Policies that raise milk prices above where the market would set them lead to over-production of milk and higher prices for our dairy products. This creates problems on both sides of the equation. On the supply side, we are faced with the problem of having too much milk, which drives down prices for manufacturing milk. In the marketplace, our products are more costly, and less competitive. And on top of it all, we end up with more complex policies, which make it harder for us to compete with other food and beverage categories. But in 1999, we were not able to have this kind of dialogue. An important part of having a constructive dialogue is to check our assumptions about what we think the other side wants, or where there is room for discussion. A dangerous assumption you can make today is that processors want a totally free market system, and that producers want more government in their lives. I would venture that most dairy producers don't really want more government, so much as they want a fair, secure income. As we saw all too well last year, more government policies don't necessarily get them there. In fact, a whole mess of government involvement through federal order reform, price supports and direct payments hasn't managed to guarantee a secure, fair income for some dairy farmers, particularly those in high Class III regions. As for processors, they know that there is a role for government in our industry, particularly in terms of farmer protection, and I believe they are ready to discuss that concept in more detail. We all know today that when left to work without too much intervention, the market has provided higher prices for producers, on average, than under more government structure. The problem is volatility, and protecting farmer income from month to month, throughout the cycle of ups and downs. We believe the government should set up a program that could provide this protection for dairy farmers. As a first step today, we should try to have an honest dialogue. We won't agree on everything, but at least we should see where we can find agreement. And we should do it before we go to the government. On behalf of IDFA and its constituent organizations, I pledge to you our commitment to do all we can to discuss our issues -- even issues of difference -- in a factual and civil manner. I also pledge that we will do all we can to grow this industry as a whole, together. Now, if we can agree to have an honest dialogue, the next step would be to lay out what our goals and priorities are in dairy policy, and try to identify what the core areas are that we all should be looking at. Let me share with you where IDFA is today, in terms of its policy goals. In December, the legislative and economic policy committees of NCI, IICA and MIF met in Washington to discuss general goals for the coming year. We set three guiding principles for dairy policy, which I believe could be workable for processors and producers together. (I) We start with our consumers, because demand is the horse that pulls all of our wagons. The need for competitive and reasonable prices for consumers, based on market conditions, is fundamental. (II) Second, we must keep our sights on federal dairy policies and programs that are national in scope - not regional or local. Like it or not, we have been a national industry for some time, and our policies must make sense at a national level. (III) Third, we must work to ensure reasonable farmer security through a variety of risk management tools. In doing so, we should set policies that provide a safety net for income, while not artificially raising milk prices above the market. As we have seen all too well in the past year, price enhancements that interfere with the market do not serve us well, because we only perpetuate the over-supply that continues to drive down prices. Letting the market correct itself is hard in the short-term, but in the long run, it serves producers better, because it allows prices to recover. We must find a variety of ways to manage the financial risk of volatile market prices, without government intervention in the market. There are many ways these issues can be addressed -- hedging by using the futures markets, forward contracting, direct payments to producers, and many other means. Let's have an honest discussion about providing reasonable income protection without distorting markets. To sum up, our goal for dairy policy is this: We need a national, industry-wide plan that protects farmers, without raising product costs and hurting dairy product sales. These three points would be one place to start an industry-wide dialogue. We won't agree on all the details, but I'll bet we can agree on more than many of us here would assume. Another place we might start the dialogue is by looking at what the issues are this year, and deciding which ones are priorities for our industry this year. I am going to share a sample list of issues which will most likely be discussed and advanced by various interests over the next two years. Some of these issues are:
What struck me most in preparing this list was the fact that virtually none of these are new, and many have been the source of contentious, divisive, high-decibel debates for many years. Do you think it might be possible for the industry, through real and honest discussions, to decide that some of these issues are so controversial that a public fight should be avoided? Or that some of the issues might be refined to be acceptable, or at least more acceptable to the industry as a whole? Which of these are core issues, and which are not? Do you think it's worth discussions in a positive atmosphere to attempt to find solutions? We do. In closing, I believe the measure of our success in the year 2001, when we gather at next year's Forum and look back at this year, will be what we achieved as partners. Not which bill was won by farmers, or by processors, but what kind of dialogue we had together. If we end up next January in the same place as we are this January, we cannot, any of us, consider the year a great triumph. I know that many of you are anxious to find common ground. There is such talent and leadership in this room. Such love for this industry, and pride in how far we have come. There are great things ahead for us, and it is a greatness that I know we can build and enjoy as one industry. Let's start the discussion today. I have great hopes for what we can do together. Thank you and enjoy the Dairy Forum. |
