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Tuesday, May 28, 2002

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Dairy industry upset with US Farm Bill

Harish Damodaran


THE domestic dairy industry has flayed the recently passed US Farm Bill 2002, which, it says, would further depress international prices of dairy products and enhance subsidies and protection levels to high cost, inefficient milk producers in advanced countries.

The Bill — officially titled the Farm Security and Rural Investment Act of 2002 and signed by the US President, Mr George Bush, on May 13 — provides for continuation of the existing Milk Price Support Programme (MPSP). Under this, the US Department of Agriculture's Commodity Credit Corporation (CCC) is committed to buy unlimited quantities of butter, cheese and non-fat dry milk (i.e skimmed milk powder) from dairy plants at prices that enable them to pay a minimum support price for the milk supplied by farmers.

The support price has, in turn, been fixed at $9.90 per hundredweight for milk containing 3.67 per cent fat, with CCC's purchase prices for dairy products being set at levels ``sufficient to enable plants of average efficiency to pay producers...a price that is not less than the rate of price support for milk''.

Considering that a hundredweight equals 100 pounds or 45.36 kg and one kg of cow milk is equivalent to 0.973 litres, this translates into an assured milk price of around Rs 11 per litre at current exchange rates. Compare this to the Rs 9.40-9.50 per litre rate that organised dairies are paying to farmers here for cow milk.

Significantly, under the previous Clinton administration's Federal Farm Act of 1996, the MPSP was to have been eliminated from January 1, 2000. The 1996 Act had even established an incrementally downward movement in the support price from $10.35 per hundred weight in 1996 to $9.90 per hundredweight in 1999, after which the programme was to be discontinued altogether. This, however, did not take place and the programme was extended beyond January 1, 2000 at the support price of $9.90 per hundredweight.

The Farm Bill 2002 has gone even further, while re-authorising the MPSP for the period June 1, 2002 to December 31, 2007. ``What was supposed to have ended as per the 1996 Farm Bill has been given a further six year lease of life by the 2002 Farm Bill'', Mr B.M. Vyas, Managing Director, Gujarat Cooperative Milk Marketing Federation (GCMMF or Amul), pointed out.

But this is not all. The 2002 Bill has also provided for a National Dairy Market Loss Payments (NDMLP) scheme, which sets a `target price' of $16.94 per hundredweight or Rs 18.81 per litre of milk. If prices of Class I milk (i.e milk for beverage use) rule below this level in Boston, dairy farmers all over the US would be given direct payments covering 45 per cent of the difference between the higher target price and the lower market price. An individual producer is eligible to receive these payments for an aggregate quantity of up to 2.4 million pounds (1.9 million kgs) of milk marketed by him during the year.

If one takes into account an average price of $15.02 per hundredweight (Rs 16.68 per litre) received by US dairy farmers during 2001, the NDMLP — which takes retrospective effect from December 1, 2001 to September 30, 2005 — translates into direct payments of $ 20,736 per farmer per year or over Rs 10 lakh of `additional' income.

In contrast, a `decent' dairy farmer in Punjab, who maintains a herd of 4-5 cross-bred cows, each yielding 3,500 kg over a 300-day lactation period, does not earn even a `gross' annual income of Rs 1.5 lakh!

``There is absolutely no basis for guaranteeing such high levels of milk prices, that too for producers who are said to be more efficient than our farmers'', said Mr Deepak Jain, Director, Dynamix Dairy Industries Ltd. According to him, the continuation of the price support programme, along with the new counter-cyclical direct payments scheme against a target price, will provoke the European Union to follow suit and provide higher levels of support to its dairy farmers.

``All these will only increase subsidies and further distort world trade in dairy products, making it harder for our industry to compete'', Mr Jain added.

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