Peeling back layers of dairy checkoff report to Congress

The 2016 report touts a $5 to $1 return, but here is a deeper look. More transparency needed, sought

By Sherry Bunting, Farmshine, April 5, 2019

WASHINGTON, D.C. — USDA released the 2016 Dairy Checkoff Report to Congress on April 1, and it focuses on quantifying the return dairy farmers received for their 15 cents per hundredweight — over $320 million collected annually — in mandatory checkoff investment.

Well, not really.

The headliner is that farmers received a $5 to $1 return on their promotion dollars. But let’s look a little deeper.

The $5 to $1 return is an evaluation made by the independent analysis of Texas A&M based on the dollars spent on “demand enhancing” and “promotion” activities, not a return on investment calculated on all dollars mandatorily invested by dairy farmers.

Digging into the charts, this puts the evaluated dollars at around $250 million, and that includes the processor funds in the MilkPEP program. The total dairy farmer checkoff of 15 cents per hundredweight amounts to $320 million annually and the MilkPEP processor funds are close to $94 million annually, according to the report.

Meanwhile, a bipartisan bill was introduced in the U.S. Senate to bring transparency to checkoff programs for all farm commodities. The bill — Opportunities for Fairness in Farming (OFF) Act — was reintroduced a week ago by U.S. Senators Mike Lee (R-Utah), Cory Booker (D-N.J.), Rand Paul (R-Ky.) and Elizabeth Warren (D-Mass.).

According to an advocate of the bill — the Organization for Competitive Markets (OCM) — the OFF Act would put an end to the “most egregious abuses” committed by the boards and contractors of the federally mandated commodity checkoff programs.

OCM states that, “Checkoff programs have fallen under the control of commodity trade organizations representing global agribusiness interests,” noting that “farmers are struggling amidst increasing consolidation, low commodity prices, and excess supply. Net farm income is at a 19-year low. Along with recent trade disruptions and natural disasters, such as the flooding in the Midwest, the last thing farmers want or need is their tax dollars working against them.”

The OFF Act is intended to “rein-in conflicts of interest” and “stop anti-competitive activities” by forcing checkoff programs to publish their budgets and undergo periodic audits so that farmers and ranchers know where their mandatory checkoff dollars are going. It would also stop federally-mandated checkoff dollars from being transferred to parties that seek to influence government policies on ag issues and increase the transparency of the individual boards’ actions by shedding light on how these funds are spent and the purpose of the spending.

In light of this new bill, let’s look at the 2016 Dairy Checkoff Report to Congress released on April 1.

According to the 2016 Report’s executive summary, “… the combined effects of 2016 promotion activities on the consumption of fluid milk, cheese, butter, all dairy products, and dairy exports includes benefit cost ratios (BCRs) for dairy producers, dairy importers and fluid milk processors. For every dollar invested in demand-enhancing activities, the BCRs for producers were: 1) fluid milk $4.11, 2) cheese $4.81, and 3) butter $22.74, 4) exports $8.10. The BCR for fluid milk processors attributed to fluid milk promotion activities is $3.73. And the aggregate BCR on every ‘demand-enhancing’ dollar spent was calculated at $4.78.

Putting those BCR’s in perspective, the 2016 Report totaled the mandatory dairy promotion contributions at $415 million, of which $94 million was contributed by the Milk Processors Education and Promotion Program (MilkPEP), which are the funds paid by fluid milk processors for fluid milk promotion.

When looking at the graphs accompanying this report — since the report does not include the raw data points for 2016 — the total amount of domestic dairy demand-enhancing funds from which the BCRs (aka returns on investment) were calculated, comes out to around $250 million for the year. And a large chunk of that came from the fluid milk processors (over $80 mil).

From 1996 through 2016, the amount of money collected topped $7 billion, according to the report.

During those 20 years, the dollars spent on “demand-enhancing” activities for fluid milk have declined, and the fluid milk sales have declined also. Of the roughly $110 million spent on fluid milk demand-enhancing activities in 2016, most of those dollars came from MilkPEP generic promotion.

Also, keep in mind that the fluid milk sector is the sector held most notably to the standard of “government speech” in its “allowable” promotion i.e. the low-fat and fat-free USDA Dietary Guidelines that have precipitated the decline in fluid milk consumption.

In fact, whole milk sales rose in 2016 while the entire fluid milk category fell. But whole milk was not promoted with any of the producer or processor promotion funds overseen by USDA and evaluated in this report. Consumers chose whole milk based on external factors that are driving the discussion of fats and proteins in the diet.

The fastest growing demand-sectors in recent years include butter. The 2016 Report to Congress states that farmers received a $22 to $1 benefit cost ratio (BCR, aka return on investment) in that category.

That looks really great, right?

But again, this is based on the amount of “demand enhancing” funds actually spent on butter promotion in 2016 — right around $8 million for the year — the lowest category of all product promotion sectors to receive promotional funding, but the fastest rising in demand and value.

Put simply: Very little of the dairy farmer’s promotion funds (less than 2% of total checkoff funds) were used to promote butter, but sales have risen so fast in that category that the return on investment seems to be quite impressive. The “return” may have nothing to do with the “investment” under this scenario.

Meanwhile, Dairy Management Inc. (DMI) has continued consolidating the way it uses its national share of individual farms’ mandatory checkoff funds through business-to-business (B2B) partnerships where the goal is to influence the amount of dairy utilized by the top restaurant chains, pizza chains, and other foodservice companies in what they offer to consumers. This may become increasingly important as the government dietary guidelines and other factors pressure companies to use more plant-based options. But the drawback is that this B2B use of dollars feeds into further consolidation of the industry in terms of geographic winners and losers.

The key to looking at the 2016 Report’s BCR (returns on investment) calculations is the choices consumers are making where they actually have choices. Consumers are choosing whole milk and full-fat dairy at rising rates. Where they don’t have a choice, the low-fat and fat-free versions are enforced and offered. So while $110 million might have been spent by farmers and processors to enhance fluid milk demand, precious little, if any, has been used to promote the whole milk message due to USDA oversight of all advertising messages.

Part of the other half of checkoff funds not included in the “demand enhancing” and “promotion” BCR (return on investment) calculation is in dollars funneled toward the Innovation Center for U.S. Dairy.

What is the Innovation Center, farmers wonder?

The Innovation Center is the part of DMI that is considered “pre-competitive.” This includes new product development, like fairlife.

The Innovation Center also includes the FARM program that governs animal care standards and is increasingly seen as a methodical tool to control and cull dairy farmers by management style. Dairy producer checkoff funds have paid for the FARM program through DMI’s Innovation Center even though National Milk Producers Federation (NMPF) implements and administers FARM with DMI paying NMPF for certain services and NMPF paying DMI for other services.

The Innovation Center also includes the “sustainability” standards being set for FARM in conjunction with World Wildlife Fund (WWF) to streamline the dairy “industry” for WWF’s sustainability stamp-of-approval.

This alliance is clear when spending a little time browsing the WWF website at https://www.worldwildlife.org/industries/dairy. The DMI “partnership” with WWF through the checkoff-funded Innovation Center is also at this link https://www.worldwildlife.org/partnerships/innovation-center-for-us-dairy

Both links are housed by WWF’s website and WWF is also working in alliance with the beef checkoff to set sustainability parameters for U.S. cattlemen as well.

Meanwhile, HSUS is among the proponents of the OFF legislation introduced by Senators a week ago. This is the counter we here, how farm organizations seeking competitive markets are working on the same side with HSUS.

For the record, Dairy Checkoff and Beef Checkoff are working with WWF, and WWF is barely one step away from HSUS in terms of having an anti-animal-use agenda.

Both organizations seek to greatly decrease, or end, the use of animals for food, work, etc., and they seek the re-wilding of lands where farmers and ranchers have gone out of business to accumulate massive sanctuaries for wild animal proliferation while working in close partnership with EAT Lancet-supporting companies to shift the U.S. diet away from animal products to plant-and-laboratory-based-imitations.

What is missing in the “sustainability” discussion that farmers are helping to pay for with their checkoff dollars through their dairy and beef boards is the truth that the plants need the animals and the animals need the plants and we humans need them both for healthy bodies and a healthy planet.

What is also missing is the food security and regional economics of the food industry consolidation that is occurring in the name of “sustainability” through the very checkoff-funded “sustainability” programs that are being developed to appease groups like WWF.

If companies want to consolidate and streamline this way, that’s free market enterprise. They are free to do so. But should farmer checkoff funds be helping to pay for it?

For example, dairy farmer checkoff funds were used — according to the 2016 Report to Congress — to develop a variety of programs aimed at transforming the industry. This has been going on since 2009, according to the Report.

This means a portion of the dairy farmer checkoff funds collected from all dairy farmers on all milk from 2009 through 2016 has gone into developing programs that are not considered demand-enhancing and that are — in effect — picking winners and losers within the dairy farming sector.

These funds have been used to implement aspects of FARM in animal care and environmental sustainability.

These funds have been used to launch programs to reduce greenhouse gas emissions across the dairy supply chain, including a “fleet smart” program that touts its ability to help processors and cooperatives transform their trucking and distribution.

Read that sentence again. What does it mean?

Dairy farmers have funded — through mandatory checkoff — the development of the very programs that are streamlining and consolidating their industry in the name of so-called “sustainability.” As proprietary and co-op processors adapt the transportation and distribution ‘fleet smart’ modules, farmers are, in essence, paying for that with checkoff funds and other assessments put on them by their cooperatives, and in turn, those transformations make some farms desirable and others undesirable simply by size or location.

The invisible hand of the free market picks winners and losers. But in this case, should mandatory dairy farmer checkoff funds be the helping hand to pay for that? To pay for their own demise, in some cases?

It is interesting also to know that USDA is paid for its extensive time and costs to do all of this oversight – paid by these funds to keep the troops in line on toting government speech, among other things.

Here is how the 2016 Report to Congress describes USDA oversight:

“USDA has oversight responsibility for the dairy and fluid milk promotion programs. The oversight objectives ensure the boards and qualifying partners (QPs) properly account for all program funds and administer the programs in accordance with the respective acts and orders and USDA guidelines and policies. USDA reviewed and approved all board budgets, contracts, and advertising materials. USDA employees attended all board and committee meetings, monitored all board activities, and were responsible for obtaining an independent evaluation of the programs. Additional USDA responsibilities include nominating and appointing board members, amending the orders, conducting referenda, assisting with noncompliance cases, and conducting periodic program management reviews. The boards reimbursed the U.S. Secretary of Agriculture, as required by the acts, for all of USDA’s costs of program oversight and for the independent analysis.”

To be continued.

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