Upper Midwest Dairy Coalition

WAYNE BOK

Testimony on behalf of Associated Milk Producers Inc. and

the Upper Midwest Dairy Coalition.

Commercial & Administrative Law Subcommittee of the

House Judiciary Committee

June 17, 1999

On behalf of the Upper Midwest Dairy Coalition, I want to thank you, Chairman Gekas and other members of this subcommittee hearing, for allowing me to testify before the committee.

I am Wayne Bok, a dairy farmer from Geddes, South Dakota. I am here to represent the dairy farmers of Associated Milk Producers Incorporated and the Upper Midwest Dairy Coalition.

The coalition is a group of 18 different dairy farm organizations representing about 34,000 dairy producers in 11 Midwestern states. Producers represented by the coalition account for nearly one-third of the United States milk producers.

As president of Associated Milk Producers Incorporated, a member of the Upper Midwest Dairy Coalition, I represent 6,500 dairy producers from seven Midwest states. Though the leadership role I have in my cooperative is of the utmost importance, my real job is owning and operating a dairy farm near Geddes, South Dakota.

I am sure just the mention of South Dakota conjures up images of cowboys, cattle and wide open spaces. Indeed, those images illustrate the mind set from whence I come. We South Dakotans take pride in our open spaces with few fences. Any cowboy knows more fences just need more mending. Now the nation's dairy producers are quickly learning that bit of logic.

One provision of the 1996 Farm Bill fences out economic realities for dairy farmers in six northeast states. The Northeast Interstate Dairy Compact places a trade barrier around New England. Fluid milk prices are fixed artificially high for the sole benefit of dairy farmers in that region. This is done at the expense of the region's consumers and dairy producers outside the area.

As one might guess, this idea is catching on and dairy producers from the Mid-Atlantic and Southeastern states want a piece of the compact pie. They want to force consumers from their regions to pay more for Class I milk, more commonly known as bottled milk.

If you are a dairy producer in these areas, you probably like this idea. Higher prices in your area of the country - artificially propped-up by compacts - will benefit you at the expense of others. Compacts increase the price of milk used in bottling. This artificial price increase has two effects. First, it creates an incentive for increased milk production. And second, consumers drink less milk as a result of higher prices. The surplus milk that results from these two factors has one clear effect: it increases the production of manufactured products such as cheese, butter and nonfat dry milk.

Bottom line: When the supply of fluid milk in a compact area increases, the value of milk outside the compact area decreases.

Allow me, for a moment, to propose a fictional compact to better illustrate my point. This compact will benefit those wanting to produce oranges in the Northern half of the U.S. In this compact we will build a fence across the U.S. The compact will price oranges sold in the North at higher levels than oranges sold in other areas. It will benefit Northern orange growers.

What would happen under such a compact? Production of oranges would increase and consumption decrease in the North. Southern states would see prices drop until production decreased to compensate. As a new northern crop, oranges might be a more profitable alternative to such traditional agricultural products as milk and corn.

Would that type of compact be acceptable to those formulating agricultural policy? No, it would be devastating to the country's most efficient orange growers. They would lose a big chunk of their market. My fictional compact illustrates the absurdity of the compacts you are considering.

In a world where a South Dakota farmer's soybeans can end up in Japanese tofu and a South Dakota farmer's corn can end up in a California gas station, it makes no economic sense to build trade fences for milk.

Isn't this the very reason our forefathers wanted a unified national economy? Long ago they fought states' efforts to erect protectionist barriers.

Coming from a state that has more food than people, it makes no sense to restrict my ability to share products with the rest of the nation and world.

A free and open domestic market has caused American farmers to become the most efficient food producers in the world. Who benefits from that? Well, all of us. Consumers are the beneficiaries of this country's food policies.

Those authoring the 1996 Farm Bill were wise when they chose to sunset the compact's provisions in 1999. They knew such a plan did not make economic or constitutional sense.

I thank you for the opportunity to share my concerns on the pending dairy compact legislation. If ever you want to visit a Midwest dairy farm, you are welcome to my South Dakota home. It's easy to find, there are few fences to cross.

I hope you'll adopt a South Dakota mind set when making your decisions on dairy compacts. This country's dairy industry shouldn't be fenced off and divided.