farmgate: Is There A Benefit To Livestock Producers For USDA Food Assistance Programs?
Livestock producers know it, and most other farmers are well aware that profitability for beef, pork, and dairy operations has been lacking for many months. That precipitated a call by dairy organizations for Congress to provide a $350 million aid package, which has now reached the point of agreement and may soon be called for a vote. The details include $290 million for producers and $60 million for purchase of surplus dairy products. But from that launching pad comes a request by the National Association of State Departments of Agriculture for a program to support meat producers and give it to domestic food assistance programs. If that happens, is there any long term benefit?
Advocates for a “Meat the Need” program say livestock producers did not get any benefit from economic stimulus funds that many industries have received from the US government, and it is hard to keep livestock operations going. The proposal would establish a federally funded buying program to deal with the oversupply of dairy, pork, and poultry industries. An example given by advocates sets the goal for the target weight of cheese to reach the $16 per cwt cost of production. Another example would call for pork to be purchased by USDA in 100 million pound segments until a target of $.49 cents per pound is reached in the pork market. Those stocks would then be channeled to food banks.
Would such a plan work and provide a long term benefit to the livestock industry? Several members of Congress wanted to know. Senators Bob Bennett of Utah and Kay Hagan of North Carolina and Representative Larry Kissell of North Carolina asked the opinion of the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri for an economic analysis of the long term impact of such a program. With the livestock sector suffering from near record low levels of financial returns, several suggestions are being debated.
FAPRI economists looked at the displacement of commercial sales, which should be considered when federal donation programs are implemented. They additionally looked at the extent to which recipients of food donations cut back on their actual purchases. While there is known displacement of retail products, FAPRI says there is little information on how much demand is actually created. USDA economists report that in the early 1980’s they calculated that one dollar of donated cheese was estimated to lead to an additional 65 cents of cheese demand. Another economist found that food aid results in an increase demand that is 30% to 60% of the amount of the food aid, but a lot depends on the targeting of the aid.
The FAPRI economists evaluated the “Meat the Need” program, which involved USDA purchases of 225 million pounds of cheese over 4 months, a one-time purchase of 25 million pounds of nonfat dry milk, the purchase of 300 million pounds of pork over 6 months, and a one-time purchase of 100 million pounds of whole turkeys and turkey meat.
FAPRI says its calculations indicate that pork, turkey, and dairy products would all rise in price. Turkey would see a 9.2% price increase initially before prices fade over the next year. Milk prices would rise 9.4% as purchases continue and pork prices would increase 8.2% as purchases of pork continue. FAPRI says the positive effects of the proposal only last for the periods of late 2009 and the first three quarters of 2010 when the various purchases are scheduled.
Coincidentally, other commodities, such as beef, become beneficiaries of the program. FAPRI says fed cattle prices would rise 1.7% when the turkey purchases would be made by USDA. The increase in livestock and dairy production would increase feed prices, based on the premise that corn prices drop 35 cents and soybean meal drops $26 per ton when there is a 10% decline in feed use. FAPRI says the proposal results in a less than 1% change in the supply of meat and dairy products. However, USDA will be spending slightly more than $900 million to purchase that volume of meat and dairy products.
FAPRI says the bottom line is that, “Purchasing products from the market will increase prices for these products in the short run. However, in the long run, these programs will have little to no effect.”
Summary:
Advocates for the livestock and meat industries have called by Congress and USDA to purchase surplus products, donate them to food banks, and help raise the market prices for livestock and dairy. An economic analysis of the benefit indicates pork prices would initially rise 8%, turkey prices would rise 9% and milk prices would rise 9%, but would then fall back to prior levels after the commodities were purchased. There would be no long run benefit for commodity prices.
Posted by Stu Ellis on October 1, 2009 12:02 AM to farmgate