[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]



 

                REVIEWING THE STATE OF THE DAIRY ECONOMY

=======================================================================

                                HEARING

                               BEFORE THE

           SUBCOMMITTEE ON LIVESTOCK AND FOREIGN AGRICULTURE

                                 OF THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 30, 2019

                               __________

                            Serial No. 116-3


              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]





          Printed for the use of the Committee on Agriculture
                         agriculture.house.gov

                               __________

                      U.S. GOVERNMENT PUBLISHING OFFICE
                      
36-361 PDF                 WASHINGTON : 2019 











                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

DAVID SCOTT, Georgia                 K. MICHAEL CONAWAY, Texas, Ranking 
JIM COSTA, California                Minority Member
MARCIA L. FUDGE, Ohio                GLENN THOMPSON, Pennsylvania
JAMES P. McGOVERN, Massachusetts     AUSTIN SCOTT, Georgia
FILEMON VELA, Texas                  ERIC A. ``RICK'' CRAWFORD, 
STACEY E. PLASKETT, Virgin Islands   Arkansas
ALMA S. ADAMS, North Carolina        SCOTT DesJARLAIS, Tennessee
    Vice Chair                       VICKY HARTZLER, Missouri
ABIGAIL DAVIS SPANBERGER, Virginia   DOUG LaMALFA, California
JAHANA HAYES, Connecticut            RODNEY DAVIS, Illinois
ANTONIO DELGADO, New York            TED S. YOHO, Florida
TJ COX, California                   RICK W. ALLEN, Georgia
ANGIE CRAIG, Minnesota               MIKE BOST, Illinois
ANTHONY BRINDISI, New York           DAVID ROUZER, North Carolina
JEFFERSON VAN DREW, New Jersey       RALPH LEE ABRAHAM, Louisiana
JOSH HARDER, California              TRENT KELLY, Mississippi
KIM SCHRIER, Washington              JAMES COMER, Kentucky
CHELLIE PINGREE, Maine               ROGER W. MARSHALL, Kansas
CHERI BUSTOS, Illinois               DON BACON, Nebraska
SEAN PATRICK MALONEY, New York       NEAL P. DUNN, Florida
SALUD O. CARBAJAL, California        DUSTY JOHNSON, South Dakota
AL LAWSON, Jr., Florida              JAMES R. BAIRD, Indiana
TOM O'HALLERAN, Arizona              JIM HAGEDORN, Minnesota
JIMMY PANETTA, California
ANN KIRKPATRICK, Arizona
CYNTHIA AXNE, Iowa

                                 ______

                      Anne Simmons, Staff Director

              Matthew S. Schertz, Minority Staff Director

                                 ______

           Subcommittee on Livestock and Foreign Agriculture

                    JIM COSTA, California, Chairman

ANTHONY BRINDISI, New York           DAVID ROUZER, North Carolina, 
JAHANA HAYES, Connecticut            Ranking Minority Member
TJ COX, California                   GLENN THOMPSON, Pennsylvania
ANGIE CRAIG, Minnesota               SCOTT DesJARLAIS, Tennessee
JOSH HARDER, California              VICKY HARTZLER, Missouri
FILEMON VELA, Texas                  TRENT KELLY, Mississippi
STACEY E. PLASKETT, Virgin Islands   JAMES COMER, Kentucky
SALUD O. CARBAJAL, California        ROGER W. MARSHALL, Kansas
CHERI BUSTOS, Illinois               DON BACON, Nebraska
JIMMY PANETTA, California            JIM HAGEDORN, Minnesota

                Katie Zenk, Subcommittee Staff Director

                                  (ii)
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                             C O N T E N T S

                              ----------                              
                                                                   Page
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, opening statement.......................................     7
Costa, Hon. Jim, a Representative in Congress from California, 
  opening statement..............................................     1
    Prepared statement...........................................     3
Craig, Hon. Angie, a Representative in Congress from Minnesota, 
  submitted statement; on behalf of Roger Johnson, President, 
  National Farmers Union.........................................    53
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     6
Rouzer, Hon. David, a Representative in Congress from North 
  Carolina, opening statement....................................     4

                               Witnesses

Frericks, Sadie, Owner and Operator, Blue Diamond Dairy, Melrose, 
  MN.............................................................     8
    Prepared statement...........................................     9
Mikhalevsky, Andrei, President and Chief Executive Officer, 
  California Dairies, Inc., Visalia, CA..........................    12
    Prepared statement...........................................    14
McMahon, Michael P., Owner and Operator, EZ Acres, Homer, NY.....    18
    Prepared statement...........................................    19
    Submitted question...........................................    55
Brown, Ph.D., Scott, Director of Strategic Partnerships, College 
  of Agriculture, Food, and Natural Resources, University of 
  Missouri; Associate Extension Professor, Agricultural and 
  Applied Economics, University of Missouri Extension, Columbia, 
  MO.............................................................    21
    Prepared statement...........................................    23
    Submitted questions..........................................    56
Smith, David R., Executive Director, Pennsylvania Dairymen's 
  Association, Palmyra, PA.......................................    27
    Prepared statement...........................................    28
.................................................................

 
                REVIEWING THE STATE OF THE DAIRY ECONOMY

                              ----------                              


                        TUESDAY, APRIL 30, 2019

                  House of Representatives,
         Subcommittee on Livestock and Foreign Agriculture,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to call, at 10:01 a.m., in 
Room 1300 of the Longworth House Office Building, Hon. Jim 
Costa [Chairman of the Subcommittee] presiding.
    Members present: Representatives Costa, Brindisi, Hayes, 
Craig, Harder, Vela, Carbajal, Bustos, Panetta, Peterson (ex 
officio), Rouzer, Thompson, Hartzler, Kelly, Marshall, Bacon, 
Hagedorn, and Conaway (ex officio).
    Staff present: Lyron Blum-Evitts, Emily German, Ross 
Hettervig, Matt MacKenzie, Tom Mattocks, Troy Phillips, Anne 
Simmons, Katie Zenk, Bart Fischer, Ashton Johnston, Rachel 
Millard, Patricia Straughn, Trevor White, Dana Sandman, and 
Jennifer Yezak.

   OPENING STATEMENT OF HON. JIM COSTA, A REPRESENTATIVE IN 
                    CONGRESS FROM CALIFORNIA

    The Chairman. The Subcommittee on Livestock and Foreign 
Agriculture will now come to order. This hearing of the 
Subcommittee of Livestock and Foreign Agriculture is entitled, 
Reviewing the State of the Dairy Economy, all of us who 
represent various portions of American agriculture understand 
the importance of the dairy industry today and historically, 
and we know the challenges that the industry has been facing.
    Last year in a bipartisan effort, we decided to really take 
a closer look at the dairy title, and we made changes. We made 
changes because we thought it was a reflection of the need that 
was resulting in the hard-hit changes that have been taking 
place with the dairy industry across the country.
    Part of this morning's hearing is to really get our 
witnesses' take on what direction we need to be going, what 
efforts that the Committee needs to be following with regards 
to implementing the changes in the dairy title.
    Let us begin with the opening statements, and we look 
forward to hearing the witnesses' testimony.
    As we understand, as I stated, the dairy industry in 
America is facing a crisis. This hearing is just one part of 
the Subcommittee's efforts to continually respond to those 
challenges. There will be subsequent hearings and workshops 
around the country as we work with the United States Department 
of Agriculture to implement the new title. Addressing these 
critical problems, I believe, is one of the highest priorities 
of this Subcommittee. In speaking with our Chairman, Collin 
Peterson, I know how much he feels that this is critical.
    We all represent important parts of America's dairy 
country. The United States, though, the reality is we have lost 
almost 20,000 licensed dairies in the last 10 years, 20,000 
licensed dairies. Nearly ever day it seems another national 
story about the family farmers making tough choices on having 
to sell their dairy. They don't do it by choice. My family has 
been involved in the dairy industry for three generations. I 
know how families feel. The dairy is a part of their sum and 
substance, and in California, we have the nation's top dairy-
producing state. Dairies that have been passed down from 
generation to generation, including the one I grew up on. This 
issue: I have a lot of personal reflections on.
    But let's be clear about the facts. The dairy industry 
provides nearly one million jobs in the United States, an 
economic impact of over $200 billion. In my district alone, 
dairy contributes over $2 billion to the local economy. When we 
lose a dairy farm, we lose those jobs, we lose the investments 
that the farm provides.
    As I said, we worked hard in the last farm bill to make 
changes in the dairy safety net. Yesterday, I met with the 
United States Department of Agriculture Under Secretary, Bill 
Northey, who told me that they are making progress in getting 
the new Dairy Margin Coverage Program implemented.
    This morning, as some of you may know, the United States 
Department of Agriculture will announce an online decision tool 
that will let farmers estimate how the Dairy Margin Coverage 
could work for them, and that is welcome news because we are 
pushing them to get this process out there.
    As soon as later this week, we hope, the USDA will send out 
letters to dairy farmers that participated in the Margin 
Protection Program and let them know what premium refund or 
credit they will be able to receive.
    These updates are good news, but unfortunately, the 
expected start of the Dairy Margin Coverage signup is still 
June 17. I appreciate the priority that Secretary Perdue and 
the USDA has put on implementing the Dairy Margin Coverage 
Program, but I know time is of the essence. For many of these 
dairymen and women, they are looking as to how long they can 
survive. And therefore, when they have had to endure years of 
low margins when their input costs exceed their receipts on a 
monthly basis, how much longer can they hold on? And of course, 
the loss of the dairies over the last 10 years is a reflection 
of that loss of equity.
    When we look at the dairy industry across the country and 
the regional challenges that we face, I have learned clearly in 
the 15 years I have been in Congress that one program doesn't 
fit all farms equally. And so, when we made the changes last 
year, we tried to take that into account. That is why I 
strongly supported the more Risk Management Agency insurance 
products for dairy farms, and made sure that farms could 
participate in both the Dairy Margin Coverage and Livestock 
Gross Margin insurance for dairies. Both Chairman Peterson and 
our previous Chairman that is here worked very closely in 
trying to make sure that we kept all the options in the menu.
    In addition to a thorough farm bill implementation 
oversight, the Subcommittee will also focus on other issues 
impacting our dairy farmers. And what are they? Well, they are 
trade and labor. U.S. dairy is fighting hard in global markets 
to face these challenges. We are hoping that progress is being 
made on the reauthorization of the USMCA, or NAFTA 2.0, 
whatever you want to call it, but Mexico is a top destination 
for the United States dairy industry, and it needs to be 
maintained, and I believe, expanded. And while the U.S.-Mexico 
agreement allows Canada to keep the bulk of their current 
domestic system under a supply management scheme, which we 
actually looked at here some 5 years ago, recent International 
Trade Commission economic analysis indicated that the proposal 
forecasts, if we implement the new United States-Mexican-Canada 
trade agreement, that would provide an additional $300 million, 
they estimated, additional dairy exports under the agreement. 
Frankly, I hope we can do better. That is positive, but I think 
more can be done.
    The last area that is of critical need to our dairymen and 
women around the country is a reliable workforce. Trying to 
come up with an immigration solution for agriculture is long 
overdue. Some of us have been laboring on this for many, many 
years under multiple Administrations. I have been calling for 
comprehensive immigration reform. I don't think that is going 
to happen in this Congress, but maybe we can get something done 
incrementally to provide a more stable workforce for the 
dairymen and -women, and agriculture industry in general.
    We in Congress need to find ways to address these 
challenges, both current and future workforce needs, including 
access to a year-round visa program. And whether or not 
modification in the H-2A actually is a way to do that remains 
to be seen, but there are things that need to be done, clearly.
    I know from my personal experience and generations in 
California, working on a dairy was always considered a high-
skilled, valuable, good paying job, considered a blue collar 
job basically among agricultural workforce, because it is year-
round, and there are number of benefits that come from working 
on a dairy.
    I hope a legislative fix that we are working on will come 
to fruition. I take to heart Secretary Sonny Perdue's call for 
legislative reform, and I hope that he will continue to be 
engaged in this effort as we work on a plan.
    With that said, we have our Ranking Member here, and I 
would defer to him for an opening statement. And we look 
forward to doing right by our dairy farmers, our men and women 
who work every day, because cows are milked 365 days a year, to 
put that food on America's dinner table every night.
    I look forward to the conversation that we have.
    [The prepared statement of Mr. Costa follows:]

Prepared Statement of Hon. Jim Costa, a Representative in Congress from 
                               California
    America's dairy industry is in crisis and today's hearing is just 
one part of this Subcommittee's continued effort to respond to the 
challenges facing dairy farmers across this country. Addressing these 
critical problems is a top priority for the Livestock and Foreign 
Agriculture Subcommittee. The United States lost nearly 20,000 licensed 
dairies over the last 10 years. Nearly every day, it seems, there is 
another national news story about family farmers making the tough 
choice to stop milking cows.
    California is the nation's top milk producing state and many 
dairies in my district have been passed down from generation to 
generation, including the one I grew up on. The issue of dairy is 
personal to me and will continue to be a major focus, going forward.
    Dairy directly provides nearly one million U.S. jobs with an 
economic impact of over $200 billion nationwide. In my district alone, 
dairy contributes over $2 billion to the local economy. When we lose a 
dairy farm, we also lose the jobs and investment that the farm 
provides.
    Congress worked hard to make bipartisan improvements to the dairy 
safety net in the last farm bill. Yesterday, I met with USDA Under 
Secretary Bill Northey who told me they are making progress on getting 
the new Dairy Margin Coverage program implemented. As soon as this 
week, USDA will announce an online decision tool that will let farmers 
estimate how Dairy Margin Coverage would work for them. Around the same 
time, USDA will send out letters to dairy farmers that participated in 
the Margin Protection Program to let them know what premium refund or 
credit they will be able to receive.
    These updates are good news, but unfortunately the expected start 
of Dairy Margin Coverage sign-up is still June 17th. I appreciate the 
priority that USDA has put on implementing the dairy program, but I 
know time is of the essence for many dairy farmers who have endured 
years of low margins and can't hold on much longer.
    One program does not fit all farms equally. That's why I strongly 
supported opening up more Risk Management Agency insurance products for 
dairy farmers and made sure that farms could participate in both Dairy 
Margin Coverage and Livestock Gross Margin insurance for dairy.
    In addition to thorough farm bill implementation oversight, this 
Subcommittee will also focus on other issues impacting dairy farmers. 
U.S. dairy is fighting hard in global markets in the face of challenges 
but the new wins we are seeing are wins that should have been there all 
along. Mexico is the top destination for U.S. dairy and needs to be 
maintained. While the U.S.-Mexico-Canada Agreement still allows Canada 
to keep the bulk of their current domestic system, the recent 
International Trade Commission economic analysis of the proposal 
forecasts over $300 million of additional dairy exports under the terms 
of the new agreement.
    A workable immigration solution for agriculture is long overdue and 
I have been calling for one for years. We in Congress need to find ways 
to address challenges with both current and future workforce needs 
including access to a year-round visa program. A legislative fix is 
being worked on and I took heart in Secretary Sonny Perdue's call for 
legislative reform to ensure access to a steady workforce. When a plan 
is finalized, I am hopeful the Secretary will continue to be a champion 
for this cause.
    With so many challenges bearing down on dairy farms, I am committed 
to actively prioritizing policies that positively impact dairy farmers 
and their families, and I will continue to engage with USDA as we get 
closer to the beginning of the program sign up period on June 17. We 
need to do right by our dairy farmers and the rural communities they 
support, and I look forward to the conversation today.

    The Chairman. Ranking Member Rouzer, I will defer to you 
for an opening statement.

  OPENING STATEMENT OF HON. DAVID ROUZER, A REPRESENTATIVE IN 
                  CONGRESS FROM NORTH CAROLINA

    Mr. Rouzer. Well, thank you, Chairman Costa, and the cows 
don't take a day off, do they?
    The Chairman. No, they don't.
    Mr. Rouzer. And neither should we. I want to thank our 
witnesses for being here today, and I really appreciate the 
Chairman for holding this hearing to focus on the state of the 
dairy industry.
    All sectors of agriculture economy--this is no secret--are 
facing challenging times, and of course, the conditions for our 
dairy farmers are no exception. Dairymen across the country 
have faced a multi-year period of low milk prices and trade 
uncertainty, along with labor challenges that have remained 
unsolved, quite frankly, for decades. These problems are 
plaguing dairy producers of all sizes and in all regions of the 
country, which is why House Republicans prioritized making key 
improvements to the safety net and enhancing risk management 
options for both large and small dairy operations during the 
past several Congresses, leading up to passage of the new farm 
bill.
    I want to commend Ranking Member Conaway, who is here with 
us this morning, as well for his work to remove the limitation 
on livestock insurance policies in the Bipartisan Budget Act of 
2018. Many of you will remember that battle well. He also did 
an incredible job shepherding the 2018 Farm Bill through the 
House, and of course, eventually to the President for his 
signature so that it would become law. The focused effort he 
led to increase coverage options, reduce premiums significantly 
for catastrophic coverage in Tier 2, and eliminate the 
restriction between Livestock Gross Margin insurance and the 
new Dairy Margin Coverage Program are all improvements intended 
to help producers better manage the risk and uncertainty that 
they face.
    Dairy farmers and their lenders are watching closely for 
news from USDA about the availability of coverage under the new 
program, and I want to thank Secretary Perdue and FPAC Under 
Secretary Northey for making the implementation of DMC a 
priority. And in fact, as the Chairman noted, as of this 
morning USDA announced the web-based decision aid tool for DMC 
is now available to producers to begin reviewing their options 
before signup begins. I think we all can be pleased with that.
    While the improvements to the safety net are critical to 
helping producers survive the tough economic times, what our 
farmers really need is improved market conditions. This is why 
swift approval of USMCA is so critical for our farmers and 
ranchers. According to the long-awaited analysis by the 
International Trade Commission, as mentioned by the Chairman in 
his remarks as well, dairy is one of the sectors with the most 
to gain from the renegotiated agreement with Canada and Mexico. 
While implementation will need to be closely monitored, the 
additional access for U.S. dairy products and the elimination 
of Canadian Class VI and Class VII dairy pricing strategies are 
a major, major win for American dairy producers and processors. 
As we would say back home, a big-time win.
    I touched on this at the outset, but I want to highlight 
again the shortage of adequate labor because of our broken 
immigration system. Dairy producers essentially have no 
reliable supply of workers. As we all know, the current 
agricultural guestworker program is designed for seasonal labor 
needs, not the year-round work required on dairies. This past 
Congress, I was proud to be an original cosponsor of H.R. 4092, 
the AG Act (Agricultural Guestworker Act), which attempted to 
address the needs of farmers, ranchers, and other agriculture 
businesses struggling to find labor. While immigration can be a 
very complicated and highly emotional issue, we should all be 
able to recognize the disservice Congressional dysfunction has 
done for all sectors of the agriculture industry in failing to 
pass meaningful reform of the guestworker program.
    This has been a debate that has been ongoing for at least 2 
decades, if not more. And going back to my years with Senator 
Helms, I remember working on this in the mid-1990s and the late 
1990s, and then we thought we had something in the mid-2000s. 
And it has been on and on and on. The fact of the matter is, 
we've got to get the job on this done. As we speak, cows go un-
milked, fruit gets left on trees, and crops rot in the field 
because farmers cannot find a reliable legal source of labor.
    Meanwhile, we in Washington always wait for the results of 
the next election and the problems continue to grow. We cannot 
continue to ignore this problem, and I urge all of us in 
Congress to put aside all the politics related to it and for 
once on this issue, start beginning to craft a commonsense 
solution that the President can sign. American agriculture 
needs it desperately. I think we all can agree on that.
    Again, I want to thank all the witnesses for appearing here 
today to share your perspectives on the state of the dairy 
industry, and I look forward to hearing from each of you.
    I yield back.
    The Chairman. I thank the Ranking Member, and we are 
pleased this morning to have both the Chairman of the House 
Agriculture Committee and the Ranking Member, and in tradition, 
we will be pleased to hear them with any opening comments they 
care to make.
    Chairman Peterson?

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    Mr. Peterson. Well thank you, Mr. Chairman, and thank you 
and the Ranking Member for holding this hearing.
    It has been a tough number of years in the dairy industry. 
We have made significant improvements in the farm bill, and I 
hope people hang in there long enough to figure out what they 
are.
    One of my frustrations has been the length of time that it 
has taken for them to roll this out, but that wasn't really 
caused by us. That was caused by the Senate, and some of the 
provisions that they put into the bill that have drug out this 
situation, especially the refund thing. But they, apparently, 
are going to get it done in June and it will be retroactive. I 
just hope people will hang in there until they get time to 
figure it out.
    The other thing I am a little bit concerned about is that 
there might be confusion sowed by what the Department is 
talking about putting out there. I haven't seen it, but I am 
hearing that they are putting out this decision chart that is 
going to have people look through and figure out whether they 
should have $5 or $9 or whatever this stuff is, and you know, 
as if there is any question. And in my opinion, there is no 
question about what to do. It is very simple. Unless you are 
wealthy and have deep pockets, and if you want to stay in the 
dairy business, you should take $9.50. You should take it for 5 
years, and lock it in. And if you don't, don't come and 
complain to me. And hopefully we won't have to use it. 
Hopefully, the market will be there and we will not have to dip 
into this. But, for a relatively small amount of money, you can 
lock in a gross income for 5 years, and it is probably not as 
much as people would like, but it is enough to get you through 
some of these tough times.
    We have made improvements for the smaller producers, but we 
have also in what we did, it took care of all aspects of the 
industry. We have a new revenue insurance program that is going 
to be available for everybody. We went from 4 to 5 million 
pounds and we improved the Livestock Gross Margin Program. 
There is something in this dairy provision for everybody, and I 
look forward to working with the industry and the Members as we 
roll this out.
    So far, we have not seen the industry splinter into 
regional disputes, although there is some noise out there in 
different parts of the country. Hopefully that will dissipate 
and not grow into any kind of effort.
    We have worked hard and long, Jim Costa and I, and others 
to make sure that we have an industry that can work together 
and not get back into the old fights between the Northeast and 
the Midwest and California and so forth. We have been able to 
do that. We have enough other problems without us fighting 
amongst ourselves, so we have a program that is pretty good, 
and it will be laid out here today, so I thank you, Mr. 
Chairman, for holding the hearing, and I look forward to the 
testimony.
    The Chairman. Well, thank you, Mr. Chairman. Thank you for 
the good work that you have done. Your observations you and I 
share, and clearly, you have given good advice in terms of how 
we implement this effort in a bipartisan way that reflects the 
needs of our dairy industry. And certainly, it is part of the 
responsibility of the House Agriculture Committee to try to 
keep the dairy industry working together, because it does no 
good when we get divided in between different regions of the 
country.
    The Ranking Member, former Chairman Conaway, we are pleased 
that you are here, and we would love to hear any comments you 
might have to say.

OPENING STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE 
                     IN CONGRESS FROM TEXAS

    Mr. Conaway. No comments, Mr. Chairman, other than to say 
that the Subcommittee is in good hands with you as Chairman and 
David Rouzer as Ranking Member, and David, I appreciate your 
compliments in your opening remarks. And let's hear from the 
witnesses. I think enough yapping has been done from this side 
of the stage, so I yield back.
    The Chairman. All right. Well, we thank the Ranking Member 
always for the good work that you do, and have over the years 
working in a bipartisan effort.
    The Chair will request that Members submit their opening 
statements for the record so the witnesses may begin their 
testimony, and so we will have ample time to get to the 
questions. And we would like to recognize our first witness--
and by the way, we have recognized people as they have come in 
here based upon seniority, so I have a list, and that is what I 
will do. I will follow the list, alternating between Democrats 
and Republicans.
    And we would like to begin with Chairman Peterson making an 
introduction of a constituent who will be our first witness. 
Chairman Peterson?
    Mr. Peterson. Thank you, Mr. Chairman, and we are pleased 
to have Sadie Frericks here from Melrose, Minnesota. They own 
and operate a 90 cow first generation farm in that area. 
Anybody that has been to Melrose knows that the dairy industry 
is ground zero there. Without them, Melrose would dry up. 
Sadie, we are very pleased that you are willing to come out and 
testify here today. I see that your son, Dan, is with you here. 
Oh, there he is back there. We have an up and coming dairy 
farmer there, huh? Do you work him hard? That is good. He is 
shaking his head.
    Anyway, the Frericks name is a very well-known name in that 
part of the world, and we are pleased that you are choosing to 
get into the dairy business, and we wish you all the success. 
We are happy to have you here at the Committee, so thank you.
    The Chairman. Thank you. Would you please begin, Ms. 
Frericks? We are pleased to have you here this morning, and 
your family.

 STATEMENT OF SADIE FRERICKS, OWNER AND OPERATOR, BLUE DIAMOND 
                       DAIRY, MELROSE, MN

    Ms. Frericks. Good morning, Chairman Costa, Congressman 
Rouzer, and Members of the Subcommittee. My name is Sadie 
Frericks. I am a dairy farmer from Minnesota. Thank you for 
inviting me to speak to you today about the state of the dairy 
economy.
    I would like to start by telling you a little bit more 
about my farm. I own, manage, and operate a first-generation 
dairy farm together with my husband, Glen, and our three 
children, Dan, Monika, and Daphne. As Congressman Peterson 
said, my son, Dan, is here with me today. We milk 90 cows and 
manage 200 acres of pasture and cropland.
    Fourteen years ago, we left secure jobs with full benefits 
to answer the call to farm. We enjoyed the life we had created 
in the suburbs, but something was missing in our lives. We 
spent all of our weekends at either my family's farm or Glen's 
family farm. It turns out the cows were calling us back.
    We started our dairy career on my father's farm, but it 
quickly became clear that we didn't have a future there. The 
dairy industry was dying in that part of Minnesota and as farm 
numbers dwindled, so, too, did the businesses that dairy farms 
rely upon: milk processors, feed mills, equipment sales and 
repair, et cetera.
    We moved our dairy cows to the part of Minnesota where Glen 
grew up, Melrose. We bought 20 acres with a house and a barn. 
We rented 200 acres of cropland, on which we were able to grow 
the corn silage and hay we needed to feed our cows.
    A lot has changed since we bought our farm. We have doubled 
the number of cows we milk. We have more than doubled the size 
of our family. We discovered that we love more about dairy 
farming than just the cows. We love spending every day together 
and raising our kids on a farm. We love doing meaningful work 
and giving tours of our farm so others can learn more about 
dairy farming. We love utilizing our creativity and problem-
solving skills to overcome challenges.
    And believe me, there have been some challenges.
    First came 2009 and milk prices lower than anyone thought 
possible. We got through that year with the help of our farm 
business management instructor and our Farm Service Agency 
lender. Then we ended up losing most of our cropland when a 
neighbor offered our landlord a rental rate we couldn't afford. 
We switched to buying most of our hay and corn silage and 
relied more on grazing our cows.
    Now we are facing our biggest challenge yet. We got into 
dairy farming knowing that prices cycle, both for milk and for 
feed. Accordingly, we planned for those cycles. We saved money 
during the good years and spent carefully during the lean 
years.
    Unfortunately, prices haven't cycled for the past several 
years. They are stuck at a level just below our cost of 
production. Our challenge currently is that all of the money we 
saved during the good years is gone. For the first time in our 
farming career, we asked our bank for a line of credit so that 
we could keep paying our vendors.
    I cannot fully explain the level of mental and emotional 
stress that comes along with watching your savings evaporate 
and your short-term debt accumulate.
    I can tell you that our farm business would not survive 
another year like 2018. We talked countless times about how to 
adjust our business plan so that we can keep doing what we 
love. Each time, that discussion ended with reducing the size 
of our herd and one of us getting a job in town.
    We aren't having those discussions anymore. First, we set a 
price floor through the new Dairy Revenue Protection insurance 
that was approved by USDA last year. Second, by our 
calculations, the Federal Dairy Margin Coverage program will 
help us mitigate risk and secure a profit, going forward. We 
will continue working together, with our children, to care for 
our cows and our land.
    While we would rather not have to rely on government 
programs, I hope DMC and other risk management tools will allow 
other family farms to continue doing what they love, as well. 
Rural America needs successful farms, both for our engagement 
in our community and for our economic contributions.
    In a typical year, our farm spends $\1/2\ million, most of 
that locally. Almost every dollar invested in DMC will 
ultimately be invested in rural America.
    I would like to finish by thanking Chairman Peterson for 
his long-standing support of dairy farmers and all of the 
Committee Members for these much-needed improvements to the 
farm bill.
    Thank you for the opportunity to speak to you today.
    [The prepared statement of Ms. Frericks follows:]

Prepared Statement of Sadie Frericks, Owner and Operator, Blue Diamond 
                           Dairy, Melrose, MN
    Good morning, Chairman Costa, Congressman Rouzer, and Members of 
the Subcommittee. My name is Sadie Frericks. I am a dairy farmer from 
Minnesota. Thank you for inviting me to speak to you about the state of 
the dairy economy.
    I'd like to start by telling you a little about my farm. I own, 
manage, and operate a first-generation dairy farm together with my 
husband, Glen, and our three children, Dan, Monika, and Daphne. My son 
is here with me today. We milk 90 cows and manage 200 acres of pasture 
and cropland.
    Fourteen years ago, we left secure jobs with full benefits to 
answer the call to farm. We enjoyed the life we had created in the 
suburbs--but something was missing in our lives. We spent all of our 
weekends at either my family's farm or Glen's family farm. It turns out 
the cows were calling us back.
    We started our dairy career on my father's farm. But it quickly 
became clear that we didn't have a future there. The dairy industry was 
dying in that part of Minnesota and as farm numbers dwindled, so, too, 
did all of the other businesses that dairy farms rely on--milk 
processors, feed mills, equipment sales and repair, etc.
    So we moved our 40 dairy cows to the part of Minnesota where Glen 
grew up. We bought 20 acres with a house and a barn. We rented 200 
acres of cropland, on which we were able to grow the corn silage and 
hay we needed to feed our cows.
    A lot has changed since we bought our farm. We've doubled the 
number of cows we milk. We've more than doubled the size of our family. 
We discovered that we love more about dairy farming than just the cows. 
We love spending every day together and raising our kids on a farm. We 
love doing meaningful work and giving tours of our farm so others can 
learn more about dairy farming. We love utilizing our creativity and 
problem solving skills to overcome challenges.
    And, believe me, there have been some challenges.
    First came 2009 and milk prices lower than anyone thought possible. 
We got through that year with the help of our farm business management 
instructor and our Farm Service Agency lender. Then, we ended up losing 
most of our cropland when a neighbor offered our landlord a rental rate 
we couldn't afford. We switched to buying most of our hay and corn 
silage and relied more on grazing our cows.
    Now we are facing our biggest challenge yet. We got into dairy 
farming knowing that prices cycle--both for milk and for feed. 
Accordingly, we planned for those cycles. We saved money during the 
good years and spent carefully during the lean years.
    Unfortunately, prices haven't cycled for the past several years. 
They're stuck at a level just below our cost of production. In other 
words, we're not turning a profit. Our challenge currently is that all 
of the money we saved during the good years is gone. For the first time 
in our farming career, we asked our bank for a line of credit so that 
we could keep paying our vendors.
    I cannot fully explain the level of mental and emotional stress 
that came along with watching our savings evaporate and our short-term 
debt accumulate.
    I can tell you that our farm business would not survive another 
year like 2018. We talked countless times about how to adjust our 
business plan so that we can keep doing what we love. Each time, that 
discussion ended with reducing the size of our herd and one of us 
getting a job in town.
    We aren't having those discussions anymore. First, we set a price 
floor through the new Dairy Revenue Protection insurance that was 
approved by USDA last year. Second, by our calculations, the Federal 
Dairy Margin Coverage program will help us mitigate risk and secure a 
profit, going forward. We will continue working together, with our 
children, to care for our cows and our land.
    While we'd rather not have to rely on government programs, I hope 
DMC and other risk management tools will allow other family farms to 
continue doing what they love, as well. Rural America needs successful 
farms, both for our engagement in our communities and for our economic 
contributions.
    In a typical year, our farm spends $\1/2\ million, mostly in our 
local community. Almost every dollar invested in DMC will ultimately be 
invested in rural America.
    I'd like to finish by thanking Chairman Peterson for his long-
standing support of dairy farmers and all of the Committee Members for 
these much-needed improvements to the farm bill.
    Thank you for the opportunity to speak to you today.

    The Chairman. Sadie, thank you for that heartfelt and well-
stated testimony, and you are very correct. Congressman 
Peterson does an excellent job not only in representing his 
district, but America's dairy industry.
    I am going to allow, as we progress with the witnesses 
here, Members an opportunity to introduce some of the witnesses 
that they have asked to testify here today, and we are going to 
maintain the regular order, but as many of you know here, we 
have multiple Committee hearings that are taking place on a 
usual legislative day, and therefore, Members come and go. And 
I want to make sure that they get a chance to introduce their 
witnesses that are here, even though they may have to leave 
during some of the testimony.
    I will come back to you, Andrei, in a moment, but I want to 
ask Mr. Brindisi, one of our new stars from New York, to 
introduce a witness from his area, and then we will go through 
the order.
    Mr. Brindisi. Thank you, Mr. Chairman. It is my pleasure to 
introduce Mike McMahon, who owns and operates EZ Acre Farms in 
Homer, New York, and his wife, Edie, is joining him as well 
today.
    Their operation has set the standard on animal care and 
environmental stewardship. He has also been a strong advocate 
for commonsense labor solutions so that dairy farmers can 
continue providing a safe and abundant food supply for our 
country.
    Upstate New York dairy farmers like Mike McMahon are why I 
asked to serve on the Agriculture Committee, and I am happy 
that he is joining us here today, and look forward to his 
testimony. Thank you, Mike.
    The Chairman. Thank you, Congressman Brindisi, and we are 
looking forward to hearing your testimony at the appropriate 
time.
    I would also now like to recognize Congresswoman Hartzler 
for her good work that she does on this Committee, and she has 
a witness that she would like to introduce.
    Mrs. Hartzler. Thank you, Mr. Chairman. I am very proud to 
introduce my friend from the University of Missouri in 
Columbia, Dr. Scott Brown. I am so glad that he is here again. 
He has testified many times before Congress, and is viewed, I 
believe, as one of the premier experts in our nation on dairy 
policy. I am so proud of him. He is the Director of Strategic 
Partnerships at the College of Agriculture and Natural 
Resources, as well as a professor, and he has received many 
awards that I could cite, but most importantly, he has helped 
raise up my two ag staffers that I have had during my time 
here, including Carly Esser, who is here in the audience today.
    I want to thank you for that. You are a wonderful teacher 
and a wonderful example for them, and certainly a wonderful 
resource for us here in Congress. Thank you for being here.
    Thank you, Mr. Chairman.
    The Chairman. We thank the Congresswoman, and we are 
looking forward, Dr. Brown, to hearing your testimony at the 
appropriate time.
    Our last witness is a person that Congressman Thompson, who 
I enjoy working with always, would like to introduce from 
Pennsylvania.
    Mr. Thompson. Mr. Chairman, thank you so much. It really is 
a privilege and honor to introduce this gentleman, a friend and 
leader on dairy in the Keystone State of Pennsylvania. It is my 
pleasure to introduce Dave Smith. He is a fourth-generation 
dairy farmer from Lebanon County, Pennsylvania. He is a 
graduate of Virginia Tech where he completed a BS in dairy 
science. Upon graduation, Dave returned home to the farm and 
co-manages the family farm with his son where they also grow 
crops and raise cows.
    Dave also served as Executive Director of the Pennsylvania 
Dairymen's Association, an organization he has been involved 
with for more than 20 years. He is also very active with the 
annual Pennsylvania Farm Show, which actually a number of 
Members on this Committee have attended with me. The first 
weekend in January, mark your calendars. The largest indoor 
agriculture exposition in the country. Not too far from here, 
either, about 2\1/2\ hours from here.
    To all of our witnesses, thank you for being here today.
    The Chairman. Thank you, Congressman Thompson, for that 
kind introduction.
    I will now introduce our second witness, a friend who I 
have known for many years, Andrei Mikhalevsky, who serves as 
the President and CEO of California Dairies, Inc., which is 
based in Visalia, California. It is owned by 360+ dairymen and 
-women who ship their milk to California Dairy, Inc. They sell 
nearly seven percent of the total milk in the United States, it 
is the second largest co-op.
    Andrei is a seasoned expert in the dairy industry, which is 
why we have asked him to testify today. He also serves as the 
Trade Committee Chair for the International Dairy Foods 
Association, and serves on the Dairy Advisory Board for 
California Department of Food and Agriculture.
    Mr. Mikhalevsky, we are glad to have you here, and we would 
like you to begin your testimony.

STATEMENT OF ANDREI MIKHALEVSKY, PRESIDENT AND CHIEF EXECUTIVE 
         OFFICER, CALIFORNIA DAIRIES, INC., VISALIA, CA

    Mr. Mikhalevsky. Thank you. Good morning, Chairman Costa, 
Ranking Member Rouzer, and distinguished Members of the 
Subcommittee. Thank you for the opportunity to provide my 
perspective on the current state of the U.S. dairy economy, 
with a focus on trade today.
    My name is Andrei Mikhalevsky, and I am President/CEO of 
California Dairies, Inc., known as CDI.
    CDI is the largest dairy farmer-owned cooperative in 
California, and the second largest in the United States. The 
cooperative was formed to sell, market, and add value to our 
members' milk. Our family-owned dairy farms represent seven 
percent of all the milk produced in the United States. Mr. 
Chairman, as you had noted and are fully aware, our home State 
of California remains the leading dairy state, producing 18 
percent of the country's milk. Our cooperative is the largest 
producer of retail butter in the United States, and the largest 
producer and exporter of milk powder.
    Today, I will focus my testimony in three areas. First, 
offer examples of industry current issues; second, I will 
describe our trade views; and finally, I will outline some 
suggestions to improve dairy's overall business health.
    U.S. dairy is a dynamic industry made up of 39,000 dairy 
farms and slightly more than 1,300 processing plants that with 
associated businesses support three million U.S. jobs. Sixteen 
percent of all U.S. milk production is exported. Thousands of 
jobs are dependent on these U.S. dairy exports.
    Today's dairy farmers face challenges on multiple fronts, 
but also great opportunities. The U.S. dairy industry has 
amazing potential and is ready to meet the growing domestic and 
international demand for milk. Yet, the U.S. dairy industry has 
been stressed, as noted, for several years due to low margins 
and low worldwide prices. This has led numerous dairy families 
to sell their businesses. These on-farm losses combined with 
reduced market values for dairy cows are stressing bank 
relationships. The end result is that more of our milk is 
produced by fewer, larger, more productive operations.
    Another challenge is that every dairy farm in the United 
States has labor availability issues. An agricultural 
guestworker program that meets year-round dairy needs for the 
industry is critical.
    The U.S. domestic price is highly influenced by global 
prices and the global supply-demand balance of milk. The U.S. 
is no longer isolated from world prices. U.S. milk price 
recovery was halted in 2018, due to EU intervention stocks and 
the retaliatory tariffs with Mexico and China. Our biggest 
competitors producing milk and dairy products for the export 
markets are the European Union and New Zealand. The most 
valuable export markets for our industry are Mexico, Canada, 
Japan, China, South America, and Southeast Asia, then followed 
by the Middle East and Africa. Free trade agreements that open 
markets and lower trade barriers are crucial to the dairy 
industry's long-term economic health.
    The U.S. has not completed or passed a new trade deal in 
well over a decade. We need more comprehensive free trade 
agreements. The EU has trade agreements completed or in process 
with nine of the top ten dairy importing countries, while the 
U.S. simply has four. Likewise, New Zealand has trade 
agreements with most Asian countries where demand is growing at 
a rapid pace. For the dairy industry, any trade agreement must 
simply meet two criteria. First, and most importantly, a fair 
and level playing field is critical. Second, any trade 
agreement should include robust access for the whole bucket of 
milk, all dairy products across the board. Too often, trade 
agreements isolate dairy market access to a limited subset of 
dairy products.
    Now just a quick comment on current negotiations. Mexico is 
the top market for all U.S. dairy exports, valued at $1.4 
billion in 2018. Canada is second. The USMCA deal, as 
negotiated, meets the dairy industry's top priorities, and that 
is why we urge swift Congressional approval of this agreement.
    China has been the third largest exporting customer for 
U.S. dairy. Opportunities in China are significant, but the 
U.S. has not been on a level playing field with our 
competitors. Due to recently imposed retaliatory tariffs, we 
are now seeing a precipitous decline in U.S. dairy exports to 
China.
    Japan is the fifth largest country for U.S. dairy exports, 
and currently we face high barriers to trade in Japan. Dairy 
market access in any trade agreement must match or exceed that 
achieved under TPP and the new EU-Japan trade agreement.
    In 2018, the EU exported nearly $1.7 billion in product to 
the United States, but U.S. companies exported just $145 
million back to them. High tariffs and other non-tariff 
barriers, such as burdensome import licensing and certification 
requirements stand in the way. We cannot afford to set a 
precedent of negotiating with any trading partner that 
sidelines agriculture. All free trade agreements must include 
access for agriculture.
    In my written testimony, I provided several short-term 
industry solutions, and I will just highlight one. A policy 
proposal that has great potential for improving sales for the 
state of the U.S. dairy economy is establishing a national 
enhanced standard for fluid milk products.
    In summary, the dairy industry is a significant part of the 
U.S. economy. Price volatility has had a significant impact on 
dairy farms. Trade policy is a vital part of our future 
success. Our industry needs increased access to a greater 
number of markets and a level playing field. The U.S. dairy 
industry envisions a bright future, capitalizing on 
opportunities in the global marketplace.
    Again, thank you for the opportunity to testify.
    [The prepared statement of Mr. Mikhalevsky follows:]

Prepared Statement of Andrei Mikhalevsky, President and Chief Executive 
             Officer, California Dairies, Inc., Visalia, CA
    Good morning, Chairman Costa, Ranking Member Rouzer, and 
distinguished Members of the Subcommittee. Thank you for the 
opportunity to provide my perspective on the current state of the U.S. 
dairy economy.
    Today's dairy farmers face challenges on multiple fronts, but also 
great opportunities. U.S. dairy is a dynamic and innovative industry 
made up of approximately 39,000 dairy farms and slightly more than 
1,300 processing plants that support nearly three million U.S. jobs, 
generate more than $161 billion in wages and has an overall economic 
impact of more than $628 billion. As the fifth largest commodity in the 
United States, dairy generated $36.7 billion in sales in 2017. Mr. 
Chairman, as you are fully aware, our home state of California remains 
the leading dairy state, producing 18 percent of the country's milk.
    The U.S. dairy industry has amazing potential and is ready to meet 
the growing domestic and international demands. U.S. dairy farms are 
getting better and becoming more efficient at finding innovative ways 
to produce more with less. U.S. farm milk production has grown from 170 
billion pounds of milk in 2003 to 218 billion pounds in 2018 and milk 
production per cow has increased by more than 35 percent since 1998. 
Today that means that the average cow is producing 23,150 pounds of 
milk per year. This growth in milk production means that we have more 
milk than is needed domestically, which presents an economic 
vulnerability. It also means that our industry is poised to meet a 
growing global demand for dairy products at a moment's notice, 
presenting great opportunities for our dairy industry.
    Today I will focus my testimony in four areas. First, I will 
provide a short introduction of California Dairies, Inc. (CDI), and 
next I will offer examples of current issues facing our industry today. 
Third, I will describe our focus on the current trade landscape, and 
finally I will outline some solutions and suggestions to improve the 
overall business health of our dairy farmers.
California Dairies, Inc. (CDI)
    Headquartered in Visalia, CA, CDI is the largest dairy farmer-owned 
cooperative in California and the second largest in the United States. 
The cooperative was formed in 1999 to sell, market and add value to our 
member's milk. Our 360 family-owned dairy farms produce almost 16 
billion pounds of milk per year representing seven percent of all milk 
produced in the United States. Every day we pick up between 850 and 
1,000 truckloads of milk from our farms. Half of these truckloads are 
delivered and sold to bottlers or the milk is used as an ingredient in 
other dairy products, primarily cheese. The other half of our milk goes 
into our own manufacturing facilities.
    CDI member farmers have made a large financial investment in seven 
manufacturing facilities to process milk into transportable products, 
primarily milk powder and butter products. Not only do these farmer-
owned manufacturing facilities ensure a home for the milk our members 
produce, but they also are the key to balancing the steady milk 
production on the farm with variable customer demand--a key function of 
CDI and other manufacturing cooperatives that often gets taken for 
granted.
    Our cooperative is the largest producer of retail butter in the 
United States. We manufacture almost 400 million pounds of butter a 
year--more than 1 pound for each person living in the United States. We 
wholly own Challenge Dairy Products, Inc., the number one branded 
butter in the western United States. Nearly all of our butter is sold 
to U.S. consumers with exceptions when pricing conditions are favorable 
for export.
    CDI is the largest producer of milk powder in the United States and 
the largest producer of skim milk powder in the world. We produce about 
700 million pounds of milk powder per year. Our exports of milk powder 
have grown over the years and are now reaching sixty percent of our 
total production. Clearly, we are highly dependent on global trade and 
U.S. trade policy. CDI sells and markets our milk powder through 
DairyAmerica, which is a federated cooperative made up of three other 
farmer-owned U.S. dairy cooperatives located across the country.
Current Industry Issues
    The U.S. dairy industry has been stressed for several years due to 
low margins and low worldwide prices. The dairy industry is unique 
within the agricultural sector. Almost all of the remaining U.S. dairy 
farms are family run businesses. Our dairy families work very hard and 
operate 24 hours a day, 7 days a week, and 365 days a year. The supply 
of milk is constant, but demand varies weekly.
    These farms produce a highly perishable year round ``crop'' with 
some seasonal swings in supply--specifically in the spring. This supply 
requires adequate milk processing capacity. Some regions of the country 
lack this capacity. Additionally, processing assets must also have the 
capacity to process the short spring flush peaks in milk production, 
leading to inefficiencies during non-peak periods when such capacity is 
not needed.
    The dairy industry continues to see consolidation, similar to other 
sectors of the economy. Between 2012 and 2017 the number of U.S. dairy 
farms contracted by 15 percent. Smaller farms with herds fewer than 100 
cows declined by 29 percent contrasted with farms with over 2,500 cows 
growing by 24 percent. Over this period, the total U.S. dairy herd 
increased by three percent or over 280,000 head. Cows have also become 
more productive over this time period as dairy farmers have excelled in 
employing advancements in herd health, genetics and feeding practices 
to produce more milk with fewer resources. The end result is that more 
of the U.S. milk is produced by fewer, larger and more productive 
operations.
    All dairy farms operate on a profit margin determined by operating 
costs on their farm and general market pricing. The U.S. domestic 
prices are highly influenced by global prices and the global supply-
demand balance of milk. The U.S. is no longer isolated from world 
prices. Price volatility has doubled over the last 5 years making many 
of our farmers experts in utilizing financial risk management tools.
    Global milk and dairy product prices have been depressed over the 
last 3 years resulting in low or negative margins and subsequently 
leading numerous farm families around the U.S. to sell their 
businesses. These on-farm losses combined with reduced market values 
for dairy cows are stressing bank relationships.
    The operating cost side of the dairy margin equation is driven 
primarily by feed and labor costs. Almost every dairy farm in the U.S. 
has labor availability issues today. Milking cows is difficult, and the 
job requires significant training and skill. Immigration policies will 
have a substantial impact on our industry. An effective agricultural 
guestworker program that meets the year-round needs of the dairy 
industry is needed.
    International trade is a critical component of the U.S. dairy 
economy. Sixteen percent of U.S. milk production is exported. About 1 
day a week our farmers produce milk that is destined for export 
markets. Thousands of jobs are dependent on U.S. dairy exports.
Trade Policy
    Due to the dependence on exports and world prices our dairy farm 
incomes are highly entwined with trade policy matters, meaning that 
expanding exports are vital to the health of our farms, and trade 
conflicts that limit our ability to sell products around the world are 
extremely damaging. It is a fact that a much-needed recovery in U.S. 
milk prices was halted in 2018 due to trade retaliation tariffs with 
Mexico and China.
    Our biggest competitors producing milk and dairy products for the 
export markets are the European Union (EU) and New Zealand. 
Secondarily, Canada, Brazil, Argentina, Uruguay, Australia and India 
would round out the competitive set, although on an infrequent basis. 
The most valuable export markets for our industry are Japan, China, and 
Southeast Asia, followed by the Middle East and Africa.
    In 2018, the United States exported $5.58 billion of dairy 
products, from cheese to whey to ice cream to skim milk powder and 
everything in between. Free trade agreements that open markets and 
lower trade barriers are crucial to continuing this trend of growing 
U.S. dairy exports.
    Dairy farmers are acutely aware of trade policy developments 
because today, their livelihoods increasingly depend upon global 
markets opportunities. It is particularly damaging from a dairy 
perspective that the U.S. has fallen behind in negotiating trade 
agreements, especially compared to trade agreements negotiated by the 
EU and New Zealand, our primary competitors. Some examples of such 
agreements are the EU-Japan Economic Partnership, the EU-Vietnam Trade 
Agreement, and the New Zealand-China free trade agreement, which puts 
us at an increasing disadvantage with the world's largest market. The 
Trans-Pacific Partnership (TPP) going ahead without U.S. involvement 
has affected our competitive position in a key region.
    The U.S. has not completed and passed a new trade deal in well over 
a decade. The EU has trade agreements completed or in process with nine 
of the top ten dairy importing countries while the U.S. has four. 
Likewise, New Zealand has trade agreements with most Asian countries 
where demand is growing at a rapid pace. The U.S. trade agreements that 
are in place today were negotiated before other agreements, and do not 
always place the U.S. on a level playing field with our competitors, 
putting the dairy industry at a comparative disadvantage
Trade Agreements
    Dairy industry priorities in U.S. trade agreements are fairly 
straightforward. First and most importantly, a fair and level playing 
field is critical. The United States provides large export markets in 
many sectors to our trading partners, and we must insist upon securing 
more favorable export market access than what our competitors have been 
granted through prior treaties. Some concerns include tariffs in China 
and Vietnam, competitors benefitting from government interference 
(Canadian--Class [VI]/[VII]) and the EU intervention programs that 
distort and delay global dairy price recovery.
    Second, any trade agreement should include robust access for the 
``whole bucket of milk''--all dairy products across the board. Too 
often, trade agreements isolate dairy market access to a limited subset 
of dairy products, typically cheese and whey. The U.S. dairy industry 
needs market access for products made from all components in milk.
    Let me take a moment to comment on current negotiations.
United States-Mexico-Canada Agreement (USMCA)
    Mexico is the top market for all U.S. dairy exports, valued at $1.4 
billion in 2018. Canada is second with $697 million in export sales. 
The deal as negotiated meets the dairy industry's top priorities, 
eliminates Canada's trade-distorting Class [VII] pricing program, 
improves market access into Canada, and preserves our access into 
Mexico. The agreement contains strong provisions on sanitary and 
phytosanitary measures and has strong provisions on geographical 
indications that serve as an excellent precedent from which to build a 
more extensive list with additional trading partners. These are a 
number of reasons why we urge swift Congressional approval of this 
agreement. Furthermore, failure to pass the USMCA could hinder the 
Administration's ability to finalize other trade agreement, because it 
could be viewed as an inability of the U.S. to get trade agreements 
through Congress
    Last July, Mexico imposed a 25 percent tariff on U.S. cheese to 
retaliate against Section 232 tariffs. This created significant turmoil 
for U.S. cheese manufacturers and the producer community having a 
direct impact in lowering milk prices. Mexico is the largest customer 
for U.S. cheese exports. Between July and December 2018, volume sales 
of U.S. cheese to Mexico fell one percent and the value of U.S. cheese 
exports declined eight percent due to these tariffs.
China
    China has been the third largest export customer for U.S. dairy, 
with the business valued at $502 million in 2018, down $77 million from 
the prior year. While the opportunities in China are significant, the 
U.S. in the past has not been on a level playing field with its 
competitors from New Zealand or Australia. Equal access in a trade 
agreement with China would present a large opportunity for the U.S. 
dairy industry.
    This past year, China issued retaliatory tariffs that included 
essentially all U.S. dairy products. This resulted in U.S. cheese and 
whey exports declining 40 percent year-over-year. Today, U.S. milk, 
cream, yogurt, whey, butter and cheese face a 25 percent retaliatory 
tariff, while lactose and infant formula face up to a ten percent 
retaliatory tariff. We are now seeing a precipitous decline in U.S. 
dairy exports to China, including business that took years to develop.
    While the opportunities in China are significant, the U.S. in the 
past has not been on a level playing field with our competitors from 
New Zealand or Australia. Restoring our full access to the Chinese 
market is essential to the health and growth of producer companies and 
supplying farmers. Yet restoring access is just the first step. 
Provisions in the free trade agreements New Zealand and Australia enjoy 
with China give both countries a critical leg up in this large and 
fast-grown market. Equal access for the U.S. in a trade agreement with 
China would present a large opportunity for the U.S. dairy industry.
Japan
    Japan is the fifth-largest country for U.S. dairy exports, valued 
at $270 million in 2018. Currently, U.S. dairy exports face high 
tariffs, limited tariff-rate quotas (TRQs) and other barriers to trade 
in the Japanese market. Market access in any bilateral trade agreement 
must match or exceed that achieved under the TPP and the new EU-Japan 
agreement for the U.S. dairy industry to be at a minimum on a level 
playing field. Furthermore, the agreement must include an accelerated 
phase-in of tariff reductions to ensure the U.S. is not facing a 
disadvantage on tariff or TRQ quantity access compared to other 
countries. Non-tariff barriers, such as sanitary and phytosanitary 
measures, biotechnology, TRQ administration, and geographical 
indications, must also be addressed.
    Agricultural products and dairy must be addressed in any free trade 
agreement with Japan.
European Union
    In 2018, the EU exported nearly $1.7 billion in dairy products to 
the United States, but U.S. companies exported just $145 million in 
dairy products to the EU. The European Union has the potential to be a 
significant export market for the United States, but high tariffs and 
other non-tariff barriers such as burdensome import licensing and 
certification requirements stand in the way.
    We cannot afford to set a precedent of negotiating FTAs with any 
trading partner that sidelines agriculture. A free trade agreement with 
the EU must be comprehensive in scope and provide meaningful market 
access for agriculture. Further, it must address all existing tariff 
and non-tariff barriers that block our exports, including the 
geographic indication threat to common cheese names that are currently 
in use. Without a thorough and robust agreement that uproots this full 
set of complex barriers to U.S. dairy exports, an FTA with the EU would 
quite likely deepen our significant dairy trade deficit with the EU 
rather than narrow it.
Short-Term Industry Solutions
    As just discussed, a key to improving both the short- and long-term 
outlook for U.S. dairy farmers is expanding the number of trade 
agreements that include increased dairy market access. This includes 
Congressional approval of the USMCA, concluding Administrative 
negotiations with China and Japan, and expanding further opportunities 
in the EU and other South Pacific countries. The U.S. must pursue a 
robust trade agenda that expands opportunities as well as preserves 
market access.
    Another policy proposal that has great potential for improving the 
state of the U.S. dairy industry is establishing a national enhanced 
standard for fluid milk products. This proposal, which has been 
discussed over the years and was recently analyzed by one of the 
witnesses here today--Dr. Scott Brown--looks at the potential benefits 
of adding additional nonfat milk solids to fluid milk products that 
have had some or all of the milkfat removed. This ensures that 
consumers drinking these reduced/low/non-fat milk products are getting 
a wholesome product with additional nonfat nutrients replacing the 
milkfat that has been removed. This would provide the consumer with a 
better tasting and healthier product, and secondarily, would increase 
demand for milk solids resulting in a higher price for U.S. dairy 
farmers.
    The Federal Milk Marketing Order is also in need of modernization. 
Key areas of focus include more accurate and faster market signals back 
to farmers on global pricing and marketing conditions through the 
National Dairy Product Sales Report. Adjustments also could be made to 
encourage new processing capacity to adequately handle growing domestic 
milk production.
Summary
    The dairy industry is a significant part of the U.S. economy. Dairy 
farmers have been stressed by low margins and the industry is 
undergoing rapid change. Trade policy is a vital part of the success 
for the dairy industry in the U.S. Our industry needs increased access 
to markets, a greater number of trade agreements and a level playing 
field. The U.S. dairy industry envisions a bright future capitalizing 
on opportunities in the global marketplace.
    I would like to comment briefly on the farm bill and recent 
legislative activity with respect to dairy. The farm bill dairy 
provisions regarding Federal Milk Marketing Order Class I pricing and 
the new Dairy Margin Coverage program were well received by the 
industry and are a positive step forward. The Dairy Revenue Protection 
Program is also a great enhancement to farmer risk management options.
    Again, thank you for the opportunity to testify before the 
Subcommittee. I look forward to answering your questions and engaging 
in meaningful discussion about how to maximize the potential of this 
great U.S. dairy industry.

    The Chairman. Thank you, and we appreciate your comments 
and look forward to the question period where we will get a 
chance to dig a little deeper.
    Our next witness has been introduced by my colleague here. 
He is the owner and operator of EZ Acres in Homer, New York, a 
wonderful part of the country. Mr. McMahon owns and operates 
his operation there on standard on animal care and 
environmental stewardship, and we are happy in the Subcommittee 
to have you here this morning, and look forward to your 
testimony.

STATEMENT OF MICHAEL P. McMAHON, OWNER AND OPERATOR, EZ ACRES, 
                           HOMER, NY

    Mr. McMahon. Thank you, Chairman Costa.
    Chairman Costa, Ranking Member Rouzer, and honorable 
Members of the Subcommittee, thank you for the opportunity to 
give testimony concerning the current state of the dairy 
industry. I would like to address two major challenges to dairy 
in this country: labor, specifically immigrant labor, and 
environmental sustainability.
    Labor is always an issue in dairy. In 1995, our farm moved 
out of four old barns and into a new state-of-the-art facility. 
One of our goals is to stop the endless turnover of labor that 
we had been experiencing in our previous situation. With 
comfortable working conditions, reasonable hours, and being 
able to pay a higher wage due to modern efficiencies, we felt 
this would be an easy accomplishment.
    However, after 5 years, that wasn't happening. My wife, 
Edie, behind me, who is responsible for our payroll calculated 
that she had issued an average of 39 W-2s per year over those 5 
years to maintain a crew of ten full time workers. In January 
2000 we replaced half our crew with Hispanic workers and 
instantly saw a change. Over the next 5 years, the average 
number of W-2s issued was 18, which includes part time people 
for the cropping program. It was a remarkable benefit, given 
the cost in time and money to constantly train new people. Not 
only did turnover nearly stop, but we found in the migrant 
workers a work ethic, animal handling skills and a level of 
respect for coworkers and owners alike that seem to be lost in 
the local workforce.
    While it is not this Committee's jurisdiction, immigrant 
labor is absolutely critical to my operation. Regardless of the 
unemployment rate in our county, local labor doesn't want to 
milk cows.
    A 2017 Texas A&M study found that 79 percent of the U.S. 
milk supply is harvested by Hispanic workers. Agriculture needs 
a way to secure an immigrant workforce that is steady, willing, 
able and legal.
    I realize that immigration is a difficult topic, but 
agriculture's need for immigrant labor is undeniable. America 
needs a safe, affordable, and abundant food supply produced 
within its borders. Food security is part of homeland security.
    I would also like to touch on environmental sustainability. 
New York and the Northeast are blessed with luxuriant water. 
This, and a temperate climate make us well suited as a current 
and future dairy region. It differentiates us from other milk 
producing areas such as the Southwest. This abundant water also 
presents dairy with challenges. For us, environmental 
sustainability equates with water quality protection. My farm 
is situated in an environmentally sensitive area with 70 
percent of my land in the Chesapeake Bay Watershed, and 30 
percent in the Skaneateles Lake Watershed which provides 
unfiltered drinking water to 230,000 people of the City of 
Syracuse. It also lies over a sole-source aquifer which 
supplies water to 24,000 people in our town. Our opportunities 
to pollute are many, and we take our responsibility to protect 
water seriously.
    Since 1997, we have been a case study farm for Cornell 
University, pioneering an approach to water protection referred 
to as nutrient mass balance. In a nutshell, it is a whole farms 
system approach to balancing the pounds of nutrients and 
imports which are imported onto the farm annually with the 
nutrients that leave the farm in the form of milk, meat, and 
manure.
    Nitrogen and phosphorus are the main nutrients of concern, 
and we want to prevent excessive accumulations of these 
nutrients on the farmstead, since they may be lost to the 
environment and present a risk to surface and groundwater. The 
goal is to reduce the amount of nutrients brought onto the farm 
by tailoring feed and fertilizers to meet the exact needs of 
animals and crops, reuse the nutrients by proper storage of 
manure and timing of application to growing crops, and recycle 
them into abundant, homegrown forage and grains to feed our 
cows.
    Since 2003, we have been able to reduce the amount of 
excess nitrogen remaining on our farm by \1/3\, and phosphorus 
remaining on our farm by 135 percent. These are significant 
reductions. Herd health and milk production have improved, and 
purchase feed costs have dropped. This approach has enhanced 
both environmental and economic sustainability.
    Every farm, regardless of size, can implement some or all 
of this approach. The data collection required to calculate the 
balance is not arduous. Nutrient mass balance analysis of 
farmsteads can raise awareness of the opportunities to reduce 
nutrient imports and their associated costs, and incentivize 
dairymen to adopt nutrient reducing management practices. Every 
pound of nitrogen and phosphorus that we don't import is a 
pound that we don't have worry about ending up in our water.
    Thank you.
    [The prepared statement of Mr. McMahon follows:]

Prepared Statement of Michael P. McMahon, Owner and Operator, EZ Acres, 
                               Homer, NY
    To Chairman Costa, Ranking Member Rouzer, and Honorable Members of 
the Livestock and Foreign Agriculture Subcommittee:

    Thank you for the opportunity to give testimony concerning the 
current state of the dairy industry. I would like to address two major 
challenges to dairy in this country--labor, specifically immigrant 
labor, and environmental sustainability.
    Labor is always an issue in dairy. In 1995 our farm moved out of 
four old barns and into a new state of the art facility. One of our 
goals was to stop the endless turnover of labor that we had been 
experiencing in our previous situation. With comfortable working 
conditions, reasonable hours and being able to pay a higher wage due to 
modern efficiencies we felt this would be an easy accomplishment. 
However after 5 years it was obvious that it wasn't happening. My wife 
Edie who is responsible for our payroll calculated that she had issued 
an average of 39 W-2s per year over those 5 years to maintain a crew of 
ten full time workers. In January 2000 we replaced half our crew with 
Latino workers and instantly saw a change. Over the next 5 years the 
average number of W-2s issued was 18 which included part time people 
for the cropping season. It was a remarkable change given the cost in 
time and money to constantly train new people. Not only did turnover 
nearly stop but we found in the migrant workers a work ethic, animal 
handling skills and a level of respect for coworkers and owners alike 
that seem to be lost in the local workforce.
    While it is not in this Committee's jurisdiction, immigrant labor 
is absolutely critical to my operation. Regardless of the unemployment 
rate in our county--local labor doesn't want to milk cows. A 2017 Texas 
A&M study found that 79% of the U.S. milk supply is impacted by 
Hispanic workers. Agriculture needs a way to secure an immigrant 
workforce that is steady, willing, able and LEGAL. We need to bring the 
multitude of indispensable agricultural workers who are already here 
out of the shadows without major disruption to the workforce. Let's 
find out who they are and if there are felons among them then they 
cannot stay. These workers are already contributing greatly to our food 
system. They paid thousands of dollars to cross the border and 
thousands more for forged documents, enriching the drug cartels who 
provide these services. The United States might better have collected 
that money for processing and issuing work permits. I realize that 
immigration is a political minefield, but agriculture's need for 
immigrant labor is undeniable. America needs a safe and abundant food 
supply produced within its borders. Food security is part of homeland 
security.
    I would also like to touch on sustainability. New York and the 
Northeast are blessed with luxuriant water. This, and a temperate 
climate make us well suited as a current and future dairy region. It 
differentiates us from other milk producing areas such as the 
Southwest. This abundant water also presents dairy with challenges--for 
us environmental sustainability equates with water quality protection. 
My farm is situated in an environmentally sensitive area with 70% of my 
land in the northern part of the Chesapeake Bay Watershed, and 30% in 
the Skaneateles Lake Watershed which provides unfiltered drinking water 
to 230,00 people of the city of Syracuse. It also lies over a sole-
source aquifer which supplies water to about 24,000 people in our town. 
We also have two naturally stocked trout streams that run through our 
farm. Our opportunities to pollute are many, and we take our 
responsibility to protect water seriously.
    Our approach is based on the simple concept of balancing the amount 
of ``nutrients'' we import onto the farmstead each year--mainly in the 
form of feed and fertilizer--with the amounts of nutrients exported in 
the form of milk, meat and manure. The main nutrients of concern with 
regard to water quality are Nitrogen (N) and Phosphorus (P). Typically 
more of these come onto the farm than are exported. Excessive 
accumulations of these nutrients are lost to the environment and 
present a risk to surface and ground water. So we Reduce the amount of 
nutrients brought onto the farm by tailoring feed and fertilizers to 
meet but not exceed animal and crop needs, Reuse the nutrients by 
proper storage of manure and timing of application to growing crops, 
and Recycle them into abundant homegrown forage and grains to feed our 
cows.
    This concept is referred to as ``Nutrient Mass Balance''. It was 
pioneered by Dr. Danny Fox of the Department of Animal Science at the 
College of Agriculture and Life Sciences of Cornell University. It is 
carried on today under the program name ``Nutrient Management Spear 
Program'' by Dr. Quirine Ketterings and associates. Information about 
the NMSP can be found at http://nmsp.cals.cornell.edu.
    From beginning balance measurements in the pilot program in 2003 we 
have been able to reduce the amount of N remaining on the farm by 33% 
and the P remaining on the farm by 135%. These are significant 
reductions. They also translate to reduced input costs, enhanced animal 
and soil health and contribute to economic sustainability. Wells 
sampled for Nitrates ppm along the valley we farm (including the 
Village Municipal well) although never at levels of concern have shown 
marked reductions in nitrate levels since 1997.
    Every farm in water sensitive areas regardless of size can 
implement some or all of this approach. The data collection required to 
calculate the Nutrient Mass Balance is not arduous. Most information is 
reasonably available from well managed operations. NMB analysis of 
farmsteads can raise awareness of the opportunities to reduce nutrient 
imports and their associated costs and incentivize dairymen to adopt 
nutrient reducing management practices. Every pound of N and P we don't 
import is a pound we don't have to worry about winding up in our water.
    There are few people who farm the land that don't agree that 
something is changing with our climate. Extreme weather events and 
excessive rainfall are occurring with increasing frequency. The annual 
average rainfall in New York has increased by 5" from 1895-2016. Our 
locality has seen three ``hundred year storms'' in the past 10 years. 
This means we have to get better just to stay even.
    What can government do to help? I suggest the following:

   Fund field staff at the USDA Natural Resources Conservation 
        Service and the local Soil and Water District level to help 
        develop and implement nutrient management plans on farms of all 
        sizes.

   See that there is adequate funding for land-grant colleges 
        to be responsive to applied needs such as the NMB program and 
        conduct outreach.

   Encourage interagency cooperation between land-grant 
        colleges, NRCS and Soil and Water Districts.

   Continue to fund EQIP grants so farmers can better address 
        resource concerns like manure storage.

    The Chairman. Thank you very much, Mr. McMahon. Your 
comments as it relates to both labor and well as the 
environmental stewardship that you have stated is an example of 
what, in fact, can be done and I always believe that farmers in 
general and dairymen and women are among the best stewards of 
the environment, because the whole notion of sustainability is 
crucial for them to maintain their business. And it just is 
common sense.
    Our next witness was previously identified, the Director of 
Strategic Partnerships from the College of Agriculture, Food 
and Natural Resources, Associate Extension Professor in 
Agriculture and Applied Economics at the University of 
Missouri. Dr. Brown, good to have you here.

         STATEMENT OF SCOTT BROWN, Ph.D., DIRECTOR OF 
   STRATEGIC PARTNERSHIPS, COLLEGE OF AGRICULTURE, FOOD, AND 
               NATURAL RESOURCES, UNIVERSITY OF 
           MISSOURI; ASSOCIATE EXTENSION PROFESSOR, 
  AGRICULTURAL AND APPLIED ECONOMICS, UNIVERSITY OF MISSOURI, 
                          COLUMBIA, MO

    Dr. Brown. Thank you, and thanks for the kind introduction, 
Congresswoman Hartzler, and everything that you do for the 
folks in the 4th District of Missouri.
    Chairman Costa, Ranking Member Rouzer, and Members of the 
Subcommittee, thank you for the opportunity to testify 
regarding the financial situation for U.S. dairy farmers and 
the expected results from the dairy policy changes made in the 
Agriculture Improvement Act of 2018. I am an agriculture 
extension economist at the University of Missouri, and I have 
spent much of my career examining dairy industry issues.
    Since the record-setting milk prices received in 2014, 
prices have been at lower levels and shown less volatility. 
Over the 2010 to 2014 period, there was a range of $11.10 from 
the high to low monthly price. While over the 2015 to early 
2019 period, the difference between the maximum and minimum has 
been only $4.40. While the low milk price during these two 
periods is very similar, the highest monthly price since 2015 
is well below the maximum over the 2010 to 2014 period.
    The factors that have led to this longer period of more 
stable but lower milk prices are a combination of many market 
factors. Despite an incredibly tough environment for dairy 
producers across the country, milk supplies have continued to 
expand. The most recent USDA milk production report showed for 
the first time since January of 2016 a \4/10\ decline in 
production relative to year earlier levels. The longer-term 
expansion in milk production occurred despite continued 
reductions in the number of dairy operations. The number of 
licensed dairy operations fell by over 2,700, or 6.8 percent in 
2018, as financial stress pushed many of these operations out 
of business.
    If the recent decline in milk supplies continue, that could 
provide even more milk price strength in the second half of 
2019. However, the structural change in dairy operations and 
milk production that has unfolded over the past few years 
highlights the increased possibility of these longer periods of 
low profitability.
    The stubborn continued growth in U.S. milk supplies over 
the last few years has contributed to the tough financial 
conditions that have plagued the industry. Dairy operation 
equity built during the record 2014 milk prices and the 
apparent economies-of-scale in the industry has left aggregate 
milk supplies very unresponsive in time periods that are 
financially strapped.
    Despite slow supply response and low return periods, the 
industry can expand rapidly in periods of strong profitability. 
The cost of purchasing feed has fallen the last few years; 
however, the cost required to grow feed stuffs have remained 
high and created additional financial strain for those growing 
a significant portion of their feed.
    Poor domestic demand for some dairy products has 
contributed to the weakness in milk prices. Per capita 
consumption of two percent and low-fat milk has declined by 33 
pounds over the 2010 to 2018 period, and has not been offset by 
the recent increases in whole fat fluid milk consumption.
    U.S. dairy exports are important to the outlook for U.S. 
dairy farmers. According to USDA, U.S. commercial dairy exports 
grew by 36 billion pounds on a milk equivalent skim solids 
basis over the 2000 to 2018 period, while domestic commercial 
disappearance grew by only 23 billion pounds.
    The point remains that growth in U.S. dairy exports is 
vital. The implementation of new trade agreements, like the 
current efforts with China and the ratification of the new 
USMCA agreement remain critical.
    The long-term outlooks provided by FAPRI and USDA estimate 
that the U.S. whole milk price will not exceed $18 per 
hundredweight on an annual basis until after 2022. These 
forecasts suggest a slow recovery that occurs over the next 3 
to 4 years, barring some external unanticipated shock.
    The new dairy provisions contained in the 2018 Farm Bill 
considerably strengthen the dairy safety net relative to the 
provisions in the 2014 Farm Bill. The level of coverage has 
increased and the cost of program participation has declined. 
It remains important to highlight the strengthened provisions 
contained in the 2018 Farm Bill. Those that would have picked 
$9.50 coverage will already have seen a payment in January of 
$1.51 per hundredweight, and $1.28 per hundredweight in 
February, making the 2019 decision easy.
    The current Dairy Margin Coverage program is a milk price 
less feed cost triggered program, and is meant to protect 
against low milk prices and/or high feed costs. The DMC margin 
is calculated on a national basis by using the most commonly 
used national prices for milk, corn, alfalfa, and soybean meal. 
The margin will not perfectly represent any particular farmer's 
margin, but provides a national average margin. The DMC program 
is a voluntary program that allows a dairy farmer to pick a 
margin level to protect between $4 and $9.50 with higher 
premiums at higher margin levels. Producers can cover between 5 
and 95 percent of their FSA calculated production history. The 
first 5 million pounds of production history covered occurs at 
lower premiums relative to the production history covered above 
5 million pounds.
    It appears the DMC program will provide a needed boost to 
the dairy safety net. The combination of lower premiums, added 
flexibility, and production history covered, and higher margin 
protection levels result in a more effective safety program 
than the dairy industry has had for some time. Dairy producers, 
regardless of size, must examine how the DMC program fits into 
their overall risk management plan.
    Mr. Chairman, thank you for the opportunity to discuss the 
many issues facing the dairy industry today. I look forward to 
answering questions.
    [The prepared statement of Dr. Brown follows:]

    Prepared Statement of Scott Brown, Ph.D., Director of Strategic 
  Partnerships, College of Agriculture, Food, and Natural Resources, 
University of Missouri; Associate Extension Professor, Agricultural and 
        Applied Economics, University of Missouri, Columbia, MO
    Chairman Costa, Ranking Member Rouzer, and Members of the 
Subcommittee, thank you for the opportunity to testify regarding the 
financial situation for U.S. dairy farmers and the expected results 
from the dairy policy changes made in the Agriculture Improvement Act 
of 2018. I am an agricultural extension economist at the University of 
Missouri and over the last 3 decades I have spent much of my time 
examining the economic outlook and Federal policies facing the dairy 
industry.
    Since the record setting milk prices received by dairy producers in 
2014, milk prices have been at lower levels and shown less variability. 
Over the 2010 to 2014 period there was a range of $11.10 per cwt from 
the high to low monthly milk price, while over the 2015 to early 2019 
period the difference between the maximum and minimum has been only 
$4.40 per cwt. While the low milk price during these two periods is 
very similar, the highest monthly milk price since 2015 is well below 
the maximum from 2010 to 2014.
    The factors that have led to this longer period of more stable but 
lower milk prices have been debated within the dairy industry. It 
remains difficult to attribute lower milk prices to any particular 
reason, but rather a combination of many market factors.
    Despite an incredibly tough financial environment for dairy 
produces across the country, milk supplies have continued to expand. 
The most recent USDA Milk Production report with data for March 2019 
showed that for the first time since January 2016 (excluding leap year 
effects), U.S. milk production fell by 0.4% relative to year earlier 
levels. The longer-term expansion in milk production occurred despite 
continued reductions in the number of dairy operations. The number of 
licensed
    dairy operations fell by 2,731 or 6.8% in 2018 as financial stress 
pushed many of these operations out of business. If
Figure 1. Monthly U.S. All Milk Price

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

the recent decline in milk supplies continues for the rest of this 
year, that could provide even more milk price strength in the second 
half of 2019. However, the structural change in dairy operations and 
milk production that has unfolded over the past few years highlights 
the increased possibility of these longer periods of low profitability 
occurring in the future.
    The stubborn continued growth in U.S. milk supplies over the last 
few years has contributed to the tough financial conditions that have 
plagued the industry. Dairy operation equity built during the record 
2014 milk prices and the apparent economies of scale in the industry 
has left aggregate milk supplies very unresponsive in time periods that 
are financially stressed. Although the equity built during 2014 has 
dissipated, the increase in the average dairy operation size and 
economies of scale may result in additional future periods of slow 
reduction in aggregate milk supplies when the economic situation is 
stressed. Despite slow supply response in low return periods, the 
industry can expand rapidly in periods of strong profitability.
    The cost of purchasing dairy feed has fallen the last few years as 
most feed ingredient prices declined from the peaks of a few years ago. 
However, the costs required to grow feedstuffs have remained high and 
created additional financial strain for those producers that grow a 
significant portion of their feed.
    Poor domestic demand for some dairy products has contributed to the 
weakness in milk prices. Per capita consumption of 2% and low-fat fluid 
milk has declined by 33 pounds over the 2010 to 2018 period and has not 
been offset by recent increases in whole fat fluid milk consumption. It 
remains critical for future milk prices to find ways to expand domestic 
consumption of U.S. dairy products.
    U.S. dairy exports are also important to the outlook for U.S. dairy 
farmers. According to USDA/ERS, U.S. commercial dairy exports grew by 
36 billion pounds on a milk-equivalent skim-solids basis over the 2000 
to 2018 period while domestic commercial disappearance grew by only 23 
billion pounds. The story changes on a milk-equivalent milk-fat basis, 
with domestic commercial disappearance growing by 44 billion pounds and 
commercial exports growing by only 9 billion pounds. However, the point 
remains that growth in U.S. dairy exports is vital. The implementation 
of new trade agreements like the current efforts with China and 
ratification of the new USMCA agreement remain critical.
    With the supply of milk and demand for milk and dairy products 
extremely price inelastic, small changes in either demand or supply can 
move milk prices dramatically higher or lower in just a few months and 
this potential volatility should not be ignored even though milk prices 
have been moving in a small range for the past few years.
    The current long-term outlooks provided by the Food and 
Agricultural Policy Research Institute (FAPRI) and USDA estimate that 
the U.S. all milk price will not exceed $18 per cwt on an annual basis 
until after 2022. These forecasts suggest no quick relief from the 
current financial downturn, but rather a slow recovery that occurs over 
the next 3 to 4 years barring some external unanticipated shock that 
cuts milk supplies or creates new demand.
    The new dairy policy provisions contained in the Agriculture 
Improvement Act of 2018 (2018 Farm Bill) considerably strengthen the 
dairy safety net relative to the Margin Protection Program (MPP) 
provisions in the Agricultural Act of 2014 (2014 Farm Bill). The level 
of coverage has increased, and the cost of program participation has 
declined. It remains important to highlight the strengthened provisions 
contained in the 2018 Farm Bill.
    The current Dairy Margin Coverage (DMC) program is a milk price 
less feed cost triggered program. It is meant to protect against low 
milk prices and/or high feed costs which make up most of a producer's 
production cost. The DMC margin is calculated on a national basis using 
the most commonly used national prices for milk, corn, and alfalfa from 
USDA/NASS and soybean meal from
Figure 2. Monthly Dairy Margin Coverage (DMC) Margin

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

USDA/AMS. This margin will not perfectly represent any particular dairy 
farmer's milk price less feed cost margin but provides a national 
average margin. The key issue regarding how well the DMC margin works 
for an individual producer rests in the degree of correlation between 
the individual producer's milk less feed cost margin and the DMC 
margin. My experience has suggested that in many cases there will be a 
high correlation between an individual's margin and the DMC margin.
    The DMC program is a voluntary annual program that allows a dairy 
farmer to pick a margin level to protect from between $4.00 and $9.50 
per cwt with higher producer premiums as the margin level covered 
increases. Producers can cover between 5 and 95 percent of their FSA-
calculated production history. The first 5 million pounds of production 
history (tier 1) covered occurs at lower premiums relative to 
production history covered above 5 million pounds. The premium costs at 
alternative DMC margin levels are listed in table 1.
    Tier 1 premiums at the higher coverage levels are much lower than 
the original 2014 Farm Bill MPP premiums. For example, the original MPP 
premium cost at $8.00 coverage was $0.475 per cwt, lowered in 2018 to 
$0.142 per cwt under the Bipartisan Budget Act of 2018. The 2018 Farm 
Bill tier 1 premium is lowered further to $0.10 per cwt at the $8.00 
level. Even the new $9.00 coverage option has a tier 1 premium that is 
less than the premium offered for $8.00 coverage under the BBA18. 
Producers can shave a further 25 percent off their premium costs if 
they sign up for the entire 5 year period during the initial signup.

                       Table 1. DMC Premium Costs
------------------------------------------------------------------------
                                           Premiums for:
        Coverage         -----------------------------------------------
                           Tier 1, <5 Mill. Lbs.   Tier 2, >5 Mill. Lbs.
------------------------------------------------------------------------
            $4.00                   $0.0000                 $0.0000
            $4.50                   $0.0025                 $0.0025
            $5.00                   $0.0050                 $0.0050
            $5.50                   $0.0300                 $0.1000
            $6.00                   $0.0500                 $0.3100
            $6.50                   $0.0700                 $0.6500
            $7.00                   $0.0800                 $1.1070
            $7.50                   $0.0900                 $1.4130
            $8.00                   $0.1000                 $1.8130
            $8.50                   $0.1050                     N/A
            $9.00                   $0.1100                     N/A
            $9.50                   $0.1500                     N/A
------------------------------------------------------------------------

    A few points are important relative to the strengthened safety net 
provided by the DMC program. Over the 2000 to 2018 period, DMC coverage 
at $9.50 would have resulted in a triggered payment approximately 70 
percent of the time while the $8.00 maximum MPP coverage level 
triggered a payment a little more than 40 percent of the time. DMC will 
trigger payments more often than MPP for those producers who choose the 
new higher coverage levels allowed under DMC.
    Using the 2019 FAPRI baseline, I estimate that at the $9.50 DMC 
coverage level payments will trigger 56 percent of the time with an 
average payment of $1.68 per cwt over the 2019 to 2029 period.
    The DMC program change that increases to 5 million pounds the 
amount of production history covered at lower premiums and the change 
to cover between 5 and 95 percent of a producer's production history 
allows for a larger proportion of U.S. milk supplies to be covered at 
the lower premium levels. Even most large dairy producers can cover 
their first 5 million pounds of production history.
    Using recently released 2017 agricultural census data, roughly \1/
3\ of current milk production could choose to be covered under the tier 
1 DMC program premiums. Given expected growth in U.S. milk production 
over time, the percentage of current milk production that could be 
covered will decline about 1 to 1.5 percent per year.
    It remains important to think through the added support provided 
under the DMC program. An individual producer who chooses not to sign 
up for coverage under DMC while the majority of other producers do 
could find themselves at a serious financial disadvantage, as those 
that participate receive significant payment from the program to help 
offset low margin periods. Given the program is not triggered off of 
current production but rather a producer's production history lessens 
the likelihood that the DMC program is supply-inducing but it may stall 
a reduction in milk production during tough financial periods.
    It appears the DMC program will provide a needed boost to the dairy 
safety net and builds on the new policy direction laid out in the MPP. 
The combination of lower premiums, added flexibility in production 
history covered and higher margin protection levels results in a much 
more effective safety program than the dairy industry has had for some 
time. Dairy producers, regardless of size, must examine how the DMC 
program fits into their overall risk management plan.
    Mr. Chairman, thank you for the opportunity to discuss the many 
issues facing the dairy industry today. I look forward to answering 
questions you have.

    The Chairman. We thank you, Dr. Brown, for those very 
important facts that explain the challenges that the industry 
has felt in the past, and where we are today. And we look 
forward to a good opportunity to go over any questions we have.
    Our last witness is Mr. David Smith. He is the Executive 
Director of the Pennsylvania Dairymen's Association. He has 
been previously introduced by Congressman Thompson. He is an 
active dairy farmer near Palmyra, Pennsylvania. Thank you for 
joining us, Mr. Smith. Please proceed with your testimony.

 STATEMENT OF DAVID R. SMITH, EXECUTIVE DIRECTOR, PENNSYLVANIA 
              DAIRYMEN'S ASSOCIATION, PALMYRA, PA

    Mr. Smith. Thank you. Chairman Costa, Ranking Member 
Rouzer, and Members of the House Committee on Agriculture, we 
want to thank you for this opportunity, this awesome 
opportunity to provide testimony today and hosting this 
hearing.
    Again, as you mentioned, I do have a farm operation and my 
son, Joel, is the fifth generation on that farm operation right 
now. In addition, I am the Executive Director of the 
Pennsylvania Dairymen's Association, which is a supporting 
organization of dairy and agriculture programs within 
Pennsylvania.
    I would like to begin by discussing two key components of 
the 2018 Farm Bill, offer a brief overview of the state of 
Pennsylvania's dairy economy, and then provide five key points 
of recommendations for your consideration.
    First of all, thanks to the Committee for the hard work 
that went into the 2018 Farm Bill. That legislation contains 
several key things that were supportive of the dairy industry. 
First of all, as mentioned earlier, the DMC coverage is a 
positive move for dairy farmers. Second, I wanted to add that 
the farm bill included a very innovative and new Farm to Food 
Bank Program, which is probably, as you hear very often, that 
it is a good and very logical program coming out of Congress 
that connects the dots between surplus ag products and the 
nation's food banks. A comment that you probably hear often, 
that it is good and logical.
    I would go on to talk a little bit about the Pennsylvania 
dairy industry. According to the USDA Census of Agriculture, 
Pennsylvania lost 915 dairy farms between 2000 and 2017. I 
would add that last year, we continued to undergo significant 
consolidation and loss of farms and cows, and our herd numbers 
dropped 30,000 head last year alone, with a 6.9 percent 
decrease in milk production.
    The financial stress of our dairy farmers is real, as you 
have heard before. I personally have seen dairy farm families, 
friends struggle with seismic change within their family 
business model, with some selling their farms, businesses, and 
others seeing the painful loss of their family farm.
    To help address challenges currently faced by the dairy 
industry in Pennsylvania, across the country, in my written 
remarks I do have a number of things that have been mentioned 
prior to this. The trade is hugely important to dairy--and I 
won't go into details. It is in the written statement. I would 
also mention that the continual review of the Federal Milk 
Marketing Orders is needed to keep monitoring those things. In 
addition, as you heard before, also a workable guestworker 
program needed year-round is very necessary.
    The two items that I want to address that I am very, very 
passionate about, our dairy farmers have worked hard over 
generations to build a wholesome, nutritious image that milk 
now has. Dairy cow milk is unrivaled as a beverage of 
nutrition, and in recent years, many upstart beverages have now 
used milk in their labeling. These alternative beverages are 
riding on the coattails of the affordable, wholesome nutrition 
of cow's milk. I do believe that in general, consumers are 
aware of the difference in nutrition, but I believe and am 
concerned that many consumers still do not know the difference 
in nutrition of real milk and the nut juices. They are being 
misled by the virtue of the name milk in the label, and they 
are not getting a comparable product to milk. Dairy farmers 
across the country call for the U.S. Food and Drug 
Administration to vigorously enforce food standards regarding 
the labeling of dairy products and prohibit the mislabeling, 
misleading, deceptive labeling of nut and plant-based beverages 
as real milk.
    Finally, our dairy farmers have been incredibly discouraged 
by the lack of choice of whole milk in school lunches. I 
believe that what started as an attempt to curb childhood 
obesity has done the opposite. In 2010, Congress passed the 
Healthy Hunger-Free Kids Act, which amended nutrition standards 
in the School Lunch Program and mandated that flavored milk 
must be fat free within the program. I believe that this has 
led to significant changes in beverage consumption habits of 
children and has resulted in a nine percent decline in milk 
consumption in schools. This nine percent decline tells me that 
an additional nine percent of our children in this country are 
not getting the calcium and the nine essential vitamins of 
milk. We have made progress in 2017, allowing the one percent 
into our schools, but it is now time to draw on recent and new 
science-based research on dietary fats. Without the option of 
having a full-bodied beverage to satisfy an appetite, our 
children are seeking sugar-based drinks.
    I recently had a conversation with a mother of an 
elementary-age child. She mentioned her child likes milk at 
home, but does not like it at school, does not like the taste, 
and does not drink it there. I believe that we have lost a 
generation of milk drinkers.
    I want to thank Congressmen Thompson and Peterson on their 
leadership of H.R. 832, the Whole Milk for Healthy Kids Act of 
2019.
    In conclusion, my wife, Sharon, and I became first-time 
grandparents last year, and while it is true what I have heard, 
that grandparenting is truly the best job that one could have, 
it is unfathomable to me that in a nation that prides itself in 
allowing choices and freedoms, my grandchild could enter a 
school and not even have the option of whole milk with her 
lunch.
    The Chairman. I think that is a good note to end it on.
    Mr. Smith. I am humbled to be here. Thank you.
    [The prepared statement of Mr. Smith follows:]

Prepared Statement of David R. Smith, Executive Director, Pennsylvania 
                  Dairymen's Association, Palmyra, PA
    Chairman Costa, Ranking Member Rouzer, and Members of the House 
Committee on Agriculture's Subcommittee on Livestock and Foreign 
Agriculture, thank you for the opportunity to provide testimony today, 
and for hosting this hearing to learn more about the state of the dairy 
economy.
    My name is Dave Smith. My family and I operate a farm in central 
Pennsylvania where we grow crops and raise young dairy animals on a 
contract basis for a neighboring dairy farm. When I received a call 
last week to invite me to join this hearing, my first thought was that 
I needed to be on the farm to plant corn so that the livestock would 
have feed next year, but I quickly recognized the importance of 
providing testimony, and I am humbled to be here. My son, Joel is the 
fifth generation on our farm, and I have an amazingly active 84 year 
old farmer father who does not know the word retirement. In addition to 
my farm involvement, I am the Executive Director of the Pennsylvania 
Dairymen's Association. The Association is a nonprofit organization run 
by a board of directors who are active dairy farmers. Our main focus is 
to promote and sell dairy products at events and use the proceeds to 
fund scholarships, youth, next generation dairy farmer programs, as 
well as consumer education about agriculture. Within the last 3 years, 
the Association has funded agriculture programs with over $1 million in 
financial support.
    I will begin by discussing two key components of the 2018 Federal 
Farm Bill, offer a brief overview of the state of Pennsylvania's dairy 
economy, and provide five key policy recommendations for your 
consideration.
2018 Federal Farm Bill
    I would first like to thank the Committee for its good work in 
helping to shape, and ultimately pass, the 2018 Farm Bill. The 
legislation contains several positive aspects for Pennsylvania's dairy 
industry. First, it strengthens support for dairy farmers by offering 
reduced premiums and new coverage levels for milk produced under the 
new Dairy Margin Coverage program. This new program remedies the issue 
with dairy farmers not having an adequate safety net to protect 
themselves from devastating low milk prices. Expediting the 
implementation of the Dairy Margin Coverage program is essential to 
providing dairy farmers the support that they desperately need as we 
continue to move through this low-price period.
    Second, the farm bill included a new Farm to Food Bank program, 
which is a good and logical government program which connects the dots 
between surplus agriculture products and our nation's food banks. The 
program was, in part, modeled after Pennsylvania's successful 
Pennsylvania Agricultural Surplus System, which provides an efficient 
mechanism for the agricultural industry to donate safe, wholesome food 
products while being reimbursed for the costs involved in harvesting, 
processing, packaging, and transportation. This program has provided an 
additional outlet for Pennsylvania dairy farmers to be able to re-
direct their surplus milk to families struggling with hunger.
Pennsylvania's Dairy Economy
    Pennsylvania's dairy industry continues to undergo significant 
consolidation and loss of farms and cows. We continue to be the only 
major dairy state with significant declines in both milk production and 
cow numbers, with the state's dairy herd dropping 30,000 head from a 
year ago and total milk production down 6.9 percent. Milk production 
per cow is also down 25 pounds or 1.4 percent from a year ago. And 
according to USDA's Milk Production Report, milk production across the 
U.S. fell for the first time in 6 years, down 0.4 percent year-over-
year to 19.1 billion pounds. This was the first year-over-year decline 
since March 2013. Milk production per cow was up 10 pounds or 0.5 
percent to 2,044 pounds, while cow numbers fell 86,000 head year-over-
year to 9.344 million head.
    According to the USDA Census of Agriculture that was recently 
released, Pennsylvania lost 915 dairy farms and 4,718 cows between the 
2012 and 2017 census. While the number of U.S. dairy cows and milk 
production continue to increase, the latest census data shows a drop of 
more than 10,000 farms with milk sales between 2012 and 2017. We have 
the second largest number of family farms in the nation. Agriculture is 
the number one industry of the Commonwealth with dairy as the leading 
sector. Pennsylvania dairy farms are the backbone of our communities 
and generate $14.7 billion in annual economic revenue.
    The financial stress of our dairy farmers is real. I have 
personally seen dairy farmer friends struggle through seismic change in 
their family business model with some selling their business and others 
seeing the painful loss of their family farm. The source of this pain 
is multi-faceted, but one reason is supply and demand. Milk production 
has outpaced demand, which ironically is a good situation for our 
nation's consumers who reap the benefits of having an abundant and 
affordable supply of dairy products. Our consumers may share a 
different view if there were a shortage of milk, cheese, ice cream, or 
milkshakes.
Policy Recommendations
    To help address the challenges currently faced by the dairy 
industry in Pennsylvania and across the country, I offer a few key 
policy priorities for consideration.

  1.  Ratifying the United States-Mexico-Trade Agreement, in particular 
            the dairy provisions, has become very important. A report 
            from the International Trade Commission shows that the 
            United States dairy sector could become the benefactor of 
            increased dairy trade of $227 million upon completion of 
            the agreement. I would be negligent to not emphasis the 
            importance of trade, as nearly 20% of our nations milk 
            production is moved outside of our country. I urge Congress 
            to move quickly to ratify USMCA.

  2.  Pennsylvania dairy farmers need longer term, continual review of 
            the Federal Milk Marketing Orders and how milk is priced 
            across the country. The Northeast is within a half day's 
            drive to 60 percent of the U.S. population. Having an 
            adequate supply of milk is essential to provide both fresh 
            fluid milk and processed dairy products to this population. 
            The Northeast has a higher cost structure than other parts 
            of the country, given land costs, environmental restraints 
            and farm size. The Federal Order pricing system may need to 
            be reviewed to protect the farms in this region as larger, 
            lower cost farms continue to come online in other regions 
            of the country. I am sure the Members can agree that there 
            are great consumer benefits provided when access to locally 
            produced milk is available.

  3.  The need for a guestworker program for year-round dairy 
            operations is at an all-time critical high. A dependable 
            workforce is essential to the health of our animals and the 
            survival of our family businesses. Much of the dairy 
            industry's essential workforce consists of immigrants. Not 
            because it is cheap labor; in fact, dairies pay very 
            competitive wages in an effort to attract and retain 
            employees, but because as hard as we try, we cannot find 
            local people who are willing and able to do the dirty, 
            manual work, often in inclement weather on a dairy farm. 
            Dairy farming is a 24/7, all-weather job. The immigrant 
            labor that dairies often employ is not taking jobs away 
            from U.S.-born citizens who want the jobs we have to offer. 
            And with the unemployment rate at an all-time low, it is 
            impossible to find people willing and able to do these 
            essential jobs. These are not part time pickers; they are 
            necessary year-round . . . yet there is no year-round visa 
            for them.

        We see genuine desire in Congress to help dairies hire and 
            retain foreign born workers year around. However, attempts 
            to address this critical need seem to continually get 
            caught up in the political debate of border walls and other 
            volatile immigration reform, and die as a result. I would 
            encourage you to take a leadership position in defining our 
            dire worker shortage not as an immigration issue, bit 
            instead for what it is; an agricultural workforce issue. It 
            could be a great starting point for finding common ground 
            for the benefit of struggling dairy farmers across the 
            nation.

    The last two items I would like to share are the ones which I am 
most personally passionate.

  4.  Our dairy farmers have worked hard over generations to build on 
            the wholesome, nutritious image that milk now has. Dairy 
            cow milk is unrivaled as a beverage of nutrition but in 
            recent years, many upstart beverages have now used milk in 
            their labeling. These alternative beverages are riding on 
            the coattails of the affordable wholesome nutrition of 
            cow's milk. I do believe that in general, consumers are 
            aware of the difference in nutrition between real milk and 
            the nut juices, but I am concerned that many consumers are 
            being led to believe, by virtue of the name milk on the 
            label, that they are getting a comparable product. Dairy 
            farmers call for the U.S. Food and Drug Administration 
            (FDA) to vigorously enforce food standards regarding the 
            labeling of dairy products and prohibit the misleading and 
            deceptive labeling of nut and plant-based beverages as 
            ``real milk''. The [DAIRY PRIDE] Act would classify these 
            disguised products as ``misbranded'' and be subject to 
            enforcement. The bill requiring the FDA to finalize 
            enforcement of mislabeling is long overdue.

  5.  Finally, our dairy farmers have been incredibly discouraged that 
            the choice of whole milk has, with the stroke of pen, been 
            eliminated from school lunches. I believe that what started 
            as an attempt curb childhood obesity, has done the 
            opposite. In 2010, Congress passed the Healthy, Hunger-Free 
            Kids Act which amended nutrition standards in the School 
            Lunch Program and mandated that flavored milk must be fat 
            free within the program. I believe that this led to 
            significant changes in beverage consumption habits of 
            children, and it resulted in a 9% decline in milk 
            consumption in schools between 2010 and 2012--not only 
            impacting students, but dairy farmers. Progress has been 
            made since then, when in May of 2017, the USDA announced a 
            rule that allowed schools to receive waivers for low-fat 
            flavored milk, rather than only fat-free. It is time to 
            draw on science-based research on dietary fats. Without the 
            option of having a full-bodied beverage to satisfy an 
            appetite, our children are seeking sugar-based drinks. I 
            recently had a conversation with the mother of an 
            elementary age child. She mentioned that her son likes milk 
            at home but doesn't like the taste of milk in school. I 
            believe we have lost a generation of milk drinkers.

        We thank Congressman Thompson and Congressman Peterson for 
            their leadership on H.R. 832, the Whole Milk for Healthy 
            Kids Act of 2019, which would allow for unflavored and 
            flavored whole milk to be offered within the School Lunch 
            Program.
        In conclusion, my wife and I became first time grandparents 
            last year and while it is true what I had heard, that 
            grandparenting truly is the best job one could have, it is 
            unfathomable to me that in a nation which prides itself in 
            allowing choices and freedoms, my grandchild could enter a 
            school and not even have the option to choose whole milk 
            with her lunch.

    I am humbled and thankful to be here to address this esteemed 
audience, and available now to answer any questions you may have.

    The Chairman. We thank you. I did not mention to not exceed 
the 5 minute rule, it is the reason that we have the lights 
that are before you there. The chair is in a good mood this 
morning and gave you the benefit of the doubt of exceeding more 
than 1 minute of your 5 minutes. We appreciate that, Mr. 
Thompson, you owe me 1 minute.
    We are going to defer to our Chairman, Mr. Peterson, who is 
being called for another meeting, for an opportunity to ask a 
question that he wants to pursue before the Committee hearing 
ends. Chairman Peterson?
    Mr. Peterson. Thank you, Mr. Chairman. Just one question 
for Sadie.
    You have, I assume, looked at the new Dairy Margin Coverage 
program, and have you made a decision on your farm about what 
you are going to do?
    Ms. Frericks. Yes, we have, Chairman Peterson. We will 
enroll all 5 years at the $9.50 level, and we will opt to take 
the 75 percent credit on the premiums that we paid for the 
Margin Protection Program.
    Mr. Peterson. Good. Well, you are on the ball. See, we have 
been out educating our constituents and apparently they are 
listening, so that is good.
    Ms. Frericks. Yes.
    Mr. Peterson. And Sadie and her family do a wonderful job 
in representing their area, as you can see. Thanks for being 
here today, and that is it. I will yield it back to you, Mr. 
Chairman.
    The Chairman. All right, thank you, Chairman Peterson, for 
your leadership of our House Agriculture Committee, and we 
continue to look forward to working with you on this effort and 
a host of other issues we are dealing with.
    I want to remind Members that we will be recognized for 
questioning in order of seniority for Members who were here at 
the start of the hearing, and after that, Members will be 
recognized in the order of their arrival. I have a list here, 
and if you care to check where you are on that list, come up 
and see me.
    With that said, I will begin with my questioning.
    Andrei, in your comments you talked about the importance of 
trade for America's dairy industry and in California. A 2018 
study estimated that current retaliatory tariffs on the U.S. 
would decrease dairy exports possibly by as much as $415 
million in 2019. What would you view as a successful resolution 
currently to the ongoing dispute with China?
    Mr. Mikhalevsky. Sure. Thank you for the question.
    The Chinese market is an interesting market for us, because 
prior to any of the current discussions around China and the 
activity that we had that began in 2018, the United States was 
not on a level playing field with our primary competitors in 
New Zealand and Australia. They had the ability to send product 
in at reduced tariffs for a significant amount of product in 
the beginning of each year. That is putting us at a competitive 
disadvantage. As time went on and the retaliatory tariffs came 
in place, 25 percent tariff came on most dairy products and ten 
percent on infant formula over and above the current tariffs, 
which put us way out of line.
    In the U.S. cheese market, we were a primary supplier to 
pizzas in China. That business has virtually gone away. For 
California dairies, we ship just under $100 million----
    The Chairman. Who has taken that business?
    Mr. Mikhalevsky. The business primarily has been taken by 
New Zealand, Australia, the EU.
    The Chairman. That is part of a problem with, and I regret 
that we pulled out of the TPP. I have asked Secretary Perdue, 
and Ambassador Lighthizer, whether or not he thinks at some 
point there may be a reconsideration of becoming a part of that 
effort. Do you think that would make a difference?
    Mr. Mikhalevsky. Yes. To answer your initial question, what 
would be a successful outcome? It is not to go back where we 
were a year ago. It is getting a level playing field against 
all of our competitors in China, so a more robust agreement. 
But TPP, the Pacific Rim, is the most valuable part to the U.S. 
dairy industry. It has the ability to lift prices in the United 
States. TPP agreements, including countries like Japan, are 
critically important to us.
    The Chairman. Thank you. Dr. Brown, you recently released a 
report that shows that implementing the higher standards of 
nonfat solids across the country can increase milk prices and 
offset some of the losses that the dairy industry has 
experienced. We have had these standards in place in California 
for many years. What are some of the other impacts that you 
think that adopting these standards might have for the broader 
U.S. dairy industry?
    Dr. Brown. When you look at powder prices as a result of 
adopting those higher fortification standards across the 
country, we certainly will talk about higher nonfat dry prices. 
Part of the longer term results of that is maybe some 
additional milk supplies occurring in the country as we get 
higher all milk prices. The results of that study would have 
shown about 70 higher U.S. all milk prices in the first year, 
but by the time we get 5 or 10 years down the road, more like 
15 additional higher U.S. all milk prices as additional 
supplies drive down things like cheese prices and butter prices 
as well.
    The Chairman. Yes, more nutrition, better tasting milk, it 
seems like a no-brainer.
    Dr. Brown. You certainly can talk about the demand effects 
of that. I have looked for a lot of studies that said higher 
solids milk creates new consumer demand, which is ultimately 
the win here, if we can find these products that create new 
demand.
    The Chairman. It seems to me like we on this Subcommittee 
ought to be looking to figure out ways in which we can move 
that forward.
    For all the witnesses that are here, those who have not 
commented, if you care to, we all know about the crisis that 
the industry has felt over the last 10 years, the loss of 
dairies and why we are where we are today. Would any of you 
care to opine in terms of what you would like to see the United 
States Department of Agriculture focus on in implementing these 
dairy provisions that we worked so hard on last year? Sadie?
    Ms. Frericks. Thank you, Chairman Costa. I would just urge 
the USDA to move forward with the implementation as quickly as 
possible. I know that there was a June 17 rollout talked about 
with possible payments in July, there are farmers for----
    The Chairman. No, we need it now. We are trying to push 
them.
    Ms. Frericks. Right, for stressed farmers those 3 months 
will be a stretch.
    The Chairman. And it is hard to convince your bank that 
relief is coming. Mr. McMahon?
    Mr. McMahon. I completely agree with what Sadie said, that 
we really need to push this through, probably more for the sake 
of the medium and smaller sized farms. Personally, our industry 
can be impacted more by the trade things that Andrei was 
talking about.
    The Chairman. I think the trade is very important.
    Mr. McMahon. Yes.
    The Chairman. And I think there is bipartisan concurrence 
here. Mr. Smith, you wish to add anything?
    Mr. Smith. No, I just concur with what they are saying 
about trade. It is of huge significance to dairy.
    The Chairman. Thank you. I will defer at this point to the 
Ranking Member, Mr. Rouzer, for his 5 minutes of questioning.
    Mr. Rouzer. Thank you, Chairman Costa.
    I want to focus in on the trade aspect here real quick, 
particularly USMCA, and in my simple mind, the way I do an 
analysis of things is I take all the various moving parts and I 
set aside everything and just make it static and just focus on 
one particular item to try to determine the true impact.
    Obviously, there are a lot of factors that drive price, a 
ton of different factors that drive price. But if you took 
everything today and you made it static and you just focused on 
USMCA, the impact of USMCA on price, any one of you have any 
real sense of the impact of that? Or conversely, let's say that 
nothing happens. The price impact of that scenario, assuming 
that you keep all other variables constant at the moment. Do 
you follow me, anybody? Andrei?
    Mr. Mikhalevsky. Maybe I will take a stab at it.
    If we don't have a USMCA and we lose the Mexican business, 
I believe the U.S. domestic price will drop substantially, as 
much as five to ten percent. Why is that? Mexico takes up about 
25 percent of the total exported product. Right now, there is a 
25 percent tariff, retaliatory tariff on cheese. It slowed the 
cheese business down. If this is signed and the retaliatory 
tariffs are lifted, I believe it could give as much as a three 
or five percent increase in milk prices.
    The reason USMCA is important, for another reason, is 
because of the Canadian equation. We would have liked to have 
had more access, but there has been predatory pricing with 
their Class VII arrangement where they have gone on the world 
market and undercut prices on skim milk powder, which does have 
an effect on the U.S. Putting some controls around the Class 
VII pricing should also give a lift to our prices. I believe a 
signing of that is good for the industry. Not having it will be 
very bad for the industry.
    Mr. Rouzer. Yes, of course, there are a number of us that 
push very, very hard--myself included--and push the 
Administration to really focus in on getting rid of the Class 
VI and Class VII, as it is very manipulative. Just how 
manipulative are those two programs the Canadians have?
    Mr. Mikhalevsky. Do you want me to take a stab at it? You 
are asking kind of a follow up. How manipulative?
    What happens is they had a shortage of milk fat in Canada. 
They found a way to expand the milk fat, but milk can be 
divided into pieces. And when you take the milk and the cream 
off, you have nonfat dry milk left. In the United States, we 
call it nonfat dry milk. In the world market, you standardize 
it to Codex standards, standardized protein levels in that, and 
you call it skim milk powder. They have taken skim milk powder 
and here they have one of the highest prices in the world on 
milk, and they are selling their skim milk powder at one of the 
lowest prices in the world, which doesn't make any sense at 
all. They are finding a way basically to dump the unneeded 
parts of the product up in Canada, which has disrupted the 
world marketplace.
    Now, albeit small, I would call it more of an irritant than 
a crisis, but it is a problem that needs to be addressed.
    Mr. Rouzer. I want to move on to the immigration issue real 
quick, since there is 1 minute 40 seconds left.
    A number of you, I think every single one of you, mentioned 
access to labor as being a critical, critical issue for you. If 
you can talk about that and elaborate on that, particularly 
specific examples. Just how hard it is to find a legal, 
reliable labor source?
    Mr. McMahon. Well, Ranking Member, my opening statement 
about the W-2s that my wife was putting out there averaging 39 
a year for ten full-time positions, it is that difficult. My 
average worker on my farm is making $39,000 a year, plus a 
three-bedroom house, plus all utilities, and if they are a 
migrant worker, they get free transportation to wherever they 
need to go as well. It is not a matter of how much we are 
paying, a part of it is demographics. I am one of ten children, 
Irish Catholic birth control, and I personally have three 
children, and my brother and partner has two. Demographically, 
we don't have these big farm families anymore, and 
subsequently, as we move further and further away from 
production agriculture, which really only about one percent of 
the population is in that now, you don't have those families 
and those cousins and like that that can come and work on the 
farms. It is lost to them.
    Mr. Rouzer. Mr. Chairman, I yield back.
    The Chairman. Thank you very much.
    Mr. Rouzer. My time has expired.
    The Chairman. Your time has expired, but we thank you. 
Actually, you gave us a little time. Good for you. Good for us.
    Our next Member is the gentleman from New York, Congressman 
Brindisi.
    Mr. Brindisi. Thank you, Mr. Chairman.
    Mr. McMahon, I do want to pick up a little bit on that 
topic we were just discussing. Although immigration isn't the 
jurisdiction of this Committee, we here on the Agriculture 
Committee are talking to farmers on a daily basis and hearing 
about their workforce needs all the time. What would an ideal 
guestworker program look like? Talking to farmers, the H-2A 
Program is pretty cumbersome. It doesn't work for dairy because 
it is not year-round. What would an ideal program look like for 
dairy farmers?
    Mr. McMahon. Well quickly, Mr. Brindisi, I would start by 
allowing both producers and workers to come forward without 
fear of punishment. At that point, workers that are here 
already should be vetted, and anybody who doesn't make the 
grade or has a felony or whatever in their background shouldn't 
be here. Once they are vetted, a fine or fee, whatever you 
would like to call it, could be assessed for that worker, which 
employers would gladly pay. And then beyond that, it needs to 
be set up so that agriculture could be the only industry that 
could request new workers to come in. At that point, if they 
are vetted by the consulate in their country of origin, they 
should be issued a card of some kind. I know it has been called 
the blue card, whatever. And then, that would allow them legal 
work in this country for, say, 3 years, and then automatically 
roll over for 3 more.
    I would think that after, say, 6 years, perhaps those 
workers could be allowed to move into a different industry, but 
within those first 6 years, they could move farm to farm, but 
not out of agriculture. And farmers would be glad, like myself, 
to have e-verify and a swipe machine, as long as we had these 
cards for these people. They should be allowed to travel back 
and forth to their country of origin. One of our worker's 
father died in February and there wasn't a thing he could do 
about it. He couldn't go home and bury his dad. That is sad.
    Beyond that, I think that if someone in farming needed 
another worker, that they would have to show cause. They would 
have to do diligence locally to try to find labor locally and 
prove that they did before they could request a worker from 
another country, and at that point, someone could be vetted by 
the consulate and allowed to come in and take that spot.
    I just think that it doesn't need to be as difficult as 
what we have heard over the years. I have been working on this 
since 2000, and I sure would like to see it come to fruition.
    Mr. Brindisi. I think we all would.
    Just real quick, I want to ask a question on the Dairy 
Margin Coverage signup. I know we are approaching June 17, and 
USDA has traditionally included multiple forms of contact, like 
postcards, forums, and broad coordination with the dairy 
industry. Given the challenges that dairy producers have faced 
for years now, it is important that this outreach captures all 
producers, not just those who signed up for the old program.
    This really is open to any witness. In your opinion, are 
dairy farmers across the country, are they aware of this new 
Dairy Margin Coverage program and how it could potentially help 
them? Are they signing up for it? Sadie?
    Ms. Frericks. Mr. Brindisi, the awareness that the program 
exists is growing. Full understanding of how the program will 
factor into that farm's business plan is not quite where it 
should be on all farms yet.
    Mr. Brindisi. Okay. What could we do to get the word out 
there? What can USDA do? Do you think forums around the 
country, or what can we do to make sure that the word is 
getting out there so farmers are taking advantage of it?
    Ms. Frericks. Once the Farm Service Agency understands how 
the signup process will work, the Farm Service Agency has done 
a good job in the past of providing education and consultation 
for farmers. Once the Farm Service Agency has the tools in 
their hand to continue the outreach process, that will help 
some of those farmers that are still making those decisions 
about their signup level.
    Mr. Brindisi. Okay. Any other suggestions?
    Mr. McMahon. I agree with Sadie on that, Mr. Brindisi, 
because FSA is very good about getting things out in the 
newsletter just as soon as they have a handle on what it is 
they could do.
    The Chairman. I think Andrei had a comment.
    Mr. Mikhalevsky. I was just going to make a comment. Most 
of the big cooperatives in the United States have programs to 
try to make sure everyone is educated, because this is a 
wonderful opportunity. And I don't want to take anything away 
from the program, because we are highly enthusiastic of what 
happened in the farm bill and highly enthusiastic of what 
happened with the Revenue Protection Program. But the average 
cow sized dairy in California is 1,400 cows, and a 5 million 
pound cap, while it was great to move 4 to 5 million pounds, 
only covers a 200 cow dairy, which means most of the dairies in 
California only have coverage on about \1/7\ of their total 
production.
    I am highly enthusiastic. I don't want to say we are being 
critical, but it would really be nice maybe at some point to be 
able to open that up a little bit farther for the larger 
dairies. Right now, it is very good for the smaller and medium-
sized dairies.
    Mr. Brindisi. Thank you.
    The Chairman. I thank the gentleman from New York, and one 
of the areas that the Subcommittee is going to work on, I hope 
aggressively with the Department of Agriculture is to make sure 
that dairymen and -women across the country get all the options 
that are available under the new farm bill. And so that they 
are well-informed, we talked about what the Farm Service 
Agency, the FSA offices around the country, that they make sure 
that they have all the information at hand available to brief 
the dairymen in their area. And I would suggest to Members, one 
of the things that I am doing is holding a workshop here in the 
next 6 weeks, inviting all the dairies in my area to come and 
meet with the FSA and make sure that they understand what all 
their options are, not only with the 5 million pound cap, but 
the insurance program beyond and how that might help the larger 
dairies as well.
    So, with that said, our next Member is the gentleman from 
Pennsylvania, Mr. Thompson.
    Mr. Thompson. Mr. Chairman, thank you. Thank you to you and 
the Ranking Member for hosting this. We know that as we worked 
on the last farm bill and we looked at the state of the 
national economy, and specifically in rural America, farm 
income decline was significant over the past 6 years. A lot of 
that was due to two commodities: one that we are not talking 
about today, cotton, but the other one we are talking about 
today and I am very appreciative of that, is dairy. And I do 
think in the 2014 Farm Bill we had a safety net program. When 
it came out of the Committee, it was pretty good. It would have 
done the job. Unfortunately, it got meddled with by other parts 
of this body outside of the Agriculture Committee. And they 
changed that program to make it fit into their financial needs, 
and quite frankly, it failed. I am very appreciative of Ranking 
Member Conaway and his role as Chairman to defend the product 
of this body, this Committee, with the Dairy Margin Coverage 
program when it came out of this Committee this time around. I 
have a tremendous amount of confidence.
    Mr. Smith, in your testimony you made reference to the 
improved Dairy Margin Coverage program in the farm bill. I want 
to follow up with you specifically on Pennsylvania. What is 
your sense of how familiar Pennsylvania producers are with the 
new program? Is there a problem with the bad experience they 
had from the 2014 version, and is there anything that may be 
discouraging them from signing up with this new and improved 
and what I think will be an effective tool? Is there anything 
you think we should be doing to help further inform producers?
    Mr. Smith. The answer to your question, yes, I do believe 
that the 2014 Farm Bill and that coverage put a damper on 
things, and it was not successful to our Pennsylvania farmers. 
And I don't think, going forward, it is more difficult to 
convince them that the next program is beneficial for them. It 
is an uphill battle to educate the dairy farmers there of a 
better product.
    We had some suggestions earlier here about educating. It is 
going to be a continual process to try to pull more people into 
that understanding of a better product.
    Mr. Thompson. I would like to spend about 35 percent of my 
time on the safety net issue, but I like to spend, when it 
comes to dairy, 65 percent of my time on the market. Because, 
until we get around to this, I want the safety net to be 
effective, but I just don't want us to need the safety net.
    And so, one of the things that we were successful and was 
mentioned, not in this Committee, but unfortunately in the 
Education and Labor Committee back in 2010, there was a change 
of the school nutrition standards, and we basically demonized 
milk fat. And as Mr. Smith said, we did lose an entire 
generation of milk drinkers. Some of them are parents today. 
They didn't have a great milk experience then and I am very 
appreciative that Secretary Perdue has granted waivers for 
schools to offer one percent flavored varieties.
    I was at an incredible vocational agriculture career day in 
one of my schools. They actually had nine other schools come 
in. It was pretty cool, actually, to see these kids learn about 
opportunities in agriculture, and I had lunch with them. And I 
was very pleased to sit down and have a great glass of one 
percent chocolate milk.
    We are, as was said, proud to be working with Chairman 
Peterson with the Whole Milk for Healthy Kids Act to allow 
resumption of really the nutrition that kids need, but also, to 
have them have a good milk experience. I am seeing whole milk 
sales up. That is all anecdotal. Trying to work with USDA so we 
can track that a little closer, as a result of a new generation 
of milk drinkers.
    I just wanted to weigh in and see what your thoughts were 
in terms of that, how important it is. And I know that won't be 
through this Committee. It is another committee, Education and 
Labor, of restoring whole milk options. Not mandating it, but 
options in our school meals. Sadie?
    Ms. Frericks. Congressman Thompson, I applaud the efforts 
to return whole milk to schools, because we all know that whole 
milk tastes leagues better than its skim version.
    However, to return whole milk to schools, we will also need 
to increase calorie limits in the school lunch so that school 
lunch program coordinators can include that option for students 
without being penalized in their calorie counts.
    Mr. Thompson. Right. To restore, or the other thing is to 
exempt beverages. Nothing unreasonable about that as well.
    Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman. We pursue this as an 
effort of the Subcommittee, and I think we do it on the basis 
of nutrition. I think that is the key.
    The next Member is the gentlewoman from Minnesota, 
Congresswoman Craig, the land of lakes and milk, right?
    Mrs. Craig. That is exactly right.
    Mr. Chairman, I would like to submit a statement for the 
record first on behalf of the National Farmers Union President, 
Roger Johnson, please.
    The Chairman. Certainly, without objection, we will deem 
the statement adopted for the record.
    [The document referred to is located on p. 53.]
    Mrs. Craig. Thank you, sir, and thank you, Mr. Chairman.
    I would like to make it very clear to my colleagues this 
morning that when it comes to the dairy farmers in my district, 
we are talking about families who have known no other life than 
dairy farming their entire lives.
    In my district, in Wabasha and in Goodhue County, we have 
lost roughly 15 percent of our dairy farmers since 2012. Our 
family dairy farmers are part of the central fabric of greater 
Minnesota. These family farmers aren't asking for much. They 
just want a fair shot to make enough money to raise a family 
and pass that farm on to the next generation. They are 
resilient and hardworking people, but the last year has become 
too much for many of these families.
    Last week during the in-district work period, I had the 
opportunity to host a rural mental health listening session in 
my district. I heard from dairy farmers like Deborah Mills from 
Lake City, Minnesota, about the mental stress of dairy farming. 
She shared that: ``The economic reality of stagnant milk 
prices, rising costs, and disappearing profit margins have 
taken a toll on farmers' mental health.''
    The state of the dairy economy is truly heartbreaking right 
now. However, I am especially thankful for the promise that the 
2018 Farm Bill gives many of our small dairy farmers.
    I want to start my question with Ms. Frericks from 
Minnesota. As you may know, the median income of dairy farms 
surveyed in Minnesota dropped by \2/3\ last year, from $43,000 
to less than $15,000. You mentioned in your testimony that last 
year, you pursued a line of credit for the first time to 
continue paying your vendors. Can you describe the credit 
conditions in your area, particularly for small dairy farms, 
and who do you turn to for advice when it comes to credit and 
financing?
    Ms. Frericks. Thank you, Congresswoman Craig.
    I will answer the second part of your question first. We 
work very closely with our Farm Business Management instructor, 
which is a program in Minnesota that helps farmers become 
better business managers. This individual helps us analyze each 
enterprise on our farm for profitability and areas of 
improvement. We met with him first to establish our cash flow 
for the year, and determine where there might be some gaps and 
some need for credit. Then we proceed with those numbers to our 
lenders at either the Farm Service Agency or our local credit 
union.
    Our relationship with our lender is still in a positive 
place. This is the first year that we have had to look for 
additional credit. I have heard that it is not as promising for 
farms that are rolling into their second, third, or fourth year 
of needing additional credit. I can't speak to what those farms 
are hearing for answers, but I just know that it is not as good 
as it could be.
    Mrs. Craig. Thank you.
    I just want to follow up to you, Ms. Frericks, as well. 
When we talk about the Dairy Revenue Protection, which is 
obviously a relatively new private insurance product approved 
by USDA, why did you decide to use this product, and how do you 
expect it to impact your farm specifically?
    Ms. Frericks. Sure, thank you. We decided to use this 
product because it offers a risk management tool that sets a 
floor for our price. I certainly hope that we don't use it and 
we don't receive an indemnity, because that means that prices 
have improved or market access has allowed prices to improve. 
But it gives us a position of security in the event of a 
catastrophic market failure. You know, when we started farming, 
they told us that we would never see $9 milk again. They 
promised us that sitting at the table, that you could build 
your cash flow based on $12 milk. And 2 years later, we found 
$9 milk. If we had a price floor program like this in place at 
that time, we could have stemmed the loss considerably.
    Mrs. Craig. Thank you.
    And finally, I just want to talk about trade for 1 second. 
Mr. Mikhalevsky, an industry study found that retaliatory 
tariffs issued by China and Mexico on dairy products will 
decrease farm revenues by about $16.6 billion and endanger 
8,200 U.S. jobs over the next 5 years unless they are ended.
    What are the long-term impacts if these retaliatory tariffs 
don't end for our farmers?
    Mr. Mikhalevsky. The first is we will see a drop in milk 
prices, and if you see a drop in milk prices, it just 
exacerbates the issue that we have on farm. You know, there 
were two things that affected milk prices last year. One was 
the EU interfering with the dairy industry with the 
intervention stocks. They built up way too much product and it 
took 2 or 3 years and expanded this period of time that we had 
very low prices. Once those things moved out, which was last 
year, at extraordinarily low prices, the retaliatory tariffs 
kicked in and it has just been a double effect on the dairy 
farms.
    We absolutely, because of where we are today--well, if you 
think about it, if we didn't have the exports, 15 percent of 
the milk would come back into the United States and it would be 
devastating to our industry. We would lose a significant number 
of smaller farms, maybe not necessarily the larger ones. It 
would be disastrous. Trade is critically important. It is the 
single biggest issue right now for the dairy industry and dairy 
pricing.
    Mrs. Craig. Thank you. I yield back, Mr. Chairman.
    The Chairman. We thank the gentlewoman, and we thank Andrei 
for your response.
    Our next Member is Congresswoman Hartzler from the great 
State of Missouri. The ``Show Me State,'' right?
    Mrs. Hartzler. That is right. That is right. Thank you very 
much, Mr. Chairman, and our Committee is fortunate to have 
someone who has a family history in the dairy industry helping 
to lead this charge. I thank all the witnesses here today, and 
I want to start off on the tail of what my colleague just 
shared about the heartache of so many dairy farmers having to 
sell out. Even last year, our close family friend who we had 
grown up with, they had a three-generation dairy farm there in 
Cass County, and they sold out. And hopefully with the passage 
of the farm bill and the new program that we have put in place, 
that won't happen and we can reverse that trend and the farmers 
can get help.
    I wanted to start with Dr. Brown. Thank you again for being 
here. Thanks for your expertise. Could you just say, what do 
you believe is the most important message to get out to dairy 
farmers about the changes in the dairy title in the 2018 Farm 
Bill?
    Dr. Brown. The most important thing is to remind them it is 
not the 2014 Farm Bill. It is not the Margin Protection 
Program, that this is a new program. The fact that we are going 
to talk about the ability to now sign up for $9.50, where under 
the 2014 Farm Bill we were capped at $8, that $1.50 over the 
last 18 years increases the probability of a payment by about 
30 percent. About 40 percent of the time if you would have 
taken $8 MPP coverage, you would have gotten a payment. If you 
take $9.50 now over that same period, you would have gotten a 
payment about 70 percent of the time. We have to really make 
sure we send home the message that this program is different 
than MPP, and by the way, it is less expensive for you as well. 
Premium costs are much lower.
    Mrs. Hartzler. What is the University of Missouri extension 
doing to help get the word out about this? We have talked about 
the important role of the FSA. I wondered there at the 
University, as well as across the country, what are all of you 
doing to try to help get the word out?
    Dr. Brown. When you look at all the land-grants across the 
United States, we are all trying to work together with FSA and 
that education. Sometimes, FSA can talk to producers about the 
mechanics of how the program works. Maybe we can go one step 
further as land-grant institutions to say here are some of the 
potential outcomes that you get. We work in combination. We 
have already reached out in Missouri to our Missouri FSA office 
to make certain that we do meetings together with them as we 
try to educate on DMC.
    Mrs. Hartzler. Sure, and I really related to what you were 
sharing, Mr. Smith, about the school lunches. I am a former 
home economics teacher myself, and I am very involved in 
encouraging the new Dietary Guidelines that are being made at 
the USDA, that they do it based on science, based on fact, and 
I am hopeful that under the new process, we are going to have 
some Guidelines that will be very helpful to us.
    I was wondering what your industry is doing in this 
process? Are you weighing in with USDA and keeping a close eye 
on the Dietary Guidelines as they are being developed?
    Mr. Smith. I think the opportunity for input to USDA on 
those Dietary Guidelines is there. It is ongoing communication, 
and everybody in the industry needs to have that communication 
with USDA, and that is very important.
    But thank you for understanding that there is new 
information on dietary needs, and good fat versus bad fat.
    Mrs. Hartzler. Sure. Well, I just want to go on the record 
and let everybody know, my beverage of choice is milk and I 
love milk. And as a former teacher, it is important that our 
kids have the opportunity to drink milk and to grow up with it.
    I know when I was teaching several years ago, the dairy 
industry was very involved in providing classrooms with posters 
of baseball players that had the milk thing there, and some 
classroom supplies for the elementary teachers. I think that is 
very important. Are you still involved in trying to work with 
teachers and educate students about the benefits of milk?
    Mr. Smith. Well, absolutely. The dairy industry in the 
United States has a mandatory check off program that our dairy 
farmers contribute money to promotion programs, and what you 
mentioned is part of that promotion throughout the country, 
educating young consumers, school-age children, about the 
benefits of milk. It is ongoing. It is a challenge of a limited 
number of dollars to reach a huge number of individuals.
    Mrs. Hartzler. Sure. My final quick question, back to Dr. 
Brown. What are the three key issues that you are watching to 
gauge where milk prices are headed for the remainder of this 
year?
    Dr. Brown. Number one is just what is going to happen to 
aggregate milk supplies. We are actually down for the first 
time in several months. That could really be positive for the 
second half of this year. And then the trade side is most 
important, the growth that we need there for higher prices. 
Those are really the two keys, for me, as we look through the 
remainder of 2019.
    Mrs. Hartzler. Thank you very much. I yield back.
    The Chairman. All right. I thank the gentlewoman. Our next 
Member is the gentleman from California whose district and mine 
border one another, and one of our rising stars in California, 
represents a lot of milk country, Congressman Josh Harder.
    Mr. Harder. Thank you, Mr. Chairman, and thank you so much 
to all our witnesses for joining us to discuss some of the real 
challenges that I see facing our dairy industry.
    As the Chairman said, I represent the California Central 
Valley, and if you have ever seen those happy cows come from 
California, that is us. All of them in my district, none of 
them in the Chairman's. And obviously, we have a real history 
of the dairy industry, stretching back generations. It is one 
of the most critical keys to agriculture and to jobs. In my 
district alone, we have about 7,000 people that are directly 
employed by the dairy industry, and it contributes about $6 
billion every year to our economy. But obviously, the indirect 
effects are even bigger. And no matter what job you hold in the 
Central Valley, whether or not you are working at a 
supermarket, working at a hospital, how the dairy industry is 
doing affects everyone.
    And I hear again and again how much tougher things are 
going. We have lost about 600 dairy operations just in the last 
10 years alone in California. In my district, we have seen 
about 90 dairy operations close in Stanislaus County and San 
Joaquin, and when I talked to our dairy farmers, I hear a lot 
of different perspectives on this. I was talking to one of our 
prominent farmers, a guy by the name of Ray Souza from 
Stanislaus County the other day, and he told me that the 
sustained period of low prices and negative margins is 
something he has never seen. It is not only the depth of the 
dairy depression, but also the length of the period. And that 
is a sentiment that I hear underscored a lot. It is not just 
the fact that the price of milk has dropped by \1/3\ in the 
last 5 years, it is how long this is going on.
    Mr. Mikhalevsky, I would really love to hear from you. What 
do you see as the drivers behind a slow recovery in domestic 
prices?
    Mr. Mikhalevsky. Sure, it is pretty simple, and I had 
mentioned it earlier. The EU intervention stocks played havoc 
on the world market, and then trade has created an issue and 
slowed it down.
    But I would like to just build on a point, that Dr. Brown 
mentioned. He was talking about the worldwide supply of milk, 
and when the intervention stocks were going on in Europe, the 
Europeans continued to produce when market signals told them 
they shouldn't be producing. The United States, I don't 
believe, has had a couple of months with a negative supply 
growth over the last couple of years. Market signals are not 
going back to the farmers as they should so that we can get the 
supply demand in balance.
    Now, the nice part of that is the intervention stocks are 
gone and the Europeans have actually seen a downturn. To Dr. 
Scott's point, in March it was the first time we have seen a 
contraction in U.S. milk supply by \4/10\ percent in quite some 
time.
    The other thing, which is a big thing to the world market, 
is the New Zealanders, while they are in their off season 
because of Southern Hemisphere and Northern Hemisphere issues, 
are down about six percent year on year end growth. Which means 
the worldwide supply is drying up and the demand is not. If you 
look at powder prices, they have escalated three to five 
percent in the last week. Fat prices are really good. And if we 
could eliminate the tariffs on cheese, we would see a recovery 
in the markets.
    But to specifically answer your question, it is milk 
supply, it is supply demand, and the intervention stocks and 
trade. That is kind of it in a nutshell.
    Mr. Harder. Yes.
    Mr. Mikhalevsky. Thank you for the question.
    Mr. Harder. Thank you.
    One of the other things that I hear a lot when I talk to 
our local dairymen is the challenges faced by the labor 
shortage. And California as a whole, I mean, everywhere in 
agriculture, \2/3\ of our farmers have a labor shortage. But it 
feels especially acute with our dairy industry, given some of 
the needs of a year-round labor force and the challenges faced 
by not being included in the H-2A Program and others. And I 
hear again and again that it is impossible to maintain a 
reliable workforce. And I also hear that it is not about cost. 
It is actually about making sure that we actually have 
availability of the labor force. I know this is more on the 
Ways and Means Committee than the Agriculture Committee, but 
obviously, it is something that I work on very closely.
    Mr. Mikhalevsky, I would love to go again for the 
California perspective. What are you hearing? Are you hearing 
the same thing, and what do you actually think we need to do to 
get our labor shortage addressed?
    Mr. Mikhalevsky. Yes, let me just build on some of the 
earlier points rather than repeat what was said, in the 
interest of time. I agree with the earlier points. A question 
was asked about what we would like to see in immigration, and 
this has a direct effect on California. The one thing that 
wasn't mentioned was the Touch Back Program, which is 
occasionally mentioned. You know, milking cows has been pointed 
out as a 7 day a week, 24 hour day, 365. It is really hard to 
send people home for 2 weeks, 3 weeks, touch back, issues 
coming back in.
    So, specific to California, where almost 100 percent of our 
labor on farm is immigration labor, Touch Back Programs are 
difficult. E-verify is okay if you have an agricultural 
guestworker program in advance. But this is a massive issue for 
California for our dairy farmers.
    Mr. Harder. Thank you. Thank you. Time to get to some 
solutions.
    The Chairman. Okay. We thank the gentleman and the next 
Member is Congressman Hagedorn, again, from the land of lakes 
and milk. Mr. Hagedorn?
    Mr. Hagedorn. Don't forget hogs. We have a lot of hogs in 
our district, too.
    It is nice to be here, Mr. Chairman. Thank you and Ranking 
Member Rouzer.
    The Chairman. Thank you.
    Mr. Hagedorn. Witnesses, thanks very much, and a special 
thanks to Ms. Frericks for being here from Minnesota and doing 
what you can for generational farming.
    I want to associate myself with Chairman Peterson's remarks 
at the beginning, that how important it is to keep our 
generational farmers in business when times are tough. Just 
last week, I was at a Farmers for Free Trade get together just 
south of New Ulm, Minnesota, a smaller dairy farm run by the 
Hoffman's. And Mr. Hoffman, Steve, in very emotional terms 
discussed how he and his son and his wife had to consider maybe 
leaving the business rather than expanding it. And you know, it 
is tough times and we get it. It has been 5 or 6 tough years, 
especially for dairy farmers. Times when the milk prices were 
low and somehow production went up, and it didn't seem to make 
sense, but I know the work of the Committee and others to try 
to right that program and to make things better, moving 
forward, is very important.
    There are a number of ways that we in bipartisan fashion 
can work together in order to help all of our farmers, and one 
of the those would be to get together. This Committee, 
especially the way it works in bipartisan ways, should take the 
lead in this Congress to make sure that everyone knows that we 
support the new agreement with Mexico and Canada. Bringing 
certainty to the marketplace and expanding opportunities for 
our farmers would be very, very critical, and as a Committee, 
if we can get together and demonstrate that type of 
bipartisanship, that would go a long ways. And making sure that 
when the President submits that agreement to Congress, that it 
gets a fair vote within 90 days. We need that.
    I also think that there are ways that we can look at good 
government. You know, they always say we don't want farmers 
going out of business for any reason, other than it is just 
what they want to do. We don't want it because of bad 
government. Because when our generational farmers sell out, 
they sell out to bigger operators. Bigger operators are not bad 
folks, but it means fewer people working and living on our 
land, fewer people living in our rural communities, purchasing 
things on Main Street, going to our schools. It puts enormous 
pressure on rural America.
    Today, we should be honest. One of the reasons that things 
are going as well as they are--and I know times are tough--it 
is because some of those burdensome regulations like Waters of 
the United States has been sidestepped to this point. That 
would be devastating for dairy and others if we had onerous 
regulations. Obamacare has been very tough on farmers. I speak 
with farmers all the time that are paying $20,000 and $30,000 a 
year for premiums with deductibles so high, the underlying 
insurance is virtually worthless. And they talk about maybe 
leaving the farm, having somebody go into town for a job, 
almost 99 percent of the time it is because of health insurance 
that they are going to do that, because of those burdensome 
costs.
    I agree with the Chairman, the Ranking Member, and others 
who said that we need a work program all year round for dairy. 
They haven't had the same deal as other parts of agriculture, 
but we need to be honest about it, that if we, in bipartisan 
fashion, don't support secure borders, what are the chances 
that we are going to get that through? And on top of that, any 
work program that we have will be circumvented. It will be 
undermined.
    We have to get together in a number of ways in order to 
make sure that we stand firm for these commonsense proposals 
and we do it as Republicans and Democrats.
    I would just like to say thank you for what you do. It is 
hard work. I grew up on a farm near Truman, Minnesota. My dad 
was a grain and livestock farmer. We had hogs. And I used to 
ask him, ``Dad, why do we have hogs instead of cows like some 
of our neighbors?'' And he said, ``Jimmy, I like to take a 
vacation.'' He said if you are a dairy farmer, you are married 
to those cows and it is all day, every day. And so, I 
appreciate it. And what you do is so critically important for 
our country. We have an abundant, reliable, safe, affordable 
food supply. Every American wakes up every day and knows when 
they go to the grocery store, there are going to be those 
choices, diverse choices at an affordable cost. And because of 
that, we are the envy of the world.
    So, with that, I thank you for your testimony, and Mr. 
Chairman, I yield back.
    The Chairman. I thank the gentleman for his comments, and 
our next Member is a gentleman who I have known for many years, 
and his family. He represents one of the wonderful parts of 
California, the Central Coast, Congressman Jimmy Panetta.
    Mr. Panetta. Thank you, Mr. Chairman. I appreciate this 
hearing and appreciate this opportunity. I want to thank the 
witnesses for their time being here, as well as their 
preparation, which I am sure, especially based on your very 
professional testimony, all five of you. I know there was a lot 
of time spent in that preparation, so thank you for that.
    I come from the Central Coast of California, otherwise 
known as the salad bowl of the world. A lot of fresh fruits and 
vegetables, and of course, that means that we don't rely on 
machines for our harvesting and our produce. We rely on people, 
and therefore, we have the same issues that you do as well. And 
I do not have much dairy. I admit that. I have one dairy farm, 
Skoke Dairy Farms out there in Salinas area. But like I said, 
we have the same issues. There is no doubt about it, especially 
when it comes to immigration, and especially when it comes to 
trade. Fortunately, I am on the Agriculture Committee; I am on 
the Ways and Means Committee, so I get to delve into both those 
topics.
    But obviously, being from the Central Coast and being a 
grandson of immigrants, immigration is very important to us. 
And Mr. McMahon, I really appreciate the list of, I guess, 
areas that you went through in regards to what an ideal worker 
program would look like.
    But I guess I have to also ask you about one other thing 
that I didn't hear from you. Now, I don't want any of you to 
answer this, but I am sure you know many dairy farmers that 
have many employees that probably are undocumented, okay. Yet, 
those same employees probably worked for those employers for a 
very, very long time. And as an original author of the Blue 
Card Bill, as it is known as, it provides basically a way for 
those employees who have worked in ag and who will continue to 
work in ag to get legal, permanent residence.
    So, Mr. McMahon, I have to ask you about that aspect of the 
worker program. People who have been in agriculture who want to 
stay in agriculture. What about providing them with legal 
permanent residence as well?
    Mr. McMahon. Thanks for the question, Congressman.
    Two different occasions I went down to Mexico and stayed at 
the village where my crew is from, and was able to experience 
the changes in their lives down there as a result of their 
working for me. And I can tell you that over the years, because 
we started January 1, 2000, with our Mexican workers, that it 
is, I would dare say, 75 to 80 percent of them don't want to 
stay here. I have a PowerPoint presentation I have done all 
over the Northeast about my experiences going down there, 
seeing the homes they have built, seeing the money they have 
invested in their own businesses, seeing the investments they 
have made in their own schools to make their lives better down 
there.
    When you hear about how they all want to stay here forever, 
I have a few that do, and that after so many years of being 
here, perhaps they should be allowed to move to a green card or 
something like that. I have no issue with that.
    Mr. Panetta. Okay. Basically you mentioned like 6 years or 
something was the number you threw out there.
    Mr. McMahon. Right.
    Mr. Panetta. And that is a full-time employee working all 
those years. Wouldn't you be in agreement with maybe providing 
them with that sort of opportunity to have legal permanent 
residence, if you had some people who were staying here and 
continued to be here? As you know, those are the best kind of 
employees.
    Mr. McMahon. Oh, absolutely. I have a couple of guys I 
would nail their feet to the ground if I could.
    Mr. Panetta. Exactly, exactly. And one of those nails would 
be an opportunity for legal permanent residency.
    Mr. McMahon. Absolutely.
    Mr. Panetta. Great. Thank you very much.
    In regards to the USMCA, obviously, that for agriculture it 
keeps it the same for the most part. I know it definitely 
benefits many aspects of dairy.
    But let's say for some reason, you are seeing the 
challenges that we are facing right now in Congress with the 
USMCA. Let's say for some reason we don't get an agreement on 
that. There are some in the Administration that have mentioned 
basically withdrawing from NAFTA.
    Mr. Mikhalevsky, would you choose to withdraw from NAFTA if 
we didn't get USMCA?
    Mr. Mikhalevsky. Andrei is a lot easier for all of you. It 
is a tough last name.
    Mr. Panetta. Mikhalevsky?
    Mr. Mikhalevsky. It is like make a left turn. Mikhalevsky 
if you run it all together.
    Mr. Panetta. Got it.
    Mr. Mikhalevsky. To be perfectly honest, I mean, this is my 
opinion, maybe not of my own company. Withdrawing from NAFTA 
would be disastrous for dairy. Dairy was in a unique position. 
I understand there are a lot of other industries and a lot of 
other things involved with USMCA. But when it comes specific to 
dairy, without Mexico, we will have a precipitous drop in milk 
prices in the United States and our dairy farmers will have 
more dairy farms go out of business. It is not even a 
possibility; it is a reality, I believe, and most of the other 
members of the panel would agree with that.
    Mr. Panetta. Understood. Thank you, and thanks to all of 
you, and thank you, Mr. Chairman.
    The Chairman. I want to thank Congressman Panetta, 
especially for bringing up that last question. It was one that 
I wanted to follow up, and Andrei, I think that it is important 
to underline that frankly, walking away from NAFTA or USMCA, 
whatever we want to call it, would be a disaster in so many 
different ways. It counts for 16 percent of America's trade 
between Mexico and Canada, which combined accounts for more 
trade than the next eight countries we trade with, besides 
being our neighbors and our friends.
    With that said, we have the gentleman from Nebraska, Mr. 
Bacon.
    Mr. Bacon. Thank you. I appreciate the Chairman and I 
appreciate being on this Committee. Thank you for sharing your 
perspectives.
    I was raised on a beef farm, so I appreciate learning your 
perspective, because dairy is such an important part of our 
nation, and it also is a very important part of Nebraska's 
economy as well.
    I would say that one of the top issues for Nebraska is 
passing the USMCA, and every change that was made to USMCA was 
made to our nation's advantage to include dairy. We need to get 
that passed.
    I appreciate Mr. Mikhalevsky for your strong support, but I 
want to see if the other panelists here agree. USMCA, should it 
be a top priority for this Congress to pass?
    Ms. Frericks. Without a doubt, Congressman.
    Mr. Bacon. Without a doubt.
    Mr. McMahon. Absolutely.
    Ms. Frericks. The forecasts we have seen are that trade is 
down for the first 2 months of the year, or at least January as 
the reports have shown, that is not the kind of news we want to 
see. And trade volumes might be holding, but with the tariffs 
in place, we are not turning those trades into dollars that we 
can pass back to farmers.
    Mr. Bacon. Well, I appreciate your feedback. This should be 
the number one priority for Congress is passing USMCA. It is 
important for our economy. It is important for the entire 
Midwest, for beef, dairy, corn, soybeans, you name it. We have 
to get this done.
    In fact, I was looking at some stats. About $50,000 for the 
average farmer in Nebraska comes from our trade with Canada and 
Mexico. That is a huge part of someone's income, so we have to 
get this done.
    Change of topics on you. When you talk to small businesses, 
medical care is the top one of two issues that they face, the 
cost of buying policies on their own on the market. Is this the 
case also for dairy farmers, dairy producers? And whoever would 
like to answer.
    Mr. McMahon. We are talking healthcare, Congressman?
    Mr. Bacon. Right, the cost of buying your premium on the 
market, or policy. Excuse me.
    Mr. McMahon. Well, thank God I turned 65 2 years ago, 
because life got a lot better when that happened, thanks to 
Medicare. But yes, my wife is still youthful and just for her 
policy alone, it is like $1,200 a month. It is incredible. 
Healthcare is huge, and unfortunately, there are a lot of dairy 
farmers that would give that up to continue to keep their 
business going. And that is a sad issue as well.
    Mr. Bacon. And does that policy have a high deductible, 
too? I imagine it does.
    Mr. McMahon. No, actually it is not that bad.
    Mr. Bacon. Okay, good.
    Mr. McMahon. But it is expensive.
    Mr. Bacon. Anyone else?
    Ms. Frericks. I will. We are individually employed and so 
we have been purchasing our health insurance on the individual 
marketplace, and the last years as the price climbed for our 
company dropped individuals from their offerings. Our health 
insurance had doubled in those last couple of years. It was a 
significant part of our family living expenditure, and you 
maybe don't want to hear this, but the exchange programs 
offered through the new healthcare program actually benefitted 
our family.
    Mr. Bacon. Okay, thank you. Yes, sir?
    Mr. Smith. I have the good fortune to have a wife that 
works at a business that provides us healthcare, but I do 
believe and hear from dairy farmers that the burden of 
healthcare costs are very incredibly burdensome on them. I 
think that is significant in the factor also.
    Mr. Bacon. And my understanding for small businesses, it is 
one of the top two issues. We got to find a way to lower costs 
for those on the market.
    One last question. I worked hard in this Committee to pass 
a foot-and-mouth disease vaccine bank. We normally associate 
that with beef and pork, but is this also important to our 
dairy industry?
    Mr. Smith. My personal opinion is that it is important. Any 
disease, whether it is relevant to dairy or parallels dairy, 
there is importance to the food supply chain and also to the 
credibility of consumers also.
    Mr. Bacon. We want to work hard to sustain funding for the 
foot-and-mouth disease vaccine bank, because we don't want to 
cut off our trade, at least in the beef realm, for 5 years. I 
would assume it would have the same impact if it went into the 
dairy industry as well.
    But with that, I will yield back the balance of my time. 
Thank you, Mr. Chairman.
    The Chairman. We thank the gentleman from Nebraska, and our 
next Member is my colleague and good friend, again from the 
Central Coast. We have a lot of the Central Coast represented 
on this Committee, which is very good. Congressman Carbajal?
    Mr. Carbajal. Thank you, Mr. Chairman, and I want to thank 
all the witnesses here today for taking time from your 
schedules to be here.
    I just wanted to associate myself with Representative 
Panetta's comments and statements earlier. My father first came 
to this country as part of the Bracero Program, the guestworker 
program, and after it ended, he immigrated all our family. As a 
matter of fact, I was 5 years old when I came to this country. 
And so, I am very familiar with the labor side of agriculture. 
And I would say, Mr. McMahon, you are right about what a 
guestworker program would look like and the type of workforce 
perhaps that the dairy industry is experiencing. Perhaps many 
of those workers would want to return to their countries.
    As part of the broader ag, many families are here already 
working in ag, and many families would not want to return back 
after so many years of living here. What I am hearing from the 
ag interest in my district is a guestworker program would be 
the icing on the cake, because first, we need to legalize and 
provide the existing workforce to be able to continue and be 
here, and a guestworker program would be an added program that 
would complete and sustain the type of labor that is needed by 
agriculture. But I would imagine the dairy industry is slightly 
different.
    For Mr. Mikhalevsky, my question is as I met with farmers 
in my district, they emphasized the need to expand the Asian 
markets, in particular, Japan. U.S. competitors are gaining new 
access to the Japanese markets, leaving the U.S. behind. 
Similar to specialty crops experts in my district, Japan is a 
significant market that still maintains extraordinarily high 
tariffs and unreasonable sanitary and phytosanitary standards 
for dairy exports. Gaining positive access would no doubt be a 
big win for California agriculture industry, including dairies.
    You mentioned in your testimony that in addition to an 
accelerated phase-in of tariff reductions, non-tariff barriers 
must also be addressed in a free trade agreement with Japan. 
Mr. Mikhalevsky, did I say that right?
    Mr. Mikhalevsky. Perfect.
    Mr. Carbajal. All right. Can you please describe what these 
barriers are, and what your overall goals are for the U.S. 
negotiations with Japan?
    Mr. Mikhalevsky. Sure. I thank you for the question.
    The Japanese market is an interesting market. It is 
probably the highest value market of any dairy importing 
country in the world. They charge basically the highest prices 
and sell to the consumers at their highest prices. It is done 
through a tender process when you go in, the tender process. It 
is a very, very difficult process to get in. Most counties, 
like Australia, New Zealand, have had either preferential 
treatment or a long history of being involved.
    When we stepped away from TPP, we lost any of the gains 
that were made, albeit they were minimal, but there were gains 
with TRQs to go in. Since then, the EU has put together a joint 
program with Japan. We are getting beat out by the New 
Zealanders. We are getting beat out by the EU. At this point, a 
favorable agreement would have us on a level playing field. Our 
dairy farmers can compete with anyone in the world. Just give 
us a level playing field. And I would say, to some extent, 
sometimes there are barriers put up that you may not fully 
realize, and some of those are how you label products. We can 
label a product here called butter, and someone else can call 
it mid-fat cream cheese, and it gets into the market with a 
much lower tariff, what they call tariff busters. And so, we 
need not only a comprehensive look at the sanitary, 
phytosanitary standards, tariffs, TRQs, but also an adherence 
to what I consider proper discipline around products and 
importing.
    Mr. Carbajal. Thank you very much. Mr. Chairman, I yield 
back.
    The Chairman. I thank the gentleman from the Central Coast 
for your focus, and both the issue of Japan and the labor issue 
are things this Subcommittee is going to have to continue to 
work on.
    Our, I believe, last Member who is here for questioning is 
the gentleman from Kansas, Congressman Marshall.
    Mr. Marshall. Thank you so much, Mr. Chairman. The fastest-
growing dairy herd in the country is in Kansas, so we are very 
proud of our dairies. Also I am very proud of the co-ops we 
have across Kansas. DFA, Land O'Lakes, CHS are several co-ops 
that my producers really brag on them and say they have made a 
big impact.
    My first question for Ms. Frericks is how is the co-op you 
are part of, which would be Land O'Lakes, is that right? How 
has it helped you weather these last 3 or 4 years of the storm?
    Ms. Frericks. First, thank you for the question, 
Congressman. I believe that the decisions our cooperative made 
several years go to more carefully manage our milk supply and 
our customers' contracts, so we commonly refer to it as our 
base program, has helped our co-op pay some of the highest 
prices, at least in the State of Minnesota, by the numbers I 
have seen. And so, if each co-op in the country perhaps would 
more carefully manage their incoming supply and their customer 
contracts, we could see price improvement all around.
    But, that is the number one thing that our co-op has done 
for us is provided a higher pay price. But co-ops look at 
members as family members beyond just the economics, but 
supporting every other part of our lives, from our healthcare 
to our mental health to business management skills and risk 
management opportunities, to nutrition for our cattle and so 
on. There are a number of programs that our co-op, and I know 
other co-ops offer to members to improve both business and 
life.
    Mr. Marshall. Great. Andrei, maybe to you the same 
question. What have you been doing to help the farmers, the 
producers weather this storm, and what do you think you see 
your co-op doing in the future to help us through this next 
year or so?
    Mr. Mikhalevsky. There are a number of things we do. To 
build on the comments that were just made about Land O'Lakes, 
we have what we call a Capacity Allocation Program. You 
mentioned Dairy Farmers of America, they have a base program. 
Most of the large co-ops have a way to manage the supply of 
product coming in to the processing capacity, or the ability to 
sell milk. It is not quite a supply management program, but it 
does put on some constraints.
    The second thing we do is we do a lot of advocacy for our 
farmers, both on a state level where we have water regulations, 
air regulations, and at the Federal level, similar to me being 
here today advocating for trade. We think that is helpful to 
our farmers.
    We also have a member benefits program. Healthcare was 
mentioned earlier. We have put together a custom program for 
the dairy farmers in the State of California with Western 
Growers to put together a healthcare program to try and make--
--
    Mr. Marshall. In addition to healthcare plan?
    Mr. Mikhalevsky. Yes, it is a combined group where we have 
designed a special program for our dairy farmers. Most of the 
large co-ops you mentioned, Dairy Farmers of America as well as 
Land O'Lakes, have a member benefit. When you join the larger 
co-ops, you will have access to discount pricing for supplies, 
for feed, for on farm necessities and that. That is kind of 
just a broad spectrum of some of the things.
    Mr. Marshall. Right. Let's go back to USMCA real quickly. I 
want to know specifically how USMCA would impact your 
producers, and we will start with Andrei. Why is it important 
to California dairies? Why is USMCA specifically important for 
you all?
    Mr. Mikhalevsky. Well, first of all, 60 percent of all the 
milk powder we make goes outside the country, and Mexico is our 
largest market. If I don't have my largest market for my milk 
powder, I will have a whole bunch of warehouses full of milk 
powder and low prices.
    Mr. Marshall. There you go. Mike, you are from New York, is 
that right? Why is USMCA important to New York dairy?
    Mr. McMahon. USMCA is vitally important. The next county to 
the west of ours, 28 large producers got together and built a 
$100 million powder plant out of their own money, and they had 
this great market called Canada until they came up with their 
Class VII milk, and so, that being addressed is certainly going 
to help them out. I mean, USMCA has to be passed.
    Mr. Marshall. And Dr. Brown, Missouri dairy, why is it 
important to Missouri dairy?
    Dr. Brown. Again, it gives us an opportunity for product to 
move outside the United States, and in a period where U.S. milk 
supplies are growing, it is important to make sure that we have 
those opportunities.
    Mr. Marshall. And Mr. Smith, Pennsylvania dairy farmers, 
why is USMCA important?
    Mr. Smith. Absolutely important. We have gotten into the 
discussion about regional milk markets and things like that, 
but milk flows across the country, and what is good for the 
dairymen in California with trade is good for the dairymen in 
Pennsylvania with trade also.
    Mr. Marshall. All right. Ms. Frericks, you get to clean it 
up. Why is it important to your personal dairy?
    Ms. Frericks. I will echo Mr. Smith's comments, that what 
is good for one state in the nation is good for all of us. We 
no longer have regional dairy supplies. We have a national 
dairy supply. We are talking about a global dairy supply. And 
so, unfettered trade is what this business needs to succeed.
    Mr. Marshall. Okay, thank you so much. I yield back, Mr. 
Chairman.
    The Chairman. All right. Before we close, I want to thank 
all of the witnesses. You have done an excellent job this 
morning in terms of your testimony. More importantly, the 
questions that you answered showed a level of consensus in 
terms of the needs of America's dairy industry, and the fact 
that there was a large amount of consensus among the five of 
you that kind of regionally represent the breadth and width of 
America's dairy industry is important. And so, I want you to 
know that we look forward to continuing to work with you.
    Before we adjourn, I want to defer to the gentleman from 
Pennsylvania, who is standing in, in lieu of the Ranking 
Member. Congressman Thompson, do you have any final comments 
you would like to make?
    Mr. Thompson. Well, Mr. Chairman, first of all, thank you 
for this hearing and your leadership, and thank you to all the 
witnesses for being here. We talked a lot about the dairy 
industry, individual dairy farm families, which is extremely 
important, but it is also about the success of rural America. 
We have seen what the difficulties over the past 8, 9 years 
with the dairy industry, how that has negatively impacted the 
rural economy.
    Mr. Chairman, I know we are all looking forward to working 
with you and your leadership so that we can do everything we 
can to make sure that at the end of the day, our dairy farm 
families wind up with more money in their pockets. And quite 
frankly, that will help us have a robust rural economy.
    Thank you.
    The Chairman. Well, thank you for the kind words, and I do 
look forward to continuing to work on a bipartisan basis. The 
overwhelming majority of issues that we will be dealing with on 
this Subcommittee, and really, the full Committee, as Chairman 
Peterson and Ranking Member Conaway have indicated, are 
bipartisan and there is no reason why we shouldn't be working 
together on behalf of the American people and American 
agriculture. And today's hearing really focused on the needs of 
America's dairy industry as it relates to implementing the new 
dairy title that we passed last year that we think is a much 
better approach to dealing with the cyclical nature of the 
pricing that we deal with. But the points that were made here 
as it relates to trade, the all-important efforts on trade, as 
well as labor, are efforts and issues that this Subcommittee 
will continue to work with.
    And let me just say, this is just the first of what I 
believe will be at least one to two subcommittee hearings a 
month, and we hope to try to have an opportunity to take the 
Subcommittee out to various parts of the country, and also work 
with Members who want to hold local regional workshops in which 
the livestock industry can participate in, not only dairy, but 
poultry, beef, cattle and pork, as well as focusing on these 
trade issues, because that is part of the overview and 
responsibility of the Subcommittee.
    With that said, again, I thank the five witnesses. You were 
all stars. You did a terrific job. And under the Rules of the 
Committee, the record of today's hearing will remain open for 
10 calendar days to receive additional material, supplementary 
written responses from the witnesses to any questions posed by 
a Member, and this hearing of the Subcommittee on Livestock and 
Foreign Agriculture at this time is now adjourned.
    Thank you.
    [Whereupon, at 12:08 p.m., the Subcommittee was adjourned.]
    [Material submitted for inclusion in the record follows:]
 Submitted Statement by Hon. Angie Craig, a Representative in Congress 
    from Minnesota; on Behalf of Roger Johnson, President, National 
                             Farmers Union
    Chairman Costa, Ranking Member Rouzer, and Members of the 
Subcommittee,

    Thank you for holding a hearing to examine the current state of the 
dairy economy. National Farmers Union (NFU) represents roughly 200,000 
family farmers, ranchers and rural members. NFU serves to protect and 
enhance the economic well-being and quality of life for family farmers 
and ranchers and rural communities across the country.
    While the current slump in the farm economy has impacted much of 
American agriculture, no sector has been as hard hit as the dairy 
sector. Most dairy farmers have been paid below the cost of production 
for over 4 consecutive years. With mounting debt and no significant 
price rebound in sight, thousands have been left with no choice but to 
close their doors. Due to the severe and chronic challenge of 
oversupply, we urge the Committee to examine long term solutions that 
would ensure a profitable and sustainable environment for dairy 
farmers.
Trends in the Dairy Sector
    According to the United States Department of Agriculture, the 
number of licensed dairy farms decreased by nearly 17,500 or about 34 
percent from 2009 to 2018.\1\ As dairy farmers exit the business at 
alarming rates, their production is being replaced by new, large-scale 
dairy operations. The U.S. dairy herd increased by nearly 200,000 cows 
from 2009 to 2018, while the average number of cows per operation 
increased by over 50%.\2\
---------------------------------------------------------------------------
    \1\ United States Department of Agriculture, National Agricultural 
Statistics Service. Milk Production, March 2019; United States 
Department of Agriculture, National Agricultural Statistics Service. 
Milk Production, February 2010.
    \2\ Id.
---------------------------------------------------------------------------
    As the industry consolidates and milk production increases, family 
dairy farms increasingly find themselves at a disadvantage. In 2017, 
the average national value of production was $.05 less than total 
operating costs.\3\ Small farms suffered the greatest average net 
losses per hundredweight, while farms with over 2,000 cows averaged the 
greatest net profit.\4\
---------------------------------------------------------------------------
    \3\ United States Department of Agriculture, Economic Research 
Service. Milk Cost of Production by Size of Operation. October 2018.
    \4\ Id.
---------------------------------------------------------------------------
    The 2017 Census of Agriculture further illustrates the trend of 
consolidation in the dairy sector. While the number of dairy farms 
decreased by over 10,000 since the 2012 Census of Agriculture, the 
number of farms with 2,500 or more cows increased by 149.\5\ 
Furthermore, operations with more than 2,500 cows accounted for 35.3 
percent of the total value of milk production in 2017, a 5.8 percent 
increase from the 2012 Census.\6\
---------------------------------------------------------------------------
    \5\ United States Department of Agriculture, National Agricultural 
Statistics Service. (2019) 2017 Census of Agriculture; United States 
Department of Agriculture, National Agricultural Statistics Service. 
(2014) 2012 Census of Agriculture.
    \6\ Id.
---------------------------------------------------------------------------
Dairy Together Campaign
    In response to the unprecedented challenges facing family dairy 
farmers, Wisconsin Farmers Union (WFU) launched the Dairy Together 
campaign in 2018. The goal of the campaign is to build grassroots 
support for a supply management plan that would ensure dairy farmers 
can receive a fair price from the markets.\7\ At a series of meetings, 
WFU has presented an analysis of three supply management programs that 
were introduced prior to the 2014 Farm Bill.\8\ WFU and other farm 
groups have also discussed the Canadian dairy supply management system, 
a two-tiered pricing model, and short-term emergency programs to offset 
market losses.
---------------------------------------------------------------------------
    \7\ Wisconsin Farmers Union (2018). Dairy Together. Retrieved from: 
https://www.dairytogether.com/.
    \8\ Nicholson, C., & Stephenson, M. (2019). Analyses of Selected 
Dairy Programs Proposed to Reduce Variability in Milk Prices and Farm 
Income. Retrieved from: https://dairymarkets.org/PubPod/Podcast/Misc/
SupplyManagement/WFU_Report.pdf.
---------------------------------------------------------------------------
    Overall, Wisconsin Farmers Union, along with other Farmers Union 
divisions and farm groups, have hosted 22 meetings in eight states, 
reaching over 1,000 participants.
National Farmers Union Policy
    National Farmers Union recognizes the improvements made in the 2018 
Farm Bill to better support our dairy farmers. The Dairy Margin 
Coverage (DMC) program is an improvement from its predecessor, the 
Margin Protection Program. The opportunity to cover the same production 
under both the DMC and the Livestock Gross Margin gives dairy producers 
another option to strengthen the support they receive. However, the 
farm bill does not address the ongoing challenge with oversupply.
    National Farmers Union has long been a supporter of dairy supply 
management.\9\ At NFU's 117th Annual Convention, our members passed a 
Special Order of Business reinforcing our support for a comprehensive 
dairy supply management plan.\10\ The proposal adopted by the delegate 
body supports a plan that would establish fair prices, manage milk 
inventories, and manage imports and exports. (See Appendix)
---------------------------------------------------------------------------
    \9\ National Farmers Union. (2019) Policy of the National Farmers 
Union. Retrieved from: https://nfu.org/policy/.
    \10\ National Farmers Union. (2019) Family Farming and Dairy, 2019 
Special Order of Business. Retrieved from: https://
1yd7z7koz052nb8r33cfxyw5-wpengine.netdna-ssl.com/wp-content/uploads/
2019/03/Dairy-SOB-030519.pdf.
---------------------------------------------------------------------------
Conclusion
    Thank you for the opportunity to submit a statement for the record 
on the state of the dairy economy. We look forward to working with you 
to identify both short-term and long-term solutions to promote the 
economic viability of family dairies, including mechanisms to 
meaningfully address oversupply.
            Sincerely,

              [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
            
Roger Johnson,
President.
                                appendix
Family Farming and Dairy 2019 Special Order Of Business
    The number of dairy farmers in the United States has dropped by 
more than 30 percent over the last 10 years, and the rate of closures 
across the country continues to accelerate today.
    The United States Department of Agriculture (USDA) projects the 
nationwide average price paid to dairy farmers will total $15.80 per 
hundredweight (cwt), while average cost of production is $22.70 per 
cwt. Dairy farmers nationwide are paid 30 percent below average 
production costs and have been paid prices well below production costs 
for more than 4 years leading to unprecedented financial challenges for 
dairy farm families.
    The recently passed farm bill fails to address the challenges dairy 
farmers face today primarily because it lacks an inventory management 
component that is vital to establish fair milk prices. We urge Congress 
to pass a three-point plan:

   Establish fair prices.

   Manage milk inventories.

   Provide import/export dairy policy to restore and protect 
        profitability to dairy farmers across the United States.

    NFU calls on Congress to pass legislation that includes:

  1.  The establishment of an incentives-based inventory management 
            program to manage milk inventories based on market demand 
            and pricing stability.

  2.  Establish a farmer-led plan to establish fair milk prices that 
            are based on the dairy farmers cost of production and 
            retail prices for dairy products.

  3.  Effective dairy trade policy that manages both imports and 
            exports to ensure that U.S. dairy farmers are paid a fair 
            price from the market.

  4.  Each FMMO region of the country establishes a dairy board made up 
            of dairy farmers that establish prices with processor 
            involvement.

  5.  Prices are determined by farmers on a region-by-region basis 
            based on cost of production and other cost indices.

  6.  Using processors forecast demand for milk for dairy products, 
            each region will produce enough milk to meet processors 
            needs.

  7.  Milk requested for use in export by processors would be included 
            in regional dairy supply demand. Imports are subject to 
            USDA market review to assure that they do not undercut the 
            dairy farmer-led inventory management plan.

  8.  Changes in forecast demand for dairy products will allow for 
            increased production for those dairies that choose to grow 
            based on market demand and allow for new dairy operations.

  9.  New growth production is issued equally, with a program for 
            beginning farmers.

  10.  Dairies can buy and sell existing production based on the value 
            set on the open market, but new production is only issued 
            by regional boards based on demand increases.

  11.  This would be a farmer driven program with mandatory enrollment 
            of all dairies including organic.

  12.  Organic market inventory would use similar system to set organic 
            prices and manage inventory to meet processor and consumer 
            demand.
                                 ______
                                 
                          Submitted Questions
Questions Submitted by Hon. Jahana Hayes, a Representative in Congress 
        from Connecticut
Response from Michael P. McMahon, Owner and Operator, EZ Acres, Homer, 
        NY
    Question. We frequently hear that unemployment is down. However, 
Mr. McMahon, in your testimony, you mentioned that it has become very 
difficult to hire locally. That's a problem. How do you recruit your 
employees and how long does it typically take you to fill an open 
position? What affect does that have on your revenue?
    Answer. To the Honorable Jahana Hayes,

    Thank you for your interest in my testimony before the House 
Subcommittee, below are my answers to your questions:

  1.  As to recruiting, in the past we have used our local newspaper 
            and a statewide weekly farm publication with a very 
            extensive distribution called Country Folks. Over the years 
            we used to advertise in the surrounding metropolitan areas 
            such as Syracuse, Binghamton and Ithaca, but never received 
            a single applicant from the cities. We continue to 
            advertise locally but with the advent of social media we 
            now utilize that as well.

  2.  The last couple of times we have had an opening it has taken 
            about a month to fill the position. In fact, right now our 
            Youngstock manager (person responsible for raising our 
            calves and heifers) is wanting to return to Mexico so we 
            are actively seeking a local person to replace this 
            position. I have been advertising (both by paper and social 
            media) at Morrisville, Cobleskill and Alfred Agricultural 
            colleges since the first of March as well as locally and 
            regionally, and have only had one person apply and that 
            person never showed up for a follow up interview. This 
            position starts in the mid $30,000 range and includes a 
            very nice three bedroom furnished house with all utilities 
            paid for, health insurance, paid vacations, sick and 
            personal days and gasoline for their personal vehicle. The 
            entire package is worth in the mid $50,000-$60,000 per 
            year. Four years ago we had to replace our ``feeder'' 
            position and with a similar compensation package to the one 
            above, and after five weeks we had two applicants, one of 
            which had just been released from prison for manslaughter. 
            Fortunately the other applicant worked out until he became 
            addicted to opiods, and now my son, one of the managing 
            partners, is doing that job.

  3.  As you can imagine, when management has to assume more labor due 
            to a lack of people, other things get let go which 
            management should be attending to. This along with training 
            and constant searching demands a great deal of management's 
            time and effort. It can be a little difficult to quantify 
            the revenue impact but there clearly is one. Cows have to 
            be milked and crops have to be planted and harvested and 
            when you can't fill a position the owners have to step up 
            to make sure these things get done. The answer for our 
            industry of course has been to hire migrant workers and 
            since there is no legal way for dairy to bring in these 
            workers we are all left at risk.

    Once again, Congressman Hayes thank you for your questions and 
please feel free to reach out to me if I can be of further assistance.

Mike McMahon, EZ Acres LLC.
Response from Scott Brown, Ph.D., Director of Strategic Partnerships, 
        College of Agriculture, Food, and Natural Resources, University 
        of Missouri; Associate Extension Professor, Agricultural and 
        Applied Economics, University of Missouri
    Question 1. The government-sponsored risk management tools 
available to dairy farmers have changed significantly in the last year 
given the new farm bill and new RMA insurance options. Dr. Brown, given 
your work as an extension professor, how can we make sure farmers know 
about the options available to them? What groups should have a role in 
that process?
    Answer. A broad group of dairy industry stakeholders must engage 
with dairy producers to inform and educate about the new risk 
management tools that are available today. That group ranges from land-
grant universities to commodity organizations. The message must stay 
focused on the risk management components these programs offer and not 
just a discussion of maximizing program payments.
    Land-grant universities through their extension programming must 
take the lead in the program education efforts. This has been a 
traditional role taken on by extension for decades. Extension faculty 
can provide an unbiased assessment of the risk management tools 
available to dairy producers. Land-grant universities continue to find 
less flexible budgets that sometimes result in fewer resources 
available to work on some of these policy education issues.
    Government agencies implementing these new risk management tools 
must also educate dairy producers on the specifics of how the different 
tools work. The U.S. Department of Agriculture must provide educational 
opportunities for dairy producers. In Missouri, the University of 
Missouri and the Missouri Farm Services Agency (FSA) work as a team in 
providing education on these programs. Missouri FSA educates on the 
specifics of the programs and the University of Missouri educates on 
how producers can use the programs.
    Commodity organizations such as the National Farmers Union and 
American Farm Bureau Federation can also provide educational 
opportunities for their memberships on these newer dairy programs. 
Dairy specific commodity organizations like the National Milk Producers 
Federation can also provide an additional outlet to educate their 
membership either directly or through their cooperative members.

    Question 2. The dairy industry is extremely important to me. In my 
home State of Connecticut, the dairy industry provides nearly 3,000 
jobs, and has an economic impact of over $900 million. Dr. Brown, you 
outlined concerns that continued growth in U.S. milk supplies over the 
last few years has contributed to the current trend of low prices. 
We've seen how politically difficult it has been to do anything to 
stabilize the market in Congress. What can industry do to strengthen 
the market and correct this trend?
    Answer. Rapid and significant change in the dairy industry over the 
last few years has been largely responsible for the longer than usual 
period of low milk prices the dairy industry has faced. Aggregate milk 
supplies have remained stubbornly robust as technology adoption and 
apparent economies of scale have grown larger dairies, outweighing the 
loss of other dairies across the country. Markets will continue to 
adjust until milk prices rise to levels that can more adequately 
provide a return to dairy farmers and allow them in stay in business 
long term.
    Milk price volatility has been a staple of the industry over much 
of the 1990s and 2000s. However, the last few years have been absent of 
any quick increase in milk prices, reminding the industry that there is 
not a necessarily repeating cycle to milk prices that result in high 
price periods. Producers have continued to produce, thinking that 
higher milk prices would occur, but in fact this milk supply growth has 
prevented higher milk prices.
    Growing demand for milk and dairy products is the key to a more 
economically robust dairy industry. The development of new dairy 
products that meet the demand of today's U.S. dairy consumers remain 
important to long term dairy markets. The industry has seen the effects 
of weak demand for products like fluid milk. New dairy products that 
stimulate new demand are vital.
    International markets for U.S. dairy products are also important to 
the industry and there must be a sharp focus on growing these markets, 
as they represent a larger consumer base with income growth profiles 
that will support increased consumption of dairy products.

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