REDUCED PRODUCTION MARKETINGS PROGRAM

How it works: A producer offers a bid to CWT indicating the payment ($ per cwt.) he or she would be willing to receive to reduce their production marketings by a specified percentage (minimum of 10 percent) and also indicating how they intend to achieve the reduction for the twelve-month period July 2003 through June 2004. After the bid has been accepted by CWT, every month that his or her marketings are reduced by the percentage agreed to (plus or minus one percent (1.0%)), the producer is paid the agreed upon price per hundredweight for that reduction. The herd is committed to no growth, with any cows moving off the farm going to slaughter.

Program Target: A reduction of 460 billion pounds of milk over the 12-month program period.

Payment/cost per unit: This will be bid dependent. However, an average cost of $4.00 per hundredweight on a minimum 10% milk production reduction, will be equal to 44 cents per cwt. of remaining production.

Cost for target: $18 million.

Contribution rate for this program: $0.015/cwt. over 12 months, assuming participation by producers representing 70% of U.S. milk production.

Program Considerations:

• A producer offers a bid ($ per hundredweight) on the pounds of reduced milk marketings with a minimum reduction of ten percent (10%) required.
• Ten percent should be the minimum reduction in milk production required when considering both the cost of this program and the return to the participating producer.
• If these parameters do not get the desired level of participation, make adjustments to get the appropriate Reduced Production Marketings (RPM) response.
• The maximum rate of milk production reduction by an individual producer should not be limited.
• The key to the success of RPM is flexibility. However, the contract should require that the producer specify the rate of reduction he intends to make.
• All producers should be eligible to participate in the RPM program regardless of whether they increased milk production in the previous twelve months or not.
• Again, flexibility and simplicity are the keys. Judgment calls will only complicate the program. If someone is reducing production already, the RPM program will speed up the process. The most recent previous twelve months is the period from which the reduction must be made. If signup exceeds that target, reductions will be prorated over all participating producers subject to the 10% minimum reduction.
• The signup period should be for a specific length of time, 30 days is recommended.
• This gives CWT the ability to know what the program response is and to make whatever adjustments need to be made. It should only be offered once.
• The total amount of milk participating in the RPM program should initially be allocated on the basis of the percentage of milk production a state or region’s production is to national milk production.
• The program will be administered so that participation is not detrimental to any one state or any one region of the country.
• Payments to participating producers should be handled by CWT.
• Payments to producers should be made monthly. This is the way producers are paid for milk and would make the program most helpful to producers.
• Contracts will only be for 12 months.
• Dairy facilities with multiple ownerships would be required to meet the contracted production reduction required.
• Multiple operations in which a producer has ownership and are marketing milk through the same cooperative will required to cumulatively reduce production the contracted amount. It would be counterproductive for one operation out of a multiple operation to contract to reduce production 10 percent while the other operations in which the same producer has an ownership interest increase production by 10 percent. Any reduction in the herd of one operation would require the animals to be slaughtered or exported, not sent to one of the other operations.
• Any cows disposed of (including heifers) should go to slaughter and the transaction verified by the packing facility.
• The RPM contract would be voided if the producer fails to meet the required the contracted reduction in milk production by more than one percent for two consecutive months or if the average reduction for three months is not equal to or greater than contracted percentage.
• Other reasons for voiding contract could include moving cows and any other activity that demonstrates an effort to circumvent the producer’s contractual obligation to the RPM program.
• The RPM contract should be between CWT and the producer.
• This approach will make enforcement of the contracts more effective. CWT should be the party responsible for enforcing contracts or voiding them. The contract should be very specific about the responsibilities of both parties.
• Contract terms and compliance should be uniform/consistent for both RPM and herd retirement programs.
• Where a producer participating in the RPM program indicates disposal of cows will be part of the plan to meet the RPM percent of reduction, the requirements will be uniform between these two programs.

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