Vitaliano’s Valedictory: Economist Shares Thoughts on Dairy’s Evolution

After nearly four decades as an economist at NMPF, Dr. Peter Vitaliano is retiring at the end of the year. He predicts a bright future for the industry. 

 “The U.S. dairy industry produces a huge variety of great products, for which consumption is continuing to grow,” Vitaliano said in a Dairy Defined Podcast. “It has very progressive farms and farmers, and great leadership amongst our organizations, and great organizations. That has been the case when I came, it's the case now, and it's going to be the case for many years in the future.” 

 Vitaliano, NMPF’s longtime chief economist, reflects on the evolution of policy challenges for the dairy industry in the podcast, explaining how shifts in the industry have created greater unity – and a more effective NMPF. 

Transcript

Alan Bjerga: Hello and welcome to the Dairy Defined Podcast. Is it the end of the year or the end of an era? Joining us today is Peter Vitaliano, who at the end of this year is retiring from the National Milk Producers Federation, where he has served as an economist with a variety of titles for 39 years. But before he leaves us, at least in an official capacity, we want to learn just a little more of what he has to say about the changes he's seen in dairy over four decades, where he sees the industry going, and what we all should keep in mind as we navigate this industry. Peter, thank you for joining us.

Peter Vitaliano: A pleasure, Alan.

Alan Bjerga: Thank you for all that you have done for this industry going back to 1985. Let's start there. Take us back to 1985 when you joined National Milk. Tell us about the industry you were analyzing when you arrived.

Peter Vitaliano: Well, I joined just the end of the year and the 1985 Farm Bill had just been passed, and had a lot of stuff that we had to meet with our members to implement the whole herd buyout and a number of things having to do with federal orders. But back at that time, besides the obvious, there were a lot more farmers, smaller on average, same thing with cooperatives. The industry was undergoing some very rapid geographic shifts. The traditional dairy areas in the upper Midwest, and to some extent the Northeast, were still dominated by very small farms, and those areas were not growing in production. Whereas Western states were undergoing very rapid growth, mostly larger farms. The Southeast was, I'm not sure how far along in that, but basically undergoing a substantial loss of milk production capacity in most of those states.

That made the different regions of the country need and seek for very different types of policies, and made it very difficult for National Milk to agree for a number of years when I first came on, on basically fundamental policies. Because the industry had come to the peak of the level of price support, and it generated some tremendous surpluses. The next several years after I came were dominated by, how do we ratchet off of that high level of support that had generated very, very large dairy surpluses?

Alan Bjerga: What were some of the challenges that you saw come and go, and what structural changes did you see?

Peter Vitaliano: I'm going to keep policy focused because that's what I've primarily worked on all these years. Big changes in the dairy farmer's attitudes toward international trade. When it first came, the world market was very small, highly distorted by policies of a number of countries, including the United States. Exports were not a thing. The main focus was protecting us from the world market. The US/Canada Free Trade Agreement was announced just before I came, and National Milk asked to be left out of that. We didn't even want to open our markets to Canada. Subsequently, we've spent decades and decades trying to figure out how to open up free trade with Canada, one of the toughest nuts to crack.

Federal milk marketing orders were a lot more of them. They were a little more effective, because what basically provides fuel for federal milk marketing orders is a substantial amount of fluid milk in those markets. That's been declining over the years, providing an increasing challenge for those federal orders. The larger political climate has deteriorated, no surprise there, and it's made it more and more difficult to achieve things. Besides fundamental farm policy and dairy policy in particular, things that are important for dairy like immigration, like basically what I call a dairy-friendly trade policy, which is opening up other markets, liberalizing trade. We've had long-term challenges getting some of our government agencies to even force the policies on the book with regard to labeling dairy products and substitute products. So, those have been some of the challenges that we've seen.

But on the other hand, anticipating. After those first several years of the disagreement on policy that I discussed, National Milk has come a lot more into agreement amongst its members, that those rapid geographic shifts that we're generating, the disagreement has settled down a little bit. The upper Midwest has developed larger farms. The growth of the West has slowed down, and it's made it a lot easier. The federation has functioned very, very well. But the issue of small versus large farms continues to loom.

Alan Bjerga: So, compare the NMPF of then with the NMPF of today.

Peter Vitaliano: In the short term, we've just accomplished a long overdue updating of the Federal Milk Marketing Order Program, that's a program that needs to be kept updated. Particularly once, almost a quarter-century ago it shifted to a more complicated system of price formulas that need to be kept updated. They've been allowed to get out of alignment. We've fixed that, but it's like in a sense, bringing the program up to where it needs to be today, that is not necessarily helping the program deal with the continued challenges and the loss of fluid milk. Now, through October this year, there's good news, the volume of fluid milk consumed has been up over a year ago, and gives us the possibility that we may end up the year that way, two more months to go. If that happens, it would be the first year since 2009 in which fluid milk consumption has grown.

Our fundamental safety net program, the Dairy Margin Coverage Program, that we shifted to about 10 years ago. Basically margin protection, which involves direct payments to farmers, that has come with payment limitations, which has made that program what I call a depreciating resource, because of a smaller and smaller percentage of the milk that's produced in this country is eligible to be covered under that program, as the average-sized dairy farm continues to grow, which is fueling this issue of small versus large farmers. In immigration, trade policy and labeling, dairy product labeling, those continue to be challenging and will continue to be for quite some time.

Alan Bjerga: Talk a little bit about what you're seeing on the horizon. Let's drill down on that a little more. First looking near-term, say next year, and then going a little further out. What will be the forces shaping the dairy economy over the 2020s and beyond?

Peter Vitaliano: Well, we'll continue to see fewer dairy farms, larger farms. Possibly another round of consolidation of cooperatives. We may start seeing the growth of dairy farms that are large enough that they are not going to be using the dairy cooperative structure of doing their marketing. The most recent statistics still show 80% plus of the milk in this country is marketed by cooperatives of one type or another. We're starting to see organizational structures, where maybe half a dozen very large farms will get together and be the primary supplier of milk to very large and very modern processing plants. You wouldn't have seen that in the past. Those kinds of farmers, under National Milk's current structure, our active membership is basically dairy cooperatives representing their dairy farmer member interests.

With the growth of those kinds of, let's say, non-cooperative type organizations, there's a possibility that the volume of milk that is not even eligible to belong to National Milk, as it's currently structured, is going to continue to grow. So, those are some of the challenges. Again, it's going to bring changes to our fundamental policy programs, federal orders, dairy margin coverage, and it's going to increasingly make progress on immigration that is friendly to dairy, trade policy that's friendly to dairy, and food labeling and other programs that much more important. We're going to hopefully continue to see the growing effectiveness and expansion of the farm program, which is very, very essential to dairy being able to meet the needs satisfactorily of today's consumers. The plate will always be full for National Milk, let's say.

Alan Bjerga: What about today's industry would have made you say, in 1985, that's impossible, that will never happen?

Peter Vitaliano: Well, I'm a pretty imaginative person. There's not an awful lot that I can say, "That's never going to... I can't imagine that changing." But when I first came in, we were pretty hard and fast on what I call the holy trinity of policy. That was the Dairy Price Support Program, our import quotas that protected our market from imports, and the Federal Milk Marketing Order Program. Which leading up to the 2014 Farm Bill, we actually proposed liberalizing. We've totally turned around. We've maintained our import controls, but we are willing now to trade them off, if we get equal or greater access. We no longer have to fear the world market the way we did when I first came.

The Price Support Program is long gone because it no longer fit the needs of an increasingly export focused industry. So, what I called that holy trinity, when I first came, it was like, well, this is kind of fixed in place. That's what I'm going to be doing my policy analysis for years and years to come. It wasn't that I couldn't imagine that changing, but I had no reason to see how that might change. I don't know whether that warrants the word impossible, but that would come as close as I can remember.

Alan Bjerga: What will continue to make dairy successful?

Peter Vitaliano: The US dairy industry produces a huge variety of great products, for which consumption is continuing to grow. It has very progressive farms and farmers, and great leadership amongst our organizations, and great organizations. That has been the case when I came, it's the case now, and it's going to be the case for many years in the future. It does not mean it's not facing challenges. If the necessary policy that the government can provide to help our industry grow can be as progressive as the industry, we'll be in great shape.

Alan Bjerga: Well, you have been a big part of the success of this industry over the last four decades, Peter, so we who are continuing will do our best to carry that torch without you. But my final question is, are you really leaving? I hear rumors this is a fade away, not quite a hard stop for your career in dairy.

Peter Vitaliano: Well, I'd call it a glide path out. I'm going to be doing some consulting for National Milk, continuing a few of the things I'm doing and helping to basically ease the transition basically for new staff. It's like they recommend that when you're exercising hard, you don't just suddenly stop, you walk it out to let your heart rate come down. It's kind of like, I need that kind of a glide path rather than just a hard stop, as you called it.

Alan Bjerga: A fun fact about you, Peter, along with all of your other accomplishments, you are the most listened to guest of this podcast. You have more cumulative clicks than any other person we've ever had on Dairy Defined. So, thank you so much for all that you have done and how you have informed our audiences, from board meetings and academic presentations to the airwaves of Dairy Defined. Do you have any final thoughts?

Peter Vitaliano: Yeah. Well, I guess I would attribute any popularity to the fact that economists tend to get listened to in this industry. This industry has always had a lot of economists with a lot to do, that have basically been very visible. It's been a great ride. It's always been important for me to know for whom I'm working, and to know those for whom I'm working, and I mean in person. Going to our annual meeting, other meetings, like our board meetings, it's important for me to know and speak to the people that I'm working for. My experience, I can't think of a better group of people to devote my professional life to than dairy farmers, and I hope I've been useful to them.

Alan Bjerga: You have been listening to Dr. Peter Vitaliano, who is concluding his service at the National Milk Producers Federation to the dairy community after 39 years. That's it for today's podcast. You can find us online on nmpf.org, and you can subscribe to this podcast on Apple Podcasts, Spotify, SoundCloud, iTunes, and Google Play under the podcast name, Dairy Defined. Thank you for joining us and happy holidays.