PROPOSED PACKAGE OF MEASURES TO IMPROVE DAIRY SURPLUS SITUATION CM/213

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP84T00109R000100010003-7
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 14
• Document Creation Date: December 22, 2016
• Document Release Date: May 4, 2009
• Sequence Number: 3
• Publication Date: April 26, 1982
• Content Type: MEMO

THE WHITE HOUSE
WASHINGTON ire
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CABJd AFFAIRS S T AFMG MEMORANDUM
LATE: 4/23/82 NUMBER: 068911CA . DUE BY: -----
SUBJECT: CABINET COUNCIL ON FOOD AND AGRICULTURE -- April 26 Meeting
ACTION
ALL CABINET MEMBERS ^
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HFIS
HUD
Transportation
Energy
Education
Counsellor
OMB
~_U ~.
USTR
CEA
CEQ
OSTP
REMARKS:
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ACTION
FYI
Baker
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Deaver
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Clark
9111
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Darman (For WH Staffing)
GV
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Harper
^
Jenkins
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91-01
Gray
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[IY
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Rol
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Cep'
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The Cabinet Council on Food and Agriculture will meet with the
President on Monday, April 26, at 2:00 PM in the Cabinet Room.- The
agenda and papers are attached.
NOTE: ATTENDANCE AT MONDAY'S CCFA.MEE.TING WILL BE_LIMITED TO
PRINCIPALS ONLY.
NSC review completed.
^ Craig L. Fuller ^- Becky Norton Dunlop
Assistant to the President Director, Office of
for Cabinet Affairs Cabinet Affairs
456-2823 456-2800
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THE WHITE HOUSE
CABINET COUNCIL ON FOOD AND AGRICULTURE
April 26, 1982
2:00 P.M.
CABINET ROOM
Proposed Package of Measures to Improve Dairy Surplus Situation CM/213
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April 23, 1982
TO: CABINET COUNCIL ON FOOD AND AGRICULTURE
FROM: JOHN R. BLOCK, CHAIRMAN PRO TEMPORE
RE: Cabinet Council Meeting Monday, April 26
Attached are proposals on the dairy surplus situation
prepared by the Agriculture Department pursuant to
the Cabinet Council meeting of April 21.
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I. PRODUCTION ADJUSTMENTS
Under current legislation, it is estimated that during FY 83-85 net
outlays of the Commodity Credit Corporation (CCC) could reach nearly
$4 billion for the dairy price support program using the mandated minimum
support levels contained in the 1981 Farm Bill and assuming a steady
improvement in commercial use. By 1985, the CCC uncommitted inventory
of butter, cheese and nonfat dry milk (NFDM) is projected to be 30 billion
pounds of milk equivalent, representing nearly one-fourth of the annual
production.
A. Discretionary Authority foi Setting Support Level
The proposed legislation would amend the dairy provisions of the 1981
Farm Bill to give the Secretary of Agriculture the discretionary
authority in setting the support level. Upon enactment of the proposed
legislation, it is the Secretary's intention to drop the minimum
support level from $13.10/cwt. to $12.00. Current estimates are
that with a $12.00 support level becoming effective October 1, 1982,
FY 83-85 CCC net outlays could be held to around $1.7 billion. This
action would limit CCC inventories to around 18 billion pounds milk
equivalent, about equal to 1982 levels. If a cutback in milk
production is not realized, at this time the Secretary's intention
would be to review the situation semi-annually and reduce the milk
price support level by 50 cents per cwt. every 6 months until supply
comes back into line with demand.
By amending the current legislation, CCC budget outlays during FY 83-85
could be reduced by nearly $2.3 billion and growth in the currently
excessive CCC uncommitted inventories could be stopped. More importantly,
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the Secretary would be given the discretionary authority to raise or
lower the dairy price support level to ensure a wholesome and abundant
supply of dairy products without excessive costs and stock buildup.
Complete authority to adjust the price support level is essential to
maintain a viable milk price support program and to avoid further
A rigid formula mandating price increases without regard to supply
and demand factors is the primary reason we are in the present
situation which is intolerable. Actions were taken last year to
help solve the problem--but they were not enough. Unless complete
flexibility is given to the Secretary of Agriculture to set the
milk price support level and get the situation under control, the
consequences could very well be the demise of the dairy program as
we know it.
B. Revised Guidelines for FmHA Loans to Dairy Producers
The Secretary has ordered the Farmers Home Administration to
establish new guidelines to be used by loan-making officials when.
making loans to dairy producers. The guidelines would have the
effect of limiting dairy loans to stabilizing ongoing enterprises
or providing for within family transfers. New dairy facilities
will only be financed by FmHA upon the determination that additional
production is needed in that specific area.
II. INCREASE THE DISPOSITION OF SURPLUS DAIRY PRODUCTS
Even with the much needed legislative change outlined above, the CCC
will be facing a major stock disposition problem. Reducing the price
support level is a step in the right direction; however, even with this
proposed reduction in the support level, the CCC will have over 18 billion
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pounds of milk equivalent in inventory by October 1, 1982. In an effort
to reduce these exceGQive stocks, a number of measures are proposed
which will expand dairy product usage both here and abroad. With these
stocks of butter, nonfat dry milk, and cheese going out of condition
within 1-2 years, actions must be taken to dispose of these dairy
products which cost about $25 million a year to store. Most of these
measures can be handled administratively using existing legislative
authorities.
A. Domestic Disposition
1. Expansion of Cheese Distribution
Current government-held inventories of cheese total over
616 million pounds. In December, President Reagan announced that
30 million pounds of cheese would be made available for distribution
to low-income households. Later, due to the success in distributing
the initial allotment, another 70 million pounds were authorized
to be distributed through July 1. As of early April, 76 million
pounds of cheese had been ordered, and 32 million pounds had
been distributed. All states are participating in the program.
The Department now intends to further expand this program
and will authorize another 120 million pounds to be made available
through the end of this year--bringing to a total 220 million
pounds of cheese for donation. This appears to be the maximum
amount of cheese that can be physically distributed safely in
the 12-month period.
2. Planned Distribution of Surplus Butter
The Department has been pilot testing the distribution of
surplus butter in Iowa. The 60-day test began in February and
has thus far distributed 70,373 pounds of butter to over 13,792
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low-income households. The Department will expand the pilot
project, allowing for an additional 70,000 pounds of butter to
be distributed. In addition, a final evaluation of the pilot
test will result in the development of specific criteria, permitting
the expansion of surplus butter distribution nationwide. Unique
problems exist for the distribution of surplus butter, which is
currently inventoried in 68 pound frozen blocks. The Department
is currently addressing the distribution and packaging problems
experienced in the pilot project and hopes to fully implement a
nationwide program within the next few months.
3. Distribution Systems Technical Assistance
The need for effective and efficient commodity distribution
systems has been highlighted by the recent surplus cheese distri-
bution program. Some states and local governments were unprepared
to effectively manage the distribution of cheese, particularly
the transportation and safe warehousing. The Department will
make available up to $100,000 to provide technical assistance
to states on methods to improve their distribution systems.
4. Expansion of Food Bank Demonstration Projects
As an alternative to current distribution mechanisms, the Department
has funded three demonstration projects in Indiana, Pennsylvania,
and California. In addition to cheese, these projects have been
designed to distribute butter and nonfat dry milk. Particular
storage and distribution problems have occurred for butter and,
therefore, food banks have been viewed as a possible alternative
for distributing these non-cheese items. The three sites now
participating in the demonstration project will be expanded to
seven. These additional projects will be authorized to participate
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for a two-year period, and an estimated 3.0 million pounds of
dairy stocks will be distributed over this period.
5. Private Sector Inventory (PSI) System
A number of surplus agricultural commodities are not easily
distributed in their current inventory state. The Department
proposes to move ahead on a program,that will increase the use
of surplus commodities by permitting private sector processors
to indirectly distribute surplus dairy products. The Private
Sector Inventory system would release surplus commodities to
food processors who would use the commodities to produce end-products
sold at a discount to eligible institutions such as schools,
programs for charitable institutions, and nutrition programs for
the elderly. The discount would be based on the market value
equivalent of the surplus commodity used to produce the final
product.
6. Increase CCC Sales of Out of Condition Nonfat Dry Milk for Animal
Feed
CCC has been selling out of condition nonfat dry milk (NFDM) for
animal feed at about 55-58 cents per pound at an annual rate of
about 50 million pounds. By reducing the resale price to around
45 cents, sales could reach an estimated 150 million pounds
without major impact on the prices of other high protein feed
ingredients.
7. Recommend Higher Standards for Fluid Milk
The Secretary will establish a group to work with the Food and
Drug Administration in evaluating the possibility of changing the
national fluid milk standards similar to those currently used in
California. The Secretary will also encourage state regulatory
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agencies to voluntarily raise state standards to help reduce the
surplus CCC dairy products. By requiring the higher standards,
large quantities of nonfat dry milk and other products now going
into CCC surplus stocks would be used commercially. The higher
standards will provide consumers with a product that is highly
nutritious, high in protein, and has a better taste than the
milk they are used to drinking.
It is estimated that the higher standards would reduce CCC purchases
by the equivalent of 100 million pounds of butter and 140 million
pounds of nonfat dry milk on an annual basis--reducing CCC expenditures
by about $300 million ger year.
8. Increase Use of Dairy Products by the Military
The Secretary of Agriculture will work with the Department of
Defense to utilize additional amounts of dairy products which
are donated by the Department of Agriculture.
B. International Disposition
1. Distribution under the Public Law 480 Food Aid Program
Currently the Title II donations program authorized by P.L. 480
is distributing CCC-owned nonfat dry milk to needy people in
poor countries in all parts of the world. We are reviewing ways
to increase these humanitarian distributions. The feeding activities
benefitting from the Title II program use nonfat dry milk both
as milk and as a component of highly nutritious foods such as
corn-soy-milk. The Department is increasing the milk component
in instant corn-soy-milk as well as considering its addition to
other blended foods, primarily wheat-soy blend. At present,
slightly over 100,000 tons of CCC-owned NFDM milk is used in the
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Title II program. Next year, with the ability provided by the
1981 Farm Bill to reduce the cost of CCC-owned milk to the Title
II program, we plan on expanding this use through both private
voluntary agencies such as CARE, the Catholic Relief Services
and the World Food Program.
Also, although bilateral government-to-government programs under
Title II are small, we will review the possible use of nonfat
dry milk in such activities. Public Law 480 also authorizes a
concessional sales program under Title I. At present, nonfat
dry milk is not included in such bilateral government-to-government
sales agreements; howeyer, such inclusion is under consideration.
2. Donation by the Commodity Credit Corporation
The Department is proposing to Congress the reinstatement of
Section 416 authority whereby the Commodity Credit Corporation
will be able to donate dairy products for use overseas. This
authority would provide for direct CCC donations in addition to
the P.L. 480 program, and would facilitate constructive use by
CCC of its surpluses while allowing the United States to enhance
its role in responding to food needs of hungry people around the
world. These donations would be channeled primarily through
private relief agencies such as CARE, the Church World Services,
the Catholic Relief Services, and other recognized groups. This
authority would allow us to respond to needs in such high priority
areas as the Caribbean Basin. Our initial estimates of such
needs in these areas would be for slightly over 35,000 tons of
dairy products.
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Donations will be carefully managed to avoid any possible problems
such as lactose intolerances and vitamin A deficiencies that may
result from these donations. However, our experience with both
of these potential problems in the Title II program will allow
us to deal with them in any direct CCC donations. CCC authorities
would be used to cover transportation costs of donated commodities
to recipient countries.
This authority will be used to complement the P.L. 480 Title II
donations program. The two, working in conjunction, can provide
additional needed food to more recipients and may allow for a
more balanced ration to meet nutritional needs, especially for
children.
3. Special Task Force on Casein
The subject of casein imports and their impact on the domestic
dairy price support program has been studied at length. On
April 9, 1982, President Reagan published in the Federal Register
his concurrence with the recent findings under Section 22 of the
Agricultural Adjustment Act of the U.S. International Trade
Commission (ITC) that imports are not materially interfering
with the price support program. However, the question of continued
foreign subsidies on casein production and exportation warrants
additional study. Accordingly, the Secretary of Agriculture
will appoint a special task force to determine which exporting
countries are using subsidies in the production, processing or
exportation of casein and caseinates. The task force will make
recommendations to the Secretary of Agriculture by September 1,
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1982, regarding actions, if any, which can be taken to counter
any unfair trade practices involved.
4. Expansion of Commercial Exports
To help alleviate the budgetary costs associated with surplus
stocks and to meet any unsatisfied demand for quality dairy
products in world markets, the Department will begin immediately
to implement a policy toward expansion of commercial exports of
CCC surplus dairy commodities. In doing this, precautions will
be taken to prevent serious disruption of world markets and to
make sure we are respecting our obligations under the General
Agreement on Tariffs and Trade (GATT). To the extent possible,
exports will be made on a bid basis through private U.S. firms.
Action on butter exports will not be taken until our obligations
under the sales contract with New Zealand are completed.
III. DAIRY PRODUCT PROMOTION
Per capita consumption of dairy products has trended downward over the
last 15 years. Per capita consumption of whole milk has decreased nearly
22 percent over this time period. More must be done to utilize a greater
quantity of dairy products in our diets for a healthier America. While
reducing the price support level will greatly help to expand milk
consumption, other things must be done.
A. Increased Funding to Stimulate Dairy Product Acceptance
In contrast to whole milk, per capita consumption of fluid lowfat
milk (buttermilk and skim) and cheese has nearly doubled. It appears
that the major factors affecting decreased whole milk consumption
relate to the price of milk relative to other beverage shifts in the
country's age profile and, perhaps, public concern over saturated fat
consumption. The Department intends to carefully analyze those factors
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that have limited consumer acceptance of some dairy products (including
the scientific basis for alleged nutritional problems). This research
would then assist government and private sector groups in the development
of an information campaign to increase consumer acceptance of dairy
products. Research would be funded up to a maximum of $1 million a
year beginning with fiscal year 1983.
B. Alternative Dairy Product Formulation
Limited development of processed dairy products has probably contri-
buted to the downward consumption trends of dairy products as
experienced over the last few years. Changing socio-economic
characteristics of the consuming public and the corresponding
alterations in market demand have not been met with innovative
new product lines. Working with universities, processors and food
technologists, the Department proposes to support product develop-
ment research that would lead to new processed dairy products for
both domestic and international markets. Examples of the types of
products that could be invisioned include canned cheese and butter
sauce (which would extend shelf life and permit easier distribution),
and alternative "soft drink" type beverages.
C. Increase Use of Nonfat Dry Milk in Baked Goods
For the week ending April 12, 1982, CCC inventories of nonfat dry
milk (NFDM) were listed at 1 billion pounds and accumulating at
the rate of 46 million pounds per week. The accumulations of surplus
NFDM has resulted, at least in part, from the decreasing use of NFDM
in baking. Historically, USDA pioneered the use of milk powder in
bread and other leavened baked goods. Approximately 15 years ago,
all bread made in the U.S. contained from 3 to 6 percent milk solids
measured on flour content basis.
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Today, 80 percent of the bakeries do not include dairy products
in their doughs even though this increases the vitamins content as
well as improving the taste of the baked goods. Using the most recent
data available from the Department of Commerce's Industry Census, it
has been estimated that if use of NFDM at the 3-percent flour level
was reinstituted by the bakery trade for pan bread, buns, and rolls,
a new market for approximately 300 million pounds of NFDM per year
would be established.
The Secretary will recommend that the Federal government purchase
milk enriched bread for its own use. In addition, the Secretary
has asked research officials in the Department to meet with
representatives from the American Institute of Baking in order to
discuss potential joint research projects to increase the use of
NFDM in baked goods.
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