EXH/B IT TH// TY-SE VE'N Shatto Farms, Ic. Daa Coale Deputy Admiistrator Agricultural Marketig Service U.S. Departmet of Agriculture 1400 Idepedece Aveue, SW Washigto, DC 20250 Ma 5, 2009 Re: Respose to the petitio of the Natioal Milk Producers Federatio ad ew proposal related to such issues Dear Ms. Coale, While we are dairy farmers ad ot lawyers or professioals, this is our attempt to do two thigs: 1) provide a letter sharig our oppositio to the Natioal Milk Producer Federatios (NMPF's) petitio requestig that all milk marketig orders be ameded to: ed the producer-hadlers exemptio. This amedmet would put our small family busiess ad others like us i fiacial jeopardy ad possibly out of busiess, ad 2) offer our ow proposal related to such issues. Chage as suggested i NMPF's petitio will egatively impact small family operatios like ours as they will pealize us for takig the steps ecessary to save our local family farm from bakruptcy. Their proposal will create ew fiacial obstacles that will be impossible to overcome as we look to meet the goals of our busiess pla ad esure that our family farm is able to survive the ifat years of its existece, ot to metio remai somethig that my so ad his family ca ejoy for decades to come. We are submittig our ow proposal i respose to the ivitatio for additioal proposals. We are opposed to the elimiatio of the producer-hadler exemptio, however i the evet the Departmet decides some chage should occur we would propose: The producer-hadler exemptio be kept i place with a limit of the exemptio to be set at 1 millio lbs. per moth as we believe a small producer uder this limit is ot disruptive to the market. A small family farm producig uder this amout would be uable to survive the fiacial impact of the proposed ew regulatio based upo their profit margi. ad If the producer-hadler exemptio is removed, we would propose the regulatory exemptio for small distributig plats be icreased to 1 millio lbs. per moth as small producers uder this limit are ot disruptive to the market. Thak you for your willigess to read ad cosider our proposal related to this issue. Please feel free to cotact us aytime at the farm via phoe at (816) 930-3862 if you have questios. Sicerely, Leroy, Barbara, Matt ad Jill Shatto
Proposal by Shatto Farms Ic. For Cosideratio If the Amedmet Proposed by The NMPF to Delete the Producer-Hadler Provisio is Strogly Cosidered Backgroud We are small busiess owers who ow a family farm ad a o-farm bottlig facility that employs just over 20 terrific people i the Midwest. Our family has bee i the dairy busiess for more tha 70 years. For the majority of that time we sold our milk to a atioal cooperative. This method of makig a livig was o loger a optio i the late 1990's as the price we were beig paid for our milk did ot cover the cost to produce it. We had o choice as it related to who we sold our milk to or the price we could get for our milk as DFA has a moopoly o the milk supply i our area. Havig o competitio vyig for our milk we had to either go out of busiess or try somethig ew to add value to our cows' milk. I 2003, we took a risk; we built a o-the-farm bottlig facility whereby we wated to add value to our product ad sell a farm fresh premium product directly to our eighbors. Today, we milk early 300 cows ad sell-that milk to our woderful customers i the Kasas City area. We offer somethig that o other dairy offers i our area; we truly serve a iche market i a variety of ways. We offer milk i glass bottles, we offer flavors of milk ragig from orage dream ad root beer to baaa ad strawberry, we also offer our customers the opportuity to purchase milk from local cows that they ca come see, touch ad milk. Becomig a producer hadler has allowed us to survive ad cotiue to do what we ejoy doig, farmig. With debt up to our ears ad ucertaity related to the ecoomy, we have bee very cautious over the past 5 years attemptig to keep our farm viable, while at the same time makig improvemets to our dairy facilities that were log igored due to the fact that we lost moey each year i the 90's. I 2006, we were amed the small busiess of the year for the State of Missouri ad later amed Small Busiess of the Year Ruer-Up by the Natioal Small Busiess Admiistratio. These awards were directly i respose to our effort to save our family farm ad add value to the product that we had bee sellig to cooperatives for the past half-cetury. We ever aticipated becomig a producer-hadler. We were forced to cosider this as a optio as we had to fid a way to keep our farm viable. Now that we are a producer-hadler ad i the process of payig off past debt ad makig the improvemets to our farm that were ever a optio i the past, the petitioers, are ow watig to chage the rules ad use the Govermet to keep us small guys from doig what we iheretly set out to do, save our family farms ad cotiue to do what we love, farm. Respose i Oppositio to the NMPF Petitio ad Proposal The Natioal Milk Producers Federatio petitio submitted o Jauary 30, 2009 makes it very clear that they are seekig to ed the producer-hadler exemptio due to "large producer-hadlers" that create market disruptio, obtai a price advatage due to their "large size" ad that caot balace their ow supply. The petitio that was submitted would ot oly impact those "large producer-hadlers" that they are referrig to, but also those of us that milk 300 or so cows o our local family dairy farms. Thus, the petitio would egatively impact those of us that do oe of the above. I ca factually state that our small dairy: Does ot create market disruptio Does ot obtai ay price advatage over ay cooperative or similar sized producer-hadlers ad would ot eve do so if we produced 1 millio lbs. per moth Does ot have a problem balacig supply with demad. We were told up frot by the CO-OP that if we became a producer hadler they would ot be willig to balace our supply - this has ever bee a optio ad we would ever ask for such assistace 2.
Does ot compete with other orgaizatios servig our area o Pricig is ot comparable; our pricig is higher across the board o Product is ot offered istead of aother - offer oly premium product as optio o Do ot wat to become large just maitai ad grow with our customer base for ext geeratio o Boutique dairy that is i touch with our eighbors, who happe to be our customers. Does fill a iche ot served by ayoe else o Uique product selectio - offer baaa milk, root beer milk, orage dream milk, strawberry milk ad chocolate milk o Offer a true farm to market alterative o Offer milk from cow to store i 24 hours or less o Offer customers the opportuity to come see the cows that their milk comes from Does ot have the ability to absorb the cost of regulatio associated with the NMPF's proposal The facts above show both that we do ot fit the descriptio of "large producer-hadlers" outlied i the NMPF's petitio ad that their petitio will egatively impact small busiesses across the coutry ad more specifically our family dairy farm. We will do all we ca to address each compoet of the aforemetioed proposal ad show how such a proposal will dramatically impact small family operatios like ours. Due to this poit, we feel it is ecessary to submit our ow proposal for cosideratio as there must be a way to work to esure small family farms like ours are ot impacted by this chage ad are allowed to survive. The State of Missouri, like other States, promotes value added agriculture as it is more sustaiable ad provides small regios of the State with high quality locally produced goods. Ay actio by the Departmet to support a petitio like that of the NMPF's would egate ay effort by states or local govermets to grow their ecoomy with the help of value added dairy producers. Overall their proposal pealizes us ad those like us for takig the steps to save our small family dairy farm ad create a o-the-farm bottlig facility. It chages the rules o the small guys like us, for o reaso. It would make us pay ito the pool to use the milk that comes from the cows that we ow o our log stadig family farm. The proposal will also keep small farms like ours, that are ear the proposed productio limit, from beig able to expad to meet icreased customer demad ad from beig able to grow to the poit that is ecessary i our busiess pla to make a profit that justifies beig i busiess. The ratioale used i the aforemetioed NMPF petitio relies solely o dairy farm size ad the ecoomies of scale. That is misleadig ad ujust whe cosiderig actual costs related to productio. A farm ca reduce costs of productio a great deal by ot feedig their cows good feed, by eglectig to get their cows checked ad treated by a veteriaria, ad with other similar methods. Farms like ours, small family owed farms that are committed to sellig the absolute best ad freshest milk, take the time ad put forth the effort to exped more moey o their dairy operatios to esure their cows are happy ad safe. We treat our cows as well as our family pet, ad others like us do the same. We feed our cows the best possible feed (which typically is ot the cheapest), we build the buildigs ad oversee them to esure that our cows have a ice place to stay warm i the witer ad cool i the summer, we also make sure we have good quality pasture space for them to roam ad eat grass as they would like. All of these thigs are ot ecessary, but they represet a few of the ways we do busiess. They are what makes us differet ad what costs us more moey i productio. Costs such as these take us out of the "Milk Cost of Productio by Size" graph that was refereced i the NMPF's proposal. Thigs like this reduce ad elimiate the ability to suggest that a limit should be based upo some average ecoomies of scale. Such a reliace does othig other tha egate the extra effort ad extra thousads of dollars that are spet every year by us ad others like us to esure our cows are well take care of ad produce the best possible milk. I am cofidet to say that our cost per cwt. at our farm of more tha 300 cows is well above the $18 oted o the chart ad likely much closer to the $25 or $30 level. With this i mid, we are at a sigificat cost disadvatage compared to ot oly those dairies of a similar size, but also cooperatives of all sizes. We likely sped i direct costs 50-75 percet more per cwt. tha the vast majority of cooperatives atiowide. Therefore, we have o fiacial ability to compete with these processors o price ad have ever attempted to do so. Thus, we believe that their proposal to elimiate the producer- 3
hadler provisio is ujust ad flies i the face of its origial itet to exempt producer-hadlers that serve small iche markets ot served by the large producers ad those that do ot impact the overall market. I fact, this proposal will elimiate may small dairies like our ow ad reduce oe of the exact thigs that the USDA says is ecessary for perfect competitio to be met o the "spectrum of market structures", a large umber of small producers. This is evideced i a USDA PowerPoit presetatio prepared by the Market Admiistrator's )ffice. If the NMPF's petitio is cosidered ad eacted, the impact o the idustry will be that a large umber of producer-hadlers, specifically those uder 600 cows will be out of busiess. This would shift more sales to large, multi-state-operatios ad cooperatives. Our Proposal We do ot believe there exists a disorderly market coditio. Our proposal is to address the reductio i competitio, egative impact o small busiess ad overall over-regulatio of the dairy idustry if the NMPF's petitio is cosidered strogly ad put ito effect. If, ad oly if, the Departmet decides some chage should occur we would propose: The producer-hadler exemptio be kept i place with a limit of the exemptio to be set at 1 millio lbs per moth as we believe a small producer uder this limit is ot disruptive to the market ad they would be uable to survive the fiacial impact of such regulatio based upo their limited profit margi, ad If the producer-hadler exemptio is removed, we would propose the regulatory exemptio for small distributig plats be icreased to 1 millio lbs per moth as small producers uder this limit are ot disruptive to the market. The purpose of our proposal is to fid a solutio to esure that small operatios like ours are ot ufairly burdeed by regulatio which was origially desiged with large eterprises i mid ad to cotiue to allow operatios like ours to exist, provide products for iche markets, ad cotiue to have the ability to work to offer a premium product istead of a product that is produced solely to limit costs. ` If our proposal is eacted, those producer-hadlers over 1 millio cwt. per moth would be impacted. They would be forced to pay ito the pool for milk for which they are curretly shoulderig the burde of productio. This would be a substatial chage ad would likely create stress for those producer hadlers. It is aticipated that such a regulatio could be dealt with by operatios of this size, ulike those smaller operatios below 1 millio C3. a per moth. Those producer-hadlers uder the 1 millio Cam. per moth will ot be impacted. 1y^ lbw O the other had whe lookig at the distributio plats that curretly sell 150,000-1 millio ewt. per moth they would be positively impacted as they would o loger be regulated ad forced to pay ito the pool. Our proposal will assist smaller (uder 1 millio cwf) distributio plats as it will expad their ability to grow ad icrease their et reveue. Producers overall will ot be impacted. Cosumers will maitai their ability to choose small, local producer-hadlers whe shoppig at local markets. The effects of our proposal o small busiess is much more appropriate ad much more tolerable tha the NMPF's proposal. Our proposal will allow small family operatios the opportuity to stay i busiess ad ot be faced with burdesome regulatio that was origially ad still is i place with large busiesses i mid. Our proposal realizes that price per cwt., whe lookig at producer-hadlers, is ot clear cut. It uderstads that these producer-hadlers ofte have much greater costs per cwt. as they either choose to or are called to sped more moey per cwt. to esure that their cows are provided with the best possible eviromet, care ad health. This also takes ito cosideratio that small operators like ourselves have a additioal built i cost of buildig
a busiess based upo providig customers with the freshest milk possible, ot allowig for that milk to be pooled ad processed oly a few times per week, ot to metio the additioal cost associated with family friedly practices of persoally coectig to the cosumer. All of these items that yield a iche product cost more moey i the productio, processig, ad i the promotio of the products. Because of these additioal costs, this proposal realizes a cap ay smaller tha I millio clotis much too low ad will result i the loss of may family operatios that will be uable to pay the regulatory fe^ (111 We stad i oppositio to the NMPF's proposal of elimiatig the Producer-Hadler provisio. We have outlied a umber of reasos that farms like ours should ot be treated like the "large producer-hadlers" oted i the NMPF's petitio. Regulatio as proposed-by the NMPF would effectively put us ad others like us out of busiess. if, ad oly if, strog cosideratio is give to-the NFMP's petitio or ay other proposal that would effectively chage the way producer hadlers are treated we would like our proposal cosidered as a alterative. Thak you for your time ad cosideratio. 5-
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