51 



tion on the supply side in dairy has in the past months surprisingly 

 grown. The growth in the dairy section has happened basically in 

 parts of the country that have not traditionally been in the manu- 

 facturing milk business. 



We are thinking that that may have some real long-term effects 

 on the supply side that will be detrimental. I think most dairy 

 farmers recognize that it no longer makes any sense to produce 100 

 percent product if it only takes 96 percent to supply the market 

 and let the 4 percent take the price. 



The committee will recall that in the last session in 1991 you did 

 try to help us put in an inventory control program. When it 

 became clear that neither target price nor two-tier was going to be 

 put into effect, we all signed onto the Leahy bill, which was a re- 

 vised diversion-type program. As you know, at the very last hour 

 before the vote, National Milk withdrew its support. So today, we 

 end up with only a purchase program and also a producer assess- 

 ment program, neither of which are working. 



We think — although I know there are probably some reluctance 

 on the members of the committee — we have to go up to the Hill 

 one more time and try to put together in this session another in- 

 ventory control program. I know it won't be easy. If we can't get 

 that job done, then we have to look at a surplus disposal program. 



Finally, I would like to say to the committee that we want you to 

 take a hard look at the upcoming GATT and NAFTA things that 

 you will be reviewing, particularly on the side of the dairy issues. 

 We're almost ashamed to bring this to your attention because our 

 information certainly on NAFTA is to support any effort that will 

 open the market up between Canada, Mexico, and the United 

 States. 



Unfortunately, looking at the fine print of the dairy section, we 

 find it seriously flawed. Let me just outline a couple of our major 

 concerns. 



The first is what we call the Canadian exclusion. Canada will be 

 able to retain its article XI exclusion under GATT while our sec- 

 tion 22 was traded away. That means that the Canadian producers 

 will be assured $22 per hundredweight for as far into the future as 

 we can see while our producers are going to have to struggle to 

 maintain even 10/10 price support levels. 



It also means that dairy products produced in the United States 

 are going to be shut out of the Canadian market to protect the 

 quota system that is in place in Canada. That, of course, seems 

 upside down to the intention of the whole NAFTA agreement. 



They say, "Maybe we are locked out of the Canadian market, but 

 look at the potential in the Mexican market. Here we have 90 mil- 

 lion new customers just waiting to gobble up our dairy surplus." 

 But some of the research that has been done and been analyzed by 

 Dr. Larry Hamm of Michigan State University suggests that short- 

 term and intermediate-term prospects for exporting to Mexico of 

 dairy are very limited indeed, with the exception of nonfat dry 

 milk. 



Here Dr. Hamm says the Mexicans, however, will be served by 

 the lowest cost producer in the world, and that is New Zealand. As 

 it turns out, however, Mr. Gunderson of your committee has point- 

 ed out that it is actually the high cost producer in this hemisphere, 



