Farm bill dairy compromise could make all parties happy

As the current farm bill extension deadline draws near (next Monday), few groups more anxiously await a finalized farm bill than U.S. dairy producers.

Dairy groups have been battling for years now to get a reasonably effective dairy safety net in the farm bill. Both the House and Senate versions of the bill have significant dairy reforms, though the National Milk Producers Federation was less than thrilled with the House version of the bill.

“The farm bill passed by the House of Representatives is seriously flawed, in that it contains the Goodlatte-Scott dairy amendment, as well as a repeal of permanent agricultural law. Neither of these measures serves the best long-term interests of dairy farmers,” said Jerry Kozak, President and CEO of NMPF. “The Senate, by contrast, overwhelmingly passed the complete Dairy Security Act, which the National Milk Producers Federation and nearly all dairy farmers enthusiastically supported.”

While dairy producers generally support the Dairy Security Act (DSA) and the Dairy Market Stabilization Program (DMSP) in the Senate farm bill, these measures are generally opposed by some dairy cooperatives, restaurant and food marketers, consumer groups, dairy food manufacturers, and their trade associations.

“These groups are concerned that artificial enhancement of milk prices through DMSP milk supply reductions will have detrimental effects on procurement costs, throughput efficiency, retail prices, consumer demand, and dairy export opportunities. In addition, opponents fear that once DMSP becomes part of legislation, it could be easily amended by Congress to be non-voluntary or more severe in the financial penalties, a slippery slope opposition groups seek to avoid,” wrote John Newton and Cameron Thraen, with Ohio State University Extension, in a recent Buckeye Dairy News.

To address this farm bill challenge, the Extension specialists suggest the following:

  • The choice for dairy safety net can be a win-win for all.
  • Offering farmers a choice between an expanded Milk Income Loss Contract (MILC) program and a limited income over feed cost (IOFC) margin insurance program would double the support of existing programs yet cost 40% to 60% less than the proposed stand-alone margin insurance programs.
  • The IOFC support capped at $6.50 per hundredweight would allow farmers to receive market signals attributable to low IOFC margins. In response, though reductions in output but not whole herd liquidations as was the case in 2009, milk supply would naturally adjust to return margins to average levels.
  • Farms would no longer have an incentive to opt-out of the margin insurance and would instead opt for the no-cost MILC program when margins appear favorable. This would allow all farms to participate in a government sponsored safety net program and may prevent ad-hoc disaster payments in the future.

Newton and Thraen suggest a re-tooled dairy farm safety net that works for small and large-scale dairy farm managers; is fiscally responsible; does not mute market supply and demand signals, and does not require a market supply program. They propose a new policy alternative that would increase eligibility of MILC to 4 million pounds per year and allow farms an option to choose annually between: 1) MILC participation, or 2) a stand-alone margin insurance program as their elected safety net. Specifically, the proposal is for a combined program that they call MILC-Insurance.  Important points in the program include:

  • Continuing to offer the MILC program and increase the MILC eligibility to 4 million pounds per fiscal/calendar year,
  • Farms not wishing to participate in MILC would be able to participate in a program that offers margin insurance from $4 to 6.50 per hundredweight, and
  • The choice of either MILC or Insurance can be made each calendar or fiscal year.

Newton and Thraen suggest that this could be a compromise between the House and Senate versions that could settle the long-standing dairy dispute. They claim the program will: work for small and large-scale dairy farm managers alike; be fiscally responsible, providing more support than the current MILC yet costing significantly less than the currently debated programs; and would not mute market supply and demand signals.

“This new policy alternative, which we title MILC-Insurance, would accomplish all of these goals by increasing eligibility of MILC to 4 million pounds per fiscal or calendar year and by allowing farms an option to choose annually between MILC and a stand-alone margin insurance program as their elected safety net,” they wrote. “The MILC-Insurance saves money relative to the stand-alone margin insurance program by capping insurance at $6 to $6.50 per hundredweight. With the savings, the revenue can be redirected to an expansion of the MILC program, effectively offering the best of both programs (counter-cyclical revenue support or catastrophic margin insurance).  Farms would no longer have an incentive to opt-out of the margin insurance and would instead opt for the no-cost MILC program when anticipated margins are favorable. This would allow all farms, regardless of size or management style, to participate in a government sponsored safety net program.  Such a program, which offers continuous support, may prevent ad-hoc disaster payments in the future.”

 

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  1. Pingback: Farm bill committee considers dairy safety net compromise from OSU economist | Ohio Ag Net | Ohio's Country Journal

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