For the past several years Congress and the Administration, both under President George W. Bush and President Barack Obama, have been trying to strike the right balance of providing a safety net for U.S. dairy producers. But no matter what is put into place, a few years down the road it ends up being problematic again.
Take the Milk Income Loss Contract (MILC) program. President Bush threatened to end the program, but in a political move before the 2004 elections, changed his mind to extending the program.
MILC was expanded in the 2008 Farm Bill through Sept. 30, 2012. It provides direct counter-cyclical style payments to milk producers on a monthly basis when the Boston Federal Milk Marketing Order Class I price for fluid milk falls below the benchmark of $16.94 per hundredweight (cwt.).
The 2008 Farm Bill changed the $16.94 per cwt of milk trigger for MILC payments to a variable trigger that may be adjusted monthly for variations in feed costs above $7.35 per cwt of a 16-% protein feed ration.
But that net didn't provide enough safety for struggling dairy farmers. The 2010 agricultural appropriations bill authorized $290 million for loss assistance payments to eligible dairy producers in its new Dairy Economic Loss Assistance Payment (DELAP) program.
Since on average, the price U.S. dairy producers received for milk marketed in the summer of 2009 was about half of what it cost them to produce milk the government is stepping in to help out.
Eligible producers will receive a one-time direct payment based on the amount of milk both produced and commercially marketed by their operation during the months of February through July 2009. Production information from these months will be used to estimate a full year's production for an operation to calculate the payments, using a 6-million pound per dairy operation limit.
A national per hundred weight payment rate will be determined by dividing the available funding of $290 million, less a reserve established by FSA, divided by the total pounds of eligible milk production approved for payment. Based on current information, FSA estimates that 875 million cwt. of milk production will be eligible for payment. The reserve will cover new applicants and appeals. The expected payment rate is approximately $0.32 per cwt.
Through much of this past year, USDA took a number of steps to provide relief to dairy farmers around the country. USDA reactivated USDA's Dairy Export Incentive Program (DEIP), to help U.S. dairy exporters meet prevailing world prices in addition to encouraging the development of international export markets in areas where U.S. dairy products are not competitive due to subsidized dairy products from other countries.
USDA spent approximately $1 billion in fiscal year 2009 on purchases of dairy products (Dairy Product Price Support Program) and payments to producers (Milk Income Loss Contract (MILC). USDA increased the amount paid for dairy products through the Dairy Product Price Support Program (DPPSP).
USDA estimates that these increases, which were in place from August 2009 through October 2009, increased dairy farmers' revenue by approximately $243 million. In March, USDA transferred approximately 200 million pounds of nonfat dry milk to USDA's Food and Nutrition Service, which will not only remove inventory from the market, but also support low-income families struggling to put nutritious food on their tables.
Congress wants more
"This is an essential stop-gap measure that will help many dairy farmers stay in business in the short-term," said Agriculture Committee Chairman Collin C. Peterson, D-Minn,
But Peterson said looking forward it is "obvious that our existing dairy programs are not providing an adequate safety net for dairy farmers, and we need to look at ways we can reform dairy policy to ensure that it provides adequate support for the long term success of the industry."
Peterson said he is committed to working with the dairy industry to consider appropriate changes in the next farm bill.
According to Sen. Kirsten Gillibrand, D-NY, the method employed by USDA to establish payments adheres closely to the formula in her legislation she introduced this summer.
She welcomed the $290 money, but also warned this is "only a temporary solution to the fundamental problems with the dairy pricing system. I will continue to work for a long term fix for our farmers.”