The 2014 farm bill brings dairy policy change

SALEM, Ohio — After three years of discussion and debate, the U.S. House of Representatives approved a new five-year farm bill Jan. 29 by a vote of 251-166.

The Senate is expected to vote on the bill any day, and the White House is prepared to sign it into law, said Senate Ag Committee Chairwoman Debbie Stabenow, D-Mich.

Rep. Frank Lucas, R-Okla., the House Ag Committee chairman, said while the process was cumbersome, the result was almost “miraculous.”

“This is almost a miracle, but that’s what farmers and ranchers and consumers needed.”

What’s included

The near-miracle ends direct payments, increases producer insurance options, provides a safety net for dairy farmers, and a safety net for livestock producers.

The bill — estimated at about $1 trillion in funding — also reduces spending by about $23 billion. About $18.4 billion is cut from farm programs, $6.1 billion from conservation and $8 billion from food stamps (over 10 years), according to the Congressional Budget Office.

Related: Ag groups react to farm bill agreement

In an interview Jan. 30, Ohio State University Extension Dairy Specialist Cam Thraen spoke about what he feels the dairy provision will mean to producers.

Dairy predictions

Thraen said he and his colleagues are hesitant to say much about the bill — because it is not yet a law — but so far they see a lot of progress.

“I think they’ve done a really good job of trying to come up with a bill and a safety net that has good distribution properties, etc.,” Thraen said.

The new safety net allows dairy farmers to purchase margin protection depending on how much protection they want, and the amount of milk they produce. When margins go below what producers select for a margin, they will receive indemnity payments.

A “margin” in this case will be calculated monthly by the U.S. Department of Agriculture, and is defined as the all-milk price minus the average feed cost.

“Its focus is to protect farm equity by guarding against destructively low margins, not to guarantee a profit to individual producers,” said the National Milk Producers Federation.

See the complete farm bill report here.

Margin options

Producers will be able to select margin protection coverage at 50 cent increments beginning at $4 per cwt. (100 pounds of milk) through $8 per cwt. Premiums will be fixed for five years, through 2018.

The premiums are higher for producers who produce more than 4 million pounds of milk, but Thraen said the majority of U.S. milk producers — about 85 percent — will be in the “under-four-million” category.

This is an important model, Thraen said, because it allows producers to participate voluntarily and gives consideration to producers of all sizes.

NMPF had originally sought something known as the Dairy Security Act, that would have sought new ways to prevent supply and demand imbalances, but the organization ultimately changed direction and went with margin protection.

NMPF President Jim Mulhern said the farm bill establishes a “reasonable and responsible national risk management tool” that will give farmers the opportunity to insure against catastrophic economic conditions, when milk prices drop, feed prices soar, or the combination.

“By limiting how much future milk production growth can be insured, the measure creates a disincentive to produce excess milk,” he said in a released statement. “The mechanism used is not what we would have preferred, but it will be better than just a stand-alone margin insurance program that lacks any means to disincentivize more milk production during periods of over-supply.”

Mulhern adds, “the program doesn’t discriminate against farms of differing sizes,” or give any preferences based on the region where a farm is located.

Dairy Donation Program

In addition to margin protection, the bill also forms a new system for USDA to purchase consumer-packaged dairy products during low-margin periods, which will stimulate demand and help dairy farmers when in need.

This is known as the “Dairy Product Donation Program” and would only activate if margins fall below $4 for two consecutive months and would require USDA to purchase dairy products for three consecutive months, or until margins rebound above $4.

The products purchased would immediately be distributed to food banks or related nonprofit organizations. USDA is required to distribute, not store, these products. Organizations receiving USDA purchased dairy products would be prohibited from selling the products back into commercial markets.

Thraen said the current bill is better, because it gives the secretary of agriculture more authority to act in times when margins are low and to make decisions that the previous, rule-based law would not have.

He said some of the rules in the Dairy Security Act were “automated” and “unflexible,” which didn’t match well with the realities of the dairy industry.

“The problem is the dairy industry is extremely complex,” he said. “It’s not a simple industry.”