SALEM, Ohio – A group of milk producers in Ohio, Indiana, Michigan, New Mexico, Texas and Tennessee is suing the USDA, claiming the new milk subsidy program does not treat all farms fairly.
Fifteen plaintiffs, with herds ranging in size from several hundred cows to several thousand head, filed suit against the USDA last week in U.S. District Court in Toledo. Represented by attorney Benjamin F. Yale of Waynesfield, Ohio, the dairy farmers live in Ohio, Indiana, Michigan, Wisconsin, Tennessee, Texas and New Mexico.
Additional plaintiffs from other states are also signing on, Yale said Tuesday.
Questioning ceiling. The suit claims U.S. Secretary of Agriculture Ann Veneman is misinterpreting the rule regarding caps on payments during the Milk Income Loss Contract, or MILC, program transition period, Yale said.
“The statute is clear by its language,” Yale said. “The ‘transition rule’ payments are without caps.”
“As it stands now, without regulations, the secretary is misinforming producers and inducing them to sign contracts to avoid the transition payment program,” he added.
About the program. Under the new Milk Income Loss Contract program created in the 2002 farm bill, milk producers can sign up to receive monthly payments whenever the Class I price in Boston drops below $16.94 per hundredweight. The Class I milk price has been below the Boston price every month since the law was enacted.
Producers will be paid 45 percent of the difference between that $16.94 target and the monthly Class I market price, on yearly production up to 2.4 million pounds, a ceiling that the USDA says also applies to the transition period.
Because Congress made the program retroactive to December 2001, producers are entitled to receive a transition payment for milk production between last December and this August, up to the production ceiling.
Part of the problem is that the language of the farm bill, as published in the Federal Register, doesn’t specifically say the cap applies to the transition period and doesn’t exactly define when the transition period is, explained Cameron Thraen, ag economist at Ohio State University.
“Going back and looking at the published language in the bill, there’s lots of room for confusion in terms of language,” Thraen said.
“Clearly, it’s a lot of money, and some of the large producers stand to lose,” he added.
Yale said his clients will incur an economic loss on all their milk production but will be compensated only on a portion of the milk.
“Those with less than 1.3 million pounds per month, but more than 2.4 million pounds per year, will be receiving about half of a payment because of the ruling,” Yale said.
The goal of the suit, Yale said, is simply to require that the secretary implement rules that comply with the law.
The National Milk Producers Federation, an organization that represents most of the country’s dairy marketing cooperatives, is also unhappy with the program implementation, particularly that some producers will not be able to choose the month in which they want their transition payments to begin.
Farmers who reach the 2.4 million pound cap by the end of February 2002 , the federation estimates, will receive nearly 50 percent less than if USDA had given them the discretion to choose when their payments were to start for the transition period.
OK to target small herds. Some industry observers argue that it was Congress’ intent to target smaller dairy herds for the subsidy.
“I just think this case has no merit,” said Ken Bailey, an ag economist and dairy policy specialist at Penn State University. “It was so clear that that was the intent of Congress (to target smaller producers).”
Bailey estimates 88 percent of the milk in Pennsylvania will get 100 percent of the benefit of the program payment.
According to a farm bill analysis by the Food and Agricultural Policy Research Institute, herds in New Mexico and Arizona stand to lose the most, a loss in average milk revenue of 17 and 15 cents per hundredweight, respectively.
On the flip side, herds in Ohio, Pennsylvania, Missouri, Wisconsin, Minnesota, Iowa and Kentucky, are more likely to gain under the new policy, with average gains of between 53 and 58 cents per hundredweight, the institute forecasts.
Penn State economist Ken Bailey says this payment will not be enough to encourage producers to increase production. “It’s unlikely that this payment will spur anyone on to increase production,” Bailey said.
“I think people are pretty much overestimating what it’s going to do,” Penn State’s Bailey said. “It’ll help a little bit, but you still need to use risk management tools, you still need to be efficient.”
According to the USDA, the number of U.S. dairy farms declined from 159,450 in 1993 to 97,560 in 2001.
About 57 percent of the milk produced in 2001 was from farms with 200 cows of more. In 1993, only 36.3 percent of the milk was from this size group.
