Dick Groves
Editor, Cheese Reporter

 

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Margin Protection Program Is A Work In Progress

By the time it was mercifully relegated to the scrap heap of dairy policy history by the 2014 farm bill, the dairy price support program had been around for some 65 years. That was more than enough time for the dairy industry, lawmakers, USDA and others to uncover, and try to fix, various shortcomings with the program.

The 2014 farm bill also terminated the Dairy Export Incentive Program, which dated back to the 1985 farm bill; and the Milk Income Loss Contract program, which was a truly 21st century policy initiative, given that it only dated back to the 2002 farm bill.

By contrast, this month marks just two years since USDA issued a final rule implementing regulations for the Margin Protection Program for Dairy, along with the Dairy Product Donation Program, which were both authorized under that same 2014 farm bill that eliminated the price support program, the DEIP and the MILC program.

Given their relative youth, it can be expected that both MPP-Dairy and the DPDP are far from perfect, and that both programs will be tweaked, probably many times, during their lifespans.

In the case of the DPDP, it might even be several years before the program is even activated, let alone tweaked and improved. It may be recalled that, under the DPDP, USDA will purchase dairy products to support dairy producer margins and to provide such products to individuals in low-income groups through public and private non-profit organizations.

The 2014 farm bill specifies that such purchases will be made whenever the “actual dairy production margin”, calculated using a formula prescribed in the 2014 farm bill, is determined to be $4 or less per hundredweight for two consecutive months.

Earlier this month, US Ag Secretary Tom Vilsack announced approximately $11.2 million in financial assistance for dairy producers enrolled in the 2016 MPP-Dairy. In announcing the assistance, USDA noted that the national average margin for the May/June 2016 two-month consecutive period was $5.76277 per hundred.

Considering that cheese prices have improved considerably since May and June, and if anything, feed costs appear poised to decline in the coming months, that May/June margin will likely represent the bottom for the foreseeable future. That means the new DPDP won’t be kicking in anytime soon.

But the MPP-Dairy program is alive and, if not well, as least operating. And as such, it’s going to come under some criticism.

One area of MPP-Dairy of which we’ll likely not hear much criticism is the program’s cost to taxpayers. As noted at a House Ag Committee hearing back on May 24 by Randy Mooney, a Missouri dairy producer and chairman of both the National Milk Producers Federation and Dairy Farmers of America, in 2015, US dairy producers paid $73 million in premiums and fees to USDA, while USDA only paid out $700,000 under the program.

This year, Mooney said, dairy farmers have paid in another $23 million. And, as noted earlier, Vilsack earlier this month announced payments of approximately $11.2 million for May and June.

Back in the early and mid-1980s, USDA’s Commodity Credit Corporation would spend far more than that in a single week, acquiring surplus cheese, butter and nonfat dry milk. If nothing else, MPP-Dairy is shaping up as a relatively inexpensive dairy producer safety net.

But it’s also a safety net that’s very much a work in progress. Indeed, USDA back in April announced several changes to MPP-Dairy, including allowing dairy operations to update their production history when a son, daughter, grandchild, or spouse of a child or grandchild of a current producer participating in the MPP-Dairy program joins the operation, providing for a later due date for the payment of the entire premium and clarifying that dairy operations that purchase buy-up coverage on less than 90 percent of their production history will also receive catastrophic coverage on the balance, up to 90 percent of the production history.

USDA also extended the MPP-Dairy sign-up deadline in both 2014 and 2015, and has already been asked to do so again this year.

We have no doubt that USDA will be making further tweaks to the MPP-Dairy program in the future. And it seems that the MPP-Dairy program will have a future, beyond its current expiration date (the program is authorized through December 31, 2018, under the 2014 farm bill). It’s hard to imagine Congress deciding to terminate MPP-Dairy, both because of the program’s short life and because of its remarkably low cost to taxpayers.

But Congress might change the program. Already, at least one bill introduced in the House would do just that: the Dairy Margin Insurance Location Calculation Act of 2016 (Dairy MILC Act) would require USDA to calculate the average feed cost for MPP-Dairy using data from each state, rather than the national average, and to take into consideration other costs.

Is the MPP-Dairy program the perfect dairy safety net? No, of course not. There’s no such thing as a perfect dairy safety net. To paraphrase Winston Churchill, the MPP-Dairy program might end up being the worst dairy safety net ever, except for all the others.

Since it remains a work in progress, perhaps the safest thing to say about the effectiveness of the MPP-
Dairy program is that the jury’s still out. So far it’s a clear winner for taxpayers, and that’s about all we know for sure at this point, except that the program will look different in a few years than it did when USDA announced implementing regulations two years ago.

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

 

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