Peterson: Dairy program not adequate right now

Changes may be needed to make margin levels more responsive to current dairy market situations.

Dairy policy was anything but easy during the last farm bill debate, but with the current downturn in feed prices and milk prices, the safety net may not be working as well as producers had hoped or providing the desired amount of margin protection.

House Agriculture Committee ranking member Collin Peterson (D., Minn.) said of the new dairy Margin Protection Program (MPP) policy established in the 2014 farm bill, “Clearly, it is not adequate right now, and we’re starting to see frustration.”

The dairy MPP offers protection to dairy producers when the difference between the all milk price and the average feed cost (the margin) falls below a certain dollar amount selected by the producer. Catastrophic coverage (CAT) of a $4 margin level at 90% of the established production history requires no premium payment beyond the $100 annual cost. For increased protection, dairy operations may annually select a percentage of coverage from 25% to 90% of the established production history in 5% increments and a coverage level threshold from $4.50 to $8.00 in 50-cent intervals.

Peterson said this is one of the problems of writing farm bills in high price and cost environments. At the time the farm bill was being debated, feed costs were $12/cwt., and the price of milk was $18.50/cwt. Today, with feed costs at $8/cwt. and milk prices at $14.50, the guarantee is $1.50 below the cost of production.

At the time, lawmakers thought $6.50 was the sweet spot for the margin, but in his meetings with dairy groups, Peterson said now it may need to be $8. By raising the guarantee, it may create a system that's more in line with needs, he added.

Although designed similar to an insurance product, MPP is operated under the Farm Service Agency rather than the Risk Management Agency (RMA), like other agricultural insurance products are. At the time of the farm bill discussion, the hope was to keep it as a government program since some areas of the country with extensive dairy populations don’t have many crop insurance agents in the same area.

“This has locked us into a bad situation, and we can’t fix it,” Peterson said of not having the program under RMA. If it was under RMA, the issue could be addressed in one year.

“We are looking at whether it is time to put this into a regular crop insurance program to give more flexibility,” Peterson noted.

Reports have indicated that only $700,000 has been paid out to producers, while $73 million in premiums have been paid into the system. Peterson said many of his dairy producer constituents didn’t buy into the program because they don’t expect they'll get anything out of it. “That’s the wrong mentality. This was not a program designed to pay money. The purpose was to provide a safety net,” he said. “What happens if milk goes to $10?”

Peterson concluded that dairy farmers may not be convinced to buy into the program until a bad year happens.

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