The U.S. Department of Agriculture has taken some steps to improve the dairy Margin Protection Program (MPP), which is designed to offer margin assistance, but many question whether the program is working as it was intended.
MPP makes insurance payments when the dairy margin (the difference between milk prices and feed costs) drops below a farmer's selected coverage level for two consecutive months. Farmers may purchase MPP insurance from a $4 margin up to an $8 margin.
USDA announced Aug. 4 that it would be making $11.2 million in assistance available to MPP enrollees who purchased protection starting at the $6.00/cwt. level. This is the first time the margin dropped below $6.00/cwt. since MPP was authorized in the 2014 farm bill.
Zippy Duvall, president of the American Farm Bureau Federation, said the decline in dairy farm revenue has led many dairy farm families to exit the industry. "In 2015 we lost 1,225 dairy farms – many of those small dairy farm operations where the average herd size is fewer than 200 milking cows."
Two key issues identified by the National Milk Producers Federation (NMPF) that were discussed before a House Agriculture Committee hearing earlier this summer include the program's feed cost component and the price tag of supplemental coverage. Congress made cuts in the feed cost index that have distorted the margin calculation, NMPF president and chief executive officer Jim Mulhern said. He also noted that the cost of premiums to buy up coverage, especially at higher margin levels, discourages participation.
Earlier this month, Rep. Joe Courtney (D., Conn.) visited Oakridge Dairy in Ellington, Conn., the state's largest dairy farm. He said while the payments announced by USDA were welcome news in many parts of the country, margins for producers in Connecticut have typically been narrower than the national average used by USDA, which puts farmers in the region at a competitive disadvantage.
In April, Courtney introduced bipartisan legislation to use regional margin calculations in MPP rather than a national average, which will improve the program for Connecticut farmers.
“While the national margin between milk prices and feed costs continues to shrink, dairy farmers in Connecticut — where energy and feed costs are typically greater — have been struggling with tight margins for the past year,” Courtney said. “The latest announcement on MPP payouts will certainly aid a number of struggling farms in Connecticut, but I am hopeful that this is only the first of several steps the USDA will take to turn the dairy industry around in the U.S.”
Courtney was also part of a bipartisan, bicameral coalition urging USDA to offer more assistance under its Commodity Credit Corp. Charter Act authority. Farm milk prices have dropped 40% since 2014 due to both an increase in U.S. production levels and changes in the European Union's regulation of milk production. In vastly different dairy market regions of the U.S., farmers are facing similar margin shortfalls while still adjusting to changes in federal dairy support programs from the 2014 farm bill. The secretary of agriculture has the authority, under the Commodity Credit Corp. Charter Act, to expand and maintain U.S. domestic markets.
Courtney said he has witnessed firsthand the struggle that dairy farmers across the country face with decreasing milk prices. “The American dairy industry is an integral part of our agriculture economy, and as we face yet another milk crisis, it is more important than ever for (USDA) to lend a hand to our dairy farmers before it's too late,” he said.
Sen. Patrick Leahy (D., Vt.), a leading member of the Senate Agriculture Committee and a former chairman of the panel, added, “Our dairy farms and the hardworking families that keep them running in communities in Vermont and across the nation are enduring an extremely tough summer, as prices have plunged to a nearly 10-year low — well below the cost of production. This comes on the heels of a very challenging spring, and I am deeply concerned that the current price forecasts remain dire for our farmers. That is why we have come together today, Democrats and Republicans from across the country, to call on USDA to act with urgency, using every tool and authority at their disposal, to help our struggling dairy farmers. They cannot wait. They need our help now.”
The coalition's letter encouraged “USDA to take any and all actions available in order to make an immediate market injection and offer financial assistance that will directly support U.S. dairy farmers equally while being cautious to not stimulate overproduction further.”
Duvall in a separate letter supported the bipartisan, bicameral request. Duvall asked USDA to buy additional dairy products to be used in the USDA's nutrition program and for donations to food banks.
"Specifically, we believe cheese could be purchased in a quantity that would help the dairy industry and yet not negatively impact our exports of cheese products," he said. "If the Department spent $50 million, it could purchase 28 million pounds of cheese for domestic feeding programs. This would not only be beneficial to those in need of food, but also would help reduce the record high inventories and would provide a positive price impact for dairy producers."
If there was one thing that then-House Agriculture Committee chairman Frank Lucas (R., Okla.) said could have killed him during the last farm bill debate, it was negotiations surrounding the dairy program. It appears that the next farm bill could have a similar dire situation as the industry grapples with a program that hasn't provided the safety net dairy producers were seeking.