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2018 Farm Bill Primer: Dairy Programs
0
April 24, 2019
The 2018 farm bill (P.L. 115-334) revised the dairy
program from the 2014 farm bill (P.L. 113-79, as amended
by the Bipartisan Budget Act of 2018 [BBA], P.L. 115-
123). The new program in the 2018 farm bill, Dairy Margin
Coverage (DMC), which replaces the Margin Protection
Program (MPP), is designed to improve the safety net for
milk producers. Many dairy producers assert that MPP
failed to provide a sufficient safety net during the 2014
farm bill period, when low milk prices did not trigger
program payments. DMC is scheduled to be in effect from
January 1, 2019, through December 31, 2023.
U.S. dairy producers have faced low milk prices in recent
years, leading to financial stress and significant departures
from dairying. According to the U.S. Department of
Agriculture (USDA), since 2013 the number of licensed
dairy herds has declined by 20%, from 46,975 to 37,468 in
2018.
Margin Protection Program (MPP)
The original MPP program under the 2014 farm bill made
margin payments to participating dairy producers when a
formula-based national milk margin-calculated as the
difference between the national all-milk price and a national
average feed ration (corn, soymeal, and alfalfa hay) cost-fell
below a producer-selected margin that ranged from $4.00 per
hundredweight (cwt) to $8.00/cwt for two consecutive
months. In addition, dairy producers selected coverage that
ranged from 2500 to 9000 of their milk production history. To
participate, producers paid a $100 annual fee and were
charged premiums for margin protection above $4.00/cwt.
Premiums rose with higher margin protection levels and
greater milk production coverage. To aid small milk
producers, premiums were lower for the first 4 million
pounds of milk production (Tier 1) and higher for production
above 4 million pounds (Tier II). MPP was subsequently
amended by the BBA in 2018 to raise production coverage,
lower premiums, and incentivize greater participation. See
CRS Report R43465, Dairy Provisions in the 2014 Form Bill (P.
113-79); and CRS In Focus IFl0833, Dairy Provisions in the
Bipartison Budget Act (P.L. 115-123).
MPP Under the 2014 Farm B and the BBA
In 2014, the U.S. all-milk price averaged $24.00/cwt. By
2018, the average price was just over $16.00/cwt, a 33%
decline. However, feed costs also declined, and MPP
payments were seldom triggered. From March 2014
through 2017, the national monthly milk margin averaged
$9.73/cwt, and payments were triggered four times. During
this period, dairy producers paid almost $100 million in
administrative fees and premiums to participate, while
USDA paid out about $12 million in margin payments.
The BBA amended MPP to make payments on a monthly
rather than a two-month average; make margin coverage
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free at the $4.00, $4.50, and $5.00 margins levels; and
reduce premiums for Tier I (raised to 5 million pounds)
coverage. As a result, USDA paid participating diary
producers almost $254 million in 2018.
DMC Under the 2018 Farm Bill
The DMC program is similar to MPP in that it is to pay
participating dairy producers when monthly margins fall
below producer-selected levels. The DMC milk price and
the feed ration cost margin formula is unchanged from
MPP. DMC is potentially more attractive for dairy
producers because they will be able to buy higher margin
protection at a lower price than under MPP.
DMC provides higher margin choices for the first 5 million
pounds (Tier I) of milk production (Table 1). If dairy
producers opt to participate in DMC, they pay a $100
annual administrative fee and are automatically covered at
the $4.00/cwt margin. They have the option to buy
additional margin coverage ranging from $4.50/cwt to
$9.50/cwt on Tier I production. MPP allowed producers to
purchase margins only up to $8.00/cwt. Under DMC, dairy
producers who want to buy margin coverage for milk
production over 5 million pounds (Tier II) may buy up to
the $8.00/cwt level, unchanged from MPP. DMC raised the
premium payment rates for Tier II margin coverage above
the $5.50/cwt level.
Table I. DMC Premium Rates Compared to MPP
$ per cwt
Tier I Tier II
Up to 5 million lbs. Over 5 million lbs.
Margin MPP DMC MPP DMC
$4.00 $0 $0 $0 $0
$4.50 $0 $0.0025 $0.020 $0.0025
$5.00 $0 $0.005 $0.040 $0.005
$5.50 $0.009 $0.030 $0.100 $0.100
$6.00 $0.016 $0.050 $0.155 $0.310
$6.50 $0.040 $0.070 $0.290 $0.650
$7.00 $0.063 $0.080 $0.830 $1.107
$7.50 $0.087 $0.090 $1.060 $1.413
$8.00 $0.142 $0.100 $1.360 $1.813
$8.50 NA $0.105 NA NA
$9.00 NA $0.110 NA NA
$9.50 NA $0.150 NA NA
Source: MPP: P.L. 113-79, as amended by the BBA, P.L.
DMC: P.L. 115-334.
115-23;
Under DMC, dairy producers may cover a greater
percentage of their milk production history: from 5% to
95%, compared with 25% to 90% under MPP. DMC](ViewImageLocal?handle=hein.crs/govzle0001&div=1&collection=&method=preview&ext=.png&size=3)