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1 1 (October 11, 2017)

handle is hein.crs/govcgwp0001 and id is 1 raw text is: Farm Bill Primer: Dairy Safety Net October 11, 2017 The 2014 farm bill (P.L. 113-79) made significant changes to the structure of U.S. dairy support programs by repealing the Dairy Product Price Support Program (DPPSP), the Milk Income Loss Contract, and the Dairy Export Incentives Program. Instead, the bill established two new programs the Margin Protection Program (MPP) and the Dairy Product Donation Program (DPDP). Many dairy stakeholders believe MPP has not functioned as envisioned and are looking to the 2018 farm bill to adjust the program or find alternatives that strengthen the safety net for milk producers. Pnoir Dairy P c,,lic:,, The federal policy goal has been to support producer incomes by supporting the farm price of fluid milk. However, fluid milk is highly perishable. As a result, federal programs have supported milk prices indirectly by offering to buy storable dairy products (e.g., powdered milk, butter, or cheese) at support prices set in fluid-milk equivalents. Federal dairy price supports were first established in 1949 and were modified in subsequent legislation, including the 2008 farm bill (P.L. 110-246), which established the DPPSP, which indirectly supported the farm price of fluid milk at a fixed $9.90 per hundred pounds (hundredweight or cwt) through government purchases of dairy products from processors. Figure I. Milk Prices Moved Well Above Previous Federal Support Level by 1990 $/cwt 2S i Milk price support 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Compiled by CRS from USDA prices. E 's ahadng Fec-.id Cc.s,s W' , ,or P,,' d'w'< ,,' rs Federal dairy price supports were moderately effective until about 1990, when the farm price of milk began to trend well above the fixed support price (Figure 1). This left milk producers vulnerable to volatile milk prices and rapid rises in feed costs the primary cost component of milk production (Figure 2). Following a severe decline in milk prices in 2009 that caused widespread economic hardship in the U.S. dairy sector, the dairy industry advocated that federal dairy support shift away from price supports and toward guaranteeing some portion of the margin between milk prices and feed costs. This shift was formalized in the 2014 farm bill. Figure 2. Feed Costs Outpaced Milk Prices During 2008 to 2014 2 5 0 ---------------------------------------------------------------------- . .L .... ...... ..........-- --- . r.ces, ndexed [2002-2003 =100A 2004 206 20O 200 2012 2014 016 Source: Compiled by CRS from USDA data. D\airy MPP is a voluntary program that makes payments to participating farmers when a formula-based national margin-calculated as the national average farm price for all milk minus a national average feed ration cost falls below a producer-selected insured margin that ranges from $4.00/cwt to $8.00/cwt in $0.50/cwt increments for two months (Figure 3). MPP payments are based on farm-level production history and a producer-selected coverage level that ranges from 25% to 90% of productionhe product of these two items yields the covered production history (CPH). Producers must pay an annual administrative fee of $100 for each participating dairy operation and a premium that rises steadily with higher margin protection levels, starting at the $4.50/cwt margin level. The minimum $4.00/cwt margin (considered catastrophic) is fully subsidized and has no famer-paid premium. Once producers sign up for MPP, they a e covered under the program through 2018 (the duration of the farm bill) and must pay the administrative fee each year and any premium for coverage beyond $4.00/cwt. The premium structure is further divided based on the volume of CPH: Lower premiums are charged for the first 4 million pounds of CPH, and higher premiums ae charged on CPH above 4 million pounds. As an incentive to encourage participation by smaller dairy operations with CPH under 4 million pounds, Congress reduced premiums by 25% across the board for all margin protection levels except the $8.00/cwt level during calendar years 2014 and 2015. mppm qq\ a ' p\w gn'a', ggmm I 's 11LIANJILiN,

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