Order Code IB97011
Issue Brief for Congress
Received through the CRS Web
Dairy Policy Issues
Updated September 27, 2002
Ralph M. Chite
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Counter-Cyclical Dairy Farmer Payments
Background
Milk Income Loss Contract Payments
USDA Implementation
Retroactive Payments Controversy
Estimated Cost of the New Dairy Program
Dairy Price Support Program Issues
Background
Butter-Powder “Tilt”
Livestock Disaster Assistance
Milk Protein Concentrate Trade Issues
Dairy and the 2002 Farm Bill (P.L. 107-171)
LEGISLATION

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Dairy Policy Issues
SUMMARY
Several major dairy policy issues are
farmers will be eligible to receive a direct
addressed in the context of the Farm Security
government payment when the farm price of
and Rural Investment Act of 2002 (P.L. 107-
milk used for fluid consumption in Boston
171, the 2002 farm bill), which was signed
falls below $16.94. Independent estimates
into law on May 13, 2002. Included in the
show that the total cost of this program could
enacted 2002 farm bill is a reauthorization of
reach $3 to $4 billion over its 3 ½ year life,
the dairy price support program for an addi-
much higher than the original CBO estimate
tional 5 ½ years, and new authorization for
of $1 billion. The payment program has been
direct payments to dairy farmers through
controversial because of its cost, and concerns
September 2005, triggered whenever the
that an included payment cap benefits small
market price of farm milk falls below a target
farmers at the expense of large farmers. Small
price level.
farmers contend that USDA implementation
of retroactive payments for FY2002 favor the
Under the auspices of the dairy price
largest producers. Farmer enrollment in the
support program, USDA supports farm milk
program began on August 15, 2002, and will
prices through its purchases of surplus dairy
continue until the program expires on Septem-
products at stated prices. The 2002 farm bill
ber 30, 2005.
extended the program through 2007 at the
then-current support price of $9.90 per hun-
USDA announced September 19, 2002
dredweight (cwt.). USDA has been purchasing
that it will provide $752 million for a new
large quantities of surplus nonfat dry milk
Livestock Compensation Program, which is
(powder) under the program and is consider-
designed to compensate livestock producers
ing using its statutory authority to cut the
and dairy farmers experiencing severe feed
powder purchase price (and raise the butter
and pasture losses caused by a natural disaster.
price) in an effort to reduce government costs.
Dairy farmers in disaster-declared regions will
Dairy producer groups are concerned that such
receive a payment of $31.50 per adult dairy
a move would reduce dairy farmer income,
cow. Additional disaster assistance is pending
while processors support a price reduction.
in Congress.
In each of the previous three fiscal years
Many dairy farmer groups support a
(FY1999-2001), Congress has authorized
prohibition on the use of dry milk protein
USDA to make ad-hoc “market loss” pay-
concentrates (MPC) in the production of
ments to dairy farmers to help mitigate the
cheese. Farm groups are concerned that im-
effects of volatile farm milk prices. Sepa-
ports of MPC are displacing domestic milk
rately, the six New England states had tempo-
used for cheesemaking and thus depressing
rary authority for a regional dairy compact
farm milk prices. In response, companion
from 1997 until its expiration on September
bills (S. 847 and H.R. 1786) would impose
30, 2001. The enacted 2002 farm bill
tariff rate quotas on certain MPCs. Other bills
authorizes a new counter-cyclical direct pay-
(H.R. 1016 and S. 117) would prohibit the use
ment program for all dairy farmers, which is
of dry MPC in domestic cheese production.
modeled after the compact and the market loss
Dairy processor groups generally are opposed
payments. Under the new program, all dairy
to these bills.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Farmer enrollment in the newly authorized direct payment program for dairy farmers
began on August 15, 2002, and will continue until the program expires on September 30,
2005. These counter-cyclical payments will be made to a participating dairy farmer monthly
whenever market prices fall below a target level. Program regulations are pending.
However, USDA has issued a notice that provides guidelines on how producers can select
the starting date for their payments, which some dairy farm groups have objected to.
USDA announced September 19, 2002, that it would provide $752 million for a new
2002 Livestock Compensation Program. The program is designed to compensate livestock
producers and dairy farmers experiencing severe 2001 and 2002 feed and pasture losses
caused by a natural disaster. Under the new program, dairy farmers in disaster-declared
regions will receive a payment of $31.50 per adult dairy cow.
BACKGROUND AND ANALYSIS
Counter-Cyclical Dairy Farmer Payments
Background
Over the previous three fiscal years (FY1999-FY2001), Congress provided just over
$32.5 billion in emergency spending for USDA programs, primarily to help farmers recover
from low farm commodity prices and natural disasters. The majority of these funds were for
supplemental direct farm payments made to producers of certain commodities, primarily
grains and cotton, but also including soybeans, peanuts, tobacco and milk. Of this amount,
dairy farmers received supplemental “market loss” payments of $200 million in FY1999
under the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999
(P.L. 105-277), $125 million under the FY2000 agriculture appropriations act (P.L. 106-78),
and $675 million under the emergency provisions in the FY2001 agriculture appropriations
act (P.L. 106-387).
Some dairy farmer groups sought a permanent direct payment program for dairy farmers
to be included in the 2002 farm bill as a means of supplementing dairy farm income when
farm milk prices are low. Prior to the emergency payments made each year on an ad-hoc
basis in FY1999 through FY2001, dairy farmers generally were not recipients of direct
government payments. However, some groups contended that farm milk prices had been
volatile in recent years and that dairy farmers needed more income stability.
Separately, the Northeast Dairy Compact, which provided price premiums to New
England dairy farmers when market prices fell below a certain level, expired on September
30, 2001. These premiums were funded by assessments on fluid milk processors whenever
fluid farm milk prices in the region fell below $16.94 per hundredweight (cwt.). Supporters
of the Northeast compact had sought for an extension of the compact; the Southeastern states
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were seeking new authority to create a separate compact. However, processors and Upper
Midwest producers are strongly opposed to regional compacts.
Milk Income Loss Contract Payments
Section 1502 of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the
2002 farm bill) contains authorization for a new counter-cyclical national dairy market loss
payment program. (Upon implementation, USDA subsequently has dubbed the program the
“Milk Income Loss Contract (MILC) Payments” program. The program does not replace
the dairy price support program and federal milk marketing orders, the current federal milk
pricing policy tools. Instead, it serves as an alternative to regional dairy compacts and ad-
hoc emergency payments to farmers, by authorizing additional federal payments when farm
milk prices fall below an established target price.
Under the provision, dairy farmers nationwide are eligible for a federal payment
whenever the minimum monthly market price for farm milk used for fluid consumption in
Boston falls below $16.94 per hundredweight (cwt.). In order to receive a payment, a dairy
farmer must enter into a contract with the Secretary of Agriculture. While under contract,
a producer can receive a payment equal to 45% of the difference between the $16.94 per cwt.
target price in any month that the Boston market price falls below $16.94. A producer can
receive a payment on all milk production during that month, but no payments will be made
on any annual production in excess of 2.4 million pounds per dairy operation. All contracts
expire on September 30, 2005, and payments will be made retroactively to December 1,
2001.
This new dairy program is modeled after the Northeast dairy compact which was in
effect in the six New England states from 1997 until its expiration on September 30, 2001.
However, under the expired dairy compact, dairy processors were required to pay the
difference between the $16.94 fluid milk target price and any market price shortfall for fluid
use milk in the compact region. The new program shifts the responsibility of the payment
from the processor (and ultimately the consumer) to the federal government.
During the farm bill debate, the dairy payment program was generally supported by milk
producer groups in the Northeast and the Upper Midwest. Producer groups in the Northeast
region view it as an alternative to the Northeast dairy compact. Upper Midwest producers
prefer the new program to state compacts since the new program shares the price premiums
nationally. Large dairy farmers have expressed concern that the new program will cause
excess milk production that will in turn decrease farm milk market prices. They contend
that this would negatively affect their income, since their annual production is well in excess
of the 2.4 million lb. payment limit, and any production in excess of 2.4 million pounds
would receive the market price and no federal payments. (Annual production of 2.4 million
pounds is roughly equal to the annual production of a herd of approximately 120 to 130 dairy
cows.) The International Dairy Foods Association, a trade association representing dairy
processors, was opposed to the program in its earlier version when processors would have
been required to continue paying the price premiums in the Northeast. However, its
opposition was lifted when the funding responsibility was shifted to the federal government
as in the final version of the program.
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USDA Implementation. USDA began accepting applications for the “Milk Income
Loss Contract (MILC) Program” on August 15, 2002 and will continue to do so until the
program expires on September 30, 2005.
To date, the monthly market price has been below the target price of $16.94 in every
eligible month. The program payment rates for each month are displayed in Table 1.
Table 1. Monthly Milk Income Loss Contract Payment Rates
Month
Payment Rate
Month
Payment Rate
(per hundredweight)
(per hundredweight)
December 2001
$0.77
June 2002
$1.20
January 2002
$0.78
July 2002
$1.38
February 2002
$0.78
August 2002
$1.45
March 2002
$0.93
September 2002
$1.45
April 2002
$1.00
FY2002 Average
$1.08
May 2002
$1.09
October 2002
$1.59

USDA also has announced how it will handle certain implementation issues that were
not addressed in the authorizing legislation. For example, the legislation limits individual
payments to the first 2.4 million lbs. of annual production, but does not address whether a
producer with annual production in excess of the limit can choose which month’s production
would receive a payment. Larger producers wanted this flexibility so that they could waive
payments in a month when the payment rate is relatively low, if they thought the payment
rate might be higher in other months of the year. USDA has announced that beginning in
FY2003, it will allow an individual producer to designate which month to receive the first
payment for the fiscal year. The producer must designate the starting month in advance of
the first of that month. Once the selected month arrives, producers will continue to receive
payments from that month forward, until payments are received on 2.4 million lbs. of
production, or the end of the fiscal year, whichever comes first.
Retroactive Payments Controversy. USDA determined that it will handle the
timing of the retroactive payments (covering milk production from December 2001 through
August 2002) differently than the FY2003 and subsequent year payments. One option given
to producers by USDA is to receive payments beginning with December 2001 milk
production and then for each consecutive subsequent month until the producer’s annual
production payment limit of 2.4 million lbs. of annual production is exhausted. If the
participating dairy farmer waives this option, he instead can opt to receive just one payment
for the fiscal year limited to milk production in September 2002.
Some dairy groups contend that this methodology favors the largest dairy farms. For
example, a large producer who produces more than 2.4 million lbs. of milk per month would
opt for receiving only the September payment which was $1.45 per cwt., the highest monthly
payment in the fiscal year (see Table 2 above). Farmers who produce less than 2.4 million
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lbs of milk per month would most likely opt for receiving multi-month payments beginning
in December 2001, when the payment rate was at its lowest point of the year.
In summary, large producers with monthly production above 2.4 million lbs. would
receive a payment of $1.45 per cwt.; the smallest producers with annual production below
2.4 million lbs. would receive an average payment of $1.08 per cwt. (the average payment
for all 10 eligible months of FY2002); medium to large sized producers with production
between approximately 300,000 and 2 million lbs. per month would likely receive average
payments of about $0.80 per cwt.

Estimated Cost of the New Dairy Program. There are a wide range of estimates
on the projected cost of the new dairy program over its nearly 4-year life. Based on market
conditions in March 2002, the Congressional Budget Office (CBO) estimated total direct
federal payments of $963 million over the life of the program. However, more recent
independent estimates from the Food and Agricultural Policy Research Institute (FAPRI) at
the University of Missouri and USDA show that the total cost could range between $3 and
$4 billion. The main reason for this disparity is that FAPRI and USDA project significantly
lower market prices for milk than CBO over the 46-month life of the program.
Consequently, CBO estimates that the average monthly payment rate over the 46-month life
of the program will be about $0.45 per cwt.; FAPRI and USDA independently estimate an
average monthly payment rate of about $0.90 per cwt.
Dairy Price Support Program Issues
Background
The Agricultural Act of 1949 first established the dairy price support program by
permanently requiring the U.S. Department of Agriculture (USDA) to support the farm price
of milk. Since 1949, Congress has regularly amended the program, usually in the context of
multi-year omnibus farm acts and budget reconciliation acts. (See Table 2, below, for a
recent history of spending on the dairy price support program.) Most recently, Section 1501
of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the omnibus 2002
farm bill) authorized a 5 ½-year extension of the program through December 31, 2007 at the
then-current support price of $9.90 per hundredweight (cwt.) of farm milk.
Historically, the supported market price for milk is intended to protect farmers from
price declines that might force them out of business and to protect consumers from seasonal
imbalances of supply and demand. USDA’s Commodity Credit Corporation (CCC) supports
milk prices by its standing offer to purchase surplus nonfat dry milk, cheese, and butter from
dairy processors. Government purchases of these storable dairy products indirectly support
the market price of milk for all dairy farmers. Prices paid to the processors are set
administratively by USDA at a level that should permit them to pay dairy farmers at least the
federal support price for their milk.
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Table 1. Commodity Credit Corporation Milk Price and
Income Support Operations, 1979/80-2001/02
CCC
Net Removals
CCC Support
Purchases as
Marketing
Milk Equivalent
Net Outlays
Price
Percentage of
yeara
(billion lbs.)b
(million $)
($ per cwt.)
Production
1980-81
12.7
1,975
13.10
9.6
1981-82
13.8
2,239
13.49-13.10
10.2
1982-83
16.6
2,600
13.10
12.0
1983-84
10.4
1,597
13.10-12.60
7.6
1984-85
11.5
2,181
12.60-11.60
8.2
1985-86
12.3
2,420
11.60
8.5
1986-87
5.4
1,238
11.60-11.35
3.8
1987-88
9.7
1,346
11.10-10.60
6.7
1988-89
9.6
712
10.60-11.10
6.7
1989-90
8.4
505
10.60-10.10
5.7
1990-91
10.4
839
10.10
7.0
1991-92
10.1
232
10.10
6.7
1992-93
7.6
253
10.10
5.0
1993-94
4.2
158
10.10
2.8
1994-95
2.9
4
10.10
1.8
1995-96
0.1
-98
10.10-10.35
0.1
1996-97
0.7
67
10.20
0.4
1997-98
0.7
291
10.20-10.05
0.4
1998-99
0.3
480(c)
10.05-9.90
0.2
1999-2000
0.8
684(d)
9.90
0.5
2000-01
0.3
1,140(e)
9.90
0.3
2001-02 (f)
0.2
57
9.90
0.1
Source: U.S. Department of Agriculture, Farm Service Agency, selected publications.
a. The marketing year is October 1-September 30.
b. The milk equivalent is the pounds of fluid milk used to manufacture cheese and butter, on a milkfat basis.
c. Includes $200 million in emergency “market loss” payments authorized by P.L. 105-277.
d. Includes $125 million in net outlays for market loss payments authorized by P.L. 106-78.
e. Includes $675 million in market loss payments authorized by P.L. 106-387.
f. USDA estimate.
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In order to achieve the support price of $9.90 per cwt. of milk, USDA has a standing
offer to processors to purchase surplus manufactured dairy products at the following prices:
$0.8548 per lb. for butter, $0.90 for nonfat dry milk, $1.1314 per lb. for block cheddar, and
$1.1014 per lb. for barrel cheese. Whenever market prices fall to the support level,
processors generally make the business decision of selling surplus product to the government
rather than to the marketplace. Consequently, the government purchase prices usually serve
as a floor for the market price, which in turn indirectly support the farm price of milk at
$9.90 per cwt.
Butter-Powder “Tilt”
Under current dairy price support law, USDA has the authority twice annually to adjust
the support prices of butter and nonfat dry milk (powder) in order to minimize federal
expenditures on the purchase of surplus dairy products. Whenever USDA reduces the
support price of one product, it must increase the support price of the other in order to
continue supporting the overall farm price of milk at the mandated level of $9.90 per cwt.
USDA last exercised this authority on May 31, 2001, when it reduced the purchase price of
nonfat dry milk from $1.00 to $0.90 per lb. and increased the butter purchase by nearly $0.20
to $0.8548 per lb. At the time of the price adjustment, USDA said it took such action
because it has accumulated nonfat dry milk stocks well above its ability to use the product
and because of the government cost associated with purchasing the product.
Despite last year’s price adjustment, market conditions are such that USDA continues
to purchase surplus nonfat dry milk. For the first ten month’s of FY2002 (October 2001
through July 2002), USDA purchased 607 million lbs. of surplus powder, compared with 395
million lbs. in the same period of FY2001. As of mid-August 2002, USDA had
uncommitted powder inventories of approximately 1.4 billion lbs.
Some dairy processor groups are urging USDA to further reduce the government
purchase price for surplus nonfat dry milk. Proponents say this would reduce government
costs, and make domestic nonfat dry milk more competitive in world markets. Most dairy
farmer groups strongly oppose a further reduction in the nonfat dry milk purchase price.
They contend that the income of all dairy farmers will be adversely affected, especially since
current pricing policy pegs the farm price of milk used for fluid consumption to the price of
milk used for nonfat dry milk and butter. Instead, dairy producer groups contend that quotas
should be placed on imports of milk protein concentrates, which they say displace domestic
production of nonfat dry milk and contribute to powder surpluses. (See “Milk Protein
Concentrate Trade Issues” below.) Others are concerned that an increase in the butter
purchase price, which is required by law whenever USDA reduces the powder price, could
trigger government purchases of surplus butter at the higher price.
Separately, in an effort to reduce its powder inventory, USDA announced on August 12,
2002 that $150 million of surplus powder will be converted to animal feed and made
available to farmers and ranchers in states suffering from severe drought conditions.
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Livestock Disaster Assistance
In response to widespread drought in many livestock and dairy production regions of
the country, USDA announced September 19, 2002, that it would provide $752 million for
a new 2002 Livestock Compensation Program (LCP). The program is designed to
compensate livestock producers and dairy farmers experiencing severe 2001 and 2002 feed
and pasture losses.
Under the new program, direct payments will be made to producers of beef, dairy, sheep
and goats in any county that has been declared a disaster area by the Secretary between
January 1, 2001 and September 19, 2002 (including disaster designation requests pending
on September 19, 2002, that are subsequently approved.) The payment rates will be $31.50
per adult dairy cattle, $18 per adult beef cattle, $13.50 for certain livestock over 500 lbs, and
$4.50 per sheep or goat. Applications will be accepted beginning October 1, 2002. Payments
will be limited to $40,000 per person, and will not be made to any person with qualifying
gross revenue over $2.5 million. Funding for the program will be provided through Section
32 funds, which originate from a portion of customs receipts that are made available to
USDA to support the farm sector through various activities.
Additional livestock disaster assistance is pending in Congress. Several bills have been
introduced that would provide direct payments to livestock growers and dairy farmers who
have experienced significant grazing losses caused by a natural disaster. On September 10,
2002, the full Senate agreed to a Daschle amendment (S. Amdt. 4481) to the FY2003 Interior
appropriations bill (H.R. 5093), which would provide an estimated $1.45 billion in livestock
disaster payments for both 2001 and 2002 production year grazing losses. Direct payments
would be made to any producer in a disaster-declared region who suffered a minimum 40%
loss of available grazing for at least 3 consecutive months. The Administration has stated
its opposition to any additional farm assistance that is not offset with reductions in other
spending.
For more on disaster assistance, see CRS Report RS21212, Farm Disaster Assistance;
CRS Report RL31565, Comparison of Farm Disaster Bills; and the CRS Electronic Briefing
Book page on “Farm Disaster Assistance”
Milk Protein Concentrate Trade Issues

Milk protein concentrate is a product in which certain milk proteins necessary for
cheese production are selectively included and all or most of the water is removed from the
milk, thus making it efficient to ship long distances. Dairy farmer groups, which support a
prohibition on the use of dry MPC, are concerned that imports of MPC are displacing
domestic milk used for cheesemaking and depressing farm milk prices. Certain
concentrations are not covered by tariffs or quotas under the existing World Trade
Organization agreement. The importation of these products was not an issue when the
agreement was debated in the 1990s.
On March 5, 2001, the General Accounting Office released a study on the production,
imports, and regulation of milk protein concentrates. The study found that MPC imports
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grew rapidly from 1990 to 1999 – from 805 to 44,878 metric tons, including a near doubling
in 1999 over 1998 alone. According to the study, six countries (New Zealand, Ireland,
Germany, Australia, the Netherlands and Canada) accounted for 95% of the 1999 imports.
For the full text of the GAO study, see [http://www.gao.gov/new.items/d01326.pdf].
Currently, neither wet nor dry MPC is allowed as an ingredient in any U.S. cheese
which has a standard of identity defined by the Food and Drug Administration, which
includes most cheese. Cheese processors had petitioned FDA for a change in standards to
allow MPC in cheese production. Conferees deleted from the FY2001 agriculture
appropriations bill a Senate provision that would have prohibited FDA from issuing any
regulations that would allow MPC as an ingredient in the production of cheese. Companion
bills (S. 117 and H.R. 1016) have been introduced in the 107th Congress that would prohibit
FDA from allowing milk protein concentrates as an ingredient in any cheese with a standard
of identity. Other bills (S. 847 and H.R. 1786) would impose a tariff rate quota on MPC and
casein (the major portion of milk protein). Supporters of these bills, including most milk
producer groups, contend that foreign MPC and casein is being dumped in the United States.
Opponents of the legislation include dairy processor groups, the largest of which is the
International Dairy Foods Association, who contend that MPC imports are not displacing
U.S. production of nonfat dry milk. They maintain that the domestic support price for nonfat
dry milk should be lowered instead to stimulate the market for domestic powder.
The National Milk Producers Federation (NMPF), the largest trade association
representing milk producer cooperatives, has urged the federal government to examine
several trade policy options for addressing the milk protein concentrate import issue. These
include provisions in the Trade Act of 1974 that allow the President (following an
International Trade Commission investigation) to provide relief to a U.S. industry adversely
affected by imports; a 1974 Trade Act provision that allows the U.S. Trade Representative
to retaliate against certain foreign trade policies; and the use of antidumping laws and
countervailing measures. On April 17, 2002, the NMPF filed a formal challenge of how the
U.S. Customs Service classifies various dairy product imports, including MPC. Under
Section 516 of U.S. tariff law, interested parties are permitted to challenge the tariff
classification of imported items. The NMPF claims that imported MPC is not a true
concentrated milk protein, but is instead a blend of other dairy products (such as nonfat dry
milk, whey powder and casein). These blends, they say, “take unfair advantage of U.S. trade
policies that allow the unrestricted entry of MPC, but not the individual components found
in the blended products.”
Dairy and the 2002 Farm Bill (P.L. 107-171)
The Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the 2002 farm bill),
which was signed into law on May 13, 2002, establishes federal farm commodity price and
income support policy for the next 6 years. Among the major dairy provisions in the enacted
2002 farm bill is an extension of the dairy price support program at the current level of
support, and authorization for counter-cyclical payments to dairy farmers when market prices
for farm milk fall below a target level.
See Table 3 below for a side-by-side comparison of the 2002 farm bill dairy provisions
with previous law or policy. The two sections of the brief following the table provide more
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detail on the two major federal dairy pricing policy tools authorized by the 2002 farm bill –
the dairy price support program and the counter-cyclical dairy farmer payments program. For
an overview of all major provisions in the 2002 farm bill, see CRS Report RL31195, The
2002 Farm Bill: Overview and Status.
Table 3. A Comparison of the Dairy Provisions of the 2002 Farm Bill
with Previous Law or Policy
Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
1. Dairy Price Support Program (DPSP)
The 1996 farm bill (P.L. 104-127), as
Extends the DPSP through December 31,2007
amended, reauthorized the DPSP at the then-
at the current level of support ($9.90 per cwt.).
current level of support ($9.90 per
The Secretary is permitted to adjust purchase
hundredweight (cwt.) of milk). The DPSP
prices of butter and nonfat dry milk twice
indirectly supports the farm price of milk
annually to minimize government expenditures
through USDA purchases of surplus cheese,
on the program. [Section 1501}
butter and nonfat dry milk (powder). The
law allows the Secretary of Agriculture to
adjust government purchase prices of butter
and powder twice annually in order to
minimize government expenditures.
[Section 141]
The FY2002 agriculture appropriations act
(P.L. 107-76) extended the DPSP through
May 31, 2002 [Section 772(a)]
2. Counter-Cyclical Payments for Dairy
Farmers
The 1996 farm bill (P.L. 104-127) gave
contingent authority for the six New
Authorizes a new counter-cyclical payment
England states to create an interstate dairy
program for dairy farmers through September
compact. [Section 147] The compact
30, 2005. Whenever the minimum monthly
required fluid milk processors in New
fluid farm milk price in Boston falls below
England to pay a minimum price for farm
$16.94 per cwt., all eligible farmers
milk used for fluid consumption that is
nationwide will receive a direct government
higher than the minimum price established
payment equal to 45% of the difference
under federal regulation. Compact was
between $16.94 and the lower Boston price.
established in 1997 at a minimum price of
Payments to individual farmers can be
$16.94 per hundredweight (cwt.).
received on up to 2.4 million lbs. of annual
Legislative authority expired on September
production. Retroactive payments will be
30, 2001.
made for each month back to December 2001.
No budget limitations on how much can be
Separately, emergency authority included in
spent each year or in total. CBO estimates the
the agriculture appropriations acts of
total cost of the program at $963 million over
FY1999 (P.L. 105-277), FY2000 (P.L. 106-
the life of the program. [Section 1502]
78) and FY2001 (P.L. 106-387) provided
ad-hoc direct government payments to all
dairy farmers in response to volatile farm
milk prices.
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Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
3. Recourse Loan Program
P.L. 104-127 permanently authorized a new
No provision.
recourse loan program to help dairy
processors balance their inventories, to be
implemented once the dairy price support
program (DPSP) expires. [Section 142]
P.L. 104-127 originally required the
elimination of the DPSP on January 1, 2000.
However, subsequent legislation extended
price support authority. Recourse loan
program was never implemented, and its
authority was repealed by P.L. 107-76.
4. Dairy Export Incentive Program
The 1985 farm bill (P.L. 99-198) first
Extends program authority through 2007.
authorized the dairy export incentive
[Section 1503(a)]
program, which helps U.S. exporters counter
subsidized sales by foreign competitors
through cash or commodity bonuses.
[Section 153]
Program was reauthorized periodically in
subsequent farm bills. Most recently, the
1996 farm bill (P.L. 104-127) reauthorized
the program through 2002. [Section 148]
5. Dairy Indemnity Program
Authorized in 1964, the dairy indemnity
Reauthorizes the program through September
program indemnifies dairy farmers and
30, 2007. [Section 1503(b)]
processors who, through no fault of their
own, suffer income losses due to
contamination of milk or dairy products
caused by pesticides and certain other toxic
substances. Legislative authority expired
September 30, 1995. However, annual
appropriations have been made subsequent
to program expiration.
6. Fluid Milk Processor Promotion
Program
The Fluid Milk Promotion Act of 1990
1) Gives permanent authority to the fluid milk
(contained within the 1990 farm bill (P.L.
promotion program; 2) strikes the statutory
101-624)), as amended, authorized a
definition of a fluid milk product and use the
research and promotion program for fluid
definition promulgated in USDA regulations;
milk products. [Sections 1999A-1999R]
and 3) changes the definition of a fluid milk
The program is funded through an
processor for the purpose of the required
assessment on fluid milk processors who
assessment, to exclude any fluid processor that
handle more than 500,000 lbs. of fluid milk
handles less than 3 million pounds of fluid
products each month. The 1996 farm bill
milk products each month. 4) Fluid milk
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Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
(P.L. 101-624) extended program authority
delivered directly to consumer residences does
through December 31, 2002. [Section 146]
not count toward the 3 million pound
minimum requirement for the processor
assessment. [Section 1506]
7. Dairy Promotion and Research
Program
The Dairy Producer Stabilization Act of
1) Extends the 15-cent assessment to imported
1983 authorized a national dairy producer
dairy products. The 15-cent assessment is to
program for generic dairy product
be paid to U.S. Customs by the importer on the
promotion, research, and nutrition
equivalent of milk that went into the
education. The program is funded through a
manufacturing of the imported product. 2)
mandatory 15-cent per hundredweight
None of the importer-collected funds can be
assessment on all milk produced and
used for foreign market promotion. 3)
marketed in the contiguous 48 states. Dairy
Importers must be represented on the Board in
farmers administer the program through the
the same proportion that imported dairy
National Dairy Promotion and Research
products comprise the total U.S. dairy market.
Board.
4) The Secretary of Agriculture is required to
consult with the U.S. Trade Representative to
determine whether this provision is compatible
with U.S. trade obligations. 5) dairy products
must be promoted without regard to the
country of origin of the product. [Section
1505]
8. Dairy Product Mandatory Reporting
The Dairy Market Enhancement Act of 2000
Amends the 2000 act to include “substantially
(P.L. 106-532) established a mandatory
identical products designated by the Secretary
reporting system for dairy product
(of Agriculture)” as part of the mandatory
inventories and prices. It requires USDA’s
reporting system. Changes the definition of a
National Agricultural Statistics Service to
covered dairy product to include
regularly collect data on the prices and
“substantially identical products designated by
inventories of cheese, butter and nonfat dry
the Secretary.”
milk sold by dairy manufacturers.
[Section 1504]
9. Dairy Studies
No provision in previous law.
Requires the Secretary of Agriculture to
submit to Congress two reports. Both are due
by May 13, 2003. 1) a comprehensive
economic evaluation of national dairy policies
(i.e., the price support program, federal milk
marketing order, over-order premiums and
state pricing programs, dairy compacts and
export programs) and their effect on the farm
and rural economy, domestic food and
nutrition programs, and consumer costs. 2) a
series of studies on a) the market effects of
terminating all federal dairy programs relating
to price support and supply management; and
b) the effects of changing the standard of
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Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
identity for fluid milk so that the required
minimum protein content of fluid milk is
commensurate with the average nonfat solids
contents of farm milk directly from the cow.
[Section 137]
[Note: California has a standard of identity for
fluid milk that requires a nonfat solids content
higher than the national requirement and
higher than the average content of raw milk
from the cow.] [Section 1508]
LEGISLATION
P.L. 107-171, H.R. 2646
Provides for the continuation of agricultural programs through fiscal year 2011.
Introduced and referred to the House Agriculture Committee on July 26, 2001. Reported by
the House Agriculture Committee on August 2 (H.Rept. 107-191, part I). Supplemental
committee report (part II) filed on August 31. Referred sequentially to the House
International Relations Committee, which reported the bill on September 10 (H.Rept. 107-
191, part III). Passed the House on October 5, 2001 by a vote of 291-120. Received in the
Senate on October 9, 2001. Conferees appointed February 28, 2002. Conference report
(H.Rept. 107-424) filed on May 1, 2002. Conference agreement adopted by the full House
by a vote of 280-141 on May 2, 2002. Conference report adopted by the Senate on May 8,
2002 by a vote of 64-35. Signed into law May 13, 2002. (See S. 1731 below for action on
Senate version of the 2002 farm bill.)
H.R. 1016 (Baldwin), S. 117 (Feingold)
Quality Cheese Act of 2001. Prohibits the Food and Drug Administration from making
regulatory changes that would allow milk protein concentrates or casein as an ingredient in
certain cheeses. H.R. 1016 introduced on March 14, 2001; referred to the House Energy and
Commerce Committee on March 14, 2001; referred to the Subcommittee on Health on March
22, 2001. S. 117 introduced and referred to the Senate Agriculture Committee on January
22, 2001.
H.R. 1786 (Obey), S. 847 (Dayton)
Impose tariff rate quotas on certain casein and milk protein concentrates. H.R. 1786
introduced and referred to the House Ways and Means Committee on May 9, 2001. S. 847
introduced and referred to the Senate Finance Committee on May 9, 2001.
H.R. 5383 (Cubin)
Provides such sums as are necessary to fund emergency crop and livestock disaster
assistance for 2001 and 2002 losses. (Companion bill to S.Amdt. 4481 (Daschle) below.)
H.R. 5383 introduced September 13, 2002; referred to Agriculture Committee and Budget
Committee.
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S. Amdt. 4481 (Daschle)
Provides such sums as are necessary to fund emergency crop and livestock disaster
assistance for 2001 and 2002 losses. Proposed September 4, 2002. Offered as an
amendment to S.Amdt. 4480 amending the FY2003 Interior Appropriations Bill (H.R. 5093).
Motion to waive the Budget Act with respect to S.Amdt. 4481 agreed to in Senate by Yea-
Nay. 79-16. S.Amdt. 4481 agreed to in Senate by unanimous consent. S.Amdt. 4480 is
pending.
S. 1731 (Harkin)
The Senate Agriculture Committee reported version of the omnibus farm bill. Full
committee markup of the chairman’s mark of the farm bill was completed on November 15,
2001. A revised version of the mark was introduced as S. 1731 on November 27, 2001.
Motion to proceed to the consideration of the measure on November 30. Cloture motion on
the motion to proceed on November 30. Daschle substitute amendment (S.Amdt. 2471)
considered as a complete substitute to S. 1731 on December 10-14, 2001 and December 17-
19, 2001. Two cloture motions to S.Amdt. 2471 not invoked by Yea-Nay Votes of 54-43 on
December 18 and 19, 2001. Debate resumed February 6-8 and 11-13, 2002, with many
amendments adopted. Senate incorporated this measure as a complete substitute to the
House-passed bill (H.R. 2646) on February 13, and passed H.R. 2646, as amended on
February 13, 2002, by a vote of 58-40. Conferees appointed February 28, 2002. (See
P.L.107-171, H.R. 2646, above, for further action on the measure.)
S. 2768 (Hagel)
Provides $620 million in livestock feed assistance, offset by reductions in other USDA
programs. Introduced July 22, 2002; referred to Agriculture Committee.
S. 2830 (Roberts)
Provides such sums as are necessary to make crop and livestock disaster payments for
either 2001 or 2002 losses. Introduced July 31, 2002; referred to Agriculture Committee.
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