Order Code IB97011
CRS Issue Brief for Congress
Received through the CRS Web
Dairy Policy Issues
Updated January 30, 2004
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
Milk Protein Concentrate Trade Issues
Milk Income Loss Contract (MILC) Payments
Background
MILC Payment Mechanics
MILC Payment History
Estimated Federal Cost of the MILC Program
Dairy Price Support Program Issues
Background
Dairy Provision in the FY2004 Omnibus Appropriations Act
Dairy and the 2002 Farm Bill (P.L. 107-171)
LEGISLATION

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Dairy Policy Issues
SUMMARY
Many dairy farmer groups are concerned
2673) contains a provision that would require
that imports of milk protein concentrates
USDA to be more diligent in supporting farm
(MPCs) are displacing domestic dairy ingredi-
milk prices at $9.90, or lose funding for the
ents and thus depressing farm milk prices.
administration of the price support program.
Identical pending bills (H.R. 1160 and S. 560)
would impose tariff rate quotas on certain
In three separate supplementals enacted
MPCs; S. 40 would prohibit the use of dry
for FY1999-FY2001, Congress authorized
MPC in domestic cheese production. Dairy
USDA to make ad-hoc “market loss” pay-
processor groups are opposed to these bills. A
ments to dairy farmers to help mitigate the
dairy producer group challenged the Customs
effects of volatile farm milk prices. Sepa-
Service classification of MPCs, but Customs
rately, the six New England states had tempo-
ruled that current classifications are correct.
rary authority for a regional dairy compact
Meanwhile, the International Trade Commiss-
from 1997 until its expiration on September
ion is investigating the market effects of MPC
30, 2001. The enacted 2002 farm bill
imports and is expected to release its findings
authorized a new counter-cyclical direct pay-
in spring 2004.
ment program for all dairy farmers, which is
modeled after the compact and the market loss
Separately, several major dairy policy
payments. Under the Milk Income Loss
issues were addressed in the context of the
Contract (MILC) program, all dairy farmers
Farm Security and Rural Investment Act of
potentially can receive a direct government
2002 (P.L. 107-171, the 2002 farm bill).
payment when the farm price of milk used for
Included in the enacted 2002 farm bill are a
fluid consumption in Boston falls below
reauthorization of the dairy price support
$16.94 per cwt. in any month.
program, and new authorization for direct
payments to dairy farmers through September
For the first two years of the program,
2005, triggered whenever the market price of
farm milk prices were sufficiently low that
farm milk falls below a target price level.
payments were triggered in each of the first 21
months. For the last 4 months of 2003, mar-
Under the auspices of the dairy price
ket prices rebounded to the point that pay-
support program, USDA supports farm milk
ments were not required. However, market
prices through its purchases of surplus dairy
farm milk prices softened towards the end of
products at stated prices. The 2002 farm bill
2003 requiring direct payments to be made in
extended the program through 2007 at the
in January and February 2004. Independent
then-current support price of $9.90 per hun-
estimates show that the total cost of this pro-
dredweight (cwt.). Each month in the first
gram could exceed $4 billion over its 3 ½
half of 2003, the minimum price of farm milk
year life, much higher than the original esti-
used for cheese, butter, and nonfat dry milk
mate of $1 billion. The payment program has
fell below the support price of $9.90. Dairy
been controversial because of its cost, and
farm groups contend that USDA purchase
concerns that an included payment cap bene-
prices for surplus dairy products may be set
fits small farmers at the expense of large
too low to support farm milk at $9.90. Conse-
farmers. Enrollment in the program began on
quently, the conference report on the pending
August 15, 2002, and will continue until the
FY2004 omnibus appropriations bill (H.R.
program expires on September 30, 2005.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
A provision in the enacted FY2004 omnibus appropriations measure (P.L. 108-199,
H.R. 2673) requires USDA to be more vigilant in supporting the farm price of milk at $9.90
per hundredweight, as required by law, or funding for the administration of the program will
be prohibited. The minimum price of farm milk used in the production of cheese fell below
$9.90 per cwt. in each month in the first half of 2003, prompting support of this provision
by dairy producer groups. USDA contends that despite monthly declines in the farm price
of milk for certain manufactured uses, its legislative mandate is to support the overall price
of milk at $9.90, and not monthly fluctuations.
On December 11, the U.S. International Trade Commission conducted a public hearing
on the market effects of imports of milk protein concentrates (MPCs), as requested by the
chairman of the Senate Finance Committee. MPCs, which are almost exclusively imported,
are used by certain food manufacturers for their physical properties and high protein content.
Dairy producer groups contend that the importation of MPCs displaces domestic milk
production and contributes to low farm milk prices. They are seeking legislation (H.R. 1160,
S. 560) that would impose tariff rate quotas on MPCs. Dairy processors are opposed to this
legislation, which is pending in the 108th Congress.
Separately, the federal Milk Income Loss Contract (MILC) program, as authorized by
the 2002 farm bill, provides direct payments to eligible farmers in any month when the
market price of milk falls below a legislatively determined threshold price. After reaching
a 25-year low in the spring of 2003, market farm milk prices rebounded in the second half
of the year. Consequently, for the first time since the inception of the Milk Income Loss
Contract (MILC) program, no monthly direct payments were made to participating dairy
farmers during the last 4 months of 2003. However, farm milk prices have softened in recent
weeks requiring MILC payments to be made in January and February 2004.
BACKGROUND AND ANALYSIS
Milk Protein Concentrate Trade Issues

Milk protein concentrate is a product in which certain milk proteins necessary for the
production of cheese and other food products 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 are concerned that imports of MPC and casein (the main protein found in milk) 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 formulated 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
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,
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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].
According to International Trade Commission data, MPC imports peaked in 2000 at 52,677
metric tons, before falling back to 28,469 metric tons in 2001, and rising again to 33,626
metric tons in 2002 and 29,111 metric tons in the first 10 months of 2003 (7.8% higher than
the first 10 months of 2002). Imports of casein have also risen over the years, peaking at
74,230 metric tons in 2000, before declining in 2001 and 2002, but rising again in 2003 on
a pace with the peak in 2000.
Currently, MPC is not 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 petitioned FDA for a change in standards to allow MPC in cheese
production. FDA currently is considering this request. Conferees deleted from the FY2001
agriculture appropriations act a Senate provision that would have prohibited FDA from
issuing any regulations that would allow MPC as an ingredient in the production of cheese.
Bills have been introduced in the 108th Congress that would affect the importation and
use of MPCs: S. 560 and H.R. 1160 would impose tariff rate quotas on certain MPCs, and
S. 40 would prohibit the use of dry MPC in domestic cheese production. No action has been
taken on these bills.
Supporters of these bills, including most milk producer groups, contend that foreign
MPC and casein are being dumped in the United States. Opponents of the legislation include
dairy processor groups, the largest of which is the International Dairy Foods Association
(IDFA), who contend that MPC imports are not displacing U.S. production of nonfat dry
milk. IDFA and other MPC-user groups contend that MPCs have certain properties that are
important in the manufacturing of certain food products (e.g. high-protein sport drinks and
food bars) and that nonfat dry milk is not a substitute for the use of MPCs. These groups
also maintain that the domestic support price for nonfat dry milk should be reduced instead,
as a way to stimulate the market for domestic powder. (For more information on the dairy
price support program, see the section on the program in this brief.)
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 concerning the U.S. Customs
Service classification of various dairy product imports, including MPC. Under Section 516
of the Tariff Act of 1930, 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.” On April 1, 2003, the Customs Service ruled that milk protein concentrates are
classified correctly. It stated that the current definition of milk protein concentrate only
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requires that MPC’s consist of at least 40% milk proteins, but does not specify whether the
product is manufactured through the filtration of skim milk or the blending with nonfat dry
milk or other components. The NMPF has announced an appeal of the Customs ruling, a
process which could take more than one year.
Separately, on May 13, 2003, the chairman of the Senate Finance Committee requested
an ITC investigation of U.S. market conditions for milk proteins, with a written report to be
filed no later than May 2004. Among the requirements, the report is to include an overview
of the global market of milk proteins, information on how government support and
intervention affects the protein market, and an assessment of how imported milk proteins
affect U.S. farm milk prices. As part of its investigation process, the ITC conducted a public
hearing on the “Conditions of Competition for Milk Protein Products in the U.S. Market” on
December 11, 2003, with numerous witnesses from milk producer groups, MPC users,
foreign dairy groups, among others.
Milk Income Loss Contract (MILC) Payments
Background
In 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
were seeking new authority to create a separate compact. However, dairy processors and
Upper Midwest producers are strongly opposed to regional compacts.
MILC Payment Mechanics
Section 1502 of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171, the
2002 farm bill) authorized a new counter-cyclical national dairy market loss payment
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program. (Upon implementation, USDA dubbed the program the “Milk Income Loss
Contract (MILC) Payments” program.) This program did not replace the dairy price support
program or 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 MILC program, 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 potentially can receive a payment equal to 45% of the difference between the
$16.94 per cwt. target price and the market 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 were
made retroactively to December 1, 2001.
The MILC program is akin to 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 full difference
between the $16.94 per cwt. fluid milk target price and any market price shortfall for fluid
use milk in the compact region. The MILC 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 viewed it as an alternative to the Northeast dairy compact. Upper Midwest producers
preferred the new program to state compacts since the new program shares the price
premiums nationally. Large dairy farmers 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. However, its opposition was
lifted, when the funding responsibility was shifted to the federal government as in the final
version of the program.
MILC Payment History
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. Monthly market prices were sufficiently low between December 2001
and August 2003 that MILC payments were made in every month during this period.
Beginning in the late summer months, market farm milk prices greatly improved, rebounding
from a 25-year low that prevailed throughout most of the earlier months of 2003. Hence, no
MILC payments were required in September through December 2003. However, farm milk
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prices began to decline again in the latter part of 2003. Consequently, MILC payments
resumed in January and February 2004. (See Table 1.)
Estimated Federal Cost of the MILC Program
The current estimated total cost of the MILC program over its 4-year life is
approximately $4 billion, significantly higher than estimates offered in 2002 when the
program was being formulated. Based on market conditions in March 2002 (during the farm
bill debate), the Congressional Budget Office (CBO) estimated total direct federal payments
of $963 million over the life of the program. One year later, in its baseline budget estimates
in March 2003, CBO revised its total cost estimate for the MILC program to $4.2 billion.
Independent estimates from the Food and Agricultural Policy Research Institute (FAPRI) at
the University of Missouri and USDA concur that the total cost could be in the $4.0-$4.5
billion range. The main reason for the disparity between the 2002 estimate and the 2003
revisions is that market prices for farm milk throughout much of 2003 were far below earlier
expectations. USDA announced in its FY2004 budget summary, released in February 2003,
that the estimated outlays of the program will be $2.4 billion alone in FY2003 (consisting
of the retroactive payments and the regular payments), and an estimated $1.1 billion in
FY2004.
Table 1. Monthly Milk Income Loss Contract (MILC) Payment Rates
Month
Payment Rate
Month
Payment Rate
(per hundredweight)
(per hundredweight)
December 2001
$0.77
December 2002
$1.43
January 2002
$0.78
January 2003
$1.41
February 2002
$0.78
February 2003
$1.56
March 2002
$0.93
March 2003
$1.75
April 2002
$1.00
April 2003
$1.82
May 2002
$1.09
May 2003
$1.79
June 2002
$1.20
June 2003
$1.78
July 2002
$1.38
July 2003
$1.76
August 2002
$1.45
August 2003
$1.22
September 2002
$1.45
Sept .- Dec. 2003
$0.00
October 2002
$1.59
January 2004
$0.83
November 2002
$1.39
February 2004
$0.945
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Dairy Price Support Program Issues
Background
The Agricultural Act of 1949 first established the dairy price support program by
permanently requiring 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 and related activities.) 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 farm 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.
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:
$1.05 per lb. for butter, $0.80 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.
The dairy price support program is separate from the Milk Income Loss Contract
(MILC) payments that also were authorized by the 2002 farm bill. (See the section above
in this brief for more on the MILC payment program.) However, the MILC payments are
considered a related activity to the price support program. Hence, MILC outlays are included
in Table 2.)
Dairy Provision in the FY2004 Omnibus Appropriations Act
A general provision in the FY2004 omnibus appropriations act (P.L. 108-199, H.R.
2673) requires the Secretary of Agriculture to more diligently support the farm price of milk
at the farm bill-mandated support price of $9.90 per hundredweight (cwt.), or lose funding
for the administration of the program. Supporters of this provision argue that the government
purchase prices for manufactured dairy products are set too low by USDA to support the
farm price of milk at $9.90 per cwt. In the first half of 2003, the market price of farm milk
used for cheese, butter and nonfat dry milk remained consistently below the $9.90 support
price. USDA officials say they are evaluating the situation and point out that the authorizing
statute for the dairy price support program (P.L. 107-171, the 2002 farm bill) requires USDA
to set dairy purchase prices so that the annual farm milk price on average is supported at
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$9.90, not the monthly price. Farm milk prices improved significantly in the second half of
2003 when farm milk prices averaged well above the support price.
Table 2. Commodity Credit Corporation Dairy Price and
Income Support Operations, 1980/81-2002/03
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
0.2
2001-02
0.2
614
9.90
0.1
2002-03 (g)
0.5
2,902 (f)
9.90
0.3
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. Includes a USDA-estimated $2.4 billion in Milk Income Loss Contract payments
g. USDA forecast.
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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. Earlier sections of this brief provide more 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 RS21233, The 2002 Farm Law
at a Glance.
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
Authorizes a new counter-cyclical payment
contingent authority for the six New
program for dairy farmers through September
England states to create an interstate dairy
30, 2005. Whenever the minimum monthly
compact. [Section 147] The compact
fluid farm milk price in Boston falls below
required fluid milk processors in New
$16.94 per cwt., all eligible farmers
England to pay a minimum price for farm
nationwide will receive a direct government
milk used for fluid consumption that is
payment equal to 45% of the difference
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Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
higher than the minimum price established
between $16.94 and the lower Boston price.
under federal regulation. Compact was
Payments to individual farmers can be
established in 1997 at a minimum price of
received on up to 2.4 million lbs. of annual
$16.94 per hundredweight (cwt.).
production. Retroactive payments will be
Legislative authority expired on September
made for each month back to December 2001.
30, 2001.
No budget limitations on how much can be
spent each year or in total. CBO estimates the
Separately, emergency authority included in
total cost of the program at $963 million over
the agriculture appropriations acts of
the life of the program. [Section 1502]
FY1999 (P.L. 105-277), FY2000 (P.L. 106-
78) and FY2001 (P.L. 106-387) provided
ad-hoc direct government payments to all
dairy farmers in response to volatile farm
milk prices.
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
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Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
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 uses 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. Fluid milk
(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]
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IB97011
01-30-04
Previous Law/Policy
Enacted 2002 Farm Bill Dairy Provisions
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
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. 108-199, H.R. 2673 (Bonilla)
Originally introduced as the FY2004 agriculture appropriations bill, and subsequently
became the vehicle for the FY2004 Omnibus Appropriations bill. The conference agreement
(H.Rept. 108-401) contains a provision that requires USDA to support the farm price of milk
at $9.90 per hundredweight (cwt.) as required by the 2002 farm bill, or USDA will lose
funding for the administration of the program, effectively blocking the program. Originally
introduced in the House on June 25, 2003; passed by the House on July 14, 2003; and
amended and passed by the Senate on November 6, 2003. H.R. 2673 became the vehicle for
the omnibus appropriations bill when it was reported by conferees on November 25, 2003,
as H.Rept. 108-401. Conference agreement adopted by the House on December 8, 2003 and
by the Senate on January 22, 2004. Signed into law January 23, 2004.
H.R. 324 (Vitter)
To restore the consent of Congress to the Northeast Interstate Dairy Compact and to
grant the consent of Congress to the Southern Dairy Compact, a Pacific Northwest Dairy
Compact, and an Intermountain Dairy Compact. Introduced January 8, 2003; referred to
Judiciary Committee, subcommittee on commercial and administrative law.
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IB97011
01-30-04
H.R. 1659 (Nunes)
Requires the regulation of the price of milk sold by a processor from a region that is
regulated by federal milk marketing orders to a region not under federal order regulation.
Introduced April 8, 2003; referred to House Agriculture Committee. Referred to the
subcommittee on Department Operations, Oversight, Nutrition and Forestry on April 11,
2003.
H.R. 1990 (Sanders)
Establishes a counter-cyclical income support program for dairy producers, through
September 30, 2011. Fluid milk processors would be required to make payments to a trust
fund in any month when the base farm price of milk used for fluid consumption falls below
$13.25 per hundredweight (cwt.). The federal government contributes to the fund when the
weighted average base price for milk used for cheese falls below $13.25 per cwt. in any
month. Dairy producers can receive payments from the fund on eligible production up to
500,000 lbs of milk per month. Introduced May 12, 2003; referred to Agriculture
Committee.
H.R. 3308 (Dooley)
Makes the dairy forward pricing pilot program a permanent program. The dairy
forward pricing pilot program allows certain milk processors that are regulated under federal
milk marketing orders to contract for future deliveries of milk from milk producers or their
cooperative associations at prices exempt from minimum federally mandated prices. The
pilot program, which expires at the end of 2004, is voluntary, and the exemption applies
only to milk used for non-fluid purposes. Introduced October 16, 2003; referred to
Agriculture Committee.
S. 40 (Feingold)
Quality Cheese Act of 2003. Prohibits products that contain dry ultra-filtered milk
products or casein from being labeled as domestic natural cheese. Introduced January 7,
2003; referred to Agriculture Committee.
S. 560 (Craig), H.R. 1160 (Sherwood)
Imposes tariff-rate quotas on certain casein and milk protein concentrates. S. 560 was
introduced January 14, 2003; referred to Finance Committee. H.R. 1160 was introduced
March 17, 2003; referred to Subcommittee on Trade of the Ways and Means Committee.
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