Order Code IB97011
CRS Issue Brief for Congress
Received through the CRS Web
Dairy Policy Issues
Updated July 21, 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
Dairy Forward Pricing Pilot Program
Milk Income Loss Contract (MILC) Payments
Background
MILC Payment Mechanics
MILC Payment History
Federal Cost and the Future of the MILC Program
Milk Protein Concentrate Trade Issues
Dairy Price Support Program
Background
Dairy Provision in the FY2004 Omnibus Appropriations Act
LEGISLATION

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Dairy Policy Issues
SUMMARY
A temporary pilot program that allows
products at stated prices. The 2002 farm bill
processors to enter into forward price con-
extended the program through 2007 at the
tracts with individual dairy farmers or their
then-current support price of $9.90 per hun-
cooperatives for certain uses of milk is sched-
dredweight (cwt.). During the first half of
uled to expire December 31, 2004. A forward
2003, farm milk prices were near a 25-year
price contract allows buyers and sellers of a
low. However, the market began to rebound
commodity to negotiate a price for the com-
in the second half of the year and market farm
modity on a future delivery date and insulates
milk prices set record high levels in May and
both parties from price volatility. Identical
June 2004.
bills (H.R. 3308, S. 2565) pending in Con-
gress would convert the pilot program to a
In three separate supplementals enacted
permanent one. The bills are supported by
for FY1999-FY2001, Congress authorized
dairy processors, but are opposed by the larg-
USDA to make ad-hoc “market loss” pay-
est organization of dairy cooperatives, which
ments to dairy farmers to help mitigate the
is concerned that the program might under-
effects of volatile farm milk prices. Sepa-
mine federal minimum pricing requirements.
rately, the six New England states had tempo-
rary authority for a regional dairy compact
Many dairy farmer groups are also con-
from 1997 until its expiration on September
cerned that imports of milk protein concen-
30, 2001. The 2002 farm bill authorized a
trates (MPCs) are displacing domestic dairy
new counter-cyclical direct payment program
ingredients and thus depressing farm milk
for all dairy farmers, which is modeled after
prices. Identical pending bills (H.R. 1160 and
the compact and the market loss payments.
S. 560) would impose tariff rate quotas on
Under the Milk Income Loss Contract (MILC)
certain MPCs. Dairy processor groups are
program, all dairy farmers potentially can
opposed to these bills. On May 18, 2004, the
receive a direct government payment when the
International Trade Commission study re-
farm price of milk used for fluid consumption
leased its findings on a year-long investigation
in Boston falls below $16.94 per cwt. in any
of the milk protein market. They concluded
month.
that most of the impact of milk protein prod-
uct imports was absorbed by the taxpayer
For the first two years of the program,
through additional purchases of surplus nonfat
farm milk prices were sufficiently low that
dry milk, and that farm-level prices were not
payments were triggered in each of the first 21
significantly affected. A pending bill (H.R.
months. For the last four months of 2003 and
4223) would provide a subsidy to domestic
for May-July 2004 (when market prices
producers of MPCs. Proponents say the sub-
rebounded to record high levels), direct pay-
sidy would be offset by the reduced need for
ments were not required. Two pending bills
government purchases of surplus nonfat dry
(H.R. 3990, S. 2609) would extend the MILC
milk, while opponents are concerned that such
program for two years beyond its statutory
a program could be challenged within the
expiration date of September 30, 2005. Some
World Trade Organization.
groups would like to see the program termi-
nated, while others support legislation (H.R.
Under the auspices of the dairy price
4597, S. 2525) to create regional authorities
support program, USDA supports farm milk
that could establish farm milk prices above the
prices through its purchases of surplus dairy
federal minimum level.
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
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 reached record high levels in the late spring
and early summer of 2004. Consequently, no monthly direct payments will be made to
participating dairy farmers in May through July 2004. The program is scheduled to expire
after September 30, 2005. Pending legislation (H.R. 3990, S. 2609) would extend the
program through September 30, 2007, to coincide with the expiration of other farm
commodity support programs. S. 2609 would also increase current payment limits.
Separately, a pilot program that allows processors to forward contract certain purchases
of milk from cooperatives and individual farmers expires at the end of 2004. Two identical
pending bills (H.R. 3308, S. 2565) would make this a permanent program. Permanent
extension is supported by dairy processors but opposed by the largest organization of dairy
producer cooperatives.
BACKGROUND AND ANALYSIS
Dairy Forward Pricing Pilot Program
A provision in the FY2000 Consolidated Appropriations Act (P.L. 106-113) authorized
a temporary pilot program to allow individual dairy farmers or their cooperatives to enter into
forward price contracts with processors for certain uses of milk. Identical bills pending in
Congress (H.R. 3308 and S. 2565) would convert the pilot program, which is scheduled to
expire on December 31, 2004, to a permanent program.
A forward contract allows buyers and sellers of a commodity to negotiate a price for the
commodity for future delivery and insulate both parties from price volatility. The current
pilot program allows dairy producers and cooperatives to enter into forward contracts for
milk used in all manufactured products, but not for milk used for fluid consumption. Under
the federal milk marketing order system, which regulates the farm price of much of the milk
produced, a dairy processor must pay a minimum price for purchased milk depending on
market conditions. However, under the pilot program, the contracted price becomes the
relevant price that the processor has to pay, regardless of what the market price is at the time
of delivery. Some groups view forward pricing as a desirable risk management tool, which
they say can lend some stability to volatile wholesale milk prices. Other farm groups have
expressed concern that forward pricing might undermine the federal milk marketing order
system.
An ongoing USDA study of the effect of the pilot program on dairy farmer prices
determined that for the period September 2000 through June 2003, forward contracted milk
prices on average were $0.72 per hundredweight higher than non-contract prices. The
difference varied significantly over the period, with contract prices being significantly higher
than non-contract prices when market prices were low, particularly from June 2002 through
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June 2003. Contract prices were significantly lower than farm milk prices not under contract
through much of 2001, when market prices were relatively high.
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
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
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$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
prices began to decline again in the latter part of 2003. Consequently, MILC payments
resumed in January and February 2004. Market farm milk prices reversed their course in the
late winter months and early spring of 2004, increasing to record high levels in the spring of
2004, so that no MILC payments will be required in May through July 2004. Recent
forecasts show that farm milk prices likely will remain strong for several months to come,
which could preclude the need for MILC payment for the remainder of the year. (See Table
1.)
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Table 1. Monthly Milk Income Loss Contract (MILC) Payment Rates
Month
Payment Rate
Month
Payment Rate
(per hundredweight)
(per hundredweight)
December 2001
$0.77
February 2003
$1.56
January 2002
$0.78
March 2003
$1.75
February 2002
$0.78
April 2003
$1.82
March 2002
$0.93
May 2003
$1.79
April 2002
$1.00
June 2003
$1.78
May 2002
$1.09
July 2003
$1.76
June 2002
$1.20
August 2003
$1.22
July 2002
$1.38
Sept .- Dec. 2003
$0.00
August 2002
$1.45
January 2004
$0.83
September 2002
$1.45
February 2004
$0.945
October 2002
$1.59
March 2004
$0.79
November 2002
$1.39
April 2004
$0.02
December 2002
$1.43
May-July 2004
$0.00
January 2003
$1.41
Federal Cost and the Future of the MILC Program
Based on its March 2004 baseline budget estimates, the Congressional Budget Office
projects that the cumulative cost of the MILC program over its four-year life will be
approximately $3.8 billion. This is 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. The March 2004 baseline is somewhat lower because of the strength of farm milk
prices expected this year. The most recent CBO estimate of $3.8 billion is composed of
actual outlays of $1.8 billion in FY2003 (which included retroactive payments made for
2002), and FY2004 and FY2005 forecasts of $935 million and $965 million, respectively.
The MILC program expires on September 30, 2005, while all other major farm
commodity support programs authorized by the 2002 farm bill expire at the end of the 2006
crop year. Proponents of the MILC program would like to see the program extended to at
least coincide with the expiration of all other commodity support programs. H.R. 3990 (C.
Peterson) and S. 2609 (Coleman) would extend the life of the MILC program for two
additional years, through FY2007. To date, no action has been taken on either measure.
Extending the program has raised some budgetary concerns, since the program has a fixed
expiration date, and any spending beyond that date would be considered new spending above
what is authorized by the 2002 farm bill. A provision in S. 2609 would double the limit on
eligible production for a MILC payment from the current 2.4 million lbs. to 4.8 million lbs,
which would add to the baseline cost of the program.
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Other groups would like to see the MILC program terminated and replaced with
regional compacts or a similar pricing mechanism. H.R. 324 (Vitter) would restore the
consent of Congress for the Northeast dairy compact and grant consent to three new
compacts, in the South, the Pacific Northwest, and the Intermountain states (Colorado, Utah
and Nevada). Separately, H.R. 4597 (Reynolds) and S. 2525 (Specter) would create five
regional marketing areas that would be allowed to establish a minimum fluid farm milk price
for the region. If the market price were to fall below the established price, processors would
be required to pay the difference between the two prices into a national fund, which would
be distributed back to dairy farmers in the participating regions by a formula. The payment
formula would be funded in part by a government contribution to the fund. States choosing
not to participate in the program would be allowed to continue participating in the MILC
program, which would be extended through FY2007, while participating states would be
prohibited from receiving MILC payments. Supporters contend that this proposed program
would help dairy farmers weather the effects of volatile farm milk prices. Opponents say that
it distorts dairy markets and could lead to overproduction.
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, 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.
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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
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.
As requested by the Senate Finance Committee, the International Trade Commission
completed a year-long investigation of U.S. market conditions for milk proteins, and filed
a written report on May 18, 2004. (See ftp://ftp.usitc.gov/pub/reports/studies/PUB3692.PDF
for the full report.) The ITC was asked to provide an overview of the global market of milk
proteins, information on how government support and intervention affects the protein
market, and assess how imported milk proteins affect U.S. farm milk prices. The ITC
determined that imports of milk proteins may have displaced 318 million lbs. of U.S.-
produced milk protein products over the 1998-2002 period, or an average of 63 million lbs.
per year. The ITC states that during this period, domestic milk proteins were in surplus by
a greater amount than what was likely displaced by protein imports. Therefore, they
concluded that most of the impact of milk protein product imports was absorbed by the
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taxpayer through additional purchases of surplus nonfat dry milk, and that farm-level prices
were not significantly affected. The ITC study also determined that the dairy price support
program creates a disincentive to manufacture MPCs in the United States. They found that
under most conditions, U.S. dairy processors could receive a higher return on the production
of nonfat dry milk compared with the production of MPCs.
Legislation has been introduced (H.R. 4223) that would authorize a federal program to
subsidize the domestic production of MPCs, with payment levels set at the discretion of the
Secretary of Agriculture. Supporters contend that the cost of these payments would be offset
by reduced purchases of surplus nonfat dry milk. They say that manufacturers will divert
production from surplus nonfat dry milk to MPCs, thus improving farm milk prices.
Opponents are concerned that the proposed subsidy program might be subject to a challenge
in the World Trade Organization. They also contend that even with a subsidy program, it
will be difficult for domestic producers to profit in the market because foreign competitors
have a greater price advantage.
Dairy Price Support Program
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.
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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.)
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
0.5
2,494 (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 $1.8 billion in Milk Income Loss Contract payments
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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
$9.90, not the monthly price. Farm milk prices improved significantly in the second half of
2003, and current market prices are well above the support price, at near record highs.
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.
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
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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.
H.R. 3990 (C. Peterson)
Amends the Farm Security and Rural Investment Act of 2002 to extend contracts for
national dairy market loss (MILC) payments through FY2007. Introduced March 19, 2004;
referred to Agriculture Committee.
H.R. 4223 (Nunes)
Authorizes a new U.S. Dairy Proteins Incentives Program to support the development
of a casein and milk protein concentrate industry in the 48 contiguous states. USDA would
make payments at a rate determined by the Secretary of Agriculture. Introduced April 27,
2004; referred to Agriculture Committee.
H.R. 4597 (Reynolds)
National Dairy Equity Act. Would create five regional marketing areas that would be
allowed to establish a minimum fluid farm milk price for the region that is above the federal
minimum price. Introduced June 16, 2004. 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.
S. 2525 (Specter)
National Dairy Equity Act. Would create five regional marketing areas that would be
allowed to establish a minimum fluid farm milk price for the region that is above the federal
minimum price. Introduced June 16, 2004. Referred to Agriculture Committee.
S. 2609 (Coleman)
Amends the Farm Security and Rural Investment Act of 2002 to extend contracts for
national dairy market loss payments through FY2007, and increases the eligible portion of
a producer’s milk production from the current 2.4 million lbs. to 4.8 million lbs. Referred
to Agriculture Committee.
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