Order Code RL34036
Dairy Policy and the 2008 Farm Bill
Updated June 13, 2008
Ralph M. Chite
Specialist in Agricultural Policy
Resources, Science, and Industry Division

Dairy Policy and the 2008 Farm Bill
Summary
Two ongoing federal programs that support the price and income received by
dairy farmers — the dairy price support program and the Milk Income Loss Contract
(MILC) program — were reauthorized with modifications in the Food, Conservation,
and Energy Act of 2008 (P.L. 110-234, the 2008 farm bill).
The MILC program allows participating dairy farmers to receive a government
payment when the farm price of milk used for fluid consumption falls below an
established target price. The enacted 2008 farm bill extends the MILC program
through FY2012 at the existing level of support, but increases the payment
percentage rate and the amount of eligible production. The target price also can be
increased in any month that feed costs are above a certain threshold. The MILC
program is supported by milk producer groups in the Northeast and the Upper
Midwest. Large farmers, particularly in the West, contend that the program payment
limit is biased against them. Market prices for farm milk have been substantially
above the target price for more than a year, precluding the need for MILC payments.
Separately, under previous farm law, the dairy price support program indirectly
supported the farm price of milk at $9.90 per hundredweight (cwt.) through
government purchases of surplus dairy products from dairy processors. The 2008
farm bill extends the dairy support program through December 31, 2012, but
modifies the program so that it directly supports the prices of dairy products at
mandated levels. This program shift was designed to help reduce the program’s
exposure under World Trade Organization limitations. Most dairy farm groups and
the Administration view the program as a necessary safety net in a market that is
frequently characterized by volatile prices. Dairy processors consider the price
support and MILC programs to operate at cross-purposes, which they say contributes
to surplus milk production.
A third federal dairy pricing policy tool, federal milk marketing orders, requires
dairy processors in many regions to pay a minimum price for farm milk depending
on its end use. Federal orders are permanently authorized and most changes are
made administratively by USDA through the rulemaking process. However, a
number of federal order issues were brought to the attention of Congress for the farm
bill debate. Included in the final bill is a provision that exempts dairy processors
from paying the federal minimum price whenever they forward contract prices with
dairy farmers. Separately, the enacted 2008 farm bill contains a provision that allows
USDA to implement a 2002 farm bill-mandated assessment on imported dairy
products, but reduces the import assessment to 7.5 cents per cwt. The import
assessment is supported by most milk producer groups, but opposed by dairy
importers and processors. (See Appendix A at the end of this report for a side-by-
side comparison of the enacted 2008 farm bill dairy provisions with previous law and
the House- and Senate-passed versions of the farm bill.)

Contents
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Milk Income Loss Contract (MILC) Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2008 Farm Bill Provisions and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
MILC Provisions in the 2008 Farm Bill . . . . . . . . . . . . . . . . . . . . . . . . 3
CBO Cost Estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Administration and Industry Positions . . . . . . . . . . . . . . . . . . . . . . . . . . 4
MILC Payment History . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Federal Cost of MILC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Dairy Price Support Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2008 Farm Bill Provisions and Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
WTO Implications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Federal Milk Marketing Orders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2008 Farm Bill Provisions and Issues
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Dairy Forward Contracting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Streamlining Rulemaking Procedures . . . . . . . . . . . . . . . . . . . . . . . . . 12
Dairy Import Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2008 Farm Bill Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Appendix A. Summary of Major Dairy Provisions in the Enacted 2008 Farm Bill:
Comparison with Previous Law and House- and Senate-Passed Bills . . . . 14
List of Tables
Table 1. Monthly Milk Income Loss Contract (MILC) Payment Rates . . . . . . . . . 5
Table 2. MILC Payments Ranked by State, FY2003-FY2007 . . . . . . . . . . . . . . . . 6
Table 3. Dairy Price Support Purchases and Costs, 1980/81-2006/07 . . . . . . . . . 8

Dairy Policy and the 2008 Farm Bill
Overview
The Food, Conservation, and Energy Act of 2008 (P.L. 110-234, the 2008 farm
bill) is the most recent omnibus farm bill, authorizing or reauthorizing a wide range
of programs for a multi-year period, including commodity price and income support,
farm credit, agricultural conservation, research, rural development, and foreign and
domestic food programs, among others. The 2008 farm bill became law on May 22,
2008, after the House and Senate successfully voted to override a veto of the
measure.
Subtitle E of the commodity programs title (Title I) of the enacted 2008 farm
bill contains the authority for two major ongoing dairy policy tools used by the U.S.
Department of Agriculture (USDA) to support the prices and incomes received by
dairy farmers — the dairy price support program (DPSP) and the Milk Income Loss
Contract (MILC) program. Previous authority for these programs was governed by
the 2002 farm bill (P.L. 107-171) through 2007, and extended into May 2008 by the
enactment of various short-term farm bill extensions. As part of more than one year
of hearings and debate on the omnibus farm bill, Congress considered whether to
reauthorize these two programs in their current forms or with modifications.
P.L. 110-234 reauthorizes the MILC program through September 30, 2012, and
the DPSP through December 31, 2012, with several modifications as discussed in
this report. The DPSP provides indirect price support to dairy farmers through
government purchases of surplus dairy products at stated prices. The MILC program
supports dairy farmer income through direct payments to participating dairy farmers
when the market price of farm milk in any month falls below a legislatively mandated
target price.
A third federal dairy policy tool, federal milk marketing orders, requires dairy
processors to pay a minimum price for farm milk depending on its end use. Federal
orders are permanently authorized and hence do not require periodic reauthorization.
Instead, changes are generally made administratively by USDA and approved by
farmer referendum. However, issues such as the proposed authority for processors
to be exempt from federal order minimum prices processors when they forward
contract with dairy farmers were brought to the attention of Congress in the farm bill
debate. P.L. 110-234 authorizes a temporary forward contract program (through
September 30, 2012) and contains safeguards designed to ensure that dairy farmers
are not compelled by processors to participate in the program. The 2008 farm bill
also authorizes a commission to review and evaluate federal milk marketing order
policies and procedures.
Separately, the 2008 farm bill requires Alaska, Hawaii, and Puerto Rico to
contribute to an ongoing dairy promotion program that is currently supported by

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mandatory assessments on dairy producers in the 48 contiguous states. This
provision was included to allow USDA to implement a 2002 farm bill-mandated
extension of this assessment to imported dairy products. This provision was
supported by most milk producer groups, but opposed by dairy importers and
processors.
See
Appendix A at the end of this report for a side-by-side comparison of the
enacted 2008 farm bill with current law and the House and Senate farm bill dairy
provisions.
Milk Income Loss Contract (MILC) Program
Background
In FY1999-FY2001, Congress provided just over $32.5 billion in emergency
spending for U.S. Department of Agriculture (USDA) farm commodity support
programs, primarily to help farmers recover from low farm commodity prices. The
majority of these funds were for supplemental direct farm payments made to
producers of certain supported farm commodities, including milk. Of this amount,
dairy farmers received total supplemental “market loss” payments of $1 billion over
three years.
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 these emergency payments, 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
strongly opposed regional compacts.
In response, 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) program.) This program was created 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. Authority for the MILC program originally expired on
September 30, 2005, as required by the 2002 farm bill. However, several subsequent
measures granted short-term extensions of the MILC program and many other
expiring farm bill authorities, ultimately until May 23, 2008, to allow Congress to
complete work on the 2008 farm bill.

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2008 Farm Bill Provisions and Issues
Under the now-expired 2002 farm bill authority for the MILC program,
participating dairy farmers nationwide were eligible for a federal payment whenever
the minimum monthly market price for farm milk used for fluid consumption (Class
I) in Boston fell below $16.94 per hundredweight (cwt.).1 Eligible farmers then
received a payment equal to 34% of the difference between the $16.94 target price
and the lower monthly market price. The 2002 law required that payments be limited
to the first 2.4 million pounds of annual milk production per dairy operation (which
is roughly equivalent to the total annual production of a 130-cow operation).
MILC Provisions in the 2008 Farm Bill. Section 1506 of the 2008 farm
bill (P.L. 110-234) extends the authority for the MILC program until September 30,
2012, and retains the base target price at $16.94 per cwt. However, the 2008 farm
bill makes significant changes to the MILC payment structure in the following ways:
! Payment Percentage Rate Increased: Until September 30, 2008, a
dairy producer will continue to receive a payment equal to 34% 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. However, from October 1, 2008 through August 31, 2012,
the 2008 farm bill raises the payment rate to 45% of the price
deficiency, which will result in a one-third larger payment to eligible
farmers in months when a payment is triggered. The payment
percentage rate will revert to the 34% level for the final month of the
program. This reversion was included to minimize long-term budget
outlays, so that the cost of increasing the percentage payment rate
does not get built into the baseline budget once the program expires.
! Production Payment Limit Increased: The 2008 farm bill maintains
the payment quantity limit at 2.4 million pounds through September
30, 2008, and then raises the payment limit to 2.985 million pounds
of annual production (equivalent to about a 160-cow operation)
between October 1, 2008, and August 31, 2012. Like the increase in
the percentage payment rate, the eligible production limit will revert
to its original level (2.4 million lbs.) for the last month of program
authority (September 2012) so that the budget baseline for future
years does not include the cost of the increase. Since the inception
of the MILC program, large dairy farm operators expressed concern
that the 2.4 million lb. payment limit negatively affected their
income. For larger farm operations, their annual production is well
in excess of the limit, and any production in excess of that receives
no federal payments. An increase was not part of the House-passed
version of the bill, and the final level of 2.985 million lbs. is below
the Senate-passed level of 4.15 million lbs.
1 A hundredweight (or one hundred pounds) of milk is roughly equivalent to 11.6 gallons
of milk.

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! Payment Level Feed-Price Adjustment: Because of the rapidly
rising cost of feed, some dairy farm groups had sought some type of
adjustment to federal dairy support programs to soften the impact.
The final 2008 farm bill includes a provision that adjusts upward the
$16.94 target price in any month when feed prices are above a
certain threshold. The law requires USDA to calculate monthly a
National Average Dairy Feed Ration Cost based on a formula that
USDA currently uses to calculate feed costs. In any month that the
average feed cost is above $7.35 per cwt., the $16.94 target price
will be increased by 45% of the difference between the monthly feed
cost and $7.35. To reduce budget exposure, the threshold feed cost
will rise to $9.50 per cwt., effective for the last month of the
program (September 2012).
CBO Cost Estimates. The Congressional Budget Office (CBO) estimates
that the increase in the percentage payment rate to 45%; the increase in the payment
limit to 2.985 million lbs. of annual production; and the institution of a new feed cost
adjuster will together add $395 million to the cost of the MILC program over the
five-year authorization period (FY2008-FY2012). This budget scoring is based on
the March 2007 CBO baseline, which is the official benchmark for the scoring of the
2008 farm bill. When scored against the more recent CBO baseline (March 2008),
the changes in the MILC program would increase MILC programs costs by a smaller
amount ($105 million over five years), since projected milk market prices are now
expected to remain above the target MILC price for most of the five-year period.
Administration and Industry Positions. The Administration supported
a continuation of MILC payments at the current target price of $16.94 per cwt. and
the 2.4 million lb. payment cap. However, in order to defray the cost of MILC
program extension, the Administration recommended that the percentage payment
rate be gradually reduced over a five-year period to 20% by FY2013. The
Administration also wanted to base payments on historical production rather than
current production in order to forestall potential challenges to the program in the
World Trade Organization (WTO).
The National Milk Producers Federation (NMPF), the largest trade association
representing dairy farmer cooperatives, also supported a direct payment program for
farmers. In order to make the program less susceptible to challenges in the WTO,
NMPF initially proposed making direct payments of $0.50 per cwt. to dairy farmers
(regardless of the level of market prices) on the average production level of 2005 and
2006, up to $40,000 per farm.
The International Dairy Foods Association (IDFA), the largest trade association
of dairy processors, opposed extension of the MILC program, contending that it
works at cross purposes with the dairy price support program and contributes to the
overproduction of milk and to high government costs. Instead, IDFA proposed a
dairy farm revenue insurance program that it said would provide a better safety net
for farmers without distorting milk markets.

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MILC Payment History
USDA began accepting applications for the original MILC Program on August
15, 2002. (See Table 1 for MILC payment history.) In September 2007, farm milk
prices set a record high as the Class I Boston farm milk price reached $25.16 per
cwt., which is $9.22 above the $16.94 per cwt. target price. For the latter half of 2007
and the first half of 2008, farm milk prices have remained well above the MILC
trigger price, precluding the need for any MILC payments.
Table 1. Monthly Milk Income Loss Contract (MILC)
Payment Rates
Payment (per
Payment (per
Month
Month
hundredweight)
hundredweight)
December 2001
$0.77
January 2004
$0.83
January 2002
$0.78
February 2004
$0.95
February 2002
$0.78
March 2004
$0.79
March 2002
$0.93
April 2004
$0.02
April 2002
$1.00
May 2004-May 2005
$0.00
May 2002
$1.09
June 2005
$0.03
June 2002
$1.20
July-November 2005
$0.00
July 2002
$1.38
December 2005
$0.04
August 2002
$1.45
Jan.-Feb. 2006
$0.105
September 2002
$1.45
March 2006
$0.41
October 2002
$1.59
April 2006
$0.84
November 2002
$1.39
May 2006
$0.925
December 2002
$1.43
June 2006
$1.00
January 2003
$1.41
July 2006
$0.80
February 2003
$1.56
August 2006
$0.925
March 2003
$1.75
September 2006
$0.965
April 2003
$1.82
October 2006
$0.43
May 2003
$1.79
November 2006
$0.44
June 2003
$1.78
December 2006
$0.43
July 2003
$1.76
January 2007
$0.03
August 2003
$1.22
February 2007
$0.10
Sept.- Dec. 2003
$0.00
Mar 2007-June 2008
$0.00
Source: USDA, Agricultural Marketing Service (AMS).

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Table 2. MILC Payments Ranked by State, FY2003-FY2007
FY2003
FY2004
FY2005
FY2006
FY2007
Total
Wisconsin
$372,042,880
$41,754,746
$1,369,537
$71,838,550
$23,906,505
510,912,218
New York
169,423,978
17,222,870
383,632
32,257,023
10,605,556
229,893,059
Pennsylvania
160,673,846
19,263,582
1,352,555
27,082,715
10,659,170
219,031,867
Minnesota
147,400,075
15,946,997
286,412
27,169,579
9,941,499
200,744,562
California
122,764,930
25,142,045
1,186,734
34,913,717
10,878,010
194,885,436
Michigan
75,828,865
8,799,034
316,507
15,563,328
5,234,795
105,742,529
Ohio
68,772,479
7,550,599
194,479
11,922,216
4,117,464
92,557,237
Iowa
60,686,427
6,512,172
236,348
11,629,909
4,216,210
83,281,065
Texas
38,793,821
6,282,787
199,362
9,024,192
2,833,816
57,133,978
Vermont
40,826,421
4,389,019
138,325
8,126,455
2,358,159
55,838,379
Idaho
33,211,800
5,496,523
371,276
8,719,484
1,699,743
49,498,825
Missouri
36,267,942
3,426,748
128,206
6,204,901
1,954,645
47,982,442
Illinois
34,170,687
3,818,084
158,274
6,144,976
2,098,120
46,390,142
Washington
30,869,213
5,064,507
111,841
7,539,782
1,855,240
45,440,583
Indiana
30,180,470
3,510,016
214,743
5,255,495
1,548,957
40,709,680
Kentucky
31,094,215
3,364,755
96,648
4,508,582
1,553,071
40,617,271
Virginia
29,876,611
2,895,202
324,527
5,174,178
1,588,842
39,859,361
Tennessee
24,469,076
2,545,783
62,281
3,853,946
1,389,069
32,320,156
South Dakota
20,355,578
2,148,893
31,015
3,738,836
1,073,656
27,347,977
Maryland
18,132,857
1,774,254
161,405
3,184,670
919,536
24,172,721
Oregon
16,295,432
2,178,087
35,910
4,036,387
1,163,919
23,709,736
Utah
15,782,707
2,027,249
-18,216
3,419,809
742,235
21,953,784
Georgia
15,764,327
1,930,999
31,078
3,136,152
1,041,666
21,904,223
Kansas
15,747,021
1,775,859
57,526
2,765,443
822,813
21,168,662
North Carolina
15,395,265
1,766,672
35,218
2,764,319
662,802
20,624,275
Nebraska
14,835,308
1,588,040
121,518
2,544,254
857,155
19,946,274
Puerto Rico
12,388,197
4,222,742
381,336
966,771
1,006,833
18,965,879
New Mexico
11,493,657
2,825,129
127,273
3,354,332
1,095,265
18,895,657
Oklahoma
12,519,405
1,307,138
50,983
1,958,338
597,487
16,433,350
Louisiana
11,430,924
1,066,703
31,415
1,517,821
449,378
14,496,240
Florida
9,783,286
1,761,420
31,601
2,342,573
677,334
14,596,214
Maine
10,250,302
984,845
13,481
1,904,303
585,737
13,738,668
Colorado
8,754,312
1,537,030
52,001
2,051,322
595,154
12,989,820
Arizona
7,641,285
1,526,600
163,838
2,138,679
540,790
12,011,193
North Dakota
8,964,621
1,111,814
56,389
1,291,575
514,520
11,938,920
Mississippi
8,916,963
880,166
66,520
1,189,543
370,512
11,423,703
Arkansas
7,499,823
665,206
27,202
1,011,333
242,656
9,446,219
Massachusetts
6,877,027
625,496
8,973
1,113,219
294,619
8,919,334
Connecticut
6,143,097
699,449
8,509
1,145,967
307,292
8,304,314
New Hampshire
5,095,796
515,693
11,031
973,494
306,335
6,902,350
Montana
4,901,714
519,903
21,112
1,023,945
239,646
6,706,320
South Carolina
4,779,476
529,781
52,581
914,359
275,777
6,551,974
Alabama
4,286,766
512,368
3,719
593,777
131,026
5,527,655
West Virginia
3,942,927
459,851
13,707
614,441
173,187
5,204,113
New Jersey
4,012,708
373,719
2,101
596,928
233,424
5,218,879
Nevada
2,014,582
351,358
25,597
589,067
56,619
3,037,224
Delaware
1,768,299
184,425
2,947
310,154
132,339
2,398,163
Wyoming
1,015,120
101,807
2,655
205,252
50,521
1,375,356
Hawaii
407,366
117,018
46,913
52,150
13,763
637,210
Rhode Island
451,901
36,430
390
58,558
24,271
571,550
Alaska
350,368
26,291
358
35,340
14,114
426,472
Virgin Islands
100,347
7,723
83
8,682
0
116,835
TOTAL
1,795,452,502
221,125,627
8,789,854
350,480,820
114,651,255
2,490,500,058

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Federal Cost of MILC
Over the more than five years of MILC program payment authority, its
cumulative cost has been just under $2.5 billion — $1.8 billion in FY2003, $221
million in FY2004, $8.8 million in FY2005, $350.5 million in FY2006, $114.7
million in FY2007, and no outlays in FY2008 to date. The FY2003 total includes two
fiscal years worth of payments, since retroactive payments for FY2002 were made
over the course of FY2003. Five states have accounted for just over one-half of the
total payments made over the time period (see Table 2).
Dairy Price Support Program
The Agricultural Act of 1949 first established the dairy price support program
(DPSP) 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 3 for a
recent history of spending on the dairy price support program and related activities.)
Section 1501 of the Farm Security and Rural Investment Act of 2002 (P.L. 107-171,
the omnibus 2002 farm bill) authorized a 5½-year extension of the program through
December 31, 2007, at the then-current support price of $9.90 per hundredweight
(cwt.) of farm milk. Several measures were enacted to provide short-term extensions
of many expiring USDA programs, including the DPSP, so that Congress could
complete work on a new farm bill.
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 price of milk for all dairy farmers.
Under the 2002 farm bill, prices paid to the processors were set administratively by
USDA at a level that would 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 that were administratively established by USDA: $1.05 per pound
for butter, $0.80 for nonfat dry milk, $1.13 per pound for block cheddar, and $1.10
per pound 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 supports
the farm price of milk at $9.90 per cwt.
Government purchases of surplus dairy products have been relatively small
since late 2003, as market prices have remained above the support price during that
period. In the early 1980s, the support price was $13.10 per cwt. and government

CRS-8
purchases peaked at $2.6 billion in 1983. A gradual decline in the support price to
$9.90 has significantly reduced the cost of the program from peak levels
Table 3. Dairy Price Support Purchases and Costs,
1980/81-2006/07
CCC
Net Removals
CCC Support
Marketing
Net Outlays
Purchases as
Milk Equivalent
Price
Yeara
(million $)
Percentage of
(billion lbs.)b
($ 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
280
10.05-9.90
0.2
1999-2000
0.8
569
9.90
0.5
2000-01
0.3
465
9.90
0.2
2001-02
0.2
622
9.90
0.1
2002-03
0.5
699
9.90
0.3
2003-04 NA
74
9.90
NA
2004-05 NA
-
104
9.90
NA
2005-06
NA
60
9.90
NA
2006-07
NA
22
9.90
NA
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.
NA = Not Available

CRS-9
2008 Farm Bill Provisions and Issues
Section 1501 of the enacted 2008 farm bill (P.L. 110-234) extends the dairy
support program for five years (through December 31, 2012), but modifies the
program so that it directly supports the prices of manufactured dairy products at
mandated levels. The 2008 farm bill renames the program the Dairy Product Price
Support Program and requires USDA to purchase products at the following minimum
prices: block cheese, $1.13/lb.; barrel cheese, $1.10/lb.; butter, $1.05/lb.; and nonfat
dry milk, $0.80/lb. Under previous law, the support price for farm milk was
statutorily set at $9.90 per cwt., and USDA was given the administrative authority
to establish a combination of dairy product purchase prices that indirectly supported
the farm price of milk at $9.90. Although the 2008 law does not specifically state
that the overall support price is $9.90 per cwt, each of the mandated product prices
in the law is equivalent to the current product purchase prices, so farm milk prices
effectively will continue to be supported at $9.90.
The shift to a mandated product price support program was based on a proposal
submitted by the National Milk Producers Federation (NMPF), which contended that
the previous discretion given to USDA to establish purchase prices has “undermined
the program’s effectiveness.”2 NMPF also contends that a shift to a dairy product
price support program would be viewed as less trade distorting in the WTO than the
previous support program. (See “WTO Implications,” below.)
In order to minimize program costs and the potential accumulation of excess
inventories, the 2008 farm bill allows USDA to temporarily reduce the mandated
prices when government purchases of a product exceed a certain specified level. The
law allows USDA to reduce (1) the cheese purchase price by up to $0.10 per lb. when
government purchases for a consecutive 12-month period are between 200 million
and 400 million lbs, and up to $0.20 per lb when purchases exceed 400 million lbs.;
(2) the butter purchase price by $0.10 per lb. when 12-month butter purchases are
between 450 million and 600 million lbs, and up to $0.20 per lb. when purchases
exceed 650 million lbs.; and (3) the nonfat dry milk purchase price by $0.05 per lb.
when 12-month nonfat dry milk purchases are between 600 million and 800 million
lbs., and up to $0.10 per lb. when purchases exceed 800 million lbs. Also, at any
time, USDA can sell inventoried dairy products at prevailing market prices, as long
as the selling price is at least 120% of the supported price.
In its farm bill proposal, the Administration supported the extension of the dairy
price support program, viewing it as a low-cost stabilizing influence on farm milk
prices. It stated that many dairy producers see the need for a floor to be kept under
farm milk prices to maintain an adequate milk supply and provide a safety net. Dairy
processor groups have expressed concern that the dairy price support program in
combination with MILC payments work at cross-purposes, by artificially stimulating
milk production and causing persistent surpluses. They also question whether having
the government as a guaranteed buyer of surplus products discourages investment to
2 See p. 4 of “National Dairy Policy Direction: NMPF’s 2007 Farm Bill Package,” at
[http://www.nmpf.org/files/file/NMPF%20Policy%20Direction.pdf].

CRS-10
produce dairy ingredients (e.g., milk protein concentrates) that are increasingly in
demand in the market.
WTO Implications. Separately, some policymakers have been concerned that
because of the way domestic price support programs are viewed under our trade
obligations in the World Trade Organization (WTO), modifications to dairy support
might be required under a new trade agreement. Although federal outlays for the
dairy price support program have been relatively small (under $100 million) in recent
years (see Table 3), the WTO measures the level of support differently.
Under current U.S. trade obligations, the aggregate measure of support for dairy
is based on how much higher the domestic support price is set above a fixed world
reference price (established in the WTO at a fixed level of $7.25 per cwt.). The
imputed subsidy of $2.65 per cwt. (i.e., the $9.90 domestic support price less the
$7.25 reference price) is applied to all domestic milk production. Using this formula,
the United States has notified the WTO that the aggregate measure of support for the
dairy price support program is more than $4.8 billion annually; and it is classified as
“amber box,” or the most trade-distorting category. The current U.S. proposal in the
Doha Round is to reduce its total amber box support from the current $19.1 billion
to $7.6 billion. With dairy support representing such a large percentage of the
proposed new maximum, some have expressed interest in shifting future policy away
from price support to some type of WTO-compliant direct payment that is decoupled
from price and production. Supporters of the shift to a dairy product price support
program maintain that, under the revised program, only the portion of milk
production that goes into the production of the supported products would have to be
notified to the WTO, and that fluid-use milk and milk used for unsupported
manufactured products such as yogurt and ice cream would be exempt.
Federal Milk Marketing Orders
Background
The farm price of approximately two-thirds of the nation’s fluid milk is
regulated under federal milk marketing orders. Federal orders, which are
administered by the U.S. Department of Agriculture (USDA), were instituted in the
1930s to promote orderly marketing conditions by, among other things, applying a
uniform system of classified pricing throughout the market. Some states, California
for example, have their own state milk marketing regulations instead of federal rules.
Producers delivering milk to federal marketing order areas are affected by two
fundamental marketing order provisions: the classified pricing of milk according to
its end use, and the pooling of receipts to pay all farmers a blend price.
Federal orders regulate dairy handlers (processors) who sell milk or milk
products within a defined marketing area by requiring them to pay not less than
established minimum class prices for the Grade A milk they purchase from dairy
producers, depending on how the milk is used. This classified pricing system
requires handlers to pay a higher price for milk used for fluid consumption (Class I)
than for milk used in manufactured dairy products such as yogurt, ice cream, and sour

CRS-11
cream (Class II products), cheese (Class III), and butter and dry milk products (Class
IV products). These differences between classes reflect the different market values
for the products.
Blend pricing allows all dairy farmers who ship to the market to pool their milk
receipts and then be paid a single price for all milk based on order-wide usage (a
weighted average of the four usage classes). Paying all farmers a single blend price
is seen as an equitable way of sharing revenues for identical raw milk directed to both
the higher-valued fluid market and the lower-valued manufacturing market.
Manufactured class (Class II, III and IV) prices are the same in all orders
nationwide and are calculated monthly by USDA based on current market conditions
for manufactured dairy products. The Class I price for milk used for fluid
consumption varies from area to area. Class I prices are determined by adding to a
monthly base price, a “Class I differential” that generally rises with the geographical
distance from milk surplus regions in the Upper Midwest, the Southwest, and the
West. Class I differential pricing is a mechanism designed to ensure adequate
supplies of milk for fluid use at consumption centers. The supply of milk may come
from local supplies or distant supplies, whichever is more efficient. However, local
dairy farmers are protected by the minimum price rule against lower-priced milk that
might otherwise be hauled into their region.
Proponents of federal orders argue that orders are necessary because dairy
farmers have a competitive disadvantage vis-à-vis dairy handlers (processors) when
it comes to determining prices that farmers receive for their raw, perishable milk.
Critics contend that federal orders are arcane and outdated, and that the complexity
of the system places dairy processors at a competitive disadvantage in the market.
2008 Farm Bill Provisions and Issues
Dairy Forward Contracting. A forward contract is a cash market transaction
in which a seller agrees to deliver a specific commodity to a buyer at some point in
the future at a mutually agreed to price. A dairy farmer and a proprietary milk
handler3 theoretically can engage in a forward contract, whereby the farmer would
deliver milk to the processor at an agreed to price and future date of delivery.
However, under current statute, if the monthly federal milk marketing order
minimum price is above the forward contract price, the handler is still required to pay
at least the federal order price for the milk. Proprietary handlers, therefore, have little
incentive to enter into forward contracts, since they are prohibited from paying a
price less than the federal milk marketing order minimum price. A pilot dairy
forward pricing program was authorized by the FY2000 omnibus appropriations act,
which USDA implemented from mid-2000 until its required expiration date of
December 31, 2004.4
3 A proprietary handler is a milk processing company that is owned privately or publicly by
investors other than milk producers. This structure differs from a cooperative, which is
owned and operated by its farmer members.
4 For more information on the pilot program, see the USDA Agricultural Marketing Service
(continued...)

CRS-12
2008 Farm Bill Provisions. Section 1502 of the enacted 2008 farm bill
authorizes a dairy forward pricing program that is to be administered in a similar
manner as the temporary pilot program in 2000-2004. Like the original pilot
program, the forward pricing program allows dairy farmers and cooperatives to
voluntarily enter into forward contracts with milk handlers. Any payments made by
milk handlers under the contract will be deemed to satisfy the minimum price
requirements of federal milk marketing orders. The program applies only to milk
purchased for manufactured products (Classes II, III, and IV), and therefore does not
include milk purchased for fluid consumption (Class I). The provision allows new
contracts to be entered into until September 30, 2012, but no contract can extend
beyond September 30, 2015.
Dairy processor groups, primarily the International Dairy Foods Association,
sought this provision so that proprietary handlers could be exempt from the minimum
pricing requirements of federal orders when they enter into a forward contract with
dairy farmers. Proponents contend that proprietary handlers should have the same
ability to forward contract as dairy cooperatives. (Under current law, dairy
cooperatives are exempt from having to pay the federal order minimum prices to its
members.) They also maintain that forward pricing is an effective risk management
tool for both farmers and processors, allowing them to insulate themselves from the
volatility of farm milk prices. Critics, including the National Milk Producers
Federation, were concerned that handlers might compel small farmers to participate
in a contract, and possibly use the contract as a means of undermining the federal
order pricing system.

Streamlining Rulemaking Procedures. Unlike the dairy price support
program and the milk income loss contract program, federal milk marketing orders
are permanently authorized and therefore do not require periodic reauthorization by
Congress. Instead, changes to federal milk marketing orders are handled
administratively by USDA’s Agricultural Marketing Service. The authorizing statute
for federal milk marketing orders requires USDA to use formal rulemaking
procedures to make changes to orders. Any interested party can petition USDA to
create a new order or amend an existing one. The terms of a new or amended order
are developed through public participation (producers, processors and consumers) in
hearings held by USDA prior to the issuance of the order. USDA analyzes the
hearing records and then recommends the terms and provisions of milk marketing
orders. If two-thirds of the voting producers approve a new or an amended marketing
order, the Secretary then approves and issues the order.
Some dairy producer groups have expressed concern that this rulemaking
procedure can take many months and sometimes years to reach a conclusion and that
the process needs to be streamlined. USDA admits that the process is time
consuming, but counters that it provides for maximum industry participation and
transparency. The International Dairy Foods Association (IDFA) contends that the
rulemaking process prevents dairy farmers and processors from competing with other
food and beverage industries that are not faced with government intervention. IDFA
4 (...continued)
website at [http://www.ams.usda.gov/dairy/for_contr_pilot.htm].

CRS-13
considers federal milk marketing orders to be outdated and unresponsive to market
forces, and proposed that Congress establish a blue ribbon commission of
stakeholders and experts to review the federal order system in its entirety.5
2008 Farm Bill Provisions. Section 1504 of the enacted 2008 farm bill
contains several revisions to federal order amendment procedures that include time
limits for USDA to take specific actions. Section 1509 includes the authorization
of a blue ribbon commission to examine the future and efficacy of federal milk
marketing orders.
Dairy Import Assessment
The Dairy Producer Stabilization Act of 1983 (7 U.S.C. 4501-4514) authorized
a national dairy producer program for generic dairy product promotion, research, and
nutrition education. The program is funded through a mandatory 15-cent per
hundredweight assessment on all milk produced and marketed in the 48 contiguous
states. Section 1505 of the 2002 farm bill (P.L. 107-171) amended the 1983 act
requiring that the 15-cent assessment be collected on all imported dairy products.
Section 1505 also required USDA to consult with the Office of the U.S. Trade
Representative (USTR) before implementing the assessment on imports to ensure
that the new requirement is consistent with U.S. international trade obligations. After
consulting with the USTR, the Secretary of Agriculture determined that a mandatory
dairy import assessment is not permissible, since Alaska and Hawaii are exempt from
the domestic assessment. According to USDA, the exemption treats some domestic
producers more favorably than importers, thereby violating U.S. trade obligations.
Hence, USDA has never implemented the import assessment.
2008 Farm Bill Provisions. Section 1507 of the enacted 2008 farm bill
adopts the Administration’s proposal to ensure that the current 15-cent assessment
applies to Alaska, Hawaii and Puerto Rico. The Administration contends that the
statutory change would make the definition of the United States consistent with the
definition used by the USTR and U.S. trading partners, thus allowing them to
implement the assessment in imported products. The enacted 2008 farm bill also
reduces the assessment on imports from 15 cents to 7.5 cents.
The import assessment is supported by most dairy producer groups. However,
milk producers in Alaska and Hawaii were opposed to any definition change that
required them to contribute to the program. Dairy importers and processors are
opposed to the import assessment, contending that it is an unfair tax on imported
products which they say could be challenged as trade distorting in the World Trade
Organization, regardless of whether Alaska and Hawaii are included.
5 See page 22 of the International Dairy Foods Association’s Blueprint for the 2002 Farm
Bill, “Ensuring a Healthy U.S. Dairy Industry” at [http://www.healthydairyindustry.org].

CRS-14
Appendix A. Summary of Major Dairy Provisions in the Enacted 2008 Farm Bill:
Comparison with Previous Law and House- and Senate-Passed Bills
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
PREVIOUS LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-234)
Dairy Price Support Program
Mandatory support for farm price of milk
Mandates the direct support of cheese,
Similar to the House bill.
Adopts the House provision.
at $9.90 per hundredweight (cwt.).
nonfat dry milk, and butter at specified
[Secs. 1601(a)-(b)]
[Sec. 1501(b)]
Program authority expired on December
prices for five years (through December
31, 2007, but was extended into May
31, 2012). This is a change from
2008 by the enactment of various short-
supporting the farm price of milk. [Secs.
term farm bill extensions. [7 U.S.C.
1401(a)-(b)]
7981a-c]
Farm support price of $9.90 indirectly
Specifies minimum purchase prices of:
Similar to the House bill.
Adopts the House provision.
maintained by USDA offer to purchase
block cheese, $1.13/lb.; barrel cheese,
[Secs. 1601(b)-(c)]
[Sec. 1501(c)]
butter, cheese, and nonfat dry milk from
$1.10/lb.; butter, $1.05/lb.; and nonfat
processors at prices determined by
dry milk, $0.80/lb (same levels currently
USDA that allow buyers to pay farmers
used to support the farm price at $9.90
at least the support price. [7 U.S.C.
per cwt.) Allows USDA sale of acquired
7981a-c]
products when market prices rise to
110% of purchase price. [Sec. 1401(b)]
No more than twice annually, USDA can
Allows a temporary reduction of
No comparable provision.
Adopts the House provision.
adjust the purchase prices of butter and
mandated purchase prices when USDA
[Sec. 1501(d)]
nonfat dry milk (reduce one and raise the
acquisitions of surplus dairy products
other) in order to minimize acquisitions.
exceed specified levels. [Sec. 1401(c)]
[7 U.S.C. 7981d]
Milk Income Loss Contract Payments
The 2002 farm bill mandated a new
Extends the MILC program for five
Increases, through August 31, 2012, the
Extends the MILC program through
counter-cyclical payment program, the
years, through September 30, 2012, at the
payment rate to 45%, and raises the cap
September 30, 2012 and maintains the
Milk Income Loss Contract (MILC)
current target price of $16.94/cwt.
on eligible annual production to 4.15 mil.
target price at $16.94. Until October 1,
program. When the monthly fluid milk
Payment rate remains at 34% of any
lbs. per farm. Payment rate and
2008, payment percentage rate continues
price falls below $16.94/cwt., all dairy
deficiency between the market price and
production cap would return to 34% and
at 34%, and production payment limit at
farmers are paid an amount equal to 34%
the target price, and eligible production
2.4 mil. lbs. for the last month of
2.4 million lbs. From October 1, 2008

CRS-15
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
PREVIOUS LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-234)
of the difference between $16.94 and the
continues to be capped at 2.4 mil. lbs. per
program authority in September 2012.
through August 31, 2012, the rate is
lower market price. Payments per farm
farm per year. [Sec. 1406]
[Sec. 1602]
increased to 45% and the limit to 2.985
are limited to 2.4 million lbs. of annual
million lbs. Reverts to 34% and 2.4
production. MILC authority expired
million lbs. for September 2012. The
Sept. 30, 2005, but was extended into
$16.94 target can be adjusted in any
May 2008 by the enactment of various
month that feed costs are higher than a
short-term extensions. [7 U.S.C. 7982]
specified level. [Sec. 1506]
Dairy Forward Pricing Program
The FY2000 omnibus appropriations act
Authorizes a dairy forward pricing
Similar to the House bill. [Sec. 1606]
Adopts the House provision. [Sec. 1502]
authorized a pilot dairy forward pricing
program similar to the pilot program of
program implemented from mid-2000
2000-2004. Price paid by milk handlers
until its required expiration date of
under the contracts are deemed to satisfy
December 31, 2004. It exempted
the minimum price requirements of
handlers from having to pay farmers the
federal milk marketing orders. Applies
federal order price when the forward
only to milk purchased for manufactured
contract price turns out to be lower.
products (Classes II, III, and IV), and
[7 U.S.C. 627]
excludes milk purchased for fluid
consumption (Class I). Allows for new
contracts until September 30, 2012, but
no contract can extend beyond
September 30, 2015. [Sec. 1402]
Dairy Export Incentive Program
Provides cash bonus payments to U.S.
Extends DEIP through December 31,
Extends DEIP through December 31,
Adopts the House provision. [Sec. 1503]
dairy exporters, subject to World Trade
2012, with a reference to the Uruguay
2012. [Sec. 1603(a)]
Organization obligations to limit export
Round Agreements Act. [Sec. 1403]
subsidies. No DEIP bonuses have been
awarded since FY2004. Program
authority was extended into May 2008 by
the enactment of various short-term farm
bill extensions. Intended to counter
foreign (mostly EU) dairy subsidies. [15
U.S.C. 713a-14(a)]


CRS-16
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
PREVIOUS LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-234)
Dairy Indemnity Program
Authorizes payments to dairy farmers
Extends the Dairy Indemnity Program
Similar to the House bill. [Sec. 1603(b)]
Adopts the House provision [Sec. 1505]
when a public regulatory agency directs
through December 31, 2012. [Sec. 1405]
removal of their raw milk from the
market because of contamination by
pesticides, nuclear radiation or fallout, or
toxic substances and other chemical
residues. Program authority was
extended into May 2008 by the
enactment of various short-term farm
bill extensions.
[7 U.S.C. 450l]
Dairy Promotion and Research Program
The Dairy Producer Stabilization Act of
Extends promotion and research program
Extends program authority through Sep.
Adopts the House provision. Also
1983 authorized a generic dairy product
authority through Sep. 30, 2012. Amends
30, 2012. Does not address the issue
reduces the assessment to be paid by
promotion, research, and nutrition
the 1983 Act to require producers in all
involving the import assessment.
importers to 7.5¢/cwt. Authorizes USDA
education program, funded by a
50 states, the District of Columbia, and
[Sec. 1604]
to issue regulations on time and method
mandatory 15¢/cwt assessment on milk
Puerto Rico to pay the 15¢/cwt.
of importer payments. [Sec. 1507]
produced/marketed in the 48 contiguous
assessment. [Sec. 1407]
states. Assessment extended to imports
by Sec. 1505 of 2002 farm bill. Import
assessment never collected because the
exclusion of some states was considered
inconsistent with WTO rules. Program
authority was extended into May 2008 by
the enactment of various short-term farm
bill extensions. [7 U.S.C. 4501-4514]
Federal Milk Marketing Orders
Federal milk marketing order rules issued
Creates a Federal Milk Marketing Order
Creates a Federal Milk Marketing Order
Creates a Federal Milk Marketing Order
by USDA place requirements on the first
Review Commission to review and
Review Commission, with same overall
Review Commission with 14 members
buyers or handlers of milk, including
evaluate the current federal and similar
functions and purposes as the House bill,
appointed by USDA. Objectives of the

CRS-17
SENATE-PASSED SUBSTITUTE
ENACTED 2008 FARM BILL
PREVIOUS LAW/POLICY
HOUSE-PASSED FARM BILL (H.R. 2419)
AMENDMENT (H.R. 2419)
(P.L.110-234)
paying at least minimum prices for the
state order systems. The 18-member
but with some differences in the
commission are similar to but modified
milk depending on its end use. Perm-
Commission is to consider legislative and
appointment of members and issues to be
from the House version. [Sec. 1509]
anent federal authority to regulate the
administrative options for: ensuring the
studied. [Sec. 1608]
handling of milk was first provided in the
competitiveness of farmers and
Agricultural Adjustment Act of 1933,
processors, and simplifying and
and subsequently revised by the Agri-
streamlining the federal order system.
cultural Marketing Agreement Act of
Report is due within two years of the first
1937, as amended. [7 U.S.C. 601 et seq.]
meeting. [Sec. 1409]
When USDA amends federal orders, it
Revises order amendment procedures by
Also revises amendment procedures by
Includes elements of both bills with
must issue a notice of a hearing at least
placing time constraints on USDA at
establishing a timetable for certain
regard to the time constraint provisions,
three days prior to the hearing.
various steps of the amendment process.
actions, but with some differences.
avoidance of duplication, and use of feed
[7 U.S.C. 608c(17)]
[Sec. 1404]
[Sec. 1605]
and fuel costs for hearings involving
adjustments to make allowances.
[Sec. 1504]
In late April 2007, USDA announced an
Requires USDA, within 90 days of
Similar to the House bill, except that the
Adopts the Senate provision. [Sec. 1508]
error in nonfat dry milk prices reported to
enactment, to submit a report to Congress
report is to be filed with the House and
them by manufacturers over the previous
on price reporting procedures for nonfat
Senate Agriculture Committees. [Sec.
12 months. The error contributed to
dry milk, and the effect these procedures
1607)
lower farm milk prices than would
have had on marketing order pricing
otherwise have been the case.
since July 1, 2006. [Sec. 1408]
Mandatory Dairy Commodity Price Reporting
Dairy Market Enhancement Act of 2000
No comparable provision.
Requires manufacturers to report sales
Authorizes USDA to establish an
requires manufacturers to report to
transactions daily. Requires USDA to
electronic reporting system (subject to
USDA the price, quantity, and moisture
publish the data each reporting day and
available funds), after which increased
content of dairy products sold. [7 U.S.C.
compare it with other dairy market
frequency in mandatory reporting of
1637b]
statistics on a quarterly basis.
dairy product sales would be required.
[Secs. 1609 and 1610]
Provides for quarterly audits of submitted
information and comparison with related
dairy market statistics. [Sec. 1510]