.

Proposed Import Restrictions on Milk Protein
Concentrates (MPCs)
Dennis A. Shields
Analyst in Agricultural Policy
Charles E. Hanrahan
Senior Specialist in Agricultural Policy
September 30, 2009
Congressional Research Service
7-5700
www.crs.gov
R40839
CRS Report for Congress
P
repared for Members and Committees of Congress
c11173008

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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

Summary
Low farm milk prices and declining dairy sector income in 2009 have renewed congressional
interest in imposing new import barriers on milk protein concentrates (MPCs), which generally
include casein, the main protein found in milk, and caseinates, a soluble form of casein. To limit
U.S. imports of MPCs, the Milk Import Tariff Equity Act was introduced in the Senate (S. 1542)
on July 30, 2009, and in the House (H.R. 3674) on September 29, 2009. Advocates of stricter
import controls on MPCs say they would prevent the unlimited importation of milk protein,
which would encourage the use of domestically produced protein and raise milk prices for dairy
farmers. Opponents, including dairy product manufacturers, respond that the prospective move
would increase their costs and result in higher retail food prices. MPCs are used in a variety of
food products (e.g., infant formula, processed cheese products, and specialty sports and medical
nutrition products), animal feed, and industrial products.
Currently, U.S. imports of MPCs are assessed very low or no tariffs while many other dairy
product imports are restricted by tariff-rate quotas (TRQs), which impose low import duties on
quantities inside a quota while quantities above the quota are charged higher duty rates. During
most of the last decade, total imports of MPCs have hovered around 150,000 metric tons or less.
Imports fill a gap in limited domestic production.
Up until 1995, imports of almost all dairy products (butter, cheese, and dry milk) were subject to
import quotas, which were established under Section 22 of the Agricultural Adjustment Act of
1933 to prevent imports from interfering with USDA domestic support programs. Dairy products
that were not covered by section 22 quotas included casein, caseinates, whey, and soft-ripened
cow’s milk cheese (e.g., brie). The 1995 Uruguay Round Agreement on Agriculture converted
section 22 quotas (including dairy product quotas) into TRQs. Since MPCs and casein imports
had not been restricted under section 22, they were not subject to TRQs.
The proposed bills in the 111th Congress, which are similar to previously introduced legislation,
would establish two separate TRQs for: (1) MPCs with a protein concentration of 40% to 90%,
and (2) the combined imports of three products: milk protein concentrate (90% protein), casein,
and caseinates. Based on recent trade data, more than half the annual trade in MPCs and
casein/caseinates would be affected by the new, higher duties.
Under World Trade Organization (WTO) rules for any new U.S. restrictions on imports,
enactment of S. 1542 likely would entail the United States’ entering into compensation
negotiations with WTO member countries that are major suppliers of MPCs to the U.S. market.
The amount of compensation for which the United States might be liable would be on based on
WTO formulas, recent trade data, and bilateral negotiations with principal suppliers.
Farm-level impacts of new TRQs depend on whether dairy product prices are below or above
federal price support levels. If below, farm milk prices would likely not be affected because they
would already be supported above market-clearing levels and trade restrictions would simply
limit government purchases of dairy products under the price support program. If above, farm
prices would likely increase to the extent that product is withheld from the market. Based on
recent trade data, this quantity is estimated to represent about 0.7% of U.S. milk production. The
pace of USDA dairy product purchases slowed considerably in late summer 2009, leaving open
the question whether imposing TRQs on MPCs would affect farm prices.
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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

Contents
Milk Protein Concentrates........................................................................................................... 1
U.S. Dairy Imports...................................................................................................................... 2
Imports of MPCs and Casein................................................................................................. 3
Import Barriers ........................................................................................................................... 4
Section 22 Quotas and TRQs................................................................................................. 4
Previous Efforts to Reclassify MPCs..................................................................................... 5
New Legislative Import Restrictions Proposed ............................................................................ 6
Trade Policy Implications............................................................................................................ 6
Canadian Article XXVIII Negotiations on MPCs................................................................... 7
Industry Viewpoints .................................................................................................................... 8
Potential Impact on Farm Milk Prices.......................................................................................... 8

Figures
Figure 1. U.S. Imports of Milk Protein Concentrates and Casein/Caseinates ................................ 3
Figure 2. U.S. Imports of Milk Protein Concentrate..................................................................... 4
Figure 3. U.S. Imports of Casein and Caseinates.......................................................................... 4

Tables
Table 1. U.S. Dairy Imports......................................................................................................... 3

Contacts
Author Contact Information ........................................................................................................ 9

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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

ow farm milk prices and declining dairy farm incomes in 2009 have renewed
congressional interest in imposing new import barriers on milk protein concentrates
L (MPCs), which generally include casein, the main protein found in milk, and caseinates,1 a
soluble form of casein. MPCs are derived from raw milk and are used in a variety of food
products, animal feed, and industrial products. Currently, U.S. imports of MPCs have limited or
no trade restrictions while many other dairy product imports are restricted by tariff-rate quotas.
Advocates of stricter import controls on MPCs say they would prevent the unlimited importation
of milk protein, which would encourage the use of domestically produced protein and raise milk
prices for dairy farmers. Opponents respond that the prospective move would increase their costs
and result in higher retail food prices. Major foreign suppliers of MPCs to the U.S. market would
likely seek compensation under World Trade Organization (WTO) rules for new U.S. restrictions
on MPC imports.
Concerns about MPC imports have periodically surfaced since import levels rose sharply in the
late 1990s. At that time, the U.S. price of nonfat dry milk, which competes on some level with
MPC as a protein ingredient, was above the price for milk proteins in the international market,
making the U.S. market an attractive destination. When the world and domestic prices began to
converge in 2001, MPC imports dropped off significantly and have since remained at or below
peak levels reached in 2000.
Milk Protein Concentrates2
Milk is comprised mostly of water, measured at 87.4% of total weight. The remaining 12.6% is
called “milk solids,” which is split four ways: fat (3.7% of total weight), protein (3.4%), lactose
or sugar (4.8%), and minerals (0.7%).3
Milk protein is of two basic types: casein (2.8% of total weight or 82% of total protein) and whey
protein (lactalbumin) (0.6% of total weight or 18% of total protein). Casein is extracted from milk
by injecting a certain enzyme or acid into skim milk. Historically, casein was used in both
industrial applications such as for glue and paper coatings, and in foods, mainly as an ingredient
for “nondairy foods” such as imitation cheese, coffee creamers, and margarine. Whey protein is
found in liquid whey, which is a by-product of the cheese manufacturing process that must be
further processed to retrieve the protein. Whey protein is also used in a variety of food products.
A “milk protein concentrate” (MPC) contains both casein and whey protein, and is often
identified by its protein content, such as MPC42 for a product with 42% protein. MPCs are
manufactured by ultrafiltration (use of membranes to separate larger molecules from smaller
molecules in skim milk), blending (combinations of two or more products, such as skim milk
powder and casein), or co-precipitation (a procedure similar to casein extraction).

1 Caseinates are used mostly for specialty nutrition products such as ready-to-drink beverages, drink powders, power
bars, and other forms of sports and medical nutrition applications.
2 Material in this section is primarily drawn from a comprehensive report by the U.S. International Trade Commission,
Conditions of Competition for Milk Proteins in the U.S. Market, Investigation No. 332-453, Publication 3692,
Washington, DC, May 2004, http://www.usitc.gov/publications/safeguards/pub3692.pdf.
3 Chardan Ramesh, Dairy-Based Ingredients (American Association of Cereal Chemists: Eagan Press, 1997).
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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

Protein concentrates have wide-ranging applications in the food manufacturing industry. Products
that contain protein concentrates include infant formula, processed cheese products, imitation
cheese, cultured products, frozen desserts, and specialty sports and medical nutrition products.
Various protein levels are used in different products: MPC42-MPC56 are generally used in non-
standardized cheeses (e.g., brie, ricotta), while MPC70-MPC85 are used in sports drinks and
nutritional supplements. MPC90 is used in lactose-free or sugar-free products. Aside from the
level of protein, some food manufacturers cite better “functionality” for MPC as an ingredient
compared with nonfat dry milk (approximately 35% protein). Some typical functional
characteristics include solubility, viscosity, water-binding, whipping and foaming, gelling, and
heat stability. Also, processors favor MPC where exact product composition is important or where
lactose (present in nonfat dry milk) is not needed or wanted.
The United States produces very little casein or milk protein concentrates. Some dairy economists
suggest that the federal dairy policies, particularly the Dairy Product Price Support program, have
encouraged the production of nonfat dry milk (NDM) at the expense of milk protein concentrate
or casein by assuring a buyer (i.e., the government) for NDM.4 Producers and others counter that
foreign subsidies for exports of dairy products have at times limited U.S. production of protein
products.
U.S. Dairy Imports
U.S. imports of dairy products were valued at just over $3 billion in 2008 as measured by the
USDA’s Foreign Agricultural Service (Table 1), with cheese accounting for the largest share at
38%. MPCs and casein/caseinates combined represented 35% of total import value. The United
States also imports butter, lactose, and a variety of other dairy products such as chocolate milk
drinks, pudding, and milk components for food manufacturing.
Constraints on dairy product imports are affected by import barriers (see next section), which are
needed to maintain the integrity of the domestic dairy program. The U.S. dairy program supports
prices of dairy products and pays farmers subsidies when milk prices decline below certain levels.
Unlimited market access would leave open the potential for import surges that could result in
large purchases by the federal government under the price support program and/or lower farm
prices that would drive up payments under the Milk Income Loss Contract (MILC) program.
Dairy imports are modest relative to domestic production. The U.S. Department of Agriculture
(USDA) estimated import quantities during 2000-2004 at about 3% of milk production, driven
primarily by cheese imports.5 More recent figures indicate little change since then.6

4 For more information on U.S. dairy programs, how they work together, and the current market situation, see CRS
Report R40205, Dairy Market and Policy Issues, by Dennis A. Shields.
5 James J. Miller and Don P. Blayney, Dairy Backgrounder, U.S. Department of Agriculture, Economic Research
Service, LDP-M-145-01, Washington, DC, July 2006, p. 12, http://www.ers.usda.gov/publications/ldp/2006/07Jul/
ldpm14501/ldpm14501.pdf.
6 On a milkfat basis, the United States is projected to import 4.2 million pounds (milk-equivalent) of dairy products in
2009, compared with 188.4 billion pounds of milk production (imports divided by production is 2.2%). Milk-equivalent
is the amount of milk required to manufacture dairy products. The import figure excludes some dairy products. Source:
U.S. Department of Agriculture, World Agricultural Supply and Demand Estimates, WASDE-474, Washington, DC,
September 11, 2009, p. 33, http://www.usda.gov/oce/commodity/wasde/latest.pdf.
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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

Table 1. U.S. Dairy Imports
(calendar year in millions of dollars)


2008
2009

2004 2005 2006 2007 2008 January
-
July
Cheese
982 1,007 1,029 1,107 1,168 626 525
Casein/Caseinatesa 497 589 497 575 758 426 297
Milk protein conc.b 184 209 236 241 318 167 161
Butter
51 47 39 41 47 10 20
Lactose
6 5 9 14 14 7 9
Other
611 736 794 825 747 459 424

2,331 2,593 2,604 2,803 3,052 1,695 1,436
Source: USDA, Foreign Agricultural Service. “Dairy Products” commodity aggregation available at;
http://www.fas.usda.gov/ustrade/.
a. Harmonized Tariff Schedule (HTS) 3501.10.50 (casein) and HTS 3501.90.60 (caseinates).
b. HTS 3501.10.10 (90% protein) and HTS 0404.90.10.
Imports of MPCs and Casein
During most of the last decade, total U.S. imports of MPCs and casein/caseinates have hovered
around 150,000 metric tons or less (Figure 1). Since the sharp rise in the late 1990s, there has
been no discernible import trend, with a sharp decline in 2009 following a rise in 2008. Primary
U.S. suppliers include New Zealand, Australia, and the European Union (Figure 2 and Figure 3).
Figure 1. U.S. Imports of Milk Protein Concentrates and Casein/Caseinates
1,000 metric tons
200
Milk protein
Casein/
concentrates
caseinates
150
100
50
0
1994
1996
1998
2000
2002
2004
2006
2008

Source: USDA, Foreign Agricultural Service.
Note: 2009 figures are annualized based on January-July data.


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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

Figure 2. U.S. Imports of Milk Protein
Figure 3. U.S. Imports of Casein and
Concentrate
Caseinates
(2004-2008 average = 57,100 metric tons)
(2004-2008 average = 97,700 metric tons)
New
European
Zealand
Union-27
Other (2%)
(80%)
(41%)
Other (7%)
New
Zealand
(37%)
European
Union-27
Australia
(7%)
(5%)
Australia
India
(11%)

(10%)

Source: USDA, Foreign Agricultural Service.
Source: USDA, Foreign Agricultural Service.
Notes: HTS 0404.90.10 and HTS 3501.10.10 (90%
Notes: HTS 3501.10.50 (casein) and HTS
protein).
3501.90.60 (caseinates).

Import Barriers
Section 22 Quotas and TRQs
Up until 1995, imports of almost all dairy products (butter, cheese, dry milk) were subject to
section 22 import quotas. Section 22 of the Agricultural Adjustment Act of 1933 (7 U.S.C. 624(f))
requires the President to impose quantitative limitations or fees on imports that the President finds
are being, or are practically certain to be, imported under such conditions and in such quantities
as to render or tend to render ineffective, or materially interfere with, any USDA domestic
support or stabilization program. Dairy products that were not covered by section 22 quotas
included casein, caseinates, whey, and soft-ripened cow’s milk cheese (e.g., brie).
The 1995 WTO Uruguay Round Agreement on Agriculture converted section 22 quotas
(including dairy product quotas) into tariff rate quotas (TRQs).7 (The United States also agreed to
progressive reductions in the quantity and value of export subsidies under the Dairy Export
Incentive Program or DEIP.)8 Importers of dairy products under the low tariff in a TRQ must
apply for a license from USDA. No license is required for over-quota imports which are subject
to a higher tariff. Since MPCs and casein imports had not been restricted under section 22, they
were not subject to TRQs, nor were they subject to licensing requirements. Legislation to
implement the WTO Uruguay Round Agriculture Agreement (P.L. 103-465) amended section 22

7 A tariff rate quota or TRQ imposes a low import duty on quantities within a quota while quantities above the quota
are charged higher duty rates.
8 See CRS Report R40584, Implications of Reactivating the Dairy Export Incentive Program (DEIP), by Dennis A.
Shields and Charles E. Hanrahan.
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to prohibit the application of quantitative import limitations or fees on products from other WTO
members.
Imports of MPCs are classified under the Harmonized Tariff Schedule of the United States (HTS)
under subheadings 0404.90.10 for imports with a protein concentration of 40% to 90% and under
3501.10.10 for imports with a protein concentration of 90% or more.9 Imports of casein and
caseinates are classified under subheadings 3501.10.50 and 3501.90.60. MPCs are subject to a
very low tariff of 0.37 cents per kilogram. Imports of casein (under 3501.10.50) are duty free;
other casein derivatives have a tariff of 0.37 cents per kilogram.
Previous Efforts to Reclassify MPCs
During the early 2000s, milk producers and their supporters in Congress tried to change the tariff
treatment of MPCs by petitioning the U.S. Customs Service to change the tariff classification of
MPCs and by introducing legislation that would have established TRQs for MPCs.
In 2002, the U.S. Customs Service (now Customs and Border Protection (CBP)) received a
petition from the National Milk Producers Federation (NMPF) to review the tariff classification
of MPCs and to change the classification from a non-quota to a quota classification.10 In its
petition, the NMPF contended that dairy products classified under HTS 0404.90.10 did not meet
the statutory definition of MPCs and were therefore not classifiable under that subhead of the
HTS. They should instead, according to NMPF, be classified under heading 0402 which covers
“milk and cream, concentrated or containing added sugar or other sweetening matter.” If so
classified, MPCs would become subject to TRQs and also in many cases would require import
licenses.
NMPF contended that to be properly classified as MPCs, a product must have been produced
using the process of ultrafiltration and must contain casein and lactalbumin (whey protein) in the
same proportion as found in milk. CBP responded, however, that the statutory language
(Additional U.S. Note 13 to Chapter 4 of the HTS) refers to “any complete milk protein (casein
plus lactalbumin) concentrate that is 40% or more protein by weight.”11 Congress in the
Additional Note had not specified a manufacturing process nor had it prohibited any blend or mix
that met the 40% protein content by weight criterion. Thus, according to CBP, MPCs imported
under 0404.90.10 met the statutory conditions provided in Additional Note 13 and were properly
classified.
During early 2003, bills were introduced in the 108th Congress (H.R. 1162, S. 560) that would
have accomplished the same purposes as legislation that has been introduced in the 111th
Congress (see below). Both H.R. 1162 and S. 560 languished in committee.

9 The Harmonized Tariff Schedule of the United States is available from the U.S. International Trade Commission
website at http://hts.usitc.gov/.
10 The U.S. Customs Service decision concerning the tariff classification of milk protein concentrates can be viewed at
http://www.cbp.gov/ImageCache/cgov/content/laws/customs_5fbulletins_5fand_5fdecisions/2003/
vol37_5f07302003_5fno31/37genno31_2epdf/v1/37genno31.pdf.
11 Notes to Chapter 4 of the HTS are at http://www.fas.usda.gov/gainfiles/200702/146280171.pdf. Click on “Chapter
4”, then on “Notes” to view Additional Note 13.
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Proposed Import Restrictions on Milk Protein Concentrates (MPCs)

New Legislative Import Restrictions Proposed
The Milk Import Tariff Equity Act (S. 1542) was introduced on July 30, 2009, to limit imports of
MPCs, casein, and caseinates. A companion bill was introduced in the House (H.R. 3674) on
September 29, 2009, with slight differences in aggregate quantities of permitted MPCs under the
new tariff designations.
S. 1542 would introduce two separate TRQs. The first would be for MPCs classified under HTS
subheading 0404.90.10 for imports with a protein concentration of 40% to 90%. Annual imports
in excess of 18,488 metric tons would be assessed a duty of $1.56/kg ($0.708/lb.). The second
TRQ would be for the combined imports of three products: milk protein concentrate (90%
protein), casein, and caseinates (HTS 3501.10.10, 3501.10.50, and 3501.90.60, respectively).
Annual imports in excess of 55,477 metric tons would be assessed a duty of $2.16/kg ($0.98/lb.).
The duty on import quantities below each quota would remain at the current low level
($0.0037/kg or $0.0017/lb.), except for imports under HTS 3501.10.50, which would remain free.
More than half the annual trade in MPCs and casein/caseinates would be affected by the new,
higher duties. Imports under HTS 0404.90.10 averaged 51,000 metric tons during 2006-2008
compared with 18,499 metric tons under the proposed TRQ. Similarly, imports of casein products
averaged 108,000 metric tons compared with 55,477 metric tons under the proposed TRQ.
Trade Policy Implications
Enactment of S. 1542 likely would entail the United States’ entering into compensation
negotiations with WTO member countries that are major suppliers of MPCs to the U.S. market. S.
1542 authorizes the President to enter into such negotiations (Section 3). Article XXVIII of the
original General Agreement on Tariffs and Trade (GATT 1947) provides the mechanism for WTO
member countries to negotiate compensation when a tariff concession (in this case the current low
tariff for MPC imports) is modified or withdrawn.12 Article XXVIII allows member countries to
increase tariffs or set new TRQs, but in exchange for withdrawing or modifying a concession
compensation must be provided to affected member countries. Compensation does not mean a
monetary payment; it means, in this case, that the United States is supposed to offer a benefit or
concession such as a tariff reduction which is equivalent to the benefits which the United States
has withdrawn or modified.
Formulas for determining the amount of compensation are provided in the Understanding on the
Interpretation of Article XXVIII that is part of the 1994 WTO Uruguay Round Agreements
(GATT 1994).13 The Understanding on Article XXVIII provides that when an unlimited tariff
concession is replaced by a TRQ, the amount of compensation provided should exceed the
amount of the trade actually affected by the modification. The basis for the calculation of
compensation is the amount by which future trade prospects exceed the level of the quota. The

12 Article XXVIII of the GATT 1947 can be viewed at http://www.wto.org/english/docs_e/legal_e/
gatt47_02_e.htm#articleXXVIII.
13 The Understanding on the Interpretation of Article XXVIII of the General Agreements on Tariffs and Trade 1994 can
be viewed at http://www.wto.org/english/docs_e/legal_e/12-28.pdf. Both Article XXVIII and the Understanding are
part of GATT 1994.
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calculation spelled out in the Understanding says that the calculation of future trade prospects
should be based on the greater of:
(a) the average annual trade in the most recent representative three-year period, increased
by the average annual growth rate of imports in that same period, or by 10%, whichever is
the greater, or
(b) trade in the most recent year increased by 10%.
Based on these formulas and recent trade data, the aggregate amount of compensation for which
the United States might be liable could be an estimated $500 million.14 Compensation could be in
the form of tariff reductions on other products or other benefits.
Article XXVIII negotiations would be held on a bilateral basis. That would mean that
negotiations would be conducted with such principle suppliers as New Zealand, the European
Union, India, and Australia. A major issue would be quota allocation.15 Current quotas for most
dairy products are distributed on an historical basis, while importers must apply for licenses to
import dairy products.
Canadian Article XXVIII Negotiations on MPCs
On February 7, 2006, the Canadian Minister of Agriculture announced that Canada would be
initiating negotiations under GATT Article XXVIII to restrict imports of MPCs.16 This trade
policy move came after a year of work by a Canadian government-initiated technical working
group composed of producers and processors failed to reach agreement on a common approach to
challenges facing the Canadian dairy industry. Main suppliers of MPCs to the Canadian market
are New Zealand and the European Union. It appears, according to USDA’s Foreign Agricultural
Service, that the Article XXVIII process would not be applicable to Canada’s NAFTA partners
(the United States and Mexico).17
The main dairy producer group, Dairy Farmers of Canada (DFC), is the major supporter of the
move to restrict Canadian imports of MPCs. Canadian dairy processors, again according to FAS,
have worked to restrict the scope of new restrictions to items imported under HTS of Canada
Chapter 35, MPCs with a milk protein content equal to or greater than 85% by weight. If import
restrictions on MPC were broadened beyond Chapter 35, the expectation among some observers
is that Canadian dairy processors would shift operations to the United States.18
The Canada Gazette reported that the Article XXVIII negotiations were concluded in June of
2008 and that Canada would include in its tariff schedule a TRQ for MPCs with protein content

14 Compensation based on MPC quotas established in S. 1542.
15 Rules for quota allocation are provided in GATT Article XIII.
16 U.S. Department of Agriculture, Foreign Agricultural Service, Canada Dairy Products, Canada Invokes GATT
Article XXVIII Measure to Limit Milk Protein Concentrate (MPC) Imports 2007, GAIN Report No. CA7007, February
8, 2007, viewed at http://www.fas.usda.gov/gainfiles/200702/146280171.pdf.
17 Ibid.
18 Mike Gifford and Bill Dymond, The Doha Round of WTO Negotiations: Implications for the Canadian Dairy
Processing Sector, Centre for Trade Policy and Law, Carleton University/University of Ottawa, May 2008, viewed at
http://www.uoguelph.ca/~catprn/PDF/Gifford-Dymond-DohaMay08pub.pdf.
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of 85% or more by weight.19 Within quota quantities of MPC 85+ will enter free of duty, while
over quota amounts will be subject to a 270% ad valorem tariff. The TRQ does not apply to
NAFTA countries and other countries with which Canada has free trade agreements.
Industry Viewpoints
U.S. milk producers in general support legislation to limit imports of MPCs. The National Milk
Producers Federation (NMPF), the largest trade organization representing dairy farmers, supports
S. 1542 “... in order to close a loophole in the U.S. dairy sector allowing certain dairy proteins ...
to enter the U.S. and disrupt farm-level prices.”20 Similarly, the National Farmers Union supports
restrictions on MPCs.21 Although the NMPF supports the legislation, the organization has stated
that imports are not the cause of the economic problem the industry is currently facing and
cautions against taking import measures that could harm prospects for U.S. dairy exports.22
The International Dairy Foods Association (IDFA), representing dairy product processors and
manufacturers, is adamantly opposed to more restrictions on dairy imports. IDFA is concerned
that such a move would increase production costs for food manufacturers, raise prices for
consumer products, and put at risk recent gains in U.S. dairy exports. They also argue that
domestic production of MPCs is not sufficient to meet demands of food manufacturers, and
MPCs are not interchangeable with domestically-produced nonfat dry milk.
Potential Impact on Farm Milk Prices
The potential price impact of imposing TRQs depends on the level of farm prices relative to the
implied level of support under the Dairy Product Price Support Program (DPPSP). In general, if
dairy product prices (and hence, farm milk prices) are low relative to USDA’s purchase price
levels, resulting in USDA purchases of dairy products from manufacturers, the impact of
additional imports falls primarily on the dairy program (i.e., higher government purchases and
program costs) rather than on farm prices.23 Hence, stricter import controls could result in
reduced government purchases of dairy products (and lower outlays). Conversely, if product
prices are well above DPPSP purchase prices and the program becomes inactive, the impact shifts
to the market.

19 Canada Gazette, Part II, Official Regulations, “Order Amending the Import Control List”, September 5, 2008,
viewed at http://www.gazette.gc.ca/rp-pr/p2/2008/2008-09-17/html/sor-dors282-eng.html. We have been unable to
determine the amount of compensation provided by Canada to major suppliers.
20 National Milk Producers Federation, “Schumer Resumes Fight Against MPC, Casein Imports,” press release, August
3, 2009, http://www.nmpf.org/latest_news/press_releases/Senate_imports080309.
21 U.S. Congress, House Committee on Agriculture, Subcommittee on Livestock, Dairy, and Poultry, To Review
Economic Conditions in the Dairy Industry, Testimony by Scott Hoese, National Farmers Union, 111th Cong., 1st sess.,
July 21, 2009, http://agriculture.house.gov/hearings/statements.html.
22 U.S. Congress, House Committee on Agriculture, Subcommittee on Livestock, Dairy, and Poultry, To Review
Economic Conditions in the Dairy Industry, Testimony by Tom Wakefield, National Milk Producers Federation, 111th
Cong., 1st sess., July 14, 2009, http://agriculture.house.gov/hearings/statements.html.
23 U.S. International Trade Commission, Conditions of Competition for Milk Proteins in the U.S. Market, Investigation
No. 332-453, Publication 3692, Washington, DC, May 2004, p. xxxiii, http://www.usitc.gov/publications/safeguards/
pub3692.pdf.
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USDA has been purchasing surplus dairy products since October 2008, primarily nonfat dry milk,
although the pace slowed considerably in late summer 2009. This leaves open the question
whether imposing TRQs on MPCs and caseins/caseinates would affect farm prices given current
market conditions for milk and dairy products.
To the extent product prices remain above purchase prices in the DPPSP, the magnitude of the
impact on farm milk prices would depend on: (a) the amount of product not imported because of
the TRQ, and (b) how this quantity (in milk equivalent) relates to overall U.S. milk production.
Using the proposed TRQ levels and average imports from 2006-2008, the amount of over-quota
imports would total 85,000 metric tons.24 Converted to farm milk equivalent, the over-quota
imports would equate to approximately 1.2 billion pounds of farm milk or about 0.7% of average
U.S. milk production during 2006-2008.25 By itself, this amount of milk equivalent, if made
unavailable to the U.S. market, would have a relatively small effect on average U.S. farm milk
prices. However, some view it as part of a larger set of policies that would help address the
current depressed financial situation for U.S. dairy farmers.

Author Contact Information

Dennis A. Shields
Charles E. Hanrahan
Analyst in Agricultural Policy
Senior Specialist in Agricultural Policy
dshields@crs.loc.gov, 7-9051
chanrahan@crs.loc.gov, 7-7235





24 85,000 metric tons = 159,000 (combined average imports) – 74,000 (combined TRQ quota amounts), all figures are
rounded.
25 The calculation uses a milk-equivalent conversion factor of 6.49 (total solids basis); i.e., for every 1 lb. of casein,
6.49 lbs. of milk are required.
Congressional Research Service
9

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