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August 29, 2022
Farm Bill Primer: Support for the Dairy Industry
The Dairy Margin Coverage (DMC) program was enacted
production history. Payments under DMC are subject to
in the 2018 farm bill (P.L. 115-334) to provide income
sequestration reductions of 5.7% in 2021 and 2022.
support to dairy operations. DMC replaced the 2014 farm
bill’s Margin Protection Program (MPP; P.L. 113-79, as
Table 1. DMC and MPP Margin Premium Rates
amended by the Bipartisan Budget Act of 2018, P.L. 115-
Compared, $ per cwt
123). Prior to 2014, the U.S. Department of Agriculture

Tier I ≤ 5 million lbs
Tier II > 5 million lbs
(USDA) purchased dairy products to support milk prices at
Margin
MPP
DMC
MPP
DMC
certain levels. Some stakeholders pointed out that support
$4.00
$0
$0
$0
$0
based only on the price of milk failed to account for rising
$4.50
$0
$0.0025
$0.020
$0.0025
feed costs. In 2014, Congress created a margin program—
which defined the margin as the difference between the
$5.00
$0
$0.005
$0.040
$0.005
USDA national all milk price and a calculated feed cost—to
$5.50
$0.009
$0.030
$0.100
$0.100
provide milk producers optional risk protection on price and
$6.00
$0.016
$0.050
$0.155
$0.310
feed costs. DMC expires December 31, 2023.
$6.50
$0.040
$0.070
$0.290
$0.650
DMC Basics
$7.00
$0.063
$0.080
$0.830
$1.107
The dairy margin program allows milk producers to buy a
$7.50
$0.087
$0.090
$1.060
$1.413
guaranteed margin for their milk production. For example,
if the margin—all milk minus feed cost—amounted to
$8.00
$0.142
$0.100
$1.360
$1.813
$9.00 per hundredweight (100 pounds; cwt) of milk for a
$8.50
NA
$0.105
NA
NA
month, producers who selected $9.50 margin coverage
$9.00
NA
$0.110
NA
NA
would receive a $0.50 per cwt DMC payment on covered
production. Under DMC, producers may select margin
$9.50
NA
$0.150
NA
NA
coverage from $4.00 per cwt up to $9.50 per cwt for annual
Sources: MPP: Tier I Bipartisan Budget Act (P.L. 115-123), Tier II
milk production of 5 million pounds or less (Tier I). For
Agricultural Act of 2014 (P.L. 113-79); DMC: Agricultural
milk production over 5 million pounds (Tier II), the margin
Improvement Act of 2018 (P.L. 115-334).
coverage tops out at $8.00 per cwt. The $4.00 margin, or
catastrophic coverage, is free for all dairy producers. For
To date (January 2019-June 2022), there have been 42
margin coverage above $4.00, producers pay increasing
months of margin calculations, and producers who opted
premium rates as specified in statute (Table 1).
for a $9.50 margin have received payments in 23 months.
Producers selecting margin coverage under $9.50 have
A participating dairy producer must have an established
received payments in some of those months, particularly
milk production history with USDA’s Farm Service
when the margin was relatively low in 2021. The annual
Agency (FSA) and pay an annual administrative fee of
average monthly margin was $9.61 in 2019, $9.45 in 2020,
$100. The fee is waived for beginning, limited resource,
$6.92 in 2021, and $11.80 through June 2022.
socially disadvantaged, or veteran producers. Each year,
dairy producers participating in DMC choose a margin
Figure 1. Monthly MPP and DMC Milk-Feed Cost
coverage level and the share of their milk production
Margins, January 2014-June 2022, $/cwt
history to cover—from 5% to 95%—and receive DMC
payments for months in which the margin is triggered.
The total premium amount that producers pay for margin
coverage above $4.00 per cwt is a product of the margin
level premium that is set in statute and the share of
production history the producer selects. Initially, producers
had the option to purchase either Tier I or II margin
coverage for the full five years of DMC instead of making
an annual selection. In return, milk producers would receive
a 25% discount on premium costs.
FSA calculates and reports the DMC milk-feed margin each
month (Figure 1). If margin payments are triggered,
producers are paid for a twelfth of covered annual milk

Source: USDA, FSA.
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link to page 2 Farm Bill Primer: Support for the Dairy Industry
Excluding 2020, participation by dairies and the amount of
pesticide contamination. In 2021, DIPP regulations (7
milk production covered have both exceeded 70%. Total
C.F.R. 760) were amended to give USDA the discretion to
payments under DMC have totaled about $1.9 billion
indemnify producers for the depopulation of cows affected
(Table 2). Participation was likely relatively low in 2020,
by long-term contamination.
reflecting producers’ expectations during the fall 2019 sign
DPRP (dairy checkoff) authorizes a producer-funded
up period of limited DMC payments in 2020.
generic promotion and research program for dairy products
Table 2. DMC Enrollment, Covered Production, and
funded by a $0.15/cwt assessment. The provision authorizes
Total Payments
the use of funding to develop international markets.
Billion
$
The 2018 farm bill established the Milk Donation

Dairies
%
%
lbs.
million
Reimbursement Program (MDRP) that reimburses certain
2019
23,358
76.8
178.3
70.4
$452
costs of fluid milk donations that producers, processors, and
2020
13,471
47.2
121.0
50.3
$234
cooperatives make to food banks and feeding organizations.
The donation program received mandatory funding of $9
2021
19,047
72.7
162.5
73.4
$1,189
million for FY2019 and $5 million annually for FY2020-
2022
17,716
71.9
157.8
76.2
0
FY2023. The Dairy Donation Program, which is similar to
the MDRP, was created by the Consolidated Appropriations
Source: USDA, FSA, DMC Program Enrollment Information, accessed
Act, 2021 and funded at $400 million in response to
August 1, 2022, payments through June 2022.
disruptions caused by the COVID-19 pandemic. This
Note: Percentage share of dairies with established production
program reimburses certain costs for dairy product
history and their covered share of production histories.
donations and is authorized through September 1, 2023.
DMC Adjustments
In addition, the 2018 farm bill amended the FMMO formula
USDA made key adjustments to DMC following its
for the Class I skim milk price. During the pandemic, the
implementation in 2019. First, the 2018 farm bill directed
change resulted in lower minimum prices milk handlers
USDA to begin reporting premium alfalfa hay prices, and
paid to producers in FMMOs. (See CRS Report R45044,
USDA’s initial feed cost formula contained a 50-50 blend
Federal Milk Marketing Orders: An Overview). Some dairy
of alfalfa and premium alfalfa prices. In December 2021,
stakeholders have suggested that future FMMO price
FSA changed the formula to 100% premium alfalfa to
reforms be conducted through the FMMO hearing process.
better reflect producer costs. This resulted in a higher
calculated feed cost, lower calculated margins, and higher
Dairy Policy in the Next Farm Bill
DMC payments compared with the prior formula. For
Compared with MPP, DMC is usually viewed by dairy
months when the revised margin would have triggered
stakeholders as an improvement in risk protection due to its
payments, USDA paid dairy producers the difference in the
higher margin and production history coverage options and
two margin calculations retroactive to January 2020.
reduced margin premiums, especially for Tier I production.
DMC allows milk producers to manage risk also through
The Consolidated Appropriations Act, 2021 (P.L. 116-260)
participation in Livestock Gross Margin-Dairy and Dairy
authorized supplemental DMC payments based on updated
Revenue Protection insurance programs. Dairy stakeholders
producer production histories. If 2019 actual milk
noted the effectiveness of DMC in both Senate (September
marketing volumes exceeded established production
2021) and House (June 2022) agriculture committee
histories, producers could receive payments on 75% of the
hearings on dairy policy. As milk producers confront rising
difference. Eligible milk producers must have participated
costs for feed and other inputs, they may look to Congress
in DMC during 2021 and have actual milk marketings of 5
to evaluate the adequacy of dairy policies.
million pounds or less. For the additional production,
Dairy stakeholders have suggested the supplemental
producers pay the Tier I premium and may cover this milk
payment authority for updated production histories be
for 2021 through 2023.
included in a future farm bill. Current production histories
are based on production levels from either 2011, 2012, or
Other Dairy Provisions
2013. Total milk production in 2021 was about 14% higher
The farm bill also authorized other dairy support. The 2018
than the average of these three base years. Until the DMC
farm bill reauthorized the Dairy Forward Pricing Program
supplemental was enacted, milk producers were unable use
(DFPP), the Dairy Indemnity Payment Program (DIPP),
DMC to protect their milk productivity gains.
and part of the Dairy Promotion and Research Program
(DPRP), all through FY2023.
Congress could review premium rates and margin levels.
Some stakeholders may argue the catastrophic $4.00 margin
DFPP allows milk producers and handlers/processors to
is not high enough or that the highest margin levels need to
negotiate forward contracts for milk delivered for use in
be raised to provide adequate income support. DMC
Class II (soft products), III (cheese), or IV (butter/powder)
premium rates favor dairies with 220 or fewer cows.
products that are pooled in Federal Milk Marketing Orders
Reduced Tier II premium rates or higher margin levels
(FMMO). Class I fluid milk may not be forward contracted.
could lead to increased use of DMC by larger dairies.
Handlers pay the agreed upon contract price instead of the
FMMO calculated minimum producer price.
An expanded dairy donation program could also be
supportive of milk prices. Donations may allow producers
DIPP makes payments to dairy producers who have to
to avoid dumping milk under certain circumstances.
dispose of raw milk because of chemical, radiation, or
https://crsreports.congress.gov
Farm Bill Primer: Support for the Dairy Industry
A consideration for Congress is that these types of changes
Joel L. Greene, Analyst in Agricultural Policy
could raise the projected cost of a farm bill.
IF12202


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