U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79)

October 30, 2014 IF00060





October 30, 2014
U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79)
The 2014 farm bill makes significant changes to the
This left producers vulnerable to volatile milk prices and
structure of U.S. dairy support programs. In particular,
rapid rises in feed costs—the primary cost component of
major price and income support programs from the 2008
milk production (Figure 2). Then, following a severe
farm bill (P.L. 110-246) were replaced with two new
downturn in milk prices in 2009 that caused widespread
programs—an insurance-like Margin Protection Program
economic hardship in the U.S. dairy sector, the dairy
(MPP) for producers and a Dairy Product Donation
industry advocated to shift federal dairy support away from
Program (DPDP) involving government purchases of dairy
price supports and toward guaranteeing some portion of the
products during periods of low margins.
margin between milk prices and feed costs.
Reaching a final compromise on U.S. dairy policy, as
Figure 2. Feed Costs Outpaced Milk Prices During
contained in the 2014 farm bill, was an arduous task,
2008 to 2014
involving considerable debate over the nature and role of
federal support programs for dairy.
Prior Dairy Policy
A federal policy goal has been to support producer incomes
by supporting the farm price of fluid milk. However, fluid
milk is highly perishable. As a result, federal programs
have supported milk prices indirectly by offering to buy
storable dairy products (e.g., powdered milk, butter, or
cheese) at support prices set in fluid-milk equivalents.
Federal dairy price supports were first established in 1949
and were modified in subsequent legislation, including the
2008 farm bill (P.L. 110-246), which established the Dairy
Product Price Support Program (DPPSP). DPPSP indirectly
supported the farm price of fluid milk at a fixed $9.90 per
hundred lbs. (i.e., hundredweight or cwt.) through

Source: Indexes compiled by CRS from USDA price data.
government purchases of dairy products from processors.
Escalating Feed Costs Worry Producers
Other Dairy Support Programs
Federal dairy price supports were moderately effective until
In addition to DPPSP, dairy producers have been supported
about 1990, when the farm price of milk began to trend well
by two other prominent programs authorized by recent farm
above the fixed support price (Figure 1).
bills—the Milk Income Loss Contract (MILC) and the Dairy
Export Incentives Program (DEIP).
Figure 1. Milk Prices Moved Well Above Previous
Federal Support Level by 1990
The MILC program provided milk producers with counter-
cyclical payments whenever the monthly Boston Class I price
of fluid milk fell below $16.94/cwt., adjusted for feed cost
changes. But annual payments were limited to 2.985 mil ion
lbs. of milk (i.e., the milk produced in a year from about 150
cows), and as a result large operators did not favor MILC.
DEIP paid bonuses to U.S. dairy exporters whenever certain
international market price conditions were met. However,
the United States has been a strong advocate for eliminating
export subsidies in international markets, and thus has not
used DEIP since 2010.
MILC, DEIP, and DPPSP were repealed by the 2014 farm bil .
Farm Bill Debate Refocuses Dairy Policy
The shift of policy focus away from price supports and

toward protecting the dairy operating margin was
Source: Compiled by CRS from USDA price data.
www.crs.gov | 7-5700

U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79)
formalized by a proposed dairy margin protection program,
does not allow for resale into commercial markets. Thus,
the Foundation for the Future (FTF), published in June
the DPDP is intended to enhance dairy demand, while
2010 by the National Milk Producers Federation. A version
strengthening milk prices and operating margins. Once
of the FTF was introduced in the 112th Congress as H.R.
triggered, purchases and distribution under the DPDP end
3062, the Dairy Security Act, in September 2011. Through
after three months, or if the U.S. price for certain dairy
the legislative process, the FTF eventually evolved into the
products is significantly above world prices.
new dairy program contained in the provisions of the 2014
farm bill.
Other Dairy Support Programs
Dairy Margin Protection Program (MPP) Several smaller dairy programs from the 2008 farm bill
were extended by the 2014 farm bill through FY2018,
The MPP is a voluntary program that makes a payment to
including the Dairy Forward Pricing Program, the Dairy
participating farmers when a formula-based national
Indemnity Program, and certain provisions to augment the
margin—calculated as the national average farm price for
development of export markets under the National Dairy
all milk minus a national average feed ration cost—falls
Promotion and Research Program (i.e., the dairy check-off
below a producer-selected insured margin that can range
program).
from $4.00 per cwt. to $8.00/cwt. in $0.50/cwt. increments
For program details, refer to the CRS Reports cited below
(Figure 3). MPP payments are based on a farm-level
under “More Information.”
production history and a producer-selected coverage level
that ranges from 25% to 90%—the product of these two
items yields the covered production history (CPH).
Dairy Programs Permanently Authorized
Outside the Farm Bill
Figure 3. Historical U.S. Dairy Operating Margin
In addition to farm bil programs, dairy producers have been
supported by several other federal programs, foremost of
which are federal milk marketing orders (FMMOs), dairy
import tariff rate quotas (TRQs), and so-called “permanent
farm law.”
FMMOs are geographically defined milk marketing areas
where dairy processors are required to pay a minimum price
for milk depending on its end use. Total processor payments
are then pooled, and all milk producers selling within the
FMMO receive a uniform, pooled price. FMMOs have
permanent statutory authority under the Agricultural
Marketing Agreement Act of 1937.
TRQs are a system of product-specific import quotas
designed to protect higher-priced domestic dairy products by
limiting the importation of lower-priced foreign dairy
products. Dairy TRQs are part of the Harmonized Tariff

Source: Compiled by CRS using USDA data.
Schedule of the United States.

Note: The margin = (national average all-milk price) – (average
cost of a feed ration needed to produce 1 cwt. of milk).
Permanent farm law is authorized in the 1949 Agricultural
Act, but is suspended by periodic passage of a new farm bil .
Producers must pay an annual administrative fee of $100
Under permanent law, USDA is required to purchase dairy
for each participating dairy operation, and a premium that
products to support fluid milk prices based on a 1910-1914
rises steadily for higher margin protection levels, starting at
parity price index. Reversion to permanent law would result
the $4.50/cwt. margin level. The minimum $4.00/cwt.
in a milk support price of over $40/cwt., compared with the
margin is fully subsidized and has no farmer-paid premium.
2013 average all-milk farm price of $20/cwt.
The premium structure is further divided based on the
Other less prominent programs that support dairy producers
volume of CPH—lower premiums are charged for the first
and products include the Livestock Gross Margin for Dairy
4 million lbs. of CPH, and higher premiums are charged on
Cattle Program (LGM-D), the Fluid Milk Processor
CPH above 4 million lbs. As an incentive to encourage
Promotion Program, and the Dairy Product Mandatory
participation by smaller dairy operations (with CPH under 4
Reporting Program.
million lbs.), premiums are reduced by 25% across the
board for all margin protection levels except the $8.00/cwt.
level during calendar years 2014 and 2015.
More Information
Dairy Product Donation Program
For more analysis, see CRS Report R43465, Dairy
(DPDP)
Provisions in the 2014 Farm Bill (P.L. 113-79), and CRS
Report R34036, Dairy Policy and the 2008 Farm Bill.
The DPDP requires USDA to procure and distribute certain
dairy products when the margin falls below $4.00/cwt. for
Randy Schnepf, rschnepf@crs.loc.gov, 7-4277.
two consecutive months. DPDP dairy product distribution is
IF00060
required to target individuals from low-income groups and
www.crs.gov | 7-5700

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