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

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

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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
government purchases of dairy products from processors.
Escalating Feed Costs Worry Producers
Federal dairy price supports were moderately effective until
about 1990, when the farm price of milk began to trend well
above the fixed support price (Figure 1).
Figure 1. Milk Prices Moved Well Above Previous
Federal Support Level by 1990

Source: Indexes compiled by CRS from USDA price data.

Source: Compiled by CRS from USDA price data.
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link to page 2 U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79)
Other Dairy Support Programs
board for all margin protection levels except the $8.00/cwt.
In addition to DPPSP, dairy producers have been supported by
level during calendar years 2014 and 2015.
two other prominent programs authorized by recent farm
Dairy Product Donation Program
bills—the Milk Income Loss Contract (MILC) and the Dairy
Export Incentives Program (DEIP).
(DPDP)
The MILC program provided milk producers with counter-
The DPDP requires USDA to procure and distribute certain
cyclical payments whenever the monthly Boston Class I price
dairy products when the margin falls below $4.00/cwt. for
of fluid milk fell below $16.94/cwt., adjusted for feed cost
two consecutive months. DPDP dairy product distribution is
changes. But annual payments were limited to 2.985 million
required to target individuals from low-income groups and
lbs. of milk (i.e., the milk produced in a year from about 150
does not allow for resale into commercial markets. Thus,
cows), and as a result large operators did not favor MILC.
the DPDP is intended to enhance dairy demand, while
DEIP paid bonuses to U.S. dairy exporters whenever certain
strengthening milk prices and operating margins. Once
international market price conditions were met. However, the
triggered, purchases and distribution under the DPDP end
United States has been a strong advocate for eliminating
after three months, or if the U.S. price for certain dairy
export subsidies in international markets, and thus has not
products is significantly above world prices.
used DEIP since 2010.
Other Dairy Support Programs
MILC, DEIP, and DPPSP were repealed by the 2014 farm bill.
Several smaller dairy programs from the 2008 farm bill
were extended by the 2014 farm bill through FY2018,
Farm Bill Debate Refocuses Dairy Policy
including the Dairy Forward Pricing Program, the Dairy
Indemnity Program, and certain provisions to augment the
The shift of policy focus away from price supports and
development of export markets under the National Dairy
toward protecting the dairy operating margin was
Promotion and Research Program (i.e., the dairy check-off
formalized by a proposed dairy margin protection program,
program).
the Foundation for the Future (FTF), published in June
For program details, refer to the CRS Reports cited below
2010 by the National Milk Producers Federation. A version
under “More Information.”
of the FTF was introduced in the 112th Congress as H.R.
3062, the Dairy Security Act, in September 2011. Through
the legislative process, the FTF eventually evolved into the
new dairy program contained in the provisions of the 2014
farm bill.
Dairy Margin Protection Program (MPP)
The MPP is a voluntary program that makes a payment to
participating farmers when a formula-based national
margin—calculated as the national average farm price for
all milk minus a national average feed ration cost—falls
below a producer-selected insured margin that can range
from $4.00 per cwt. to $8.00/cwt. in $0.50/cwt. increments
(Figure 3). MPP payments are based on a farm-level
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).
Figure 3. Historical U.S. Dairy Operating Margin

Source: Compiled by CRS using USDA data.
Notes: The margin = (national average all-milk price) – (average cost
of a feed ration needed to produce 1 cwt. of milk).
Producers must pay an annual administrative fee of $100
for each participating dairy operation, and a premium that
rises steadily for higher margin protection levels, starting at
the $4.50/cwt. margin level. The minimum $4.00/cwt.
margin is fully subsidized and has no farmer-paid premium.
The premium structure is further divided based on the
volume of CPH—lower premiums are charged for the first
4 million lbs. of CPH, and higher premiums are charged on
CPH above 4 million lbs. As an incentive to encourage
participation by smaller dairy operations (with CPH under 4
million lbs.), premiums are reduced by 25% across the
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U.S. Dairy Programs After the 2014 Farm Bill (P.L. 113-79)

Randy Schnepf,
Dairy Programs Permanently Authorized
Outside the Farm Bill
IF10195
In addition to farm bill 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
Schedule of the United States.
Permanent farm law is authorized in the 1949 Agricultural
Act, but is suspended by periodic passage of a new farm bill.
Under permanent law, USDA is required to purchase dairy
products to support fluid milk prices based on a 1910-1914
parity price index. Reversion to permanent law would result
in a milk support price of over $40/cwt., compared with the
2013 average all-milk farm price of $20/cwt.
Other less prominent programs that support dairy producers
and products include the Livestock Gross Margin for Dairy
Cattle Program (LGM-D), the Fluid Milk Processor Promotion
Program, and the Dairy Product Mandatory Reporting
Program.
More Information
For more analysis, see CRS Report R43465, Dairy
Provisions in the 2014 Farm Bill (P.L. 113-79), and CRS
Report RL34036, Dairy Policy and the 2008 Farm Bill.

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