Dairy Provisions in the Bipartisan Budget Act (P.L. 115-123)

Dairy Provisions in the Bipartisan Budget Act (P.L. 115-123)

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February 22, 2018
Dairy Provisions in the Bipartisan Budget Act (P.L. 115-123)
The Bipartisan Budget Act of 2018 (BBA; P.L. 115-123)
premiums range from 1¢ to 48¢ per cwt, Tier II premiums
made important changes to the U.S. Department of
from 2¢ to $1.36 per cwt.
Agriculture (USDA) dairy Margin Protection Program
(MPP) and removed the cost cap on livestock insurance
MPP Effectiveness
programs, which includes Livestock Gross Margin-Dairy
Since MPP was implemented, the margin has remained
(LGM-D). The changes are estimated to add more than $1.1
mostly above $8.00 per cwt (Figure 1). During 2015-2017,
billion to the 10-year farm bill baseline, potentially
milk producers paid about $100 million in administrative
increasing available safety net funds for dairy producers.
fees and premiums and received about $12 million in MPP
payments. In 2017, 93% of dairy operations shifted
Review of MPP
coverage to the $4.00 per cwt level compared to 44% in
MPP is a voluntary program established in the 2014 farm
2015. Preliminary USDA data indicate that many dairy
bill (P.L. 113-79) that pays participating dairy producers
producers did not select a coverage level last year, which is
when a formula-based national margin—calculated as the
reflected in lower enrollment in 2017. In addition, in
national average farm price for milk minus a national
August 2017, when MPP enrollment and coverage selection
average feed ration cost—falls below a producer-selected
period opened for 2018, USDA announced that producers
insured margin. The $4.00 per hundredweight (cwt) margin
could opt out of MPP, forgoing the $100 payment.
is considered the catastrophic (CAT) level. To participate at
the CAT coverage level, dairy producers pay an annual
Figure 1. Milk Price-Feed Ration Cost Margin
$100 administrative fee and are then eligible to receive a
payment on 90% of their milk production history, up to 4
million pounds, if the margin averages below $4.00 for the
two-consecutive monthly periods of January-February,
March-April, May-June, July-August, September-October,
and November-December. In total, there are six possible
payments during the year.
Producers may buy additional margin coverage up to $8.00
per cwt (see Table 1). To receive additional coverage,
producers choose the level of margin coverage in $0.50
increments from $4.50 to $8.00 and also choose the
percentage of milk production history to cover from 25% to
90%.

Table 1. MPP Premiums per cwt
Source: Compiled by CRS using USDA data.
Tier I
Tier II
Notes: The margin is the national average All Milk price per cwt

Margin
≤4 million lbs
>4 million lbs
minus the average cost of a feed ration needed to produce 1 cwt of
milk.
$4.00
$0
$0
$4.50
$0.010
$0.020
Many dairy stakeholders are dissatisfied with MPP and
$5.00
$0.025
$0.040
believe the program has not functioned as envisioned. They
have been looking to the upcoming 2018 farm bill for
$5.50
$0.040
$0.100
adjustments to MPP or other alternatives that would
$6.00
$0.055
$0.155
strengthen the safety net for milk producers.
$6.50
$0.090
$0.290
$7.00
$0.217
$0.830
Amended MPP
$7.50
$0.300
$1.060
Section 60101(b) of the BBA amended statute in several
significant ways to partly address dairy producer concerns
$8.00
$0.475
$1.360
ahead of the next farm bill.
Source: 7 U.S.C. §9057(b)(2) and (c)(2).
 The BBA changed the MPP margin calculation to a
Premiums for the additional coverage vary by production
monthly basis from a two-month average. Producers
level. Producers with annual milk production of 4 million
would receive payments each month the milk-feed cost
pounds or less pay Tier I premiums. Producers pay higher
margin falls below covered levels.
Tier II premiums to cover more than 4 million pounds. The

difference between the two tiers is significant: Tier I
The BBA raised the catastrophic coverage from $4.00 to
$5.00 per cwt and increased the top limit on the Tier I
production level to 5 million pounds from 4 million
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link to page 2 Dairy Provisions in the Bipartisan Budget Act (P.L. 115-123)
pounds. This level provides margin payments on 90% of
remove the $20 million cost limitation on livestock
the first 5 million pounds of milk at the cost of the $100
insurance programs administered by USDA. CBO projects
annual administrative fee.
the cost of removing the cap to be $308 million over 10
years. The projected cost for 2018 is $0 but ranges from
 The BBA reduced Tier I premiums for additional
$31 million to $37 million in the succeeding nine years.
margin coverage (see Table 2). Additional coverage
may be purchased in $0.50 increments from $5.50 to
Farm Bill Considerations
$8.00 per cwt at significantly lower rates. Tier II
Dairy stakeholders may look to the next farm bill as an
premiums for milk production above 5 million pounds
opportunity to make further adjustments to dairy support
are unchanged.
programs within the newly expanded baseline. The focus is
likely to be on margin levels, premium rates, and feed costs.
Table 2. MPP Premiums per cwt in BBA
Tier I
Tier II
CRS analysis of recent milk and feed prices projected by

Margin
≤5M lbs
>5M lbs
USDA indicate that the MPP margin may drop below $8.00
per cwt, or $7.50 per cwt, only during the first half of 2018
$4.00
$0
$0
and be above $8.00 per cwt for the remainder of the year.
$4.50
$0
$0.020
Under this situation, only producers who buy the highest
$5.00
$0
$0.040
margin levels may receive payments in 2018. Each dairy
$5.50
$0.009
$0.100
producer would need to consider whether potential payouts
would cover premiums that are paid for the entire year.
$6.00
$0.016
$0.155
Some dairy stakeholders have argued that a larger margin
$6.50
$0.040
$0.290
than $8.00 per cwt should be covered under MPP.
$7.00
$0.063
$0.830
$7.50
$0.087
$1.060
Some dairy stakeholders, particularly larger dairies, believe
$8.00
$0.142
$1.360
MPP offers little support because of the low production
limits of 4 million pounds and now 5 million pounds. A
Source: Tier I: BBA, §60101(b)(4); Tier II: 7 U.S.C. §9057(c)(2).
220-head herd produces about 5 million pounds of milk, but
 The BBA removed the $100 annual administrative fee
over 70% of U.S. milk cows are in herds larger than 200
for limited resource, beginning, veteran, or socially
head. Producers with large herds believe that MPP offers
disadvantaged farmers.
little in the way of a safety net unless they opt to pay the

relatively high Tier II premiums. If Tier II premiums were
The BBA extended the 2018 signup period for MPP.
lower, larger dairy producers may find MPP more
USDA is to provide at least 90 days after enactment for
attractive. The BBA provided no premium relief at the Tier
producers to participate, or for producers already in
II level.
MPP, to change their coverage.
The Congressional Budget Office (CBO) projects that the
Many dairy producers are concerned that the MPP feed
revised MPP will cost $794 million over a 10-year period
formula underestimated the cost of feed. The feed formula
(FY2018-FY2027). The projected cost in 2018 is $47
proposed by the National Milk Producers Federation in
million.
2012 was 10% higher than enacted in the 2014 farm bill.
The farm bill enacted a lower feed cost formula to contain
LGM-Dairy
potential MPP costs. Under the original proposed formula,
Separate from and predating MPP, USDA Livestock Gross
margin calculations would have been smaller by about
Margin (LGM) insurance policies allow cattle, dairy, and
$1.00 per cwt, resulting in more payments. Some have also
swine producers to manage price risk by insuring the
proposed local or regional feed formula, but these would
margin, or difference, between the market value of the
likely be costly.
commodity and the feed costs. The LGM program was
authorized in the Agricultural Risk Protection Act of 2000
Finally, the BBA does not amend the MPP provision (7
(P.L. 106-224). It included a $20 million cost limitation on
U.S.C. §9054(d)) that restricts dairy producers to use either
livestock insurance programs. LGM-D policies became
MPP or LGM-D but not both. Stakeholders argue that this
available in 2008.
restriction should be lifted to give dairy producers
additional opportunities to manage milk price risk through
Dairy producers are the primary users of LGM insurance
insurance programs as well as safety net programs.
policies, accounting for 89% of livestock gross margin
liability in 2017. Dairy margins are calculated using futures
See CRS Report R43465, Dairy Provisions in the 2014
contract settlement prices for milk, corn, and soybean meal.
Farm Bill (P.L. 113-79), and CRS In Focus IF10750, Farm
However, many dairy stakeholders believed the $20 million
Bill Primer: Dairy Safety Net.
cost cap on livestock insurance limited the scale of the
program for producers to manage risk and have advocated
Joel L. Greene, Analyst in Agricultural Policy
for an increase or removal of the cap.
IF10833
Section 60101(c) of the BBA amends Section 523(b)(10) of
the Federal Crop Insurance Act (7 U.S.C. 1501 et seq.) to

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Dairy Provisions in the Bipartisan Budget Act (P.L. 115-123)

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