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Wednesday, January 23, 2013

Dairy Policy Proposals in the Next Farm Bill

Randy Schnepf
Specialist in Agricultural Policy

Current U.S. federal dairy policy is based on five major programs—the Dairy Product Price Support Program (DPPSP), the Milk Income Loss Contract (MILC) Program, Federal Milk Marketing Orders, Dairy Import Tariff Rate Quotas, and the Dairy Export Incentive Program— which together are designed to provide price and income support and market stability for dairy producers. In addition, several smaller programs aid the U.S. dairy sector with market promotion, research, price reporting, risk management, and disaster assistance.

In recent years, dairy producers have argued that a simple price-based system fails to reflect the sharp increases in milk production costs, especially feed costs, that have occurred since the mid- 2000s. In response to producer concerns and to the volatile dairy price and margin developments of the past decade, the 112
th Congress spent substantial time and effort during 2012 reviewing existing farm programs, consulting with stakeholders, and preparing new legislation to serve as the next five-year version of omnibus farm legislation—the anticipated 2012 farm bill. The Senate passed its version of the farm bill, S. 3240, on June 21, 2012. The House Agriculture Committee approved its version, H.R. 6083, on July 11, 2012.

Both bills proposed replacing the current U.S. dairy programs that rely on a simple price trigger (DPPSP and MILC) with two programs—the Dairy Production Margin Protection Program (DPMPP), a new income support program based on the monthly difference (i.e., the margin) between the national average farm all-milk price and a formula-derived estimate of feed costs, and the Dairy Market Stabilization Program (DMSP), which, under certain conditions, would reduce payments to participating producers for their milk marketings when the margin falls below proposed statutory thresholds. According to the Congressional Budget Office (CBO), eliminating DPPSP and MILC would generate enough savings to more than offset the cost of implementing the proposed joint dairy programs, DPMPP and DMSP.

The American Taxpayer Relief Act of 2012 (ATRA)—signed into law by President Obama on January 2, 2013—extends the 2008 farm bill (P.L. 110-246) for one additional year until September 30, 2013, or, in the case of the farm commodity programs that are on a different calendar, through crop year 2013. Many of the provisions of the 2008 farm bill had expired on September 30, 2012, including the Milk Income Loss Contract (MILC) program. The Dairy Product Price Support Program (DPPSP) expired on December 31, 2012, but has been extended one full year to December 31, 2013, by ATRA. However, the farm bill extension included in ATRA forestalls a restructuring of the farm commodity programs that was envisioned in both the House-reported (H.R. 6083) and Senate-passed (S. 3240) versions of the next farm bill. The 113
th Congress is expected to write a new farm bill in 2013, and might be expected to use H.R. 6083 and S. 3240 as starting points.

Date of Report: January 8, 2013
Number of Pages: 32
Order Number: R42736
Price: $29.95

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