Amendment would eliminate DMSP from House Farm Bill dairy title

NMPF urges rejection of amendment

The National Milk Producers Federation (NMPF) urged members of the House Ag Committee to reject an amendment it said would undo the significant dairy policy reforms proposed for the 2012 Farm Bill.

The Agriculture Committee is expected to begin considering amendments Wednesday to its version of the 2012 Farm Bill. One of those, to be offered by Reps. Bob Goodlatte (R-Va.) and David Scott (D-Ga.), would make dramatic changes to the bill’s dairy title by eliminating its market stabilization program.

“The Goodlatte-Scott dairy amendment guts the dairy reforms that farmers have worked so hard in the past three years to create,” said Jerry Kozak, president and CEO of NMPF. “And this amendment undercuts these efforts in the worst possible way: by tearing a hole in the insurance safety net offered to farmers in the Farm Bill. Replacing a robust safety net with one that resembles Swiss cheese is bad policy and bad politics.”

As originally proposed in the Dairy Security Act, the new farm-level safety net under consideration offers dairy farmers a basic level of margin protection at no cost, while offering them the option of purchasing supplemental margin insurance to cover a wider gap between the cost of feed and the milk price. Those who choose this voluntary program would be covered by the market stabilization element, encouraging them to temporarily cut back milk production when margins are poor.

However, under the Goodlatte-Scott amendment, the market stabilization program – which helps align milk supplies with demand, and controls government farm program expenditures – is eliminated. Because this step would otherwise drive up the cost of the margin insurance program and increase federal outlays, the amendment punishes farmers who choose to use the margin insurance program by reducing the amount of insurance coverage offered to them.

“This last-minute attempt to unravel years of careful economic analysis and industry-wide collaboration is an affront to farmers, and should be rejected by the members of the Agriculture Committee,” Kozak said.

U.S. Reps. Bob Goodlatte (R-Va.) and David Scott (D-Ga.) have offered an amendment to the House 2012 Farm Bill proposal that would cut the Dairy Market Stabilization Program (DMSP, often called the “supply management” program) portion from the dairy title.

To read the full amendment, visit: http://www.dpac.net/publication_files/goodlattescott-amendment-6083.pdf

The amendment would offer a stand-alone Dairy Producer Margin Insurance Program which is similar – but not identical to – the Dairy Producer Margin Protection Program (DPMPP) of both the Senate and proposed House Farm Bill.

The Goodlatte-Scott amendment would repeal the existing Dairy Product Price Support Program, Milk Income Loss Contract program and the Dairy Export Incentive Program. It would replace those programs with a single Margin Insurance Program (MIP). The design is similar to other versions of the DPMPP, but combines the proposed “basic” and “supplemental” components and establishes 80% as the maximum marketings coverage amount.

The MIP would be in place from Oct. 1, 2012 through Sept. 30, 2017. Producers are not compelled to participate in the MIP. They would be given one year from the date of enactment of the Farm Bill to make a participation decision.

Each farm would have a fixed production history based on the highest annual production in the three years prior to enactment of the bill. At the time a participation decision is made, producers would also have to choose the level of margin protection, from $4.00 to $8.00/cwt., in 50¢ increments, and the percentage of production history to cover, from 25% to 80%.

There would be separate premium levels for the first 4 million lbs. of milk produced by a single operation in a year, with a different premium level for milk produced above 4 million lbs. per year.

Annual premiums would be paid either by Jan. 15 of each year, or in biannual payments by January and June 15 of each year. These premium payments would be fixed for the expected five-year life of the MIP. Provisions cover new entrants into dairy, a farm sale, lease or location transfer.

Mark Stephenson, Ph.D., Director of Dairy Policy Analysis at the University of Wisconsin-Madison, analyzed the simple margin insurance program proposed by the amendment as a means to address market volatility. The analysis, “The Impacts on Dairy Farmers and Milk Markets of a Standalone Dairy Producer Margin Insurance Program,” indicates the simple margin insurance program can be an effective risk management tool.

Stephenson’s analysis said producers purchasing a MIP policy at the $7.00/cwt. margin level would have received indemnity payments in 10 months of 2009, and are projected to receive modest indemnity payments for 10 months in 2012.

The analysis suggests a MIP could also have a moderating impact on market prices, as individual producers respond to more stable net farm operating income by moderating production patterns. Collectively, this causes a somewhat lower average, but more stable, market price.

A copy of the analysis, “The Impacts on Dairy Farmers and Milk Markets of a Standalone Dairy Producer Margin Insurance Program,” is available here.

A side-by-side comparison of Senate, Lucas/Peterson and Goodlatte/Scott amendment proposals is available here.

A cost analysis by state of all three proposals is available here.

House Ag Committee action begins Wednesday

House Ag Committee chair Frank Lucas (R-Okla.) and Ranking Member Collin Peterson (D-Minn.) released a discussion draft of the House 2012 Farm Bill last week. The House Ag Committee will work on its version of the 2012 Farm Bill tomorrow (July 11).

To see and hear the committee proceedings, visit http://agriculture.house.gov/hearings.

The House's version of the Dairy Title can be found at http://future.aae.wisc.edu/publications/FARRM_Draft_Dairy_Title.pdf

The discussion draft of the House version of the full Farm Bill can be found at http://future.aae.wisc.edu/publications/FARRMDiscussionDraft.pdf.