Transition payments could have been more equitable

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An article on page 72 (Dairy Market Loss Payments) suggests some ways to invest your Milk Income Loss Contract (MILC) payments wisely. We hope that it will be an opportunity for you to make your dairy farm business even stronger.

Beginning next month, many of you will be receiving thousands of dollars in MILC payments - thanks to a special provision in the new Farm Bill passed by Congress.

While no one begrudges you the money, and it is certainly coming at a time when cash flows have dwindled due to low milk prices, we do think the money could have been allocated in a more equitable manner.

We already knew that the program would be biased toward small farms. But, just as we were coming to accept that small farms would be the main beneficiaries, the USDA threw us a curve. In mid-August, the USDA said farms could choose their retroactive transition payments based on production that began in December 2001, or else jump ahead and base it exclusively on September 2002.

The September provision is a boon to large dairies with more than 1,000 cows. Suddenly, we have a situation where the large guy gets the most, the small guy gets less, and the middle guy gets the least of all. (See "Payment schedule penalizes mid-sized producers" below.)

Hopefully, some of the disparity will get evened-out once the second phase of the MILC program begins in October, and monthly payments begin. Producers will have the option of selecting their start month to signify which months they want to pledge their production against a 2.4-million-pound annual production cap. Payments cease once a producer reaches his or her cap.

We just hope that the USDA doesn't come up with some new surprises in the meantime. Producers have already grown wary of the politics involved.

It may be too late to do much about the retroactive transition payments, although the National Milk Producers Federation announced on Aug. 22 that it would ask the USDA to review its decision. NMPF would like to see mid-sized dairies get a fairer deal.

Certainly, a more equitable solution would have allowed producers to pick their months for transition payments - similar to what they will be able to do with the regular monthly payments beginning in October.


Payment schedule penalizes mid-sized producers

Under the new Milk Income Loss Contract program, producers are eligible for retroactive transition payments back to December 2001. Payments are based on milk production beginning in December 2001 and running through consecutive months until a 2.4-million-pound cap is reached, or else producers can choose to apply it to September 2002 production.

Under this scenario, large-size producers will want to choose the September option, because payments for the month are $1.45 per hundredweight, compared to 77 to 78 cents per hundredweight for December through February.

Smaller producers, on the other hand, will probably want to begin in December and run through the months until they reach their cap. Many producers won't even reach 2.4 million pounds by September.

Choosing the best-possible scenario, we looked at the payments for three producers - one with 100 cows in the milking herd, one with 550 cows, and one with 1,100 cows. We assumed that each producer averaged 70 pounds of milk per cow per day. Here's what each producer will earn in transition payments:

Producer A
100 cows
$23,061

Producer B
550 cows
$18,600

Producer C
1,100 cows
$33,495



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