- The choice for a dairy safety-net can be a win-win for all.
- Offering farmers a choice among an expanded MILC program and a limited IOFC margin insurance program would double the support of existing programs yet could cost 40-60% less than the current stand-alone margin insurance program.
- IOFC support capped at $6.50 would allow farmers to receive market signals attributable to low IOFC margins. In response, though reductions in output, not whole herd liquidations as was the case in 2009, milk supply would naturally adjust to return margins to average levels. A safety-net without the need for a supply management program.
- Farms would no longer have an incentive to opt-out of the margin insurance and would instead opt for the no-cost MILC program when margins appear favorable. This would allow all farms to participate in a government sponsored safety net program and may prevent ad-hoc disaster payments in the future.
The hardships experienced across the dairy sector in 2009, where U.S. dairy farmers rapidly liquidated more than 250,000 dairy cows from the national herd (Figure 1), brought about a consensus among dairy industry participants that a new risk management solution was needed. As an alternative to price and revenue support several new safety net programs with an emphasis on government sponsored income-over-feed-cost (IOFC) margin insurance have been proposed. Dairy subtitles in both House and Senate 2013 Farm bills discontinue MILC and DPPSP programs and institute a Dairy Producer Margin Protection Program (DPMPP). The DPMPP is a highly subsidized IOFC margin insurance program designed to pay an indemnity to a participating farm when the difference between the national average all-milk price and the formula-derived estimate of feed costs falls below a farmer-selected margin trigger. The House bill (Dairy Freedom Act) includes only the DPMPP. If enacted into law, the Senate bill (Dairy Security Act) would require farms enrolling in DPMPP to also participate in a Dairy Market Stabilization Program (DMSP). The DMSP is a supply management-type program designed to enhance milk prices by reducing the rate of growth in U.S. milk production when IOFC margins fall below a specified threshold. Farms must either reduce the quantity of milk sent to market or face milk revenue penalties on milk shipped over their assigned production base.
Why Dairy Market Stabilization