Sen. Charles Schumer (R-N.Y.) is asking USDA to change the system for dairy farmers to pay Margin Protection Program for Dairy (MPP-Dairy) insurance premiums.
Currently under MPP-Dairy, dairy farmers purchasing income margin insurance were required to pay 25% of the premium to USDA in February, with the balance due June 1.
In a conference call with reporters, Schumer said he is pushing USDA create a new insurance premium payment option to give more financial flexibility to dairy farmers facing declining milk prices this spring. He proposed a payment option whereby dairy co-ops or private milk buyers front the insurance premiums for individual farms, and then could be paid back by deducting premium costs from monthly dairy farmer milk checks.
Schumer said USDA has the power to make the change without any new legislation.
John Hollay, vice president of government relations with the National Milk Producers Federation (NMPF), said his organization had sought to include a milk check deduction provision when the MPP-Dairy program was established. USDA was willing to pursue that avenue, he added, but was unable to work out details before the Farm Bill-mandated start date for the program last September.
"We greatly appreciate Senator Schumer raising this issue directly with USDA," Hollay said. "There should not be any barriers to setting up such a program with co-ops or other handlers under the current regulations. We think that Senator Schumer's efforts to highlight this issue are an important step in giving our co-ops and their producers a new option on participating in the margin protection program and managing their risk."
Allowing co-ops or private companies to spread out farmers" insurance payments throughout the year would improve farmer cash flow and alleviate some of the financial pressures during periods when prices are low, Schumer said. In addition, allowing greater flexibility to farmers will help attract more farmers into MPP-Dairy in the future, he added.
The U.S. average milk price, which peaked at more than $25/cwt. last September, dropped to $16.80/cwt. in February, and will be lower through the first half of 2015. Despite the drop, feed prices have also declined, and MPP-Dairy is not expected to issue large indemnity payments anytime soon. However, the June 1 premium payment deadline still looms.
"The falling cost of milk means more and more New York farmers are struggling to make ends meet," he said. "Their bottom line is complicated by the fact that they are currently required to pay their insurance premiums in large lump sums twice a year. That's why I'm proposing a new insurance program that enables farmers to spread out their payments over the course of the year by allowing the co-ops that market and sell their milk to make the payments for them," said Schumer.
Schumer said many dairy farmers have expressed concern that they must contend with so many fixed costs – despite the potential for increased feed costs and drops in the price of milk – which directly impact farmers profit margins. One of the necessary costs they must contend with is premium payments for MPP-Dairy, which Schumer called a critical tool for farmers to endure hard times.
Co-ops typically have more resources than individual farmers, and could offer farmers the flexibility to pay off the premiums throughout the year through milk check deductions, he added.
A copy of Schumer's letter to the USDA appears below:
Dear Secretary Vilsack:
I write to urge the U.S. Department of Agriculture (USDA) to release guidance to increase the flexibility of the Margin Protection Program (MPP) premium payment process to allow for cooperatives and private companies to establish a deduction system that will allow for farmers to pay their premiums through monthly "milk check" deductions, rather than in one or two large payments directly to the agency. I commend USDA for its implementation of the new margin protection program authorized in the 2014 farm bill, however allowing greater flexibility of the premium payment process will help increase future participation in the program.
As you know, dairy prices historically have been volatile, which can place great financial pressure on dairy farms. This is why I supported the creation of the Margin Protection Program in the 2014 farm bill to help farmers endure tough times when profit margins shrink to financially unsustainable levels. Over the past year milk prices have fluctuated from a high of almost twenty five dollars per hundredweight down to just fourteen dollars. It is critical that USDA increases the premium payment flexibility of the margin protection program to attract greater participation by giving cooperatives and private companies who sign long-term purchasing contracts with dairy farmers the ability to pay farmers premiums upfront and recoup the cost through monthly deductions from payments to the farmer for their milk.
This type of deduction system is common in the dairy industry. However, it is important that any premium payment agreement with USDA that allows for the deduction of premium payments, does not shift the responsibility of the producer to pay their premiums on to the cooperative or private company in the case that they cease operation.
Again, I thank you for your work to implement the new margin protection program for our dairy farmers, but encourage you to increase the premium payment flexibility in time for registration for 2016. Thank you for your attention to this important request.
Charles E. Schumer
United States Senator