Difficult Dairy Debate – It’s Not Over Yet

Cornell University dairy economist Andrew Novakovic explains the complex new dairy policy, which the Senate is expected to vote on early this week.

Source: Cornell University

Andrew Novakovic is a professor in Cornell University’s College of Agriculture and Life Science’s Dyson School of Applied Economics and Management, whose research focuses on the U.S. dairy industry and federal policy related to dairy, other agriculture and food. He explains the complex new dairy policy, which the Senate is expected to vote on early this week.

Novakovic says:

"In the final days of negotiating between House and Senate versions of the farm bill, the dairy section was often reported as an especially difficult sticking point. Although both versions contained a very similar objective of replacing existing safety net programs with a new ‘margin insurance’ program, the House bill did not include a further companion program that would have penalized farmers for production deemed excessive in periods when insurance payments were being made. The House opposition proved to be vigorous and obstinate. The result was a new margin insurance program plus a heretofore-unexpected plan to increase USDA donations to food assistance programs when dairy farm market conditions are especially severe.

"The new margin program expands access to larger-scale farmers and redefines financial stress according to returns over feed costs instead of just the price of milk. Both of these changes are in reaction to the severe dairy farm stress that was revealed by the Great Recession and the explosion in feed prices over the last few years. The Margin Protection Program for Dairy Producers (MPP) is a voluntary program that pays participating farmers an indemnity when a national benchmark for milk income over feed costs falls below an insured level. Coverage is available to all farmers, on a percentage of their historical production, at increasing premium costs beginning with a margin that is at catastrophically low levels and rising to near average market returns.

"The Dairy Product Donation Program (DPDP) is a program that requires the Secretary of Agriculture to immediately procure and distribute certain dairy products when the new national benchmark margin falls below the lowest margin level specified for the MPP. These products would be targeted for use in domestic, low-income family, food assistance programs, such as, but not limited to, The Emergency Food Assistance Program. This program provides a new authority to the Secretary of Agriculture, but it is consistent with existing efforts to procure and provide dairy products for a variety of food assistance programs."

A new paper by Novakovic and others titled: "The Dairy Subtitle of the Agricultural Act of 2014" is available here.