Support the Dairy Security Act
The Farm Bill is now coming up for a vote again in Congress. Please reaffirm your support for the Dairy Security Act, and urge your members of Congress to pass the legislation as a complete package.
Questions About Dairy Producer Margin Protection Program
- What is the Dairy Producer Margin Protection Program (DPMPP)?
- The DPMPP insures a producer’s “milk production history.” How is this “production history” determined?
- How does the Supplemental plan work?
- How does the DPMPP compare with MILC in terms of support for producers?
- How will producers sign up for the DPMPP?
- Are the proposed dairy provisions compatible with U.S. obligations under trade agreements?
- Will dairy farmers experience the problems other farmers have experienced with crop insurance and that the livestock gross margin (LGM) program?
- Why can’t the DPMPP be run on a regional basis utilizing regional pay prices and regional feed costs?
- Is the DPMPP as complicated as some have implied?
- Does the DPMPP program have payment limitations or caps like the MILC program does?
- Won’t the DPMPP primarily benefit larger farms, especially if there are no limitations on payments?
- If a dairy producer wishes to exit the business, can they sell the milk production history utilized in the DPMPP?
- Does the DPMPP accommodate new producers?
- How can dairy producers determine their Basic and Supplemental coverage options?
What is the Dairy Producer Margin Protection Program (DPMPP)?
The DPMPP is an insurance program which provides a floor for producer margins. It will help offset low margins caused either by low milk prices or high input costs, and prevent an erosion of equity. It provides producers who sign up for the program with a basic level of protection (a $4.00 minimum margin) at no cost, along with the option to purchase supplemental coverage insuring up to an additional $4.00 margin.
The DPMPP insures a producer’s “milk production history.” How is this “production history” determined?
The milk production history for a producer who signs up for the DPMPP is the highest annual milk production from the three years prior to DPMPP’s implementation for the Basic and Supplemental plans. This history is fixed for the duration of the farm bill for the basic protection. The previous year’s milk production is the history used if a producer chooses the additional protection of the Supplemental plan each year.
How does the Supplemental plan work?
Under the Supplemental plan, farmers can elect to pay for added coverage each year. The premium rate per hundredweight covered does not change. What can change each year is the percentage of milk volume covered. Each year, the farm’s actual production becomes the production history for the following year.
How does the DPMPP compare with MILC in terms of support for producers?
First, it is important to compare apples to apples. Therefore, any such comparison must look at how the DPMPP compares to the MILC program that would exist going forward. The current MILC only provides a payment on 45% of the difference between $13.69 and the actual Class I price mover on a maximum of 2.985 million pounds of milk a year, adjusted for changes in feed costs against a baseline of $7.35. However, the Senate dairy legislation maintains the payment rate at 45% of the Class I price difference, only 2.4 million pounds of milk production is covered in a year, and the baseline adjustment in feed costs increases to $9.50 through June 2013. In comparison, the DPMPP provides a hard margin floor of $4.00, on 80% of a farm’s production history under the Basic plan and the option to insure 90% of the production history under the Supplemental plan option. Working in combination with the DMSP program, DPMPP is a far superior form of equity protection than MILC.
How will producers sign up for the DPMPP?
The DPMPP is intended to be a federal farm program administered by the Farm Services Agency (FSA). Producers will need to sign up only once at their local FSA office for the voluntary, no-cost Basic margin program at the onset of the 2012 Farm Bill (or an earlier effective date if this program is authorized by separate legislation prior to the next Farm Bill). Producers will have the option to sign up annually for participation in the voluntary Supplemental margin coverage program. The period of coverage will be linked to the period specified for the applicability of all programs authorized in the Farm Bill.
Are the proposed dairy provisions compatible with U.S. obligations under trade agreements?
Yes. The DPMPP will fit perfectly within our WTO subsidy limits for dairy. By replacing the Dairy Product Price Support and the Milk Income Loss Contract programs, the U.S. dairy industry will retain a significant level of allowable subsidies to be used for other programs such as the DPMPP. Except for those extreme situations which can be expected to occur very infrequently, the DPMPP will stay well below the permissible level of subsidies for dairy within the overall allowable level of support available to U.S. agriculture.
Will dairy farmers experience the problems other farmers have experienced with crop insurance and that the livestock gross margin (LGM) program?
First, crop insurance has, in fact, been a successful program because it has provided protection to producers in times of poor weather conditions. However, crop producers have expressed concerns regarding continual increases in premiums and having to participate in the program through private insurance companies. DPMPP addresses each of those concerns by providing level of basic coverage at no cost to the producer, keeping the producer’s premium rate for supplemental coverage fixed for the duration of the Farm Bill; and making certain the program is administered by the FSA, rather than USDA’s Risk Management Agency (RMA). As a result, there are no insurance companies or insurance agents involved. Lastly, the most effective elements of LGM are contained in the DPMPP, but unlike LGM, DPMPP is easy to use and affordable, and the premiums and funding levels will not be subject to frequent changes.
Why can’t the DPMPP be run on a regional basis utilizing regional pay prices and regional feed costs?
Dairy safety net programs have always been national programs. They have allowed normal market forces to determine how much milk should be produced and where it should be produced. A regional program would circumvent market forces by offsetting cost differences that result from different dairying business models and price differences that result from local milk supply and demand situations.
Is the DPMPP as complicated as some have implied?
Participating in the DPMPP program is no more complicated than the MILC program. All that a producer who wants to have the protection of the DPMPP needs to do is go to the local Farm Service Agency office with plant documentation of the previous three years of milk marketings. The highest of the three years will be the producer’s production history for the Basic plan and for the Supplemental plan. If the producer selects the option available under the Supplemental plan, each succeeding year the producer will have to report the previous year’s milk marketings which then will become the new production history going forward.
Payouts to producers under both the Basic and Supplemental plans will be triggered according to the established parameters with no further obligation on the part of the producer except to honor the payments for their portion of the premiums under the Supplemental plan (if applicable). To assist with the comprehension of this new program, the Dairy Security Act website – www.futurefordairy.com – includes easy-to-use educational materials to assist in the understanding and utilization of the DPMPP.
Does the DPMPP program have payment limitations or caps like the MILC program does?
The NMPF Board of Directors’ basic principle with respect to a federal safety net program is that all producers must be treated equally without distinction on the basis of milk marketings or income. As an organization, NMPF is firmly committed to maintaining this position since the DPMPP is not a direct payment or an entitlement program.
Won’t the DPMPP primarily benefit larger farms, especially if there are no limitations on payments?
The DPMPP was specifically designed to not discriminate against any individual producer and, as a result, it benefits all producers equally, regardless of size or total production. All producers will benefit from lower premium rates on the first four million pounds of milk production insured.
If a dairy producer wishes to exit the business, can they sell the milk production history utilized in the DPMPP?
The production history will only be transferable with the dairy operation itself, or it will stay with the producer if he/she moves to a different operation. If the operation is sold or leased, the production history will be transferable with the operation to the new owner/lease, but cannot be sold separately. In situations where the producer is moving his/her entire operation, the producer will be able to keep the production history (with the old facility no longer having a history). The history will be updated with every new Farm Bill.
Does the DPMPP accommodate new producers?
The DPMPP will be available to new producers during the life of the Farm Bill. Such protection will greatly assist in staving off a repeat of the huge equity loss experienced in 2009. In addition, the program will result in an improved economic environment for lenders, allowing new producers to better plan for the future.
How can dairy producers determine their Basic and Supplemental coverage options?
The Dairy Security Act website – www.futurefordairy.com – features a Supplemental plan premium cost calculator which will allow a producer to analyze different coverage options by inputting milk production history, the percentage of production history covered and the level of additional coverage per hundredweight desired. The calculator also specifies what the premium rates are for varying levels of Supplemental margin insurance coverage.
