The main feature of the new Farm Bill Dairy Title is the Dairy Producer Margin Protection Program. The Margin Protection Program is a new and unique safety net program that will provide dairy producers with indemnity payments when actual dairy margins are below the margin coverage levels the producer chooses on an annual basis. Its focus is to protect farm equity by guarding against destructively low margins, not to guarantee a profit to individual producers. The farm bill requires the Margin Protection Program to be established no later than September 1, 2014.
The program supports producer margins, not prices and is designed to address both catastrophic conditions as well as prolonged periods of low margins. Under this program, the “margin” will be calculated monthly by USDA and is simply defined as the all-milk price minus the average feed cost. Average feed cost is determined using a feed ration that has been developed to more realistically reflect those costs associated with feeding the entire dairy farm enterprise consisting of milking cows, heifers, and other related cost elements.
How It Will Work
All dairy operations will be eligible to participate in the Margin Protection Program. If more than one producer participates in the production and marketing of milk on a single operation, all producers will be treated as a single dairy operation. If a producer operates two or more farms, each will be required to register separately to participate.
Premiums will be fixed through 2018 and are as follows:
Payments will be made to producers based on the percentage of their production history they choose to protect (that is, 25 percent to 90 percent) and the level of margin coverage they have selected ($4.50 to $8 per cwt). Payments will be distributed when margins fall below $4 (or below the selected level if a producer has selected a level of coverage above $4), averaged over any of these consecutive two-month periods: Jan-Feb, Mar-Apr, May-Jun, Jul- Aug, Sep-Oct, Nov-Dec.
The farm bill also creates a new Dairy Product Donation Program that will be triggered in the event of extremely low operating margins for dairy farmers. It will also provide nutrition assistance to low-income individuals by requiring USDA to purchase dairy products for donation to food banks and other feeding programs.
This program will only activate if margins fall below $4.00 per cwt. for two consecutive months. It will require USDA to purchase dairy products for three consecutive months, or until margins rebound above $4.00. The program will trigger out if U.S. prices exceed international prices by more than 5 percent. Under this provision, USDA would purchase a variety of dairy products to distribute to food banks or related non-profit organizations. USDA is required to distribute, not store, these products and organizations receiving USDA-purchased dairy products are prohibited from selling the products back into commercial markets.
The farm bill eliminates the outmoded and ineffective Dairy Product Price Support Program and the Dairy Export Incentive Program. The Federal Milk Marketing Order Review Commission established in the previous farm bill is also eliminated. Once the Margin Protection Program is up and running, the Milk Income Loss Coverage, or MILC, program will also be eliminated.
A word about Livestock Gross Margin insurance: the Farm Bill legislation prohibits farmers from using both LGM and MPP protection simultaneosuly as risk management tools. In late June, USDA's Farm Service Agency (FSA) sent this notice to field employees to work with dairy producers who have purchased LGM coverage to transition to the Margin Protection Program. Additional details will be found in the general implementing regulation for the MPP that will come out later this summer.
The farm bill requires the Agriculture Department to establish the Margin Protection Program no later than September 1, 2014. The Farm Services Agency will implement the program. The National Milk Producers Federation will be working closely with USDA and FSA staff to ensure the program is as effective and farmer-friendly as possible.