The National Milk Producers Federation (NMPF) Foundation for the Future (FFTF) program has evolved into the Dairy Security Act, thanks to ongoing input from across the dairy industry, including the thousands of farmers who participated in the summer 2011 FFTF Grassroots Tour. Legislation modeled on the FFTF program has been introduced in the House of Representatives as the Dairy Security Act, and in the Senate as part of a Farm Bill proposal.

A New Direction for Dairy Policy The Dairy Security Act starts by eliminating several elements of current dairy policy that no longer serve as effective tools to help farmers: the Dairy Product Price Support Program (DPPSP); the Milk Income Loss Contract (MILC) program; and the Dairy Export Incentive Program (DEIP). These programs will be replaced with a voluntary margin protection program which includes a market stabilization element should dairy farmers choose to protect their equity with the margin protection program. Basic protection is provided at no cost and additional protect is available through the Supplemental plan.

Why Margin and Not Price? In the future, the financial stability of dairy operations will depend on margins, rather than milk prices alone. The economic hardship experienced in the last two years testifies that high milk prices don’t guarantee profitability when teamed with high input costs.

Dairy Producer Margin Protection Plan (DPMPP)

Provides dairy farmers with margin protection per hundred pounds (cwt.) of milk marketed, paying the difference between the national average dairy farmer milk price (All Milk price), and the national average cost of feeding dairy animals. Participation in the margin program is voluntary, and enrollment is for the life of program.

The Basic plan pays:

• When the average margin is below $4.00 for specific consecutive two-month periods (January-February, March-April, etc.)
• On 80% of the producers’ milk production history (the highest annual production of the three years prior to the program going into effect)
• Has an annual administrative fee based on milk production (in pounds):

The Supplemental plan allows:

• Producers to purchase margin coverage above the Basic Plan’s $4.00 margin, up to an additional $4.00 per cwt (for a total $8 margin) on up to 90% of the previous year’s milk production each year
• A fixed premium rate per cwt.

Dairy Market Stabilization Program (DMSP)

Unlike in the initial version of Foundation for the Future, the Dairy Security Act makes the Market Stabilization plan optional; only producers participating in the Dairy Producers Margin Protection Program (above) are automatically enrolled in this program.

The DMSP triggers when:

• Margins are below $6 and $5 for two consecutive months, or are below $4 for one month.
• When program activated, depending on margin level, producers paid for:
  • Higher of 98% of production base or 94% of current month’s production if $6 trigger.
  • Higher of 97% of production base or 93% of current month’s production if $5 trigger.
  • Higher of 96% of production base or 92% of current month’s production if $4 trigger.

The DMSP is suspended if:

• The actual margin is above $6.00 for two consecutive months, or
• When the U.S. cheddar cheese price or the nonfat dry milk price is:
  • Equal to or higher than the World price for 2 consecutive months when the margin is less than $6.00, or
  • 5% or more above the World price for 2 consecutive months when the margin is less than $5.00, or
  • 7% or more above the World price for 2 consecutive months even when the margin is less than $4.00.

The DMSP Production Base is:

• Temporary - it expires when program suspended;
• Recalculated/new if DMSP is activated again;
• The average of three months milk production prior to activation, or the same month in the previous year. The farmer chooses which production base applies annually.

Federal Milk Marketing Order (FMMO) Reform

Following the initial approval of the proposed reforms by the NMPF Board, NMPF staff embarked on a summer 2011 Grassroots Tour, holding 13 meetings in 12 cities across the country to present the programs in FFTF to producers and get their feedback. It became evident that there was considerable concern in the producer community regarding making sweeping reforms in federal orders through the legislative process.

As a result of those concerns, the focus of the Dairy Security Act in the next Farm Bill is on improving the safety net for dairy farmers, and not attempting to also reform the Federal Order system. However, NMPF remains committed to addressing the shortcomings in that system, and will continue to push for those reforms separate from the farm bill process.