Dairy policy changes in store under a new farm bill

By Dr. Scott Brown, director of strategic partnerships, College of Agriculture, Food and Natural Resources, University of Missouri

For the second time in the last five years, the farm bill went down to defeat on the floor of the House of Representatives. Many of the reasons were well beyond issues related to dairy policy, but it should remind us that farm bills appear to be more difficult to pass today than in the past.

We must think carefully about what is needed in a dairy safety net program as the effort for farm bill passage becomes more difficult.

The federal dairy safety net must be thought of as a level of support that is needed in financially catastrophic periods of time yet does not stimulate milk production in the long-term beyond market demand. It is likely that a dairy safety net cannot keep all dairy farmers in business, because the same level of support required to keep higher cost-of-production farms in business probably results in overproduction on more efficient farms.

The distribution of milk production costs across regions of the U.S. and sizes of dairy farms is the most difficult issue in setting an appropriate federal dairy safety net.

The House Agriculture Committee version of the 2018 farm bill, the Agriculture and Nutrition Act of 2018 (ANA18), provides some insight into the future direction of dairy policy. The debate thus far has been how to best modify the Margin Protection Program (MPP) to strengthen its safety net features. The idea of protecting margin (milk price less feed costs) rather than providing a milk price safety net program is continued.

ANA18 contains two important studies related to how the MPP margin is calculated. One study would focus on the reporting of a dairy-quality alfalfa price by USDA; the second would be further analysis of how to value corn silage in the MPP feed cost calculation.

Most concerns expressed regarding the MPP formula have been focused on whether the formula is representative of what dairy farms truly face financially. It appears that as feed costs have fallen from the record highs posted in 2013, the MPP margin has become more disconnected from actual dairy farm costs. If the margin is not measured correctly, the safety net will never work as intended.

The ANA18 provisions would require dairy farmers to elect a one-time signup decision for the life of the farm bill instead of the current provisions, which allow farmers to choose their level of participation in the program annually. This may shift the focus away from maximizing return from the MPP program and have farmers thinking more about the level of revenue protection they need.

The first 5 million pounds of production history would be eligible for lower premiums than passed in the 2014 farm bill and would provide higher buy-up levels up to a $9 coverage option. These changes cheapen the cost of coverage for the first 5 million pounds and allow farmers to pick a stronger safety net level than contained in the 2014 farm bill. These two changes should make the program operate much differently.

ANA18 also allows dairy farmers to use combinations of MPP and other dairy risk management tools like LGM-Dairy as long as the same milk is not covered under both programs.

The changes in ANA18 must be evaluated carefully as the dairy community continues its search for a better safety net for dairy farmers.