Idaho’s dairy industry is the third largest in the country and significantly impacts the economy of our state. Unfortunately, our dairy industry has suffered devastating losses in recent years due to escalating feed costs and plummeting milk prices, and federal dairy programs have proven unable to provide farmers with the tools to manage risk and succeed in volatile times. Existing programs are costly and prohibitively complex, and they discourage dairy producers from making decisions that enable them to survive market downturns.
It is long past time to fix these problems and provide the dairy industry with the certainty it needs to weather future economic storms. In order to address this issue, I recently joined House Agriculture Committee Ranking Member Collin C. Peterson (D-MN) in an effort to reform the existing dairy program. I am an original co-sponsor of new legislation to replace current, outdated dairy programs with new risk management tools addressing the realities of today’s dairy industry, such as rising input costs and a growing export market. The Dairy Security Act of 2011 was introduced on September 23, 2011, and is currently under consideration by the House Committee on Agriculture.
The Dairy Security Act of 2011 consists of three main components: an optional and voluntary Dairy Producer Margin Protection Program, a Dairy Market Stabilization Program and reforms to the Federal Milk Marketing Order system. This legislation provides producers with a base level of margin security to prevent devastating losses when milk prices drop and feed costs are high, as well as new flexibility to employ additional risk management strategies that are not available through current programs. These proposals provide a safety net based on profit margins rather than the price of milk. This bill eliminates the following outdated and costly programs: the Dairy Product Price Support Program (DPPSP), Milk Income Loss Contract (MILC) Program, and the Dairy Export Incentive Program (DEIP).
Here is specific information regarding the Dairy Security Act of 2011:
The Dairy Producer Margin Protection Program:
This program calculates the producer’s margin based on the difference between the average national price of milk and the average feed cost. The producer will receive a basic payment when the difference between feed costs and milk is less than $4.00 per hundredweight of milk for two consecutive months. Producers enrolled in the Margin Protection Program may purchase supplemental coverage to protect a higher level of the income than the income level guaranteed by the underlying program.
The Dairy Market Stabilization Program:
The stabilization program alerts producers when overproduction of milk may have significant consequences on their overall margins. This program also takes into account the importance of export markets, allowing the industry to continue meeting increased worldwide demand. The program is designed to act swiftly and infrequently to address brief market imbalances and prevents producers from receiving payments when milk supply is high. For instance, if supply increases to the point where the national margin falls below $6.00 for two consecutive months, producers could only receive payment for 98% of the milk they produce.
These two components of the Dairy Security Act are designed to work in tandem and may also be combined with producers’ individual risk management plans. It is important to note that participation in these plans are voluntary and optional, and these plans may be used in combination with individual farmer’s risk management plans to tailor-fit individual operations—a vast improvement over the current flawed system. The current programs are not working, and the new strategies Congressman Peterson and I are advancing move the dairy industry to a more market-focused industry while encouraging risk management and requiring less taxpayer assistance.
Federal Milk Marketing Order Pricing Revision:
The Dairy Security Act of 2011 streamlines the Federal Milk Marketing Orders basic pricing system through a formal hearing process directed by the USDA. This legislation changes the way milk used to manufacture cheese (Class III milk) is priced, from a complicated end-product pricing formula to a more market-oriented competitive pricing system. A competitive price compensates producers based on local supply and demand, reduces price volatility, encourages product innovation and allows manufacturers to compete domestically and internationally.
It has been helpful to me to hear from Idaho’s dairy industry about changes that we can make to the dairy program to prevent another economic crisis like that the industry faced in 2009. I appreciate the cooperative spirit and contributions of the members of the dairy industry thus far and look forward to continuing this conversation as the legislation moves through the committee process. I am confident that the Dairy Security Act of 2011 will provide an effective economic safety net for the U.S. dairy industry while saving taxpayer dollars.
