The U.S. Department of Agriculture has taken some steps to improve the Margin Protection Program (MPP) designed to offer margin assistance, but many question whether the program is working as it was intended.

The MPP makes insurance payments when the dairy margin (the difference between milk prices and feed costs) drops below a farmer’s selected coverage level for two consecutive months. Farmers may purchase MPP insurance from the $4 margin up to an $8 margin.

Margins have slipped considerably since the passage of the 2014 Farm Bill, making the safety net less effective.

U.S. dairy producers have been slow to adopt USDA-sponsored tools to manage dairy market price risk, due to the program costs and benefits being less attractive to some production segments. In 2015, just 25,000 of the 45,000 U.S. dairy farms signed up for the new Margin Protection Program enacted in the 2014 farm bill. Only 23,000 enrolled this year – a majority of them at catastrophic coverage only.

The USDA announced Aug. 4 it would be making $11.2 million in assistance available to MPP enrollees who purchased protection starting at the $6.00 per hundredweight level. This is the first time the margin dropped below $6.00 per hundredweight since the MPP program was authorized in the 2014 Farm Bill. 

Global dairy demand has sagged in the past two years, due primarily to a reduction in purchases by China and Russia. Meanwhile, a global rise in milk production – particularly in Europe, where production quotas were removed last year – has led to a worldwide imbalance between supply and demand, pushing prices down for farmers around the world. U.S. dairy exports have slumped, leading to a large domestic buildup of American-type cheese (between 2014 and 2016, U.S. cheese exports dropped by almost 20%).

Two key issues identified by the National Milk Producers Federation and discussed before a House Agriculture Committee hearing earlier this summer include the program’s feed cost component and the price tag of supplemental coverage. Cuts were made by Congress in the feed cost index that have distorted the margin calculation, Jim Mulhern, NMPF president and chief executive officer said. He also noted that the cost of premiums to buy up coverage, especially at higher margin levels, discourages participation.

Rep. Joe Courtney, D-Conn., visited Oakridge Dairy in Ellington, Connecticut’s largest dairy farm earlier this month. He said, while the payments announced by USDA were welcome news in many parts of the country, Connecticut margins have typically been narrower than the national average used by USDA which puts farmers in the region at a competitive disadvantage.

In April, Courtney introduced bipartisan legislation to use regional margin calculations rather than a national average in the MPP which will improve the program for Connecticut farmers.

“While the national margin between milk prices and feed costs continues to shrink, dairy farmers in Connecticut—where energy and feed costs are typically greater—have been struggling with tight margins for the past year,” Courtney said. “The latest announcement on MPP payouts will certainly aid a number of struggling farms in Connecticut, but I am hopeful that this is only the first of several steps the USDA will take to turn the dairy industry around in the U.S.”

Courtney was also part of a c urging USDA to offer more assistance under its authority under the Commodity Credit Corporation Charter Act. Farm milk prices have dropped 40% since 2014, due to both an increase in U.S. production levels and changes in the European Union’s regulation of milk production.  In vastly different dairy market regions of the United States, farmers are facing similar margin shortfalls while still adjusting to changes in federal dairy support programs from the 2014 farm bill.  The Secretary of Agriculture has the authority, under the Commodity Credit Corporation Charter Act, to expand and maintain U.S. domestic markets.  

In a letter to Agriculture Secretary Tom Vilsack, AFBF president Zippy Duvall said American Farm Bureau Federation supported a recent request from 61 members of Congress asking USDA to provide emergency assistance.

“Specifically, we believe cheese could be purchased in a quantity that would help the dairy industry and yet not negatively impact our exports of cheese products,” Duvall said. “If the Department spent $50 million, it could purchase 28 million pounds of cheese for domestic feeding programs. This would not only be beneficial to those in need of food, but also would help reduce the record high inventories and would provide a positive price impact for dairy producers.”

In a letter sent Friday to Agriculture Secretary Tom Vilsack, National Milk Producers Federation urged the department to use all of its available authorities to purchase $100 to $150 million of cheese. NMPF asked USDA to utilize its Section 32 program, as well as additional authorities through the Farm Service Agency, the Food and Nutrition Service, and the Commodity Credit Corporation.

Sen. Patrick Leahy, D-Vt., a leading member of the Senate Agriculture Committee and a former chairman of the panel, said:  “Our dairy farms and the hardworking families that keep them running in communities in Vermont and across the nation are enduring an extremely tough summer as prices have plunged to a nearly ten-year low, well below the cost of production. This comes on the heels of a very challenging spring, and I am deeply concerned that the current price forecasts remain dire for our farmers.  That is why we have come together today, Democrats and Republicans from across the country, to call on USDA to act with urgency, using every tool and authority at their disposal, to help our struggling dairy farmers.  They cannot wait.  They need our help now.”

The letter encouraged “USDA to take any and all actions available in order to make an immediate market injection and offer financial assistance that will directly support U.S. dairy farmers equally, while being cautious to not stimulate overproduction further.”

If there was one thing that then House Agriculture Committee Chairman Frank Lucas, R-Texas, said could have killed him during the last farm bill debate, it was the negotiations surrounding the dairy program. And it appears the next farm bill could have a similar dire situation as the industry grapples with a program that hasn’t provided the safety net sought after by dairy producers.