The 2018 Farm Bill made substantial changes to the dairy safety net, and important evaluations are needed on the milk marketing order as Congress begins digging deeper into what changes are needed heading into the 2023 Farm Bill.

The House Agriculture Committee held a dairy oversight hearing to hear from USDA officials as well as a panel featuring dairy producers, processors and experts.

The last farm bill transformed the poorly functioning Margin Protection Program into what Marin Bozic, assistance professor of applied economics at the University of Minnesota, termed a “highly-effective” Dairy Margin Coverage program which indemnifies dairy producers when the national average income over feed cost margin falls below the coverage level chosen by the producer.

In his written testimony, Bozic notes that had DMC been in effect since 2000, over the past 21 years, the program would have had a major impact on net farm income of participating dairy operations. Benefits received by producers would be higher than premiums paid into the program in 19 of out of 21 years. In 2021, the program paid over $1 billion in indemnities. However, in 2022, no payments are estimated due to high projected margins.

Scott Marlow, deputy administrator farm programs at the Farm Service Agency, notes, “At FSA, our staff have worked tirelessly to find flexibilities in our existing dairy programs to be more responsive to the realities of dairy farming today, and we've made key improvements to both our dairy margin coverage program and our dairy indemnity payment program and meet to meet the needs of our producers.”

Marlow explains USDA has made a series of improvements to DMC, including changing the calculation of the cost of production and cost of feed to include 100% high quality alfalfa. With Congress’ authority USDA also created a supplemental DMC which allowed producers who had increased production history in 2011-13 to increase their coverage.

“The changes that we've made so far are very much in response to the input that we've gotten from farmers,” he told legislators. “Supplemental DMC was an important step. Both DMC and supplemental DMC are equivalent, so it would be very easy to combine the two or to make that a permanent change.”

Marlow adds it's important to look at the combination of DMC with the Risk Management Agency programs as a combined as a combined safety net, so that it’s not just DMC standing on its own.

Seventh-generation Pennsylvania dairy farmer Lolly Lesher emphasized the importance of the farm bill safety net program and called for milk pricing improvements during her time before the committee. Lesher, a member-owner of Dairy Farmers of America, testified on behalf of the cooperative and the National Milk Producers Federation.

Revised at the urging of NMPF in the 2018 Farm Bill, USDA’s Dairy Margin Coverage program offers effective margin protection for small and mid-sized farms and affordable catastrophic coverage for large farms, Lesher says.

Lesher, whose family milks 240 cows in southeastern Pennsylvania, said in her written testimony that the program “has provided important security to [her] family’s farm.” She urged the committee to make additional updates to reflect current production, so the program remains a viable safety net.

Class One mover changes

Lesher also highlighted the need for improvements to the Federal Milk Marketing Order system, as evidenced by the heavy revenue losses incurred by dairy farmers nationwide from a milk pricing change made in the previous farm bill. 

“The change made to the Class I mover combined with the government’s heavy cheese purchases cost dairy farmers over $750 million in revenue in the last six months of 2020 alone,” she says. 

The dairy industry, under NMPF’s leadership, is seeking consensus on a range of FMMO improvements, including the Class I mover, that can be taken to USDA for consideration in a federal order hearing. “We recognize that for our efforts to succeed, we must all work together, giving a bit to get a bit. It’s just too important for our future,” Lesher says.

Bozic’s testimony notes that FMMOs start from a set of farmer-friendly ideas and have been successful in regulating orderly marketing of milks, which is why they have persisted as a collective bargaining institution for almost a full century. However, he says in recent years they’ve lost some of their luster with declining sales of beverage milk products.

“In my opinion, in regions other than the Northeast and Southeast, fluid milk sales no longer provide strong enough incentives for dairy manufacturers to choose to stay consistently regulated under FMMOs,” Bozic says.

Processor proposals

Mike Durkin, president and CEO of Leprino Foods Company, outlined additional proposed changes for the committee to consider.

First, IDFA says it hope Congress will require USDA to conduct regular cost of processing studies that will generate data for the industry to use to develop proposals to adjust make allowances. “Current make allowances have not been adjusted in over 15 years, and as a result, they don’t reflect the cost of manufacturing today’s dairy products,” Durkin says.

IDFA also asked the committee to reauthorize and expand the Healthy Fluid Milk Incentives Projects program. This program requires USDA to test different methodologies to encourage SNAP participants to purchase more dairy products.

“A number of pilots were launched last year at grocery stores in Texas, and more pilots came online earlier this month in New Jersey.  In addition, USDA is expected to award funding by October that will allow approximately 250 new pilots in more regions of the country,” he says. “In the next farm bill, we hope that Congress will agree to expand this program to include yogurt and cheese products as well as additional fluid milk options”. 

Finally, IDFA supports permanent authorization of the Dairy Forward Pricing Program. This program allows producers to enter into forward price contracts with milk buyers for milk used to manufacture Class II, III, or IV products. “Current authority for this program expires on September 30, 2023 which means that no forward price contracts may be entered into after that date. Making this program permanent could facilitate greater utilization of this risk management tool because it would mitigate concerns regarding forward contracts with shorter durations due to a pending program expiration date,” he says.