Dairy Policy in New Farm Bill: Subject to Change

April 28, 2013 09:43 PM

via a special arrangement with Informa Economics, Inc.

Gross margin dairy safety net expected, but supply management still opposed by many

NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.

Two House Agriculture Committee members introduced a dairy policy bill recently that an International Dairy Foods Association (IDFA) press release said "forges a bipartisan compromise approach to reforming US dairy policy." Full text of the legislation is available here.

The "Dairy Freedom Act" by Reps. Bob Goodlatte (R-Va.) and David Scott (D-Ga.) "provides a safety net for dairy farmers that would establish a new revenue insurance program for times of low milk prices and high feed costs."

The plan would establish a new Dairy Producer Margin Insurance Program and repeals the Dairy Product Price Support Program, the Milk Income Loss Contract Program and the Dairy Export Incentive Program. With one major exception, the bill is similar to one offered in the last Congress by Rep. Collin Peterson (D-Minn.), ranking member on the House Ag panel. The exception: it does not include the controversial supply management program called the Dairy Market Stabilization Program.

"Supply management is contrary to the goals of limited government, economic growth and free markets," said Goodlatte and Scott in a statement releasing their bill. "A supply control program puts federal government bureaucrats in the middle of market decisions by manipulating dairy prices, instituting dairy production quotas, and penalizing consumers. With budgets already stretched thin, higher milk prices would negatively affect American families, food manufacturers, retailers, and restaurants. The federal government has no business intervening in this market."

Peterson, sources signal, knows full well the controversy surrounding supply management – including strong opposition from House Speaker John Boehner (R-Ohio). Some contacts say Peterson is now suggesting supply management language be limited to only three years of an expected five-year farm bill.

Over in the Senate, Sen. Kirsten Gillibrand (D-N.Y.) said Peterson included the supply management provision because it was the only way to make an insurance program work, but that small producers should not be subject to pressures to manage supply because their level of production will not affect production on a national scale.

IDFA senior vice president of legislative affairs, Jerry Slominski, said the Goodlatte/Scott bill is a "true middle-ground approach as no one gets everything they want, and Congress should use it as a way to move the Farm Bill forward." The proposal also received an endorsement from the Dairy Business Association.

But the National Milk Producers Federation (NMPF) said the Goodlatte/Scott bill is nothing more than an unacceptable attempt by dairy processors to assure themselves access to "taxpayer-subsidized cheap milk... Congress rejected this approach last year, and should do so again this year. What processors claim is a compromise is nothing more than a costly ruse that will hurt farmers and taxpayers alike. Because it features no mechanism to put the brakes on potential excess milk production, it offers dairy processors an over-abundant, cheap milk supply." That, said NMPF, "will help their corporations' bottom lines, while ensuring that farmers are underpaid for the milk they produce. Dairy processors are simply trying to have taxpayers make up the difference."

"The market stabilization program in the Dairy Security Act that was approved last year by both the House and Senate Agriculture Committees, makes our program cost-effective," NMPF argued. "Creating an effective, voluntary participation program supported by dairy farmers from coast to coast most certainly is the business of the federal government. That program is the Dairy Security Act, not this dairy processor-backed Trojan Horse," NMPF concluded.

But the Congressional Budget Office (CBO) earlier this year released a new scoring (link) of the Senate-passed farm bill and the House Ag Committee-passed bill – lower milk prices increased the cost of the Margin Protection Program for dairy producers. Last year, the House dairy program saved $38 million over 10 years relative to the baseline.  The Senate dairy program saved $59 million over 10 years. Not so following the CBO rescore. That is why contacts say the coming House farm bill draft will have dairy policy language that will no longer show budget savings but a budget cost. And that language will still include supply management, but perhaps be limited to three years as previously mentioned. House Ag Chairman Frank Lucas (R-Okla.) recenlty told Congressional Quarterly in an interview that the Ag Committee bill will include the Dairy Security Act authority by Peterson. "What I've told all parties involved is that no matter what the committee decides, that's an issue that will be revisited on the floor," Lucas said.

When the CBO rescoring was released, one observer said, "These CBO numbers remind me of the scene in the Wizard of Oz where the Great and Almighty Oz was exposed for who he was. The CBO numbers on dairy show that all three proposals cost money, rather than saving money, over ten years – the Senate-passed bill, the Goodlatte-Scott alternative in the House, and the Peterson proposal in the bill passed last year by the House Ag Committee. The Peterson proposal is by far the most expensive, costing almost $120 million more over ten years than the Senate proposal. The [prior] Goodlatte-Scott proposal costs almost the same as the Senate proposal, and is cheaper by over $100 million versus the Peterson plan. Bottom line: the idea that supply management is needed to stay within budget constraints has been exposed for what it is – a farce."

At the time of the CBO update, Goodlatte and Scott said, "CBO’s updated score of the Farm Bill finds that our amendment would save $100 million over the Dairy Security Act as included in the dairy title of last year’s proposed House Farm Bill. We believe that the CBO score further proves that supply management does not work."

But at the end of last year, Congress reached a stalemate on dairy policy because leaders of the House and Senate Agriculture Committees proposed to put the controversial supply management program in the extension of the 2008 Farm Bill. Their dairy package was rejected in the Farm Bill extension, because, some noted, the new program would have periodically imposed limits on milk production, raising consumer prices for dairy products and increasing the costs of federal food and nutrition programs.

A Harris poll fielded last year found that 81 percent of Americans agree that individual farmers should have the freedom to decide how much milk they produce and not have a limit set by government policy. Also opposing milk supply limits are consumer and taxpayer groups, restaurant and food groups, including the National Restaurant Association, the Food Marketing Institute, the Grocery Manufacturers Association, the National Chain Restaurant Association, the National Grocers Association and the National Frozen Pizza Institute.

Some say the eventual dairy policy language in large part will be what Sen. Patrick Leahy (D-Vt.) wants. That has been true in the past, as Leahy can bring along votes needed at critical times of the farm bill process.

Comments: As with so many other farm bill issues, most of the important items will come after the two bills leave their respective committee markups – in both floor amendments and in coming efforts (conference, etc.) to rectify the very different budget savings in the two measures – only $23 billion in the Senate versus $38 billion in the House. And there is even talk that the Senate Ag team may want to roll in the approved amendments from last year's debate, perhaps in an effort to speed (some say avoid) extended Senate floor debate this time. As for the House, observers expect a spirited amendment process – depending if the Rules Committee allows true regular order.

One veteran farm policy observer summed up the key farm bill issue this way: "Getting a farm bill passed in the House has been an extremely difficult task. On the House floor, having supply management in dairy policy provisions will take a difficult task and turn it into a Herculean task. The US has tried supply management three times in the 1980s with dairy, and each time it failed miserably. And that was back when the US was a net importer of dairy products. Now, the US exports around 17 percent of dairy production each year. To think the US will impose supply management when the country is a significant net exporter, and when there are many growth categories in the dairy industry (yogurt, etc.), supply management does not make economic sense. The US has abandoned supply management on every single commodity save sugar, which is under its own assault for potential loan forfeitures. And, the US is a significant net importer of sugar. Whey would we turn around and impose supply management on dairy? It will not get the votes on the House floor."

An observer of the Peterson approach says that the proposal "does not propose to manage supply. Rather, Peterson's plan is to reduce margin protection benefits under certain conditions. The producer under the Peterson approach can keep producing as much as he or she wants, but is simply limited in the benefits of margin protection. Some say that is more of a pay limit than a supply control. While some say the payments that would have gone to producers would instead go to USDA to buy product, that is no different than recent Republican and Democratic members from the Wisconsin delegation asking for cranberry purchases for school lunch to deal with excess stocks. The most important thing is to chuck the old system and not lose the opportunity to significantly reform dairy policy."


NOTE: This column is copyrighted material, therefore reproduction or retransmission is prohibited under U.S. copyright laws.






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