New Dairy Revenue Protection Builds Off Success of Crop Insurance

November 12, 2018 01:31 PM
 
 

Dairy farmers continue to grapple with struggling milk prices; a reality U.S. Department of Agriculture (USDA) doesn’t forecast to change anytime soon. A new dairy revenue protection (DRP) program launched this year, creating hopes it will provide another tool to help protect dairy farmers.

John Newton is American Farm Bureau Federation’s (AFBF) chief economist and helped create the program. He said through this month, the data shows producers signed up for about 150 policies through DRP, which covers 1.5 billion pounds of milk. Unlike the Margin Protection Program (MPP), Newton says this program is revenue-based, not margin-based.

“The margin protection program is a margin based safety net,” said Newton. “This is a revenue based policy, so completely different sources of risk than traditional margin based tools.”

Newton said he, along with American Farm Bureau and individuals from the University sector, created the new program. While the industry worked to try to make some key improvements to the margin protection program, which was done in the Bipartisan Budget Act this year, the new DRP is designed to look a lot like crop insurance offered to row crop producers today.

“I think one of the things when we were building this, we looked at the success of the Federal Crop Insurance Program,” said Newton. “We know that 90 percent of the major field crop acres are covered under a revenue policy. So, we wanted to bring the success from crop insurance over into the dairy space and that was our motivation was revenue protection for dairy.”

Newton said the DRP was in the works for a while, but the process to not only create something like this, but get it approved, is very thorough and lengthy. Ultimately, he said the policy was designed to accurately appropriate money and meet the needs of producers, filling in the gaps of the current MPP.

“Not only do you have the crop insurance agents out there delivering dairy revenue protection (DRP), but you also have the brokers who have a long history, a lot of experience in milk pricing,” said Newton. “Some of the co-ops that understand the intricacies of milk pricing are also offering the policy to farmers. I think that's what's going to help make this such a successful tool in the toolbox for dairy farmers.”

He said it’s a tool that was needed in the industry for several years.

“Obviously our dairy farmers had some challenges this last Farm Bill, so that really began our efforts to be more engaged on behalf of our dairy farmer members to deliver this new tool,” said Newton.

It took a host of groups and people to create a program that works for dairy farmers. American Farm Bureau and its sister agency American Farm Bureau Insurance Services were the co-developers - along with some university economists.

“It's sold by anybody that's a licensed federal crop insurance agent,” said Newton. “Whether it's the crop insurance agent or co-op guy or even some of the brokers are able to deliver this product.”

Newton said he knows this isn’t a “silver bullet” to help save some dairy producers from falling prices. That’s why he encourages farmers to still use other risk management tools to help mitigate losses on the farm.

“This is a product that's going to offer prices based on what the market's offering on that particular day,” said Newton. “A farmer still needs to develop their own marketing plan, their own business plan to be profitable at whatever the market prices are.”

He said RMA administers the program, and it can be used by individuals already enrolled in MPP.

To learn more about the dairy revenue protection insurance, visit dairyrp.com. Newton said the website not only has more information about the DRP, but can also help producers pinpoint an insurance provider near them.

 

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