‘Pay To Play’ Dairy Reform
Sep 26, 2011
The new revisions to Foundation for the Future make the program better than the original plan.
Last week’s revisions to Foundation for the Future (FFTF) throw a new wrinkle, and hopefully not a wrench, into the legislative grind toward dairy policy reform.
In order to get government-subsidized margin protection insurance, dairy producers will also be required to participate in the dairy market stabilization portion of the plan. Some call this extortion; I would term it “pay to play.”
If you want the 100% government subsidized catastrophic margin protection insurance and the right to purchase higher levels of insurance on even more of your production, you’ll have to agree to cut back production (or forfeit a small portion of your milk check) when margins crash.
The National Milk Producers Federation (NMPF) says this is the only way to stabilize milk production during these periods. It’s also the only way the program comes in under government spending baselines. Without meeting the latter, the program doesn’t stand an ice cream cone’s chance in you-know-where.
But, I would argue this is better than the original plan. There, the margin insurance program was optional; the dairy market stabilization plan was not. No matter whom you were--a 5,000-cow New Mexico producer, an Amish dairy farmer milking 25 cows or a Vermont organic grazier—you were subject to the market stabilization plan. Now the choice is yours.
Dairy processors, of course, oppose this plan. “The International Dairy Foods Association (IDFA) supports programs like Livestock Gross Margin-Dairy and catastrophic revenue insurance that will help producers manage risk, and the government offers similar programs to farmers of other commodities with no strings attached,” says Connie Tipton, IDFA president and CEO.
But again, the problem is cost. Congressional budget cutters, and even President Obama, are looking to farm programs for budget savings. Not only are direct crop payments at risk but insurance programs as well.
There are only two ways to lower the cost of the margin insurance: 1) Reduce the level of protection to something less than $4 income over feed costs, or 2) put annual production caps on the coverage.
The problem is that some folks already argue that the $4 margin insurance is too low. And putting on annual production caps revisits the favoritism of the Milk Income Loss Contract program.
But even the MILC program didn’t work out all that well. Since MILC’s inception in 2001, some 36,000 dairy producers have gone out of business. Ninety seven percent of those producers had fewer than 200 cows; 100% had fewer than 500 cows. MILC, targeted at those smaller operations, clearly was not saving those farms, says Jerry Kozak, NMPF CEO and president.
What is disappointing in the new and improved FFTF package is the back-tracking on Federal Order reforms. Now, that “reform” will be limited to changing the way Class III prices are discovered. It requires USDA to come up with a competitive price survey, and then allows producers and bloc voting co-ops a “yea or nay” vote on the new system.
The Federal Orders would continue to announce and enforce price minimums for all four classes. In the original FFTF plan, only Class I would have had minimum prices. And this, in my opinion, would have allowed markets to clear much more quickly in times of dire surplus. Now that market clearing will be delayed 30 or 60 days as prices work their way through the surveys and formulas.
On balance, however, I believe the changes offered by National Milk last week
make Foundation for the Future a more palatable package. If you want government-subsidized margin insurance, you’ll have to pay. Your choice. What’s not fair about that?