The Dairy Farm Bill Debate Gets Real
Jul 12, 2012
The real fight will come when it reaches the floor of the House.
The run-up to last Wednesday’s House Ag Committee farm bill mark-up finally provided enough detail to get beyond the processors’ rhetoric of supply management, rising consumer prices and depressed dairy imports.
Earlier in the week, the details of the Bob Goodlatte (R-Va.)/David Scott (D-Ga.) amendment were released. Here, finally, was the “anti-Foundation for the Future” plan that proponents argued would cure all.
Here’s what the Goodlatte/Scott amendment would do:
• Offers catastrophic $4 margin protection insurance for all producers on 80% of their historic production and 80% coverage of historic base for supplemental coverage. The original bill would offer supplemental coverage up to 90% of a farm’s production base.
• Premiums for the supplemental coverage under Goodlatte/Scott are slightly less for producers with less than 4 million lb. of annual production between $5 and $6 of supplemental coverage.
• Premiums for the supplemental coverage are about 3¢/cwt. higher at each level of margin insurance for producers with more than 4 million lb. of annual production, starting with a 3¢/cwt. premium for $4 margin insurance. (Under the original bill, there is no charge at the $4 margin.)
• Unlike the original bill, there’s a one-time sign-up at the beginning of the program—for both the basic, catastrophic coverage and the supplemental coverage. The original bill would allow producers to sign up for the supplemental coverage annually.
• There is also no step-up in the farm’s production base. In the original bill, the supplemental coverage is on a farm’s most recent production.
• There is no market stabilization program requiring producers to cut production or forfeit part of their milk checks when margins contract.
• Finally, the Congressional Budget Office (CBO) estimates the Goodlatte/Scott amendment will save taxpayers $47 million over 10 years compared to $38 million under the original bill.
Once the Goodlatte/Scott amendment was made public, there was a flurry of press releases—including claims by the National Milk Producers Federation that the amendment provides no catastrophic coverage when margins drop below $4. That proved untrue.
Nevertheless, the amendment failed 29-17. That came as little surprise, even to lobbyists for the International Dairy Foods Association. They knew both the chairman, Frank Lucas, (R-Okla.) and ranking minority member Collin Peterson (D-Minn.) were opposed. But the point is, they were able to get the amendment introduced—and even more importantly—budget scored by CBO.
The real fight will come when the farm bill reaches the floor of the House. Majority leader John Boehner (R-Ohio) vowed earlier this spring that the farm bill will not include a market stabilization program for dairy. The Goodlatte/Scott amendment offers him—and others opposed to market stabilization—an out. Plus it provides greater budget savings—though $9 million isn’t even a flea on a fly on an elephant’s butt when it comes to the farm bill’s $995 billion baseline.
National Milk will argue that the original Foundation for the Future plan will shorten periods of low margins because the market stabilization program requires producers to curtail production during those periods.
Analysis by Mark Stephenson, a University of Wisconsin dairy economist, suggests that volatility will be reduced under Goodlatte/Scott the more farms that participate. It achieves that by taking $2/cwt. off peak prices and saving $1/cwt. off the lows. Plus, he says, Goodlatte/Scott shortens the price cycle by a year at high levels of participation. (In fairness, though, Stephenson’s analysis is comparing Goodlatte/Scott to the current baseline—not to what might occur under Foundation for the Future.) For Stephenson’s analysis, click here.
Dairy producers now have a clear choice. They can opt for more coverage, greater flexibility, higher costs and increased complexity of an in-and-out market stabilization program under the original bill. Or they can choose less coverage, less cost, less flexibility and less complexity with Goodlatte/Scott.