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Dairymen and the New Farm Bill


The Farm Security and Royal Investment Act of 2002 is a mouthful for the new Federal Farm Bill. The Bill has several dairy provisions. For a good summary, see The Act eliminates dairy compacts and national milk pricing floors.

The new Farm Bill includes a program for Class I milk price increases, a new government subsidy payment, and new regional supply management programs. An assessment on Class I processors of up to $.05 cwt is also included.

This program includes a $2 billion two-tier payment system for dairy producers. Higher payments go to farmers in the twelve northeastern states. The payment replaces the Northeast Interstate Dairy Compact which expired 9/30/01.

The New Direct Payment Program

The new farm bill creates a federal subsidy program for dairy farmers across the country. Producers receive monthly federal payments retroactive to 12/1/01. Payments result in a calculation equal to 45% of the difference between (a) $16.94/cwt and (b) the monthly Boston Class I price. This difference applies to the first 2.4 million pounds of milk production for each farm each year. [ Estimates are that this is the amount of production from 120-133 cows.]

Though the program is limited, it may increase production somewhat and tend to have a modestly debilitating impact on price. The price decreases will be more than offset by payments. Larger farms may receive maximum benefits, but the federal subsidy may not be sufficient for them to recover depending on the ultimate milk price and how it is impacted by any production encouragement from this program.

What Will the Impact of the New Federal Direct Payment Program be?

The Food and Agricultural Policy Research Institute (“FAPRI”) has published an estimate that the changes in both average annul milk production and direct payments under the new plan will decrease Class III milk prices by $0.11/cwt and $0.19 for Class IV prices. It estimates direct payments across all milk production of approximately $.33/cwt. (CWT is an acronym for hundred weight).

FAPRI estimates the net increase across this program will be $.20 per hundred weight, with regional implications suggesting additional benefits in the northeast, but corresponding detriments, or milk price declines in the southwest, and the pacific northwest.

FAPRI estimates that a little over half of total US milk production will be available to qualify under the program.

Reauthorization of Milk PEP Program

The new farm bill reauthorized the Milk Processor Education Program. It increased the threshold for requiring processor participation from 500,000 lbs. of monthly milk sales upward to 3,000,000 lbs. of fluid milk products sold per month. Milk delivered directly to the consumer does not count toward this 3,000,000 lb. threshold.

Dairy Imports Assessment

All dairy imports, including cheese, MPC, casein, and caseinates will be assessed. USDA must determine the milk equivalent for each imported product and calculate an equivalent assessment equal to $0.15/cwt of milk equivalent. The money will fund an equivalent of a domestic dairy producer check off program. The Secretary of Agriculture is required to consult with the US Trade Representative to assure consistency with international trade obligations in implementing the program. Implementation is a genuine question, as ultimate impact of the program is not clear.

Dairy Price Support Program Continued

The Secretary of Agriculture has authorized, under the new farm bill, to purchase butter, non-fat dry milk powder, or cheese, to maintain a milk support price of $9.90 cwt. on a 3.67% fat basis through 12-31-2007. The Secretary can modify purchase prices as often as twice per year, but not more frequently. The Secretary is required to notify the Agricultural Committee within ten days after making any adjustments.

Dairy Export Incentive and Dairy Indemnity Programs

The programs continue.

Country of Origin Labeling

The Bill requires the Secretary to provide guidelines for voluntary country of origin labeling on meat, fruits, vegetables, fish, and peanuts initially. Later, nearly all food processors will be required to label the country of origin for several ingredients. This will include ice cream manufacturers who will apparently be required to label the country of origin for their products.

Dairy Product Mandatory Reporting

The Farm Bill requires USDA to collect information on commercial inventories for products whose price is used to set federal milk order minimums. Instead of being voluntary, as in the past, this data collection requirement is now mandatory.

New Dairy Studies

Three new dairy studies are required by the new Farm Bill:

  1. A comprehensive economic evaluation of several impacts of national dairy policy on farm price stability, feeding programs and milk prices;
  2. A study on the effect of terminating all federal dairy programs and allowing the states to manage milk prices and supply;
  3. A study on the impact of raising the standard for identity of information about fluid milk to include a higher minimum of protein content commensurate with average non-fat solids contents.

Pasteurization and Eradiation

The Secretary of Health and Human Services is authorized to complete rule making for labeling of irradiated foods and consider a comparable pasteurization labeling program. The term “pasteurization” has not been redefined for dairy products.

Organics Products Promotion Check Off

The Farm Bill permits establishment of a new organic research and promotion check off program, but it must be approved by a majority of certified or organic producers and handlers later. The Secretary of Agriculture is to promote regulations to implement this program.

Food Safety Commission Established

The Bill establishes a 15-member food safety commission. Representatives are to be chosen from consumer groups, food processors, producers, retailers, public health professionals, food inspectors, food safety regulators, and academic life. The Commission is to make recommendations to Congress and the President to improve public health and harmonize management of Federal Food Safety programs.

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