Issue Update: Revised Cost Estimates Complicate Dairy Policy Reform

Earlier this month the Congressional Budget Office (CBO) recently released updated cost estimates of the farm bills that were considered in the United States Senate and the United States House of Representatives during the 112th Congress and the revised numbers have cast a “budgetary shadow” as to the potential savings policymakers had hoped to…

According to the CBO website, the updated estimates are relative to CBO’s most recent baseline projections for agriculture, conservation, and nutrition spending.  The effects on direct spending of the Agriculture Reform, Food, and Jobs Act of 2012 (S. 3240), as passed by the Senate on June 21, 2012, and the Federal Agriculture Reform and Risk Management Act of 2012 (H.R. 6083), as reported by the House Committee on Agriculture on September 13, 2012.

Although the Senate-passed Farm Bill has been reintroduced in the 113th Congress, it is primarily a “place holder” for committee action.  Conversely, a farm bill has not yet been introduced in the House.

In 2012, CBO estimates indicated that enactment of either the Senate or House version of the farm bill would cost less than continuing the policies of the Food, Conservation, and Energy Act of 2008 (Public Law 110-246), commonly referred to as the 2008 Farm Bill.  The fiscal landscape, however, has changed.

Relative to the agency’s most recent baseline projections for commodity, land conservation, and nutrition programs, CBO continues to estimate that those bills (as modified to account for a later enactment) would still reduce future spending relative to continuing current policies, but the reduction would be significantly smaller than the amounts estimated in 2012.

CBO now estimates that the Senate version would save $13.1 billion from 2014-2023 period as opposed to last year’s savings of $23.1 billion from 2013-2022. The House version would save $26.6 billion over the same ten year period, as opposed to the $35.1 billion estimate of last year.  Simply stated, the pie is smaller and the new numbers have caused farm organizations to re-evaluate their game plans as to what might be feasible in a 2013 Farm Bill – including those who engaged in dairy policy reform.

The course of dairy reform in the next farm bill could have far-reaching economic impacts for Minnesota’s dairy industry.  Of particular interest to the dairy sector is the Dairy Producer Margin Protection Program that was included in both the Senate-passed version of the farm bill, as well as the legislation which passed out of the House Agriculture Committee last year.  As currently structured, the margin insurance program would provide margin-based assistance for producers equal to the difference between the all-milk price and a national feed cost and would be tied to the Dairy Market Stabilization Program (DMSP).

The proposals to replace the Dairy Product Price Support Program (DPPS) and Milk Income Loss Contract (MILC payments would now cost more than first estimated.  According to the revised CBO numbers, lowered milk prices increase the cost of the Margin Protection Program for dairy producers.  As reported by Agri-Pulse, the bill passed by the Senate last year would be $7 million less costly than extending the current dairy program during the next five years but its cost would spike, beginning in 2017, by $322 million from 2014-2023. As for the House version of the farm bill that failed to reach the House floor, CBO put the 10-year cost of the dairy provisions at $441 million, with most of the escalation coming after 2015.

The estimate of prospective costs would go up due, in part, to projected lower milk prices would increase the cost of the margin protection program for dairy producers.  The National Milk Producers Federation (NMPF) responded that the new figures demonstrate that the reform proposal “provides a cost-effective safety net for America’s dairy farmers” and that it would represent “less than 0.20 of 1 percent of the cost of the overall farm bill.”

Although there is a policy “roadmap” for dairy reform, it remains to be seen how many stakeholders will choose to begin the journey.  Both proponents and opponents of the dairy primary dairy provisions will again have to navigate the political and policy landscape in the shadow of less funding.

Copyright © 2013 RDL & Associates, LLC.  All rights reserved.

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