Milk producers warned of unrealistic cost estimate for program change (via Agri-Pulse)

Congressional budget analysts estimate that a key change sought by dairy producers to the Margin Protection Program could cost more than $2 billion, a price tag that leaders of the House Agriculture Committee said is unrealistic.

“I don’t want expectations to outrun what we can actually get done,” Chairman Mike Conaway, R-Texas, said at a hearing Wednesday on dairy policy. He said it’s “not rational to be able to add that kind of resources” to MPP.

“I don’t know where we’re going to find that” amount of money, said the committee’s ranking Democrat, Collin Peterson of Minnesota.

Both lawmakers argued that MPP is currently inadequate to protect the industry, and they also questioned whether the Congressional Budget Office estimate was accurate. The CBO estimate, which has not been released publicly, was prepared for the committee’s use.

The National Milk Producers Federation is asking Congress to reverse a 10-percent cut that was made during drafting of the 2014 farm bill in the feed cost formula that’s used to calculate the margin between milk prices and feed costs. MPP makes payments to producers when the margin falls below minimum levels.

The proposal is one of a series NMPF has made to make MPP more attractive to producers. Other proposals include lowering premiums for buy-up coverage and expanding the collection of data on corn, soybean meal and alfalfa prices that are used to calculate feed costs.

The current program, for example, only uses the average price of soybean meal at Decatur, Illinois. NMPF wants to include all soybean-meal price data collected by USDA’s Agricultural Marketing Service.

“Let’s get the policy right and then address the cost of it. We’re not looking to have an expensive program,” Jim Mulhern, NMPF’s president and CEO.

Producers “continue to be on the same challenging roller-coaster ride we’ve been on for the last 15 years,” Mulhern said. “We’re once again in a downward slump in our industry.”

He said after the hearing that he had not seen the CBO estimate.

MPP coverage levels vary from a margin of $4 to $8 per hundredweight. The $4 level requires only a $100 annual fee. Higher levels of coverage require farms to pay a premium. Enrollment in buy-up coverage has fallen sharply, from 39 percent in 2015 to 12 percent last year and just 2 percent this year.

The American Farm Bureau Federation estimated that producers’ margins would have been $1 per hundredweight lower in 2015 and 2016 had the farm bill increased the feed formula by 10 percent. That would have resulted in payments of $36 million in 2016, based on the limited purchase of buy-up coverage that year. Payments could have been significantly higher if more farms had purchased higher levels of coverage.

The formula was reduced during deliberations on the farm bill in 2012 to reduce the program’s potential cost.

Rep. Ann Kuster, D-N.H., told Mulhern that her state lost 19 dairy farms last year, partly because of a drought, and she expressed concern that producers had lost interest in MPP and wouldn’t sign up for even a revamped version.

“All it’s going to take is for one year of the program working for people,” Mulhern responded. Farmers “will see these changes and will make the program the safety net we’ve all wanted.”

NMPF is no longer seeking supply management provisions, an issue that put the organization at odds with dairy processors and led to a battle between Peterson and then-House Speaker John Boehner, a fight Peterson ultimately lost. Peterson now says that the supply management provision would have never been used anyway, making it a wasted effort on his part.

But producers and processors are divided over an effort by the International Dairy Foods Association to allow forward contracting for fluid milk. Producers fear that it will lower the prices they are paid. Prices for fluid milk are currently based on a local differential above the prices for Class 3 or Class 4 milk, the types used for cheese, butter and nonfat dry milk.

Michael Dykes, president and CEO of the International Dairy Foods Association, told the committee his group would be discussing the issue with NMPF. He also said his group would support changes to the MPP as long as they aren’t market distorting, a reference to the supply-management dispute.

Dykes asked the committee to expand the Food Insecurity Nutrition Incentives (FINI) grant program to include dairy products. The pilot program, created by the 2014 farm bill, funds projects that provide incentives to Supplemental Nutrition Assistance Program recipients to buy fruits and vegetables. The program has no funding after 2018.

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