‘Dairy Cliff’ averted... for now

BY Randa Wagner

Mor­row County Sentinel

Noth­ing like wait­ing until the 11th hour for law­mak­ers to take action.

Milk lovers were fac­ing a “fis­cal cri­sis” of their own until Dec. 30 when, amid rumors that milk prices could dou­ble with­out pas­sage of a new Farm Bill, mea­sures were taken in Wash­ing­ton to compromise.

A one-year exten­sion was added to the 2008 Farm Bill, which expired Oct. 1, 2012.

Why so lit­tle action on such a big issue? The Sen­ate passed its own five-year farm bill last June, fol­lowed by one from the House Agri­cul­ture Com­mit­tee in July. But the bill was not brought to the Con­gres­sional floor for a full vote because the House and Sen­ate could not agree on two issues that are a big part of the Farm Bill: pro­posed cuts in the Sup­ple­men­tal Nutri­tion Assis­tance Pro­gram (SNAP) and crop sub­si­dies. (“Food-stamp” spend­ing has more than dou­bled since 2007 because of the reces­sion and now accounts for about half of the USDA budget.)

Then came the drought, sum­mer storms, QE3 and the elec­tion, and the Farm Bill seemed to take a back seat to other issues. When the bill expired, warn­ings sounded by some law­mak­ers were dimmed by the alarm over the impend­ing gov­ern­ment “Fis­cal Cliff.”

Had Con­gress taken no action Dec. 30, 2012, a 1949 law known as the “Dairy Prod­uct Price Sup­port Pro­gram” would have taken effect, which would require the U.S. Depart­ment of Agri­cul­ture to buy dairy prod­ucts at nearly dou­ble the price today. For­merly the Milk Price Sup­port Pro­gram, the MPSP was estab­lished on Oct. 1, 1949 by the Agri­cul­tural Act of 1949 to pro­vide farm­ers a “par­ity level” of income. The Act of 1949 required that the price of milk paid to pro­duc­ers be sup­ported at a level between 75 and 90 per­cent par­ity to assure an ade­quate sup­ply of milk, reflect changes in the cost of pro­duc­tion (feed, etc.) and assure a level of farm income to main­tain pro­duc­tive capac­ity suf­fi­cient to meet future needs.

In sim­pler terms, the 1949 law guar­an­teed a min­i­mum milk price that cov­ers pro­duc­ers’ costs. The gov­ern­ment also guar­an­teed it would buy the milk at that price (but pro­duc­ers typ­i­cally did bet­ter sell­ing to stores). This includes but­ter, non­fat dry milk and cheese in blocks and bar­rels. In the early 1980s, the gov­ern­ment bought so much cheese it ended up giv­ing it away to families.

The USDA says MPSP has never paid farm­ers directly, but pur­chases dairy prod­ucts from proces­sors and ven­dors to allow farm­ers to be paid the man­dated sup­port price for their milk.

Now that the price of feed, elec­tric­ity to run milk­ing machines, and diesel fuel for the farm machin­ery that grows silage for cows are higher than ever, many dairy farm­ers have a big problem.

The aver­age retail price reported by A.C. Nielsen for June 2009 was $2.72 for a gal­lon of whole milk. The weighted-average ERS cost of pro­duc­tion esti­mates it cost $2.81 per gal­lon to pro­duce. Accord­ing to NASS, nation­wide for June, pro­duc­ers received an aver­age of $1.31 per gal­lon for milk.

Pro­duc­tion costs are much higher now, so if the U.S. had to fall back on the old 1949 law and gov­ern­ment had to buy the milk from farm­ers at cost, the milk could run as high as $7 a gallon.

The 2008 Farm Bill extended through the 2013 crop year and will now expire on Sept. 30, 2013. Direct pay­ments for corn, soy­beans, wheat and other crops will now be con­tin­ued for 2013 as part of that same exten­sion. The cur­rent CCC com­mod­ity loan pro­gram, counter-cyclical pro­gram and ACRE pro­gram will also be con­tin­ued. The SURE pro­gram for dis­as­ter assis­tance, as well as var­i­ous live­stock assis­tance pro­grams, did not receive fund­ing for 2012 and 2013, cites farmandranchguide.com, ‘even though we are com­ing off one of the worst droughts in decades, includ­ing large finan­cial losses in the live­stock industry.’

There are more than 30 other farm-related USDA pro­grams that were kept active by the Farm Bill exten­sion, but not autho­rized to be funded. This means sep­a­rate fund­ing leg­is­la­tion would be needed to acti­vate these pro­grams in 2013. This could be a prob­lem, con­sid­er­ing the tight fed­eral bud­get situation.

The Farm Bill Exten­sion will con­tinue pay­ments under the Milk Income Loss Con­tract (MILC) pro­gram retroac­tive to Octo­ber 1, 2012, through Sep­tem­ber 30, 2013, reports farmandranchguide.com. The MILC pro­gram pay­ments were dis­con­tin­ued under the cur­rent Farm Bill after Sept. 30, 2012, which was a major issue to dairy pro­duc­ers that are suf­fer­ing large finan­cial losses due to the 2012 drought.

Where does that leave milk producers?

The San Fran­cisco Chron­i­cle reported Octo­ber 14, 2012, ‘experts in the indus­try esti­mate that by year’s end Cal­i­for­nia, the largest dairy state in the nation, will have lost more than 100 dairies to bank­rupt­cies, fore­clo­sures and sales. Milk cows are being slaugh­tered at the fastest rate in more than 25 years because farm­ers need to save on corn costs. Accord­ing to the West­ern United Dairy­men, a Cal­i­for­nia trade group, three dairy farm­ers have com­mit­ted sui­cide since 2009, despair­ing over los­ing their family’s dairies.’

Nation­wide, dairy farm­ers lost $20 bil­lion in equity between 2007 and 2009. Ohio lost 80 dairy farms between 2010 and 2011.

The prob­lem isn’t exclu­sive to the United States. Bloomberg Busi­ness Week reported more than 157,000 dairy farm­ers in Europe have gone out of busi­ness since a dairy-industry cri­sis in 2009, accord­ing to the Euro­pean Milk Board. The 27-nation EU pro­duces 31 per­cent of the world’s milk, accord­ing to the USDA.

Sooner or later, the farm bill and its com­po­nents must be dealt with. It may be more dif­fi­cult this year than in 2012 because of increas­ing bud­get pres­sures. The pro­posed $1.2 tril­lion in across-the-board spend­ing cuts is still loom­ing, and pol­i­cy­mak­ers will be hav­ing the same debates this Spring they had in Decem­ber over what will go. For now, the farm bill exten­sion means the con­tin­ued exis­tence of a $5 billion-a-year pro­gram that pays farm­ers regard­less of crop prices.

Enjoy your milk, ice cream and cheese. Octo­ber 1, 2013 will come soon, hope­fully with a new farm bill.

Posted by Rob Treynor on Feb 4 2013. You can follow any responses to this entry through the RSS Feed. Both comments and pings are currently closed.