‘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.