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August 7, 2017

Senate Appropriations Committee Changes to MPP Would Benefit Small Dairy Farmers

 |  By: Jim Dickrell

An analysis by the American Farm Bureau Federation of proposed changes to the Dairy Margin Protection Program by the Senate Appropriations Committee last month shows small dairy farmers would benefit.

The Senate Appropriations Committee would pay indemnities on a monthly, rather than a bi-monthly average basis, increasing the likelihood that payments would be triggered. Tier I coverage level would also be increased from 4 million pounds of annual milk production to 5 million pounds. In addition, Tier I premiums would also be reduced substantially:

Coverage Level                 Current Tier I Premiums                Proposed Tier I Premiums

$4.00                                   No charge                                         No charge

$4.50                                   1¢/cwt                                               No charge

$5.00                                   2.5¢                                                    No charge

$5.50                                   4¢                                                          0.9¢

$6.00                                   5.5¢                                                      1.7¢

$6.50                                   9¢                                                          4.3¢

$7.00                                   21.7¢                                                    6.8¢

$7.50                                   30¢                                                       9.4¢

$8.00                                   47.5¢                                                  15.3¢

Had this fee schedule been in place in in 2015 and 2016, buy-up coverage could have benefited thousands of dairy farmers. For example, AFBF analysts calculate that farms which had bought up $8 coverage in 2015 would have had a net benefit of just over $1,000 on 5 million pounds of coverage. In 2016, buying up coverage to $6 would have netted over $1,000 and coverage at $8 would have netted more than $20,000.

“Importantly, during the first two years of MPP, had these proposed changes been in place as many as 23,000 dairy operations could have received additional risk management support from the enhanced MPP,” says AFBF analysts.

Even so, they note that the Congressional Budget Office (CBO) projects annual farmgate milk sales value of $42 billion per year over the next decade. “The ratio of estimated MPP program payments and the farm value of milk, based on CBO projections, is less than a quarter of 1 percent. This is far below the safety net provided for major field crops—and dairy is equally as sizable in terms of farm income,” say the analysts.

The change in MPP premiums would also advantage small farms. “The practical effect of this premium reduction is to give every dairy farmer in the country that has 250 cows or less the opportunity to guarantee an $8.00 margin for a premium of 15¢/cwt,” says Geoff Vanden Heuvel, California Milk Producer Council board member and economics consultant.

“That seems too generous to us and therefore not good policy. We appreciate the desire by the [Senate] Appropriations Committee to strengthen the MPP with more resources, but believe those resources should be deployed in a way that does not pick winners and losers among American dairy farmers,” he says.

See AFBF’s full analysis here.


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