Ag committee reviews dairy provisions for new Farm Bill
WASHINGTON — The U.S. House Agriculture Committee on June 22 heard two panels of various witnesses during its review of the 2018 Farm Bill and critiques of changes to implement in the 2023 Farm Bill.
In his opening statement, Chairman David Scott (D-GA) stressed the importance of the dairy safety net to ensure consistent production and availability of dairy products.
In particular, he said Dairy Margin Coverage provides more comprehensive coverage to small and medium-sized farms than any program before it.
Scott added that the COVID-19 pandemic made the safety net even more apparent.
The pandemic has also raised the question of whether the Federal Milk Marketing Order system, which governs milk pricing, is now the best fit for today’s world.
Marin Bozic, assistant professor at the University of Minnesota, commented, “FMMOs are often portrayed as a byzantine set of regulations that cannot be explained easily.”
Turning to the Dairy Margin Coverage program, Bozic said the 2018 Farm Bill substantially reformed the safety net by transforming the poorly functioning Margin Protection Program into DMC.
By indemnifying producers when the national average income over feed cost margin falls below the coverage level chosen by the producer, Bozic said DMC is highly effective. Further, that last reform raised the maximum coverage level from $8 per hundredweight to $9.50 per hundredweight; plus it authorized the feed cost formula to include dairy-quality hay prices. In 2021 the program paid over $1 billion in indemnities.
In addition, Bozic noted that one DMC’s goal was to slow the consolidation in the dairy sector. In 2021 the number of farms that exited dairy was 1,794, contrasted with 3,261 in 2018.
Lolly Lesher, who with her husband William, owns and operates their 7th generation Way-Har Farms in southeastern Pennsylvania, shared her experience with the DMC to the Committee.
“The program has provided important security to my family’s farm, given the volatility that persists in dairy markets,” Lesher said. She added that they have consistently purchased the maximum coverage, knowing it may not pay out every year, but it is intended as a safety net when needed.
Lesher said she was pleased that more than 71 percent of dairy farmers with DMC production history are enrolled in the 2022 program.
She thanked the Committee for the Supplemental coverage that compensated farmers for the incremental production increases since 2014.
Also, she urged carrying over the updated production history adjustment into the 2023 Farm Bill.
Scott Marlow, deputy administrator, Farm Service Agency, USDA, reported that the Supplemental DMC expansion better protects small and mid-sized dairy operations with payments applicable to 2021, 2022, and 2023.
Also, payments now reflect 100 percent premium alfalfa hay.
Established in the 1930s by Congress and continually modified at industry’s request, the Federal Milk Marketing Order system sets minimum milk prices the participating processors must pay the dairy farmers.
Historically, the provisions have facilitated the complex process of marketing fresh milk.
Lesher related to the Committee how in the 2018 Farm Bill, FMMO changes effective in May 2019 were made with the Class I mover. But the COVID-19 pandemic undercut its revenue neutrality.
USDA’s Farmers to Families Food Box Program heavily weighed its cheese purchases.
That triggered an imbalance between the Class III and IV prices, and created lower prices of Class I for producers than the previous mover. As Lesher explained, this undermined the orderly marketing of milk.
Unfortunately, it represented to dairy producers a net loss of more than $750 million during the latter half of 2020.
Through the Pandemic Market Volatility Assistance Program, USDA partially reimbursed farmers for those losses. While grateful, Lesher urged Congress, “Close the gap for the adversely affected producers.” In addition, the current Class I limit restrictions causes an asymmetric risk and creates losses.
Lesher noted that the National Milk Producers Federation and the Dairy Farmers of America are working on a consensus on improving the FMMO system for USDA consideration. Lesher testified on behalf of both organizations for this hearing.
Mike Durkin, president and CEO of Leprino Foods Company, testified on behalf of the International Dairy Foods Association.
Leprino, headquartered in Denver, is the largest buyer of milk in the United States.
It supports more than 1,000 dairy farms, and more than 4,500 employees in six states.
Durkin explained that the FMMO allows manufacturers of dairy products to retain the assumed cost of manufacturing. That cost is commonly called a make allowance.
Durkin pointed out that current make allowance is based on 2006 and 2007 costs. That renders the assumed milk processing costs woefully out-of-date.
He said, “Coupled with recent inflationary pressures, the need to address this lag is now extremely urgent.” Durkin noted how this scenario limits potential industry growth in production, investment and exports.
Durkin reported that discussions are underway with processors and cooperatives working on a proposal to be considered as part of a federal order hearing.
He urged Congress, “Allow that collaborative effort to continue.” He also asked them to not address any milk pricing issues legislatively unless they are supported by all segments of their industry.
Along with the focus on the DMC and FMMO issues, the panel raised labor difficulties, supply chain problems, trade considerations, and the need for various cost studies. However, several spoke favorably on the Dairy Business Initiatives, the Donation Program, and the Dairy Forward Pricing Program, and included suggestions for expansion.
“Today’s hearing highlighted the need for a robust safety net that helps producers weather the tough years and effective programs that bolster the movement of dairy products throughout the supply chain,” said Glenn “GT” Thompson, R, Pa., House Agriculture Committee Ranking Member.
Thompson thanked the witnesses for their testimony which he characterized as invaluable as the Committee makes improvements to dairy policy in the 2023 Farm Bill.
In closing, Thompson pointed out that dairy also needs consumers. He continued, “Dairy is a nutrition powerhouse, but we lost a generation of milk-drinkers when milkfat was taken out of our schools in 2010, and we badly need to turn that around. I continue to push for my bipartisan Whole Milk for Healthy Kids Act, which has very strong support across this Committee and hope we can make some progress there.”