Dairy producers will seek a new safety net when farm bill discussions restart in Congress, said a University of Missouri dairy economist at the recent USDA Agricultural Outlook Forum. Current proposals look more like insurance than price programs of the past.
But with financial binds in Washington, there are no easy answers, said Scott Brown of the MU Department of Agricultural and Applied Economics.
“With rapidly rising feed costs, dairy interest turned to a margin insurance plan,” said Brown. That’s a shift by milk producers from years of price-support programs in the federal act.
One thing is certain: There will be less federal money for any new policy compared to past levels. “Projected CCC (Commodity Credit Corporation) outlays for current dairy policy declines yet again,” Brown said.
He added that it is too early in the 2013 farm bill process to know where dairy policy might fit in.
Congress has many issues to settle before farm bill debate begins, Brown said. “Budget clarity is a big issue.”
With scant money, any federal dairy policy might have little impact in helping producers hard hit by economic turmoil in recent years.
To put dollar power in focus, Brown did the math. Last year, USDA estimated 2012 dairy cash receipts at $37 billion. For the expected 10-year farm bill, the Congressional Budget Office lays out dairy spending at $28.4 million a year.
Dairy spending compared to receipts is less than one percent: Actually, 0.08 percent. Brown told policy analysts, “An effective program is hard with such small annual outlays.”
Policymakers seek a balance that attracts producers to the program yet doesn’t overspend federal dollars. If the first proposal fails, either way, that means reopening policy talks in 2014 or 2015.
Dairy groups know the situation and propose legislation based on margin protection instead of prices.
“Margin protection helps reduce government outlays,” Brown said. “They are triggered less often than price supports.”
The biggest threat to dairy profits remains high feed costs and price volatility, Brown said.
Margin protection is based on milk price less feed costs.
For policymakers, calculating margin protection will be tricky, Brown said. Margins have fallen in recent years. That raises the question of the “correct” margin to use in the dairy bill. Some margin proposals from 2012 could have led to surplus milk.
“We need to be careful to use correct triggers,” he added. “These are tough issues to score. It’s the difference between spending millions – or billions.
“Program details are always important,” Brown said. “This new margin program has many facets. But, done right, producers gain program flexibility.”
Like insurance, producers would gain options to buy supplemental coverage. This is both important and attractive to producers.
Both dairy producers and manufacturers were talking policy before farm bill work started in Congress. However, none of the spending-cut proposals made it into discussions in the congressional fiscal cliff vote.
“Dairy proposals represent a major policy shift. Change of this nature will be hard,” Brown said. “We should never lose sight that our goal is an adequate safety net for farmers.” PD
—From MU Extension news release