Heading into the presidential and Congressional elections, dairymen and farmers in general are without a farm bill. The Senate passed its version of the bill in April. And the House Agriculture Committee sent its version of the legislation to the full House for consideration in June. Despite what appears to be sufficient support to get the bill passed out of the House, the bill has not yet made it to the floor for debate or a vote. Rather than discuss the different reasons why House leadership has failed to bring the Farm Bill up for a vote (just file that under “politics”), I want to focus on what the failure to pass a farm bill means for dairy and why an extension of the current bill is probably the last thing dairy farmers need right now.
First, let’s touch on what a farm bill is, exactly. Every five years, Congress pulls together a litany of farm commodity, conservation and nutrition programs into a single piece of voluminous legislation. These programs, administered by the U.S. Department of Agriculture, collectively constitute the farm bill.
Many of the programs are temporary in nature. That is, they have a defined period of existence until they expire. These temporary programs include dairy commodity programs, including the Milk Income Loss Contract program and the Dairy Product Price Support program.
As enacted in the prior farm bill, both the MILC Program and the price support program expired on September 30, 2012, along with other temporary programs. Because Congress allowed these temporary authorizations to expire without enacting the 2012 Farm Bill, Congress left the dairy industry in the hands of “permanent law.”
For dairy, permanent law is 1949 legislation that requires the Secretary of Agriculture to support the price of milk at between 75 percent and 90 percent of “parity prices.”
Parity prices can be thought of as a purchasing power index. In essence, the parity price for milk is set to provide the dairy producer the same purchasing power as he or she would have had in the 1910s. (For any readers interested in a more thorough discussion of the parity price and its evolution, including a fascinating tie-in to Watergate, see Ben Yale’s Progressive Dairyman column from 2011. Click here to view .)
Earlier this year, the Congressional Research Service (“CRS”) issued a paper assessing the situation now faced – the failure of Congress to pass a farm bill. With respect to parity, the CRS report was critical of parity as a viable option.
“[Productivity] gains and technological advances over the past 100 years have made parity price purchasing power out of touch with (and possibly irrelevant to) modern agricultural practices.”
Just how “out-of-touch” are parity prices? The most recently announced parity price for milk was $52.50 per hundredweight (cwt). The minimum support price, 75 percent, would be $39.37 per cwt.
Without either a new farm bill that includes dairy provisions preventing the return to permanent law or an extension of the current Farm Bill, parity takes effect on January 1, 2013.
Laissez les bons temps roule!
I need not remind anyone reading this that 2012 has been a very difficult year for dairy farmers. Despite prices that would have historically resulted in modest profits, increased costs of production, particularly feed costs, have had a devastating effect.
But even though 2012 was so financially destructive to dairy producers, the recently expired dairy support programs simply didn’t work well enough to provide meaningful protection.
The price support program was never implemented and, because milk prices were relatively high, the MILC program did not provide adequate support, even with a feed cost adjuster for most of the program duration.
Perhaps even more than 2009, the past year has demonstrated that good dairy farmers cannot rely on federal programs to provide a meaningful safety net.
But here is my big point. It just might be that the best hammer to prompt action is that which is simultaneously the most appealing to dairy producers and the most offensive to notions of public policy and budget considerations – a return to parity.
The same Congressional Research Service report that criticized parity prices had this opinion on permanent law: “The commodity support provisions of permanent law are so radically different from current policy – and inconsistent with today’s farming practices, marketing system and international trade agreements, as well as potentially costly to the federal government – that Congress is unlikely to let permanent law take effect.”
On that point, CRS is correct; allowing permanent law to take effect – at least for dairy – would result in serious long-run problems, as wonderful as it would be in the short run for producers. A milk price of $40 per cwt is not sustainable but neither is the status quo.
Comparing net producer income for the last several years, one would see troubling parallels between 2009 and 2012 both in terms of depth and duration. In 2009, the down cycle lasted approximately 18 months. A period of negative dairy farm income began in late spring/early summer 2008 and persisted through the end of 2009.
While 2009 through 2011 were hardly periods of strong, sustained profitability, the current period of negative income began in January of this year. That places the current cycle just past its possible midpoint with about eight months left.
Admittedly, there is no certainty as to the duration of this, or any, price cycle. There are numerous independent factors affecting milk prices, feed prices or other costs of production that could spell a return to profitable dairy farming sooner or later than mid-2013.
To avoid parity taking effect, Congress has two options. It can extend the failed programs of the 2008 Farm Bill, continuing to provide little or no safety net to the nation’s dairy farmers, or it can demonstrate real leadership and instead finish the work that it began during the current Congress and actually complete the Farm Bill.
An extension would all but guarantee that dairy farmers will be left to endure the remainder of the current down price cycle without substantial federal assistance. An extension of any length would serve as nothing more than a permission slip to kick this can down the road for as long as the extension might allow.
The threat of parity is a better option. Let the federal government and the industry stare at a few months of $40 price supports to prompt action.
Completing the Farm Bill is not an unachieveable task. In fact, the bulk of the work is done and Congress certainly had it within its ability to finish this farm bill before it recessed for the elections. The Senate completed its work in April, and the House has done nothing since June.
The past four or five months provided ample time to pass a bill out of the House, resolve the differences in conference and deliver meaningful support programs to dairy producers. Instead, farmers fell victim to politics.
The USDA would have 120 days from the effective date of the Farm Bill to enact new dairy provisions. If dairy farmers are lucky and Congress acts expeditiously, the coming lame duck session offers a small opportunity for dairy policy reforms to take effect before the current down period ends.
Regardless of the timing of this price cycle, the opportunity for action should not be squandered in favor of an extension of failed programs. PD
Ryan Miltner
Attorney
The Miltner Law Firm LLC
