A new analysis was released by the Congressional Research Service (CRS) earlier this week in order to help members of Congress and their staffs better understand the details of current dairy policy and potential changes to those programs. The CRS report provides an impartial view of the specific programs contained in the Dairy Security Act of the pending Farm Bill. Although the House has failed to act on the farm bill in September, the CRS report should expedite the process of considering the bill after the November elections in a lame duck session of Congress.

The CRS analysis clarifies the function of the DSMP by stating (p. 17) that “Although the DMSP is referred to as a supply management program, it is perhaps more accurately described as a production disincentive program, since there are no production limits or quotas, and the dairy operator may continue to run his operation at any production level.”

CRS reported that the resulting milk production reductions, along with greater demand stimulated by USDA purchases of dairy products using funds collected by the DMSP, “is expected to result in a high future farm price for milk.”

CRS also flagged (p. 20) a key provision: that the DMSP ends either when margins improve, and/or when U.S. prices for cheddar cheese and nonfat dry milk exceed world prices by a certain percentage, thus preventing a loss of export markets and a surge of imports.

The CRS report also reviewed a competing approach to providing margin insurance: the Goodlatte-Scott House amendment, which offers an insurance program that does not contain a market stabilization element.

CRS noted (p. 22) that with the Goodlatte-Scott approach, “no production growth is permitted,” and insurance coverage is limited to only 80 percent of a farm’s production – compared to 90 percent under the Dairy Security Act.

In reviewing other empirical studies of the provisions of the Dairy Security Act, CRS highlighted (p. 23-24) several major improvements compared to current programs:

• The combination of the margin insurance and market stabilization programs “appears to substantially mitigate the dairy operating margin volatility.”
• The Dairy Security Act “will provide a stronger safety net in extremely low margin events.”
• An analysis by agricultural economist Mark Stephenson found that net milk exports actually expand under the Dairy Security Act.

The congressional analysis of the Dairy Security Act also notes that the proposed Farm Bill programs are voluntary. Farmers would elect to participate in the margin protection and market stabilization programs, rather than choose private insurance that is already available. PD

—From National Milk Producers Federation news release