The first farm bill was the Agriculture Adjustment Act of 1933, which was prompted by the Great Depression. The 2018 Farm Bill is a several-hundred-page document that contains a lot of legislative verbiage – especially the words insert, replace and delete. It addresses a variety of subjects from dairy to crops to agriculture research. Plus, food stamps (the Supplemental Nutrition Assistance Program), which utilizes about 80 percent of the funding.
There are those who are pleased with this farm bill; others are not, and some are in-between. Whatever your position, I see three takeaways from the bill. They are: cooperation within the dairy industry, improved risk management programs and effort to market more fluid milk and value-added dairy products. These three takeaways have the potential to impact, and hopefully benefit, the dairy industry for many years to come. Let me explain.
The first takeaway is cooperation within the dairy industry, which has not been seen in many years. The recent farm bill passed Congress with strong bipartisan support. It became law relatively quickly compared to previous farm bills. It was only eight months from introduction in Congress to being signed into law by the president.
The bill passed in the Senate by a vote of 87 to 13 and in the House by 369 to 47. The 2014 Farm Bill, according to the Congressional Research Service, took 21 months from introduction to law. The 2008 Farm Bill took over a year and included a presidential veto two times before being overridden by Congress.
Going back further, I can remember the divisions in the dairy industry when formulating the 1995 Farm Bill’s dairy provisions. There were strong disagreements between producers and processors, and heated regional arguments. One congressional farm bill hearing I attended was almost like a re-enactment of the Civil War. The difficulty in reaching a dairy consensus was a strong factor in the 1995 bill not becoming law until 1996. Unfortunately, the dairy industry developed a reputation of not working together and slowing down the entire farm bill process.
The exact opposite occurred with the 2018 Farm Bill. Producers and processors cooperated on the dairy portion of the bill. They worked together. Some even called this cooperation “historic.” There appeared to be no significant regional differences between dairy farmers or members of Congress. The ability of the dairy industry to work together is a major reason why the whole farm bill process was completed in eight months and passed Congress with strong bipartisan support.
It goes without saying these are challenging times for the entire dairy industry – dairy farmers, processors and manufacturers. All are facing tight or no margins. The number of dairy farmers is declining. Domestic dairy sales are struggling.
Consumers are offered a growing number of alternatives to dairy products. Let’s hope the cooperation exhibited in the 2018 Farm Bill between dairy producers, processors and manufacturers; dairy farmers in different regions of the country; and rural and urban congressional members continues. Hopefully, it is not a one-time occurrence. The dairy industry is like a milk stool; all three legs must be on solid ground in order to have a viable industry. Cooperation is needed now more than ever.
The second takeaway is the shift from government-subsidized dairy prices to risk management tools. Granted, the 2014 Farm Bill repealed the dairy product price support program, which traces its origins back to 1949 when the dairy price support program was enacted. However, this farm bill finalizes the shift through the modified margin protection program, which is now called the Dairy Margin Coverage (DMC) program. DMC provides a cash subsidy if the margin between feed costs and the milk price fall below the covered level. Furthering the shift to risk management programs, participation is now allowed in both DMC and Livestock Gross Margin – Dairy at the same time. Besides these two margin programs, dairy farmers also have a third: the Dairy Revenue Protection program.
The move to risk management places more decision-making on dairy farmers. Dairy farmers must decide whether they want to participate in one of the three programs and, if so, at what level. As my grain farmer friends spend time at their desks, away from the fields, deciding how to best utilize crop insurance or other government-subsidized programs, dairy farmers will now need to do some of the same. Let me add, with DMC premiums significantly lower for those farms covering fewer than 5 million pounds of milk, it is obvious Congress is attempting to help keep smaller farms in business.
To further show the shift to risk management programs, the 2018 Farm Bill also made a change in how the Class I mover, basis for pricing Class I milk in all federal orders, is calculated. This change makes it easier for Class I milk processors to use the futures market if they so desire.
The final takeaway, and to me the most important, is the effort by Congress to help market more fluid milk and higher-value dairy products. The bill does this in two ways. First, there is a milk donation program. This program provides partial expense reimbursement to a dairy organization (farmer, cooperative or processor) who donates fluid (Class I milk) to an eligible group.
The expense reimbursement is not to exceed the difference between the applicable Class I price and the lowest classified price, Class III or IV. The bill authorizes $9 million for the milk donation program during fiscal 2019 and $5 million for each year after.
The second way is by authorizing the creation of at least three regionally located dairy product business and innovation initiatives. Even though the provision is buried toward the end of the bill, and not a direct part of the Dairy Title, it could prove to provide the greatest long-term dividends to the dairy industry.
Twenty million dollars annually is authorized for the innovation initiatives to: diversify dairy product markets to reduce risk and develop higher-value dairy uses, promote business development that diversifies dairy farmer income through processing and marketing innovation, and encourage the use of regional milk production. The initiatives may be hosted by a state department of agriculture, state entity, nonprofit organization, institute of higher education or cooperative extension service. Dairy promotion groups are not eligible to host an initiative.
The initiatives may provide nonmonetary assistance to a dairy business in form of consulting, marketing and product innovation. They may provide grants, not exceeding $500,000 to existing or new dairy businesses, including dairy farms, for modernization, specialization, product development, value-added products, marketing and packaging.
Let’s be optimistic that these three takeaways provide long-term dividends to the dairy industry. Cooperation among dairy farmers from different parts of the country and between producers and processors continues. The risk management programs provide meaningful benefits to dairy farmers and may slow down dairy farm exits. Milk donation and dairy initiative programs expand milk usage and develop and market more value-added dairy products.
ILLUSTRATION: Illustration by Corey Lewis.
Calvin Covington is a retired dairy cooperative CEO and now does some farming, consulting, writing and public speaking.
- Retired Dairy Co-op Executive
- Email Calvin Covington