Impacts of Proposed Farm Bill on Dairy Greater than Previously Reported

Noted dairy economists say supply management would have kicked in nearly one-fifth of the time over past six years; spending for dairy programs "undetectable" when compared to all commodity programs

WASHINGTON, May 23, 2012 /PRNewswire-USNewswire/ -- Two dairy economists recently released intriguing reports on the dairy provisions of the 2012 Farm Bill issued last month by the Senate Committee on Agriculture, Nutrition and Forestry. The reports indicate that dairy stakeholders may not be getting their fair share of Farm Bill outlays and that the Dairy Market Stabilization program included in the Farm Bill would have limited the milk supply to processors nearly one-fifth of the time over the last six years. The reports support the policy position taken by the International Dairy Foods Association (IDFA), which opposes the stabilization program, but supports a compromise margin insurance program not tied to supply management.

"Instead of relying on economic models with dozens of assumptions, this study looks at real world conditions and found that the controversial milk supply management program will frequently interfere in our dairy markets and would have resulted in hundreds of millions of dollars of lost income for dairy farmers," said Jerry Slominski, IDFA senior vice president of legislative and economic affairs. "Instead of getting their fair share of agriculture subsidies, dairy producers are going to be saddled with a confusing and complex program that will make our dairy industry less competitive and an unreliable supplier on world markets.  Dairy coops are being penny-wise but pound foolish when they refuse to ask Congress to fully fund an adequate safety net for dairy farmers."    

Andrew Novakovic is the E.V. Baker professor of agricultural economics in the School of Applied Economics and Management at Cornell University. Mark Stephenson is the director of dairy policy analysis at the University of Wisconsin. Together they provide an Information Letter series and occasional briefing papers on dairy policy developments for educators and industry.

In "The Challenge of the Congressional Dairy Baseline," Novakovic notes that dairy's share of gross farm cash receipts projected for the next 10 years is 24 percent, yet the projected share of government spending for dairy is "virtually undetectable" at 0.1 percent.   

"As Congress continues to look for that fair balance that levels the playing field, participants in the dairy industry could understandably question whether or not they are getting their fair share and just how much of their current, small baseline they should give up for the greater good," Novakovic said. 

The Senate farm bill actually reduces dairy programs even further while it adds new spending for specialty crops and creates a new "shallow loss" insurance program for other commodities. 

In "Dairy Provisions of the Senate Agriculture Reform, Food and Jobs Act of 2012 – An Estimation of Farm-Level Impacts," Stephenson and Novakovic review what might have been, had the supply management program included in the proposed Farm Bill been in place from 2007 to 2012.  Some of the key findings include:

• The controversial Dairy Market Stabilization program, a new government program to limit milk supplies and control farm milk prices, would have been active for 16 months during January 2007 through December 2012 - about 19 percent of the time. 
• The Stabilization program would have reduced dairy producer's income by 4 percent during 7 months in 2009 and an additional 2 – 3 percent between April and October of 2012.  
• The average cumulative lost revenue from the stabilization program ranged from $13,746 for a small dairy farm to $137,465 for an extra-large dairy farm.   (There are approximately 51,000 dairy farms in the United States.)  
• Dairy farmers covered by the basic, or catastrophic, level of margin protection would net lower income due to the lost revenues caused by the Stabilization program. The results show that the income reduction for the Stabilization is still greater than the payments received from the margin insurance program even for many farmers who purchase supplemental insurance under the program.

The International Dairy Foods Association (IDFA), headquartered in Washington, D.C., represents the nation's dairy manufacturing and marketing industries and their suppliers, with a membership of 550 companies representing a $110-billion a year industry. IDFA is composed of three constituent organizations: the Milk Industry Foundation (MIF), the National Cheese Institute (NCI) and the International Ice Cream Association (IICA). IDFA's 220 dairy processing members run more than 600 plant operations, and range from large multi-national organizations to single-plant companies. Together they represent more than 85% of the milk, cultured products, cheese and frozen desserts produced and marketed in the United States. IDFA can be found online at www.idfa.org.

SOURCE International Dairy Foods Association