Editor’s note: The following is a summary of the briefing paper. The full report can be found at: http://future.aae.wisc.edu/publications/farm_bill/M&P_Dairy_6-1.pdf

The Food, Conservation and Energy Act of 2008 was enacted by Congress on May 22 after both the Senate and House voted to override President Bush’s veto of the bill on May 21. The administration objected to the $300 billion cost of the farm bill programs and, in particular, the unwillingness of Congress to seriously limit commodity payments to high-income recipients. Attempts to reach a compromise between the administration and Congress began shortly after Senate passage of their bill in mid-December 2007 and continued until passage of the conference bill in mid-May. Progress was made in cutting authorized expenditures and tightening eligibility requirements, but not enough to satisfy the White House.

In contrast to the last two farm bills, dairy was not the cause of the lengthy delay in enacting the 2008 Agricultural Act. No major changes from current programs were proposed by either the House or Senate, and their respective versions of the farm bill were very similar. Reconciliation in the conference committee was harmonious, and the delay benefited dairy interests and their Congressional supporters by giving time to make changes in the MILC program that resulted in a more realistic target price for triggering payments to dairy farmers.

Highlights of the new dairy subtitle include:

• The Milk Price Support Program is re-named the Dairy Product Price Support Program. USDA continues to purchase butter, nonfat dry milk and cheddar cheese at the same prices applicable under previous legislation, but the prices are no longer linked to a support price for milk.

• The Secretary of Agriculture may reduce the purchase prices for butter, nonfat dry milk and cheese if government removals exceed specified levels in any 12-month period. This provision replaces the butter-powder tilt provision in the last three farm bills.

• The Milk Income Loss Contract (MILC) program is reauthorized and altered to adjust the Class I target price using changes in feed costs. The portion of the amount by which the market price falls short of the target price that is paid out on eligible milk is raised from 34 to 45 percent and the production cap is raised from 2.4 million pounds annually to 2.985 million pounds.

• The farmer-funded dairy promotion program is changed to require assessments be collected from previously-exempted dairy farmers in Alaska, Hawaii and Puerto Rico. Imports will be assessed at a rate one-half the rate applying to U.S. milk production.

• The Dairy Forward Pricing program that operated on a pilot basis from 1999 through 2004 is reinstated as part of the new Farm Bill.

• The Dairy Export Incentive Program (DEIP) and the Dairy Indemnity Program are extended intact.

• USDA is required to establish an electronic system for mandatory reporting of dairy product inventories and sales information and to increase the frequency of reporting once the electronic reporting system is operational.

• USDA is required to take steps to expedite the process of amending Federal Milk Marketing Orders (FMMO).

• USDA is required to study the impact of trade misreporting of nonfat dry milk prices and sales volume on FMMO minimum prices.

• Congress created a FMMO review commission to evaluate current federal and state milk pricing regulations and provide related recommendations for change to Congress.

Summary
For dairy, the 2008 Farm Bill involves treading water. Changes in dairy programs are fewer and certainly less significant than those made in previous farm bills dating back to the early 1970s. There is no dairy termination program, no whole herd buyout, no mandated federal order reform, no scheduled elimination of the milk support program and no new direct payment program.

For the most part, the changes made represent small improvements. The change from supporting milk prices to supporting the prices of specified dairy products could potentially benefit dairy interests in future trade negotiations. The previous method of calculating dairy’s cost in the form of trade distortion was absurd. Linking the target price under the MILC program to feed costs is a clear improvement in the sense of making the program more countercyclical in nature. Permanently allowing dairy plants to offer forward price contracts without running the risk of violating federal order rules was a very positive step, as was forcing USDA to make federal order amendment decisions before the reason for the amendment was irrelevant or forgotten.

On the negative side, we question the rationale for extending DEIP export subsidies. U.S. dairy export growth over the last three years has been very impressive. Our dairy companies have gained valuable export experience. World dairy markets are expected to grow with global economic growth. Clinging to export subsidies is anachronistic and a mistaken tacit admission that we are unwilling or unable to compete globally.

We also wonder if the lengthy political maneuvering to ensure that dairy imports are assessed under the National Dairy Promotion and Research program is worth the effort or, possibly, counterproductive. In 2007, our dairy trade balance measured in value was positive. We have exported more milk solids than we have imported for many years. Risks in assessing imports could be assessed on exports. Retaliation could also come in the form of importers creating coalitions to become “qualified” promotion boards to use part of the assessment proceeds for advertising their products in the United States.

All in all, an unremarkable dairy subtitle, which is probably a good thing for a change.   PD

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