Dairy Policy and the 2008 Farm Bill (CRS Report for Congress)
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| Release Date |
Revised Jan. 22, 2009 |
| Report Number |
RL34036 |
| Report Type |
Report |
| Authors |
Ralph M. Chite, Section Research Manager; Dennis A. Shields, Analyst in Agricultural Policy |
| Source Agency |
Congressional Research Service |
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Summary:
Two ongoing federal programs that support the price and income received by dairy farmers-the dairy price support program and the Milk Income Loss Contract (MILC) program-were reauthorized with modifications in the Food, Conservation, and Energy Act of 2008 (P.L. 110246, the 2008 farm bill). The MILC program allows participating dairy farmers to receive a government payment when the farm price of milk used for fluid consumption falls below an established target price. The enacted 2008 farm bill extends the MILC program through FY20 12 at the existing level of support, but increases the payment percentage rate and the amount of eligible production. The target price also can be increased in any month that feed costs are above a certain threshold. The MILC program is supported by milk producer groups in the Northeast and the Upper Midwest. Large farmers , particularly in the West, contend that the program payment limit is biased against them. Market prices for farm milk have recently declined to levels near the target price, increasing the likelihood ofMILC payments in 2009. Separately, under previous farm law, the dairy price support program indirectly supported the farm price of milk at $9.90 per hundredweight (cwt.) through government purchases of surplus dairy products from dairy processors. The 2008 farm bill extends the dairy support program through December 31, 2012, but modifies the program so that it directly supports the prices of dairy products at mandated levels. This program shift was designed to help reduce the program's exposure under World Trade Organization limitations . Most dairy farm groups and the Administration view the program as a necessary safety net in a market that is frequently characterized by volatile prices. Dairy processors consider the price support and MILC programs to operate at cross-purposes, which they say contributes to surplus milk production. A recent milk product price decline has resulted in government purchases of nonfat dry milk. A third federal dairy pricing policy tool, federal milk marketing orders, requires dairy processors in many regions to pay a minimum price for farm milk depending on its end use. Federal orders are permanently authorized and most changes are made administratively by USDA through the ntlemaking process. However, a number of federal order issues were brought to the attention of Congress for the farm bill debate. Included in the final bill is a provision that exempts dairy processors from paying the federal minimum price whenever they forward contract prices with dairy farmers for milk used in manufactured products. Separately, the enacted 2008 farm bill reauthorizes the Dairy ExpOlt Incentive Program, which subsidizes dairy product exports. The program was created in the 1985 farm bi II and was particularly active during the 1990s. The enacted 2008 farm bill also contains a provision that allows USDA to implement a 2002 farm bill-mandated assessment on impOlted dairy products, but reduces the import assessment to 7.5 cents per cwt. The import assessment is supported by most milk producer groups, but opposed by dairy importers and processors. See the Appendix at the end of this report for a side-by-side comparison of the enacted 2008 farm bill dairy provisions with previous law and the House- and Senate-passed versions of the farm bill.
