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Dairy’s safety net not robust, certainly not a bailout

Progressive Dairyman Editor Dave Natzke Published on 30 September 2016

It started with a press release from the USDA titled “USDA Announces Safety Net Assistance for Milk Producers Due to Tightening Dairy Margins.”

In it, USDA Secretary Tom Vilsack announced about $11.2 million would be paid to U.S. dairy producers enrolled in the 2016 Margin Protection Program for Dairy (MPP-Dairy). Due to narrowing margins between milk prices and the cost of feed, indemnity payments had been triggered for the May-June 2016 period.

“We understand the nation’s dairy producers are experiencing challenges due to market conditions,” Vilsack said. “MPP-Dairy payments are part of a robust, comprehensive farm safety net that helps to provide dairy-producing families with greater peace of mind during tough times.”

(We’ll dispense with the term “robust” safety net for now, since most dairy farmers I’ve talked with would take off “ro-” when describing MPP-Dairy.)

“By supporting a strong farm safety net, expanding credit options and growing domestic and foreign markets, the USDA is committed to helping America’s dairy operations remain successful,” Vilsack said in the release.

Sounds like a benevolent federal agency in an election year. But on with the story.

To keep up with dairy news, I have a “Google alert” set to “dairy” so I receive email notifications every time there’s an online article published with the word “dairy” in the headline.

Many U.S. news outlets, and some as far away as Ireland and New Zealand, carried the USDA press release, usually verbatim. Many of the headlines followed the USDA lead, noting the agency was providing “assistance” to U.S. dairy farmers struggling financially.

One headline catching my eye came from my home state of Wisconsin in a small newspaper serving Door County (the “thumb” on a Wisconsin map). The headline: “USDA bails out dairy producers.”

Due to its location, nestled between the bay of Green Bay and Lake Michigan, Door County is a heavily visited tourist area. With 62 dairies as of Aug. 1 – out of Wisconsin’s 9,470 – there are likely more urban tourists than cows in the area on any given weekend. I envisioned many tourists reading the headline over their morning lattes.

I reached out to the newspaper’s columnist, letting him know dairy farmers had paid substantial premiums and fees into the program and, to date, had received a very small fraction in indemnity payments in return. Most estimates put premiums and fees at about $96 million for 2015-2016. With the May-June payments, insurance indemnities have totaled about $12 million. I told him I thought the headline was deceiving.

His response: “I used the term ‘bailout’ by its most well-understood definition: when a government gives financial support to a business or industry that is dealing with financial difficulty.

I understand dairy producers pay into the program, but at that point, the money is no longer theirs. So when the USDA gives funds to a struggling industry, that meets the definition of a bailout.

“I’m sorry that you feel deceit at my use of the word ‘bailout,’ but it seems that our disagreement is over definition of the word rather than the content of the article.”

He’s correct on our disagreement over the definition of “bailout.” Buying cheese with USDA discretionary funds might fall closer to his definition. Dairy farmers paying premiums for income margin coverage, with indemnity payments triggered by specific market conditions, doesn’t. Especially when the ratio of funds coming into the federal pool and going out to dairy farmers is about $8 to $1.

Regardless of how effective or ineffective it is, MPP-Dairy is a work in progress. If it survives into another farm bill, more changes are forthcoming. Putting it under the USDA’s Risk Management Agency would be a good start. We don’t get press releases when dairy farmers receive indemnity payments under the Livestock Gross Margin-Dairy (LGM-Dairy) program.

However, so far in 2016, if there’s any “bailout” related to MPP-Dairy, it’s the U.S. taxpayer getting bailed out by dairy farmers.  end mark

Dave Natzke
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