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COVID-19 economic stimulus might not be the last word on dairy aid; FMMO dumping contingencies released

Progressive Dairy Editor Dave Natzke Published on 26 March 2020

U.S. dairy industry leaders are pleased an economic stimulus package contains provisions to help support the nation’s dairy producers and processors, but they remain hopeful additional financial aid and other USDA policy and program changes will be forthcoming to offset anticipated losses due to COVID-19.

The massive, $2 trillion aid package working its way through Congress this week creates a $9.5 billion coronavirus agricultural disaster fund that specifically includes livestock and dairy producers, as well as critical assistance to small businesses that are a key link in the entire dairy supply chain. The bill also provides $14 billion in additional funding for the Commodity Credit Corporation (CCC) that the USDA can use to assist agricultural producers.

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Even though dairy is identified as a target area for aid, there is no specific funding level designated for dairy, and spending priorities are left to the discretion of the USDA.

While the stimulus package includes crucial assistance to farmers, it is likely not the last step to assist a dairy sector hard hit by COVID-19 economic disruptions, said Paul Bleiberg, vice president for government relations for the National Milk Producers Federation (NMPF).

“There are absolutely going to be further legislative efforts,” Bleiberg said in a podcast released by NMPF. “Congress may take a recess for a couple of weeks, maybe around the Easter recess, and it may be a little bit longer than it normally is, but I think that work behind the scenes is going to continue.”

Other dairy leaders expressed the need for additional measures.

"This assistance will be helpful, but it is not enough,” said American Dairy Coalition CEO Laurie Fischer. “The future of the dairy industry is at risk. The industry has lost an estimated $2.85 billion over the last five weeks, a direct loss of income for dairy producers. Our nation’s dairy farmers, who are providing essential food for consumers during this unprecedented time, must be a top priority to receive assistance from the government so they can continue to feed the nation."

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“Dairy farmers are proud to be able to provide wholesome and nutritious dairy products to consumers across the U.S. and beyond. This pandemic has not changed that commitment, but it has already made it more challenging to keep supply chains running smoothly,” said John Rettler, dairy farmer from Neosho, Wisconsin, and president of FarmFirst Dairy Cooperative. “2020 was supposed to the year to begin to recover from the past few … dairy farmers will need significant support to get through this, and they will need it right away.”

NMPF outlines other needs

In a letter to U.S. Ag Secretary Sonny Perdue, March 24, Jim Mulhern, NMPF president and CEO, said USDA’s latest 2020 milk price forecast indicates U.S. dairy farmers could see a $2.85 billion decline in milk income compared to the outlook five weeks earlier.

“Further drops are possible as the impact of the COVID-19 outbreak spreads,” Mulhern wrote. “The demand shock experienced by our entire economy is turning what initially looked to dairy farmers like the first decent year in the last five into one of potentially widespread economic devastation.”

In the letter, Mulhern introduced other steps NMPF sees as necessary to assist dairy producers and processors, including:

  • Additional USDA dairy product purchases to meet increasing demand at food banks and offset lost sales in food service sectors due to school and restaurant closings.

  • Reopening sign-up for participation in the Dairy Margin Coverage (DMC) program. Due to the lack of expected payout during the sign-up period, only 47.8% of operations with production history and 56.2% of the volume of established production history were enrolled in DMC for 2020, noted Michael Nepveux, economist with the American Farm Bureau Federation.

Since the COVID-19 outbreak, the milk price outlook has changed substantially, as has the forecast for DMC indemnity payments.

Read: "Black swan event shakes up Dairy Margin Coverage payment forecast."

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A proposal originally approved in the House version of the economic stimulus bill – but not included in the version approved by the Senate – would also have allowed dairy producers to update their production history under the DMC program.

  • Compensation for possible milk disposal as logistical challenges on the farm and at manufacturing plants may create supply chain disruptions – elements of existing USDA programs could provide the basis for a means to compensate farmers or processors, potentially with an incentive to donate milk when possible. In the past, the Wildfires and Hurricanes Indemnity and Milk Loss (WHIP-ML) Program has assisted producers who have had to dump milk because of contamination from natural disasters. NMPF suggests this program might be refashioned to assist in this situation.

Milk dumping contingencies

Looking longer term, Progressive Dairy has heard of some dairy co-ops sending letters to producer members, warning of the potential of production caps and/or dumping of excess milk supplies.

FMMO marketing flexibility offered

In response to questions from the dairy industry, the USDA issued a statement on March 25, saying it will give Federal Milk Marketing Order (FMMO) administrators flexibility to ensure adequate supplies and efficient movement of fluid milk to retail outlets. There have been reports of substantial loads of milk normally used in dairy product manufacturing now being diverted for bottling to fill retail fluid milk demand.

A document posted on the Mideast FMMO website outlines some of actions availed to FMMO administrators should local conditions warrant those steps. If requested by milk handlers and approved by market administrators, the actions will initially be implemented for the time period of March-May, as needed. They include:

1. The USDA will provide flexibility for the disposal of milk and limit the financial impact to producers. Milk historically associated with an FMMO will be allowed to be dumped at the farm and still be priced and pooled on the FMMO. The pooling handler will need to notify FMMO of any dumped milk.

2. Some pooling provisions, shipping and/or diversion limits, of individual orders will be adjusted to accommodate changes in supply and demand due to COVID-19 responses.

3. Some fully regulated plants are having difficulty meeting the increased demand at grocery stores and will be allowed to purchase milk from other sources, such as a partially regulated distributing plant, provided the additional milk is pooled and priced on a FMMO.

4. If a producer-handler loses their market due to COVID-19, the FMMO will allow these entities to become fully regulated and then revert to their producer-handler status once the market returns to normal.

5. If a producer-handler has the capacity to process additional fluid milk for consumers, the FMMOs will lift the limit on the amount of outside milk the producer-handler can purchase as long as the milk is pooled and priced on a FMMO. The producer-handler must still remain under the 3-million-pound threshold in order to keep its producer-handler status.

Historically, some FMMOs have authorized the temporary pooling of milk disposed or “dumped” on farms or other nonplant locations during the spring flush, when milk supplies exceeded processing capacity.

In those cases, dumped milk volumes were reported under a marketing area’s monthly statistical reports under “Class IV minimum price class.” It represents milk that may have been delivered to the plant and processed to some degree (such as separating the milk retaining the butterfat and discarding the skim portion, or condensing the milk and discarding the skim portion), milk lost in plant manufacturing issues and route returns of packaged milk returned to a plant for disposal.

Make sure dumped milk is counted

In a dairy risk management webinar on March 25, University of Minnesota dairy economist Marin Bozic emphasized the need to report any dumped milk volumes, insisting that the milk be identified as “marketed” milk even if there is no payment for it.

Those milk weights will be reported to the USDA and incorporated into milk production totals, which are a factor used to calculate quarterly milk income under the Dairy Revenue Protection (Dairy-RP) program.

In addition, the USDA National Agricultural Statistics Service (NASS) milk production estimates are used when adjusting annual milk production history increases allowed under DMC.

Other federal action

Separately, the previously approved Families First Coronavirus Response Act provided funding for nutrition programs, including getting milk to students during school closures. Among other federal actions, the U.S. Department of Transportation has relaxed hours-of-service requirements for truckers, and the FDA has announced flexible enforcement of federal veterinarian-client-patient relationship (VCPR) requirements, allowing veterinarians to use telemedicine to address animal health needs during the COVID-19 outbreak.  end mark

Dave Natzke
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