While the current Margin Protection Program for Dairy (MPP-Dairy) runs through the end of next year, an amendment included in a fiscal year (FY) 2018 agricultural spending bill could provide a head start for changes in the next farm bill.
An amendment to a federal FY 2018 discretionary spending package for agriculture, approved by the Senate Appropriations Committee on July 20, would make two changes to MPP-Dairy. It would reduce premiums paid by dairy farmers for the first 5 million pounds of milk covered under the margin insurance program. And, it would change the USDA’s calculation of margins from a two-month average margin to monthly.
Leaders of the National Milk Producers Federation (NMPF) applauded the changes.
“The enhancements to (MPP-Dairy) contained in the bill would strengthen the program and help pave the way for additional necessary improvements in the upcoming farm bill,” said NMPF president and chief executive officer Jim Mulhern.
Details pending
Details of the proposal are still being worked out, according to Chris Galen, NMPF senior vice president of communications. Part of the confusion is centered on calendars.
Federal agency discretionary spending levels established under current appropriations debate cover FY 2018 (Oct. 1, 2017-Sept. 30, 2018), while annual MPP-Dairy coverage applies to calendar year (CY) milk production.
Under the Senate Appropriations Committee proposal, the reduced MPP-Dairy insurance premiums would not kick in until Oct. 1, 2018, more than 10 months after 2018 MPP-Dairy sign-up ends on Dec. 15, 2017. So, anyone signing up for 2018 buy-up coverage (above the $4 per hundredweight catastrophic coverage level) would still pay based on the current premium schedule.
Given the differing calendars, what remains unclear is whether the lower premiums will be pro-rated for the final quarter of CY 2018 to reflect the lower rates that would start next October.
Regardless of the implementation date, the changes should provide better coverage at lower costs to participating dairy farmers, Galen said.
Premium reductions outlined
Under the proposal adopted by the Senate Appropriations Committee, there would be no premiums on milk-income-over-feed-cost margin coverage up to $5 per cwt on the first 5 million pounds of milk. Premiums on margin coverage between $5.50 and $8 per cwt would be significantly reduced from current levels (see Table 1).
Margin coverage premiums on milk production above the 5 million pound level would be unchanged from current Tier 2 levels, which range from 20 cents per cwt for coverage at the $4.50 per cwt level to $1.36 per cwt for coverage at the $8 per cwt level.
While these provisions do not resolve all the problems with MPP-Dairy, enacting the changes will help, Mulhern said.
“By making the dairy safety net program more affordable, this legislation will ensure that more farmers have access to better protection against catastrophic losses, likes those we experienced in 2009 and 2012,” Mulhern said, “While there is more work to do to make the MPP the effective safety net that it was envisioned to be, these improvements are a great start.”
NMPF previously outlined its recommendations for MPP-Dairy changes in House and Senate ag committee hearings on the 2018 Farm Bill earlier this year. (Read: What’s in it for you? Dairy producer, processor groups outline policy priorities)
Those recommendations include:
• Restoring the feed cost formula to its original form. (Lawmakers implemented a 10 percent cut to meet Congressional Budget Office scoring during congressional budget deliberations before MPP-Dairy was passed.)
• Directing the USDA to obtain more precise feed cost data to more accurately reflect true costs and margins.
• Improving program participation affordability by reducing supplemental premium costs for operations producing 4 million pounds of milk or less per year.
• Making technical changes designed to revise the program to be more responsive to producers, including calculating the MPP-Dairy margin on a monthly basis.
“NMPF will continue to work with Congress and the Administration through the farm bill process to address other problems so that the MPP can truly provide real safety net support,” Mulhern said.
What’s ahead?
The Senate Appropriations Committee approved its version of the FY 2018 agriculture spending package on July 20. The House Appropriations Committee previously approved its FY 2018 ag spending bill on July 12.
The appropriations process involves multiple steps. Both House and Senate Appropriations Committees are working on FY 2018 spending packages for 12 federal agencies, which must then be reconciled for a FY 2018 federal budget.
Members of the House and Senate are scheduled to leave Washington, D.C. at the end of July for an August recess/home work period, returning after Labor Day. FY 2018 begins on Oct. 1, 2017.
Mulhern lauded the work by Sens. Thad Cochran (R-Mississippi) and Patrick Leahy (D-Vermont) – the chairman and ranking member of the Senate Appropriations Committee, respectively, as well Sens. Debbie Stabenow (D-Michigan) and Pat Roberts (R-Kansas), the leaders of the Senate Agriculture Committee.
“This bi-partisan collaboration is a clear affirmation of how to get important work done,” Mulhern said.
AFBF offers dairy recommendations
In a letter to Senate and House ag committee leaders, July 13, the American Farm Bureau Federation (AFBF) outlined its recommendations for dairy provisions of the 2018 Farm Bill.
The Senate Appropriations Committee package “aligns with our board-approved positions to enhance MPP-Dairy and make it more flexible for dairy farmers,” said John Newton, AFBF director of Market Intelligence.
Specific to MPP-Dairy, AFBF’s recommendations included:
• a 25 percent reduction in MPP-Dairy premiums for Tier 1 production levels (under 4 million pounds of milk annually), but a 25 percent increase in premiums for Tier 2 (more than 4 million pounds of milk) producers,
• an increase in administrative fees from the current $100 per year to $300 annually for all MPP-Dairy participants,
• raise the catastrophic level of coverage from the current $4 per cwt to $4.50 per cwt,
• reduce the maximum margin coverage level to $7 per cwt, down from the current maximum of $8 per cwt, and
• increase the feed ration formula used in margin calculations by 10 percent.
AFBF also sought a funding increase in the annual $20 million cap for all livestock insurance products, including Livestock Gross Margin for Dairy (LGM-Dairy), to $75 million annually.
Additional pressure for MPP-Dairy reforms in the 2018 Farm Bill is also building in the House. In a letter to House ag committee chairman Mike Conaway (R-Texas), six Republican members of upstate New York's congressional delegation – U.S. Reps. Chris Collins, John Faso, John Katko, Tom Reed, Elise Stefanik and Claudia Tenney – recommended a reduction in MPP-Dairy premium rates, along with a review of the current margin calculation formula.
Nobis testifies
Testifying before a Senate Agriculture Committee hearing on July 25, Ken Nobis, president of the Michigan Milk Producers Association (MMPA) and NMPF first vice-chair, described MMP-Dairy’s shortcomings resulting from congressional tampering with margin feed price formulas when the program was created. While saying he believes MPP-Dairy remains the right program for the dairy industry, “the changes Congress made to the MPP when writing the last Farm Bill rendered it ineffective when dairy farmers needed it the most.”
Nobis, a dairy farmer from St. Johns, Michigan, said dairy farmers paid more than $70 million into the program in calendar year 2015, but received payments totaling just $730,000. In 2016, farmer premiums and receipts were $20 million and $13 million, respectively. Nobis said farmers found the program was not helpful during the two years that were particularly detrimental to the dairy industry. As a result, many of them have become disenchanted with the program, and participation has dwindled.
Participation shrinking
Dairy farmer participation in MPP-Dairy has been on the decline. (Read: MPP-Dairy enrollment continues to slide in 2017)
For the 2017 calendar year, 20,314 dairy operations enrolled in MPP-Dairy, about 49 percent of the 41,809 licensed dairy operations reported by USDA in 2016. U.S. dairy herds enrolled during 2017 are down 5,349 from 2016, a decline of 21 percent, according to AFBF’s Newton.
A vast majority of the operations enrolled for 2017 are at the catastrophic $4 per hundredweight (cwt) coverage level. Only 1,507 operations, approximately 7 percent of enrolled operations, elected to purchase coverage above $4 per cwt. Coverage at buy-up levels is down from 2015 and 2016, when 56 percent and 23 percent of the farms had coverage above $4.50 per cwt, respectively.
MPP-Dairy 2018 enrollment period delayed
The start date to select MPP-Dairy coverage for calendar year 2018 has been delayed until Sept. 1, according to a memo sent to county USDA Farm Service Agency offices. The period was originally set for July 3 through Dec. 15, 2017. (Read: July dairy economic update: 2018 MPP-Dairy sign-up period delayed)
Dairy producers will receive an enrollment reminder notice from USDA’s Farm Service Agency national office. Farmers must complete and submit form CCC-782 to their FSA county office during the period. 
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Dave Natzke
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