The Farm Security and Rural
Investment Act of 2002—
The Dairy Subtitle
2002 Farm Bill Education Conference
Kansas City, Missouri
May 20-21, 2002
Mark Stephenson
Cornell University
Major Pieces…
•
•
•
•
•
•
•
Milk Price Support Program extended
Dairy Export Incentive Program extended
Promotion fees for imports
Fluid milk promotion extended
Mandatory reporting
National Dairy Market Loss Payments
Three dairy studies
Related Pieces
• Environmental
• Field crops
Milk Price Support Program
• Has been around in some form since the 1930s
• Sets a price goal—not a price
• Original idea was price stability—not price
enhancement
• Found in 1970s that you can buy votes with
price enhancement
• Found in 1980s that votes can be expensive
CCC Purchases & Expenditures
18000
16000
$3,000
Fat Equivalent Milk
Dollars
$2,500
14000
12000
$2,000
10000
$1,500
8000
6000
$1,000
4000
$500
2000
19
6
19 8
70
19
72
19
74
19
76
19
7
19 8
80
19
82
19
84
19
8
19 6
88
19
90
19
92
19
9
19 4
96
19
98
20
00
0
$0
Price Support & “Tilt”
• Current price support level is $9.90 and is to be
maintained at that level
• Program extended through 2007
• Twice a year, the secretary may adjust
purchase price of nonfat dry milk and butter to
minimize CCC expenditures
Dairy Export Incentive Program
• Government accepts bids to close the gap
between domestic prices and world market
prices
• There are dollar and volume limits on DEIP
exports
• Program provides a low-cost means of relieving
downward pressure on domestic markets
Promotion
• Imports will contribute to National Dairy
Promotion and Research Board (Got Milk)
• Some of the NDPRB monies will be used to
promote U.S. products in export markets
• Fluid Milk Promotion extended indefinitely (milk
mustache)
Mandatory Reporting
• Regulated milk prices are now determined with
product price formulas
- Manufacturing firms must report sales data
(price and volume) to NASS
- Manufacturing firms must report inventory
data to NASS
National Dairy Market
Loss Payments–Background
• Something for everyone
- Compact-like in structure (New England is happy)
- Tax-payers foot the bill, not consumers (processors
are happy)
- Regionally uniform access to benefits (Upper
Midwest is happy–looks like national pooling)
• Losers
- Possibly larger dairy producers
- Less than average milk drinkers
- (Must be a deadweight loss in here somewhere)
Features
• Trigger—$16.94 class I price in Boston
• 45% of the difference when the class I price is
lower
• Direct payment every month
• Payments are retroactive from December 1,
2001 through September 30, 2005 (not entire farm bill)
• Only on 2,400,000 pounds of milk per fiscal
year (on current production, not a base)
• Signup, probably with FSA
Detail Questions…
• How easy will it be to divide farm into 2.4
million pound units?
- Bill says no “reconstitution” of farms
- Probably difficult to enforce
• Is the payment on the first 2.4 million pounds
or can you choose time period?
- Want to pick lowest class I prices
Herd Size
Percent of Maximum Payment
50
100
150
250
500
750
1000
1500
2500
5000
15000
100%
100%
100%
64%
32%
21%
16%
11%
6%
3%
Pounds per Cow
17500 20000 22500
100% 100% 100%
100% 100% 100%
91%
80%
71%
55%
48%
43%
27%
24%
21%
18%
16%
14%
14%
12%
11%
9%
8%
7%
5%
5%
4%
3%
2%
2%
25000
100%
96%
64%
38%
19%
13%
10%
6%
4%
2%
Impacts…
• FAPRI estimates
- 89¢ payment on eligible milk production over
the life of the program
- 17¢ decline in class III price
- 28¢ decline in class IV price
• Roughly, 500 cows is break even size
Concluding Thoughts…
• Is this policy?
• I think that FAPRI’s price impact estimates are
conservative
• We are coming off of the largest market price
year ever and milk production is coming on
strong
• These payments will probably retard the loss of
small farms and large farms will react favorably
to the low feed grain prices.
Concluding Thoughts…
• Big production and low milk prices are
inevitable
• CCC purchases will be considerable even with a
tilt
• The NDMLP will cost much more than the $1.3
billion CBO score
• QED—Low milk prices prove the need for the
program