Holstein World: After a bit of a break from blogging last week due to some technical difficulties, Im happy to say we are off and running with another great topic for discussion. This week we will be focusing on the Farm Bill. Answering questions for us and reviewing the impact the bill will have on the dairy industry are Lee Mielke from DairyLine Radio, and Dave Natzke from Midwest DairyBusiness. If you have any questions or comments you”d like to share with us or Lee and Dave, feel free to send them my way at firstname.lastname@example.org.
Share with our readers the current discussion behind the USDA”s preliminary decision to include Milk Income Loss Contract (MILC) program payments in the 2007 Farm Bill.
Lee Mielke: I think MILC was included because of the political reality of who now controls Congress. Key senators from states like Vermont and Wisconsin are strong supporters of the MILC and the program is consistent with the way other commodities are treated. And, the President expressed support for the MILC program while on the campaign trail in the last election.
Dave Natzke: First, a bit of review. The original MILC was established in the 2002 Farm Bill, but had an expiration date of Sept. 30, 2005. To “extend” MILC required a separate piece of legislation, and the Agricultural Reconciliation Act of 2005 reauthorized the MILC through Sept. 30, 2007, with the intent of having it sunset with the 2002 Farm Bill.
However, due to special requirements of the Deficit Reduction Act of 2005, which almost everybody overlooked at the time, the extended MILC program (also called MILCX) actually reauthorized payments only until Aug. 31, 2007, or one month short of the expiration date of the 2002 Farm Bill. Subsequent efforts to extend MILCX for one more month failed, in part due to budget concerns. Also, opponents of the program hoped that because the program was no longer tied to the Farm Bill, it might just go away. (It should be noted that the Deficit Reduction Act of 2005 also reduced the payment level to eligible dairy producers, from 45% of the difference between $16.94 per cwt. and the Class I price in Boston, to 34% of that difference.
So in reality, the Bush administration’s proposal to place MILC back in the 2007 Farm Bill is really just putting it back where it started, probably so it is no longer a separate budget item, and that program costs can be adequately budgeted and managed by USDA.
The impacts of last fall’s elections make it more likely MILC will be included in the 2007 Farm Bill. The Midwest and Northeast – with a larger share of “small” dairy producers who benefit the most from MILC – gained leadership posts on agriculture and, perhaps even more importantly, appropriations committees in both the Senate and the House. Those committees not only help set policy, but also decide how much funding it receives.
Holstein World: MILC is not part of the current Farm Bill, but a separate program and line in the federal budget. Why was the decision made to include it in the 2007 Farm Bill and will this have an effect on how funds are allocated?
Lee Mielke: MILC was part of the 2002 farm bill but was unsettled. It continued as a separate item, attached to a different piece of legislation but supporters wanted it extended so that it would coincide with the actual farm bill.
It should not have an effect on how funds are allocated. The total amount that USDA budgeted for the price support program and MILC is only $793 million for 10 years.
Dave Natzke: As far as I know, MILCX has no set federal funding level. It maintained milk price triggers to determine when payments to producers would be made, but did not set spending limits. Therefore, it”s fairly open ended, and probably difficult to budget.
How will putting it back into the Farm Bill impact the way funds are allocated? Under USDA’s latest proposal for the 2007 Farm Bill, dairy producers would continue to be eligible to receive an MILC payment if the Class I price in Boston in any month falls below $16.94 per cwt. However, USDA’s proposal gradually reduces payment rates over time. For fiscal year 2008, the proposed payment rate would remain at the current rate of 34% of the difference between $16.94 per cwt and the Class I price in Boston. For subsequent years, the payment rate would be phased down to 31% in FY 2009, 28% in FY 2010, 25% in FY 2011, 22% in FY 2012, and 20% in FY 2013-2017.
Additionally, MILC payments would be based on 85% of the 3-year average of milk marketed during fiscal years 2004-06. This policy change would make the MILC program consistent with the other farm bill counter-cyclical programs that are calculated on historical production bases.
What has always been the most controversial part of MILC is that it limits payments to a maximum of 2.4 million pounds of milk per farm annually. Under the latest USDA proposal, future payments would remain subject to that limit.
Adding MILC to the Farm Bill provides additional controls on payments. Under USDA’s plan, MILC payments would also count towards a producer’s overall counter-cyclical payment limit of $110,000 annually, helping to limit payments to producers with multiple dairy operations. The new adjusted gross income eligibility cap of $200,000 annually would also apply to MILC payments.