BURLINGTON — U.S. Agriculture Secretary Tom Vilsack, flanked by Sen. Patrick Leahy and Rep. Peter Welch at a press conference in Burlington last Thursday, announced a new dairy insurance program to protect farmers against volatile price swings.
“I would urge farmers to sign up to this program for $100,” Leahy said. “It is a great investment and a chance to stop the boom and bust cycle we have.”
The initiative, called the Margin Protection Program, is part of the 2014 farm bill, which Congress passed this February after almost two years of negotiations. It replaces the Milk Income Loss Contract (MILC) program, a product of the 2007 farm bill.
That program expired in the fall of 2013, leaving farmers vulnerable until the new farm bill was signed by President Obama in February. Thankfully, prices remained stable through the winter.
The farm bill is an omnibus piece of legislation that sets the country’s farm and food policy. It is traditionally passed by Congress every five years. While the most recent bill has been law for six months, different pieces of the complex legislation are still being rolled out.
“It’s one thing to pass the farm bill, but implementing it is another,” Welch said.
The Margin Protection Program (MPP), which is voluntary, protects farmers when the difference between the price of milk and the price of animal feed falls below a certain level set by the farmer.
“This program will provide catastrophic coverage if the differential between the milk price and general feed costs drops below $4 per hundredweight for two consecutive months,” Vilsack said. “Those who purchase will receive coverage on 90 percent of their production history.”
For example, if a farmer chooses a $4 margin, and if the price of feed is $12, the program will kick in if the price of milk per hundredweight falls below $16.
The current price per milk is just below $24 per hundredweight — very good by any measurement. While dairy farmers are on stable footing now, Vilsack said the USDA knows that could change quickly.
“One of the biggest concerns about dairy is the boom and bust cycle,” Vilsack said. “The reality is that prices were dropping more precipitously and were occurring more frequently, leaving those small to mid-sized operators less time to rebound.”
A decrease in demand of just 5 percent could send prices plummeting by 40 to 50 percent. In 2009, the last dairy crash, the price per hundredweight fell to $10, below the cost of production. As a result, many dairies in Vermont and other milk-producing states went out of business.
“You really have to provide some sort of insurance when feed costs go up because there’s a drought, or when milk prices come down significantly,” Vilsack said. “The Margin Protection Programs speak to that ratio, that differential between feed costs and milk prices.”
A related dairy initiative, called the Dairy Product Donation Program, protects against surpluses, which can send milk prices into a tailspin. When demand shrinks, mechanisms are in place for the government to buy the excess milk and donate it to food banks and nonprofits. Farmers do not need to enroll in this program.
“In the event there is a surplus, we will be in a position to trigger the donation programs to food banks and the like in the interests of trying to stabilize prices,” Vilsack said.
The Margin Protection Program has safeguards to prevent farmers from bilking taxpayers by producing more milk than the market demands and hoping for a check from the USDA.
When farmers enroll in the program, they provide the USDA with their production levels for the previous year. If production significantly exceeds those levels and produces a surplus, the government will not reimburse the dairy farm.
“There’s not an incentive for overproduction,” Leahy said. “There’s an incentive for sensible production. We want dairy farmers to stay in production, and we don’t want anyone gaming the system.”
Farmers can enroll in the program for next year from Sept. 2 to Nov. 28. Farmers must remain in the program through 2018 and pay a minimum of $100 each year, though they may choose to increase their coverage.
Leahy acknowledged that many parts of the farm bill involve complex calculations that are difficult for laypersons and even politicians to understand, but assured that the USDA believes they are sound policy.
“Being a nuclear scientist is easy,” he quipped. “Fully understanding the intricacies of dairy programs, that’s difficult.”
Leahy said he would have liked to include the MILC program in the new farm bill, but Congressional Republicans objected. He said the Margin Protection Program is a good substitute.
“I did not want a farm bill to go through that did not have some protection for dairy farmers, the ones who need the help are the ones who are the typical family farms you see in Vermont,” Leahy said.
Vilsack said he hopes the program takes some of the guesswork out of the dairy business, and pointed to some encouraging statistics, noting that U.S. agriculture exports have increased for five years, and that he expects American dairy products to reach 600 million new consumers worldwide over the next decade.
“There’s going to be a tremendous demand for dairy products,” Vilsack said.