Vermont farmers unhappy with dairy insurance
ADDISON COUNTY — For Weybridge dairy farmer Nate Miller, a federal program that provides insurance against wide swings in milk and feed prices hasn’t made much of a difference to his farming operation — other than the money he’s laid out annually for premiums and administrative fees.
Miller’s operation is on the smaller end of the scale in Addison County, with a total of 54 cows and milking around 30. But the story is the same for Bob Foster of Foster Brothers Farm in Middlebury, which milks around 432 cows and has a total herd of over 500.
“It’s strictly an expense. That’s way we look at it,” said Foster. “The program just hasn’t worked out the way we thought it would.”
Part of the 2014 Farm Bill, the federal Margin Protection Program is intended to protect dairy farmers from fluctuations in the price of milk and in the cost of feed by providing insurance against low “dairy margins.” The margin is calculated as the difference between the price of milk and the cost of feed, according to a complex federal formula. The higher the margin, the further milk prices are staying ahead of the cost of production. The lower the margin, the closer farmers get to a year with low to no profits and more hard times.
For an annual administrative fee of $100, the Margin Protection Program, or MPP, shields farmers against what’s considered a catastrophic dairy margin of $4 — meaning they get paid $4 over the cost of the grain they feed their animals. Farmers can “buy up” for additional premiums and purchase protection for a dairy margin of up to $8. Once farmers sign on to the program they are obligated to participate every year until 2018 — unless they leave farming altogether.
Where’s the rub?
The problem for dairy farmers in Addison County is that the milk and feed prices used to calculate the MPP dairy margin are based on national milk prices and wholesale commodity prices for feed in other parts of the country — not the cost an Addison County farmer might pay to a local feed supplier. So the program benefits farmers in some regions far more than others, leaving the entire Northeast on the short end of the stick.
Experts such as UVM’s Bob Parsons say the MPP feed prices are a more realistic gauge of the cost of production for farmers in the Midwest or other states where feeds like corn, soybean meal and alfalfa can be grown on a larger scale. They’re not buying grain, they’re growing it on the farm.
Not only must Vermont farmers purchase more grain than farmers in those parts of the country, says Parsons, they’re also near the end of the trucking line and so they must pay a higher price for feeds from the Midwest.
“We’re on the tail end of trucking for soybean and corn, so whereas the price of corn today on the Chicago Mercantile Exchange may be about $3.60 a bushel, you’re not going to buy it for less than probably $4.25 in the state of Vermont,” said Parsons, a specialist in rural development and farm management. “We have to truck it in.”
Parsons continued, “Ninety percent of our corn in Vermont is cut for corn silage. We don’t raise corn for grain. We’re on the tail end of everything. We always talk about comparative advantage. Well, Vermont doesn’t have much of a comparative advantage in anything. We produce dairy because that’s what we have the least comparative disadvantage in.”
Midwest farmers can grow more grain or forage (and thus purchase less) for a number of reasons, Miller explained. With a longer growing seasons, they might get five cuttings of hay a summer, instead of two or three in Vermont. They are likelier to have more acreage per cow on which to grow crops. And then there are other factors, such as soil type.
FARMERS SCALE BACK
For the first year of the MPP program, 2015, Miller “bought up” and purchased protection for a dairy margin in the neighborhood of $7 to $7.50. For 2016, he scaled back to the catastrophic level included in the base administrative fee of $100. Bob Foster made essentially the same decision: $6 to $6.50 in 2015, and the most basic, catastrophic $4 level in 2016.
Miller and Foster are not alone. Farmers all over Addison County voted with their feet and scaled back participation in the program to the minimal level in 2016.
Lisa Gaboriault works for the Middlebury office of the federal Farm Service Agency, which administers the program. She said that of the 75 Addison County dairy farms that signed up for the Margin Protection Program in 2015, fully 42 farms (56 percent) “bought up” for additional coverage for that first year. Of the 70 farms still in the program in 2016 (five dropped out when they ceased farming altogether), only two farms out “bought up” — a mere 3 percent. The other 68 farms scaled coverage back to protection only against catastrophe.NATE MILLER, seen here in his Weybridge barn, has scaled back his participation in the Federal Margin Protection Program, which was created to protect farmers from fluctuations in the price of milk and the cost of feed. Independent photo/Trent Campbell
“The farmers in the county were telling us that one reason they cut back was milk prices,” Gaboriault said. “Money was short
“The other side to that is … our customers … hadn’t felt that they had seen any benefit from the program in 2015,” she continued. “So it was hard to put the money into the program for 2016, when they hadn’t seen any results from 2015.”
Statewide the picture is much the same, said UVM’s Parsons.
He explained that last year Vermont farmers took coverage at the $6.50 level of return over feed cost and the return over feed cost never got below $8.
“The dairy MPP really hasn’t worked,” Parsons said. “It hasn’t done what was needed for farmers in Vermont.”
This year most Vermont farmers took the cheapest program — $4 return over feed cost, he continued.
“Right now the return over feed cost has been running — I think it’s gotten below $8, down to like $7.26, but it’s nowhere near the $4 level,” Parsons said. “So I don’t know if there’ll be anybody in the state of Vermont that has insurance at the $7.50 level that would collect anything on it.”
To make the Margin Protection Program more equitable for Vermont farmers and farmers in the Northeast, Rep. Peter Welch, D-Vermont, this month introduced legislation that would require dairy production margins be calculated using actual data from each state. The bill is known as the Dairy Margin Insurance Location Calculation of Dairy MILC.
“The dairy insurance program included in the Farm Bill was designed to shield small dairy farmers from the devastation of wild swings in milk prices,” Welch said in an email to the Independent. “As implemented by the USDA, too many Vermont dairy farmers are not receiving the help they expected when they signed up and paid their premiums.
“This common sense legislation repairs the dairy safety net so that it more accurately reflects substantially higher energy and feed costs incurred by New England’s dairy farmers compared to farmers in other regions of the country,” Welch continued. “Doing so will ensure that Vermont dairy farmers will receive the insurance payments they are counting on during tough times as originally intended.”
WILL BILL PASS?
Parsons thinks the bill is a good idea, but he is skeptical that Congress can be persuaded to reopen the 2014 Farm Bill during an election year.
“No one wants to reopen the can of worms that is the Farm Bill,” said Parsons, “because, you know, first thing someone’s going to want to change food stamps and someone’s going to want to change the support for grain farmers and someone’s going to want to change the support for cotton farmers and another one for rice farmers and there’s a lot more of those guys than what there are dairy farmers and that’s the fact of the reality that we’re facing.”
But back in the Middlebury Farm Service Agency office, Gaboriault was more hopeful.
“The guys here would appreciate it because it would look at more what their local feed costs are, their actual feed costs,” she said. “I think the insurance would become a little bit more valuable to them because they would know it’s looking at more real numbers. So they may not feel that they’re tossing their money into a large barrel that doesn’t apply to them.”
Standing in front of his barn in Weybridge, Miller finds himself torn between his philosophical stance as a “laissez-faire capitalist who finds all government programs repugnant” and the economic and procedural strictures he feels as a dairy farmer squeezed by regulations on all sides.
“We are so incredibly regulated — everything from I can’t give my friend a glass of milk to being blamed for total world destruction — that we have to examine every card we’re dealt whether to play it or not and what the outcome will be,” he said.
“Right now, this program has no value as I look at the markets. If my margin goes to $4, we have an economic problem greater than anything this program is going to support.”
Reporter Gaen Murphree is at [email protected]
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