On Friday afternoon, the Dairy Security Act of 2011 was introduced in the House. Sponsored by Minnesota Rep. Collin Petersonand Idaho Rep. Mike Simpson, the act has come following a string of turbulent years in the dairy industry alongside numerous congressional hearings and attempted regulatory fixes.

According to National Milk Producers Federation, which is pleased with the proposed legislation, the act would:

  • Make voluntary the Dairy Market Stabilization Program, which will help reduce milk output during times of low margins. If producers enroll in the USDA’s subsidized margin insurance program, they will automatically be enrolled in the Dairy Market Stabilization Program. This will provide alerts when additional production may affect overall margins.
  • Extend the “basic” level of margin insurance coverage to 80 percent of a producer’s production history, from 75 percent as initially proposed. The “supplemental” margin coverage option is also improved, as it will allow producers to purchase insurance for growth in their milk production history.
  • Include a refined provision in the Dairy Market Stabilization Program to ensure that it does not activate during times when signals for farmers to reduce production may impinge on the ability of the U.S. to export dairy products.
  • Simplify the Federal Milk Marketing Order pricing system through a formal hearing process conducted by USDA. The proposal directs changes in the way milk used to manufacture cheese (Class III) is priced, from a complicated end-product formula, to a more market-oriented competitive pricing system.

“This is the culmination of a couple years work,” said Peterson, ranking member of the House Agriculture Committee, on Friday morning. “The reason for doing this is the current system is outdated, outmoded and doesn’t provide a safety net that’s (adequate to address the situation) when it’s needed. It’s also not a good system for managing the oversupply that happens from time to time.”

The proposed legislation has a “stabilization component that will allow us to deal with the ups and downs of the export market. It’ll allow us to make sure we don’t have a collapse caused by a one percent oversupply situation. … We must have a way to deal with that and we’ve done it in a fairly light-handed way that makes sense. It’s market-oriented and we don’t believe it will interfere with the export market.”

It would also save money, he said. “The current baseline is $672 million and the Congressional Budget Office score is $131 million in savings over 10 years. … We think that will help us get support however this process moves forward.”  

For more, see here, here and here.

Peterson, seeking to avert another round of financial difficulties for dairy producers, pointed to 2009 when there was “a downturn and there was a tremendous toll on the dairy industry – some had to incur debt and some had to exit the business. If we have another downturn like 2009 -- which some are afraid will happen next year – and we haven’t updated the system, we’ll have serious problems.

“So, we’ve worked through this, put out a discussion draft, made changes to that and there will probably be more changes as we go through the process. But today is official start of that process.

“We hope that over this fall we’ll be able to work on this to bring greater consensus, more people on board, as they understand what we’re trying to do and how this will work. I’d like this to move before the farm bill (because) I thought the farm bill would be done later (in 2012). I didn’t think we could wait that long.”

The dairy act’s journey through the legislative process is “dependent on how the farm bill proceeds, which is unclear. We’ll be doing (the farm bill) between now and next September. But no one knows when or how that will work.

“There is a possibility that we can work (the dairy bill) through and get consensus legislatively not only in the House but in the Senate. Then, it could become part of the farm bill process. We need to do the work now. … I’m optimistic we’ll be able to pull everyone together and get this done.”

Hidden costs?

Not everyone in the dairy industry is on board with the proposed legislation. According to the International Dairy Foods Association, a new study commissioned by the group “shows the impacts of proposed dairy policy legislation on federal nutrition programs has found millions of dollars in hidden costs. Behind typical estimates of the price of the National Milk Producers Federation's Foundation for the Future dairy policy proposal are large and unintended additional taxpayer costs, reductions in the effectiveness of federal nutrition programs, and reduced access to the programs for low-income women and children.”

For more, see Proposed dairy legislation full of hidden costs?

Had the program been in place in 2009, claims the association, “more than 178,000 qualifying participants would have lost access to the already strained Women, Infants and Children (WIC) program, unless $92 million more in spending was appropriated. The proposals would also have affected USDA's donation programs for food banks and senior centers. An estimated 50 million fewer pounds of cheese would have been available to the commodity distribution programs had the policies been in place in 2009.”

See the study here.

Peterson was clearly irritated with the IDFA’s claims of hidden costs. “Give me a break! International Dairy Foods Association(has members) that are protected by the MILC (Milk Income Loss Contract) allowance. They’re guaranteed a profit by the government. Some of them don’t even have to market their product in the current system.

“And they’re complaining? We’re moving this to a more market-oriented system, which is what’s been asked for. … They suddenly come up with bogeymen and are not talking about what’s really going on. I don’t have a lot of sympathy with some of the nonsense they’ve come out with.”

While writing the proposed act, legislators have been working with the National Milk Producers Federation, “the broadest-based organization in the dairy industry,” said Peterson. “But you’re never going to get 100 percent consensus in dairy, no matter what.

“So, we’ve kind of been following (the National Milk Producers Federation’s) lead and responding to what they’ve done in the industry. We’re introducing a bill based on what they’ve come up with…

“But once this gets into the legislative process that doesn’t mean there won’t be changes. There will be changes. We’ll have to work through this so we can get 218 votes in the House and 60 votes in the Senate.”

The House “will move first. I don’t think the Senate is ready to start moving on dairy.”

Crop insurance, super committee

Peterson was also unhappy with the recently-proposed White House budget that would slash crop insurance funding. “I think the cuts being proposed by (President Obama) are ill-advised and a mistake. We made significant changes in (the crop insurance) program and we don’t have the information or results from those changes. We won’t have them for another year.

“There are people in my office – from (insurance) companies and agents -- telling me we’ve gone too far. I don’t know if we have, or not. And we won’t know until we actually get the data on what’s happened in the industry and marketplace.

“I’m opposed to making any further changes in crop insurance. The (chairmen and ranking members from both agriculture committees) have met a couple of times … and in those meetings I’ve heard all four of us say we’re opposed to any more changes in crop insurance.”

The late November deadline faced by Congress’ “super committee” -- charged with finding at least $1.5 trillion in cuts/savings to the federal budget over a decade – has not spurred it to communicate with fellow legislators. Asked how the next farm bill will be affected by the super committee, Peterson was in the dark. “The honest answer is: We don’t know. We don’t know what the super-committee is actually looking for. We have not been told. We have not been given" a budget number to shoot for "and the process is unclear.

“There have been some discussions by myself and (Oklahoma Rep. Frank Lucas, chairman of the House Agriculture Committee) with some members of the super-committee. But we’ve gotten no formal questions from them.

“We’ve decided that it’s in our best interest to move ahead and be pro-active in anticipation that there will be some instructions and requests by the super-committee at some point. We do have staff looking at options and what kind of policies would have to be considered anywhere in the range of $11 billion -- which was (proposed) by the 'gang of six' –- up to $33 billion, which is being talked about by President Obama and (Ohio Rep. John Boehner, Speaker of the House). They’re both at that number…

“We view (Obama’s) proposal kind of like we view his budget. They put all the good stuff in the budget and everyone ignores it. I think that’s the impact of some of what they’ve put forward.”

Warning

While taking a shot at a do-nothing Congress, Peterson also had a warning for dairy producers content to stick with current government programs.

“There’s always a chance” of no changes to dairy programs. “In this environment, this Congress not getting anything done is a much surer bet than it getting anything done. But I don’t believe we can afford that.

“A lot of the conditions and signals showing up in 2008 before the collapse in 2009 are (now showing up) in 2011. There’s a lot of concern we’ll go back into a situation in 2012 like we had in 2009. We can’t afford that and the current program won’t be adequate. It won’t work.

“And I guarantee you: There will be no help from Congress if the dairy industry gets into trouble. We can’t even pass a Federal Emergency Management Agency bill.

“The groups that want a perfect solution and are holding out because they want this or that, they’re playing with fire. If they screw this up and keep (this legislation) from happening, then they’re on their own. When (the dairy industry) collapses – and it will at some point – there isn’t going to be any help in Congress and I’m not going to be too inclined to get excited about it. They’ll have brought it on themselves.

“So, this is their chance. We’re talking to the (dairy) groups that are outliers. There aren’t very many of them … and we’re trying to work with them.

“But I’ll say again: These folks are playing with fire. It’s very easy to make something not happen in this Congress. In my opinion, we can’t afford that. If people screw it up and (the legislation isn’t passed) it’s on their head. … They’d better be careful.”