The Agriculture Department is providing nearly $350 million to partially compensate dairy producers who lost revenue because of market disruptions during the COVID-19 pandemic and a change to a federal pricing formula made by the 2018 farm bill. 

Payments under the Pandemic Market Volatility Assistance Program can cover 80% of the difference between the revenue producers actually made from July through December 2020 and what they would have earned had the pricing formula not been changed. But the assistance will be limited to the first 5 million pounds of milk that was marketed. The National Milk Producers Federation estimates that producers lost more than $725 million. 

Cheese prices skyrocketed during the period as USDA began buying it for the Food Box donation program, but many producers of fluid milk didn't benefit from that, in part because of the complex rules for pricing under the federal milk marketing order system, together with the farm bill change. Producers in the Southeast and Southwest were hit particularly hard, although the 5-million pound cap could sharply limit the assistance they receive. 

The new payments will help many producers, but the aid falls “significantly short” of meeting the needs of dairy farmers, said NMPF President and CEO Jim Mulhern.

“The arbitrary low limits on covered milk production volume mean many family dairy farmers will only receive a portion of the losses they incurred on their production last year,” Mulhern said. “These losses were felt deeply by producers of all sizes, in all regions of the country, embodying a disaster in the truest sense of the word.” 

The program is part of a $6 billion pandemic assistance plan announced in March. 

“Family dairy farmers have been battered by the pandemic, trade issues and unpredictable weather and are the life-blood of many rural communities throughout Vermont, the Northeast and many other regions,” said Vilsack, who announced the new program in Vermont Thursday.

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Vilsack noted the targeted assistance is part of a larger effort expected to total over $2 billion to help the dairy industry recover from the pandemic.

Senate Appropriations Committee Chairman Pat Leahy, D-Vt., said the payments will "help to make up for losses suffered by these family farms due to the pandemic and together with the positive adjustments to the Dairy Margin Coverage Program will be good news for farmers go into the fall,” Leahy said.

Payments under the new program will be routed to producers through agreements between USDA and independent handlers and cooperatives. The handlers and co-ops will be reimbursed for administrative costs but must distribute the money to producers within 30 days of getting it from USDA. 

The formula modification, which was the result of an agreement between NMPF and the International Dairy Foods Association, set the price for fluid milk at 74 cents per hundredweight over an average of the prices for Class III (milk sold for cheese) and Class IV (butter and milk powder).

Under the old system, the price for fluid milk was set as a premium over the price paid for either Class III or Class IV, whichever was higher. The change was intended to eliminate price spikes and provide companies buying fluid milk with more predictability. The 74-cent premium was based on the historic average of what producers had been receiving for fluid milk over the cheese and butter prices.

The industry has been divided over further possible changes to the pricing rules.

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