The Agriculture Department is taking new steps to shore up the dairy industry by putting $400 million into the distribution of surplus dairy products to needy families while also boosting payments to farmers under the Dairy Margin Coverage program.

The Dairy Donation Program, which is being funded from coronavirus relief funding that Congress authorized in December, builds on a program set up by the 2018 farm bill that was limited to fluid milk.

Dairy cooperatives and other processors that provide products to food banks and other services can get reimbursed for the cost of the milk and some of the manufacturing and transportation costs.

The expanded program not only extends beyond fluid milk to processed dairy products but also offers “significantly larger” cost reimbursement, Deputy Agriculture Secretary Jewel Bronaugh told reporters Wednesday.

Vince Hall, interim chief government relations officer at Feeding America, the national network of food banks, said the donation program “has the potential to connect millions of additional pounds of dairy donations through food banks to the people we serve.”

To directly aid milk producers, USDA next month will increase the feed cost factor that is used to calculate the size of monthly payments under the Dairy Margin Coverage program, Bronaugh said. The program triggers payments when the difference between the price of milk and feed costs falls below the coverage level chosen by producers.

USDA is going to recalculate the feed cost factor based on the price of premium alfalfa hay rather than the cost of regular hay. That modification “will allow the DMC payments to more likely trigger and increase expected payments to producers,” Bronaugh said.

The change will be retroactive to 2020, so producers who have been enrolled in DMC will get bonus payments to reflect the higher feed cost calculation.

The change also has a long-term benefit to dairy producers: By boosting the cost of the program, the department is effectively increasing the amount of money available to write the next farm bill by $800 million over 10 years. The amount of money available for writing a farm bill is based on the cost of existing programs; the 2018 farm bill expires in 2023.

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The planned enhancement of DMC, also authorized by Congress in December, follows USDA's announcement last week that it would provide nearly $350 million in payments to 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.

Senate Agriculture Chairwoman Debbie Stabenow, D-Mich., told reporters on a conference call with Bronaugh that the expanded dairy donation program is still necessary even though milk consumption is expected to rebound as schools reopen.

There is "an unevenness in terms of need across the country … even as we look at children going back into schools,” Stabenow said. 

USDA's Agricultural Marketing Service will be seeking public input on the potential market impact of the donation program.

The agency said in an interim final rule posted Wednesday that it considered several methods of distributing the donation program funding around the country including targeting the program to regions most in need of the products. 

"Ultimately, AMS determined that because the program’s primary purpose is to reduce waste associated with the disposition of surplus milk, the industry would be best served by allowing those with the capacity to process surplus milk and who are in a position to make donations to apply for the program without consideration of geographic location."

The funding for dairy donations is temporary, so it will not affect the farm bill baseline, according to the department. 

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