WASHINGTON, Aug. 31, 2016 - It was never a sure thing that the Margin Protection Program, or MPP, was going to be an effective safety net and insurance program for the nation’s dairy farmers.
“I’m confident that the MPP is the right dairy program for the future,” said Randy Mooney, chairman of the National Milk Producers Federation, during a congressional hearing earlier this summer. The program offers dairy farmers the ability to purchase insurance-type coverage against poor margins caused either by low milk prices or high feed costs. “But the program is not completely fulfilling its intended objective as an effective safety net. For many farmers, the MPP is simply not enough to protect them in this economic environment.”
Mooney explained that when the Farm Bill was written, the MPP formula for calculating feed costs was altered, which understated the true cost of feeding a dairy herd. While the feed cost element was diminished, the farmer cost of insurance premiums was not reduced. The MPP “has been less effective as a result,” Mooney said.
“In 2015, many farmers saw that the MPP didn’t pay out much, even at the highest levels of coverage. So in 2016 they opted for the least expensive – and minimal – level of coverage available. Had Congress not reduced the feed ration, more farmers would have seen benefits in 2015 and participated at higher levels this year,” he said.
Now, in preparation for the next farm bill, dairy farmers and farm groups are calling for changes. The push comes after USDA was forced to recognize that the dairy industry is suffering and earlier this month agreed to buy up $20 million worth of cheese from the domestic market in an effort to reduce supplies and boost prices for farmers.
The National Farmers Union has already formed a committee to begin the process of building a better safety net for the 2018 farm bill. That panel met for the first time with USDA officials last week, and members say meetings with lawmakers will begin soon.
“If adequate support for dairy farmers is not provided, it will force thousands of family farms out of business,” NFU President Roger Johnson said in a recent statement. “NFU is proud to give the nation’s dairy farmers a platform to advocate for a stronger safety net for the dairy industry.”
Mary Castonguay, a dairy farmer with 80 cows in Livermore, Maine, signed up for the MPP but said she was disappointed that the program did not pay out even though her operation has been hurt by low market prices and slim profit margins. “Things are just really tight right now in the dairy industry,” she said.
Castonguay is far from the only farmer to sign up for MPP coverage and not see any return. In fact, she was in the majority. Of the 25,663 farmers who enrolled in the program, only 4,852 – or about 19 percent – have received payments this year, according to calculations from USDA data.
The MPP paid out $11.2 million in August, but that money only went to farmers who paid extra premiums for higher coverage. The base entry level only pays out if average margins drop under $4 for two consecutive months. There is no premium for that level of coverage, but that trigger can be raised to as much as $8, so long as the farmer is willing to pay premiums.
When USDA announced the $11.2 million payout, it also put the margin at about $5.76. That meant that only farmers who paid the extra premiums to set their trigger levels at $6 or more would receive payments. There were 20,811 farmers with MPP policies below the $6 margin level and they received nothing.
But it was worse in 2015, Johnson said: “In 2015, U.S. dairy producers paid $73 million into MPP-Dairy and only received $700,000 back from the program.”
So the MPP has to be changed or replaced, Wisconsin Farmers Union President Darin Von Ruden told Agri-Pulse in an interview.
One of the biggest items under consideration will be the way in which USDA calculates feed costs when it sets the average margin. While some farmers are seeing costs go way up because of drought, others are seeing feed prices drop because of good weather, Von Ruden said. “To use the national average, the guys who are hurting because of weather conditions are not going to recoup their costs to put feed in front of their animals,” he said.
Von Ruden, who is also a dairy farmer and a member of the NFU committee, said there are a lot of problems with the program, but at the core it needs to be more like the federal crop insurance program that provides meaningful premium subsidies.
The main subsidy for MPP is coverage at the $4 level and that, Von Ruden said, is not likely to ever pay off. That’s the reason that he and other dairy farmers are considering a proposal to lawmakers that administration of the MPP be taken away from the Farm Service Agency and switched over to the Risk Management Agency (RMA).
A switch to the RMA is also something that a committee set up by the American Farm Bureau Federation is considering, along with a proposal for a regional calculation for feed costs, said John Newton, AFBF’s director of market intelligence. The panel, made up of state members, is still in the “intelligence gathering” phase when it comes to looking at changes needed for the MPP, Newton said.
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