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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