PDF _ RL33475 - Dairy Policy Issues
16-Jun-2006; Ralph M. Chite; 16 p.

Update: August 28, 2006

The House-reported version of the FY2007 agriculture appropriations bill (H.R. 5384) contained a provision that would have extended government payments to dairy farmers under the Milk Income Loss Contract (MILC) program for one additional month, through September 30, 2007. On May 23, 2006, the provision was deleted from the bill on the House floor on a point of order that it constituted legislating in an appropriations bill. Proponents of deficit reduction were opposed to the onemonth extension of MILC payments because it would have allowed new spending in the next farm bill that was not previously authorized. The MILC program provides direct payments to participating dairy farmers when the market price of farm milk falls below a legislatively determined target price.

On April 11, 2006, the President signed into law a measure (P.L. 109-215, S. 2120) requiring the regulation of a certain large dairy operation in the West that was previously exempt from paying federally mandated minimum farm milk prices. Meanwhile, USDA issued a final regulation effective April 1, 2006, that requires this dairy operation and all other large producer-handlers (fluid milk handlers who produce and process their own milk) in the West to become regulated under federal milk marketing orders. The new USDA regulation is being challenged in the courts.

Abstract: Several dairy issues have been or are being considered by the 109th Congress, affecting the three major federal dairy policy tools — the Milk Income Loss Contract (MILC) program, federal milk marketing orders, and the dairy price support program.

Under the MILC program, eligible dairy farmers receive a government payment when the farm price of milk used for fluid consumption falls below an established target price. A provision in the FY2006 budget reconciliation act (P.L. 109-171) extended MILC program authority for two years, through September 30, 2007. As a cost-saving measure, P.L. 109-171 prohibits any MILC payments for the last month of its extended authority (September 2007), which, under current budget rules, means that the program will have no baseline budget spending allocated to it beyond its expiration date. A provision in the House-reported version of the FY2007 agriculture appropriations bill (H.R. 5384) would have allowed payments in September 2007 and preserved the program’s budget baseline for the next farm bill debate in 2007. Because of its budget implications, the provision was deleted on the House floor.

Federal milk marketing orders regulate the farm price of milk for roughly twothirds of U.S. milk production by requiring processors to pay minimum prices for farm milk. On April 11, 2006, the President signed into law a measure (P.L. 109- 215) that addresses farm milk pricing issues relevant to the western United States. Under previous regulations, producer-handlers (i.e., fluid milk handlers who produce and process their own milk) were exempt from federal order price regulation. P.L. 109-215 requires a large producer-handler in Arizona to become regulated. The provision was supported by other milk producer and processor groups who contend that unregulated processors undercut the competition. The producer-handler argues that the provision is a tax being placed on its operations that will ultimately result in higher prices to consumers. Meanwhile, USDA has issued regulations that eliminate the exemption from federal order pricing for any producer-handler in the Southwest or Pacific Northwest who bottles more than 3 million pounds of milk per month. A Southwest producer-handler has challenged USDA’s new regulation in the courts.

Separately, the Administration’s FY2007 budget request contains three legislative proposals that would reduce net federal dairy expenditures by more than $1.2 billion over 10 years — (1) an assessment of 3 cents for every one hundred pounds of milk production, to be paid by all dairy farmers; (2) a 5% across-the-board reduction in government spending for all farm commodity support programs, which would apply to the MILC program; and (3) enhanced authorities for USDA to adjust federal purchase prices of surplus dairy commodities.

Dairy farmer groups are concerned that imports of milk protein concentrates (MPCs) are displacing domestic dairy ingredients and thus depressing farm milk prices. Bills have been introduced (H.R. 521 and S. 1417) to impose tariff rate quotas on certain MPCs. Dairy processor groups are opposed to this provision.

This report replaces CRS Issue Brief IB97011, Dairy Policy Issues, by Ralph M. Chite.

 [read report]

Topics: Agriculture, Legislative

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