PDF _ IB97011 - Dairy Policy Issues
26-May-2005; Ralph M. Chite; 13 p.

Update: July 15, 2005


On April 29, 2005, Congress completed action on the FY2006 budget resolution (H.Con.Res. 95). The adopted measure contains reconciliation instructions to the House and Senate Agriculture Committees requiring them to report legislation this year to reduce spending on mandatory USDA programs under their jurisdiction by a total of $3 billion over five years (FY2006-FY2010). Of interest to the dairy sector is how possible reconciliation action might affect two federal dairy programs ? the dairy price support program and the Milk Income Loss Contract (MILC) program. Authority for the MILC program is scheduled to expire after September 30, 2005. A two-year extension of the program might be considered by the agriculture committees in the context of budget reconciliation legislation. The two-year, CBO-estimated cost of MILC program extension is $1.3 billion, which would have to be offset with additional USDA spending reductions beyond the $3 billion required by the budget resolution. The Administration supports MILC extension, but has also proposed a change to the dairy price support program that would reduce federal spending on surplus dairy product purchases.

Previous releases:















Abstract: Several dairy issues that were debated

during the 108th Congress are expected to

continue as issues of interest in the 109th

Congress. Separate bills were introduced in

the 108th Congress to extend authority for both

the Milk Income Loss Contract (MILC) Progra

and the dairy forward pricing pilot

program, and to address dairy producer concerns

about the importation of milk protein

concentrates. However, no final action was

taken on any of these measures.

Under the 2002 farm bill-authorized

MILC program, eligible dairy farmers can

receive a direct government payment when the

farm price of milk used for fluid consumption

in Boston falls below a target price. For the

first two years of the program, farm milk

prices were sufficiently low that payments

were triggered in each of the first 21 months.

For the last four months of 2003 and for May

2004-January 2005, market prices rebounded

so that direct payments were not required.

Unsuccessful attempts were made in the

FY2005 appropriations process to extend the

MILC program for two years beyond its

statutory expiration date of September 30,

2005. The MILC program is supported by

small to mid-sized dairy farms. Some groups

would like to see the payment limit raised to

benefit larger dairy operations, while others

support legislation to allow regions to establish

farm milk prices above the federal minimum


A temporary pilot program that allows

processors to enter into forward price contracts

with individual dairy farmers or their

cooperatives for certain uses of milk expired

December 31, 2004. A forward price contract

allows buyers and sellers of a commodity to

negotiate a price for the commodity on a

future delivery date and insulates both parties

from price volatility. Identical bills (H.R.

3308, S. 2565) were introduced in the 108th

Congress to convert the pilot program to a

permanent one, but no action was taken on

program extension. The program is supported

by dairy processors, but opposed by the largest

organization of dairy cooperatives, which is

concerned that the program might undermine

federal minimum pricing requirements.

Many dairy farmer groups are also concerned

that imports of milk protein concentrates

(MPCs) are displacing domestic dairy

ingredients and thus depressing farm milk

prices. Identical bills in the 108th Congress

(H.R. 1160 and S. 560) would have imposed

tariff rate quotas on certain MPCs. Dairy

processor groups are opposed to these bills. A

recent study by the International Trade

Commission concluded that most of the impact

of milk protein product imports was

absorbed by the taxpayer through additional

government purchases of surplus nonfat dry

milk, but that farm-level prices were not

significantly affected. A separate bill in the

108th Congress (H.R. 4223) would have provided

a subsidy to domestic producers of MPCs.

Proponents say the subsidy would be offset by

the reduced need for government purchases of

surplus nonfat dry milk, while opponents are

concerned that such a program could be challenged

within the World Trade Organization. [read report]

Topics: Agriculture, Risk & Reform

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