Commodity Cuts

President’s budget proposal ‘misses opportunity’ to improve dairy programs.
The Bush administration’s proposed fiscal year 2008 budget released last month failed to make wise investments in dairy programs, according to Washington, D.C.-based International Dairy Foods Association (IDFA).
For nearly every commodity program except dairy, the administration’s budget and recently released farm bill proposal increased funding and took bold steps to modernize commodity programs to make them more trade compliant and less market distorting. In contrast, the proposed spending on dairy simply maintains funding for the Dairy Price Support Program, the Milk Income Loss Contract (MILC) program and the Dairy Export Incentive Program (DEIP) instead of including similar forward-looking reforms.
“This budget does not move dairy policy forward in any meaningful way,” says Connie Tipton, IDFA president and chief executive officer. “The administration has missed two opportunities to construct a better dairy safety net in its farm bill proposal and budget. As a result, dairy producers and processors will continue to be saddled with outdated and ineffective programs.”
The administration’s budget continues funding for the Dairy Price Support Program and a reduced MILC program, even though the U.S. Department of Agriculture (USDA) reported that these programs conflict in the marketplace and have negligible impact on farm revenue. In addition, the USDA’s inspector general recently reported mishandling of government dairy products under the price support program, which disrupted commercial markets. The International Trade Commission found that the price support program stifles the development of innovative, higher-valued products, even though they are in demand.
“Over five decades of new technologies, transportation efficiencies and global trading prospects have greatly improved opportunities for today’s dairy industry,” Tipton says. “However, the government still thinks it needs to manage this modern industry’s surplus inventory with the Dairy Price Support Program.”
The budget and farm bill proposals would extend the MILC program with changes that significantly reduce the cost of the program. Under USDA’s proposal, payments would still be triggered by an arbitrary fluid milk price in Boston, but the payment rate would be phased down from 34 percent to 20 percent over five years. It would keep the current payment limit on 2.4 million pounds of milk, but also limit payments to 85 percent of the volume of milk sold on a dairy farm in the previous three years. New income eligibility requirements would also apply to MILC, and an overall payment limit that would restrict payments that producers can receive from multiple farm operations.
These changes would reduce MILC payments from $672 million, the average annual cost under the 2002 Farm Bill, down to an estimated $79 million annually. It remains to be seen whether Congress will support an extension of MILC or even allow the program funding to be continued.
IDFA says it’s committed to working with congressional leaders to establish a stronger dairy farmer safety net. A more effective program, IDFA proposes, would include direct payments to farmers, be available year-round to fund sustainable production practices and would not be tied to prices or production. IDFA also recommends better risk-management tools for dairy farmers, including allowing all buyers and sellers of milk to use forward contracting.
IDFA says it looks forward to working with Congress as it begins writing the new farm bill, and soon will announce its recommended “blueprint” for the 2007 Farm Bill.