The Hagstrom Report

Agriculture News As It Happens

Peterson: Dairy reform bill will save $131 million


House Agriculture Committee ranking member Collin Peterson, D-Minn., and Rep. Mike Simpson, R-Idaho, today introduced a dairy reform bill which Peterson said would produce $131 million in federal budget savings over 10 years.

The current baseline for the dairy program is $672 million over 10 years, Peterson said in a news conference. The prospect of savings led National Milk Producers Federation President Jerry Kozak, who developed the proposal, to say Thursday that he hopes the super committee in charge of deficit reduction will include the dairy bill in its legislation. The bill is based on National Milk’s “Foundation for the Future” proposal, but contains revisions to that program that Kozak announced Wednesday.

Peterson would make no prediction on whether Congress would take up the measure this year or wait until next year. He did say that he and his staff are working to be ready for the writing of a farm bill if it has to take place on short notice as part of the congressional super committee’s effort to reduce the deficit. The 2008 farm bill expires Sept. 30, 2012.

“We are doing some homework in case that eventuality comes up,” Peterson said of the possibility the bill make be written in the deficit reduction process. “We have no idea how this is going to work,” he added.

Peterson said he has discussed the proposal with Senate Agriculture Committee Chairman Debbie Stabenow, D-Mich., and Sen. Patrick Leahy, D-Vt., who is always a key force on dairy policy, but that the Senate is not yet ready to move on dairy policy.

Peterson said he is open to further changes based on other members’ concerns because he wants to get the measure passed before there is a crisis in the dairy industry like the one the one in 2009, when exports dropped due to the financial crisis and the unpopularity of dairy products in China after melamine was discovered in some Chinese dairy products. At the same time, feed prices went up.

Some analysts have pointed out that the dairy industry is cyclical and could experience another crisis in 2012.

“If we have another crisis like we had in 2009, when milk prices dropped and input costs skyrocketed, I fear we could lose half our dairies,” Peterson said. The dairy safety net did not work then and it won’t work if similar events occur now, he said, noting that producers cannot wait for another crisis or a new farm bill for Congress to fix the broken dairy safety net.

“Feedback from all sectors of the diverse dairy industry has been instrumental in drafting this bill and I look forward to continuing these conversations, as well as working with other members of Congress to advance dairy reform,” Peterson said.

Simpson, who has big dairies in his district, said, “I am confident that the Dairy Security Act of 2011 will provide an effective economic safety net for the U.S. dairy industry while saving taxpayer dollars.”

Peterson signaled today that he has lost patience with the International Dairy Foods Association, the processors group which said Thursday it would oppose the measure on the grounds that it would create a supply management system that would raise prices to its members.

Peterson said IDFA members are “protected by the make allowance,” a provision in the current program, and “guaranteed a profit by the government.” The proposal, Peterson said, makes the dairy program more market-oriented, which has been an IDFA goal for years.

“They’re coming up with other kinds of bogeymen,” Peterson said, adding that he does not have a lot of sympathy for “nonsense.”

The revised proposal makes participation in the dairy market stabilization program voluntary, but Peterson said he still thinks most producers will participate because their lenders will insist on it. A voluntary National Milk program to cull cows resulted in a 70 percent participation, he noted, adding that he expects that level of participation or higher in the new dairy program.

Peterson also warned dairy farmer groups that have criticized National Milk’s proposal that they should find a way to work with this bill or find themselves in a situation with a crisis and no protection. The bill would end the milk income loss contract program, which some producers and members of Congress have vowed to keep, but Peterson noted that benefits under the MILC program are scheduled to go down already.

“I’ve told groups that are holding out that they are playing with fire here,” Peterson said. “If they screw this thing up, keep this from happening, they own their own.”

“It is very easy to make something not happen in this Congress,” he added. Recalling that the pork industry got into trouble in 1999 and got a bailout, Peterson said, “Back then there was money to do something. Right now we’re broke. I guarantee there will be no help from Congress if the dairy industry gets into trouble. We can’t even pass a FEMA bill.”

Peterson summary of the Dairy Security bill

The Dairy Security Act of 2011 consists of three main components – a Dairy Producer Margin Protection Program, a Dairy Market Stabilization Program and reforms to the Federal Milk Marketing Order system.

Changes to the previously released discussion draft include:
  • Participation in the stabilization program is optional. Only dairy producers that elect to participate in the margin protection program will automatically be enrolled in the stabilization program.
  • The basic margin program payment rate is increased to 80 percent.
  • Funds collected when the stabilization program is in effect would be remitted to the Commodity Credit Corporation, which would then make all of the funds available to the stabilization program board.
  • The proposed reforms to the Federal Milk Marketing Order system have been redrafted to direct the Secretary of Agriculture to amend the system through a hearing process. The language specifies the areas that the Secretary is to amend, and requires the Secretary to conduct a referendum of the proposed amendments before they can take effect.
  • The Dairy Export Incentive Program is repealed.
  • Annual administrative fees will be required for all basic margin protection program participants – $100 for producers marketing less than 10 million pounds of milk; $400 for producers marketing between 10 million and 40 million pounds of milk; and $1000 for producers marketing more than 40 million pounds of milk.
  • The Dairy Security Act of 2011