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10 CapitalPress.com April 21, 2017 Dairymen paid $95.7M into program, received only $12.2M in indemnity payments USDA’s dairy MPP premium schedule MPP from Page 1 in the dairy industry — par- ticularly the National Milk Producers Federation, which originally developed the pro- gram when the current farm bill was written. All told, dairymen paid almost $95.7 million into the program in 2015 and 2016 and received only $12.2 mil- lion in indemnity payments — despite depressed milk prices well below the cost of production. Contente purchased buy- up coverage in 2015 to insure a $7.50 margin on 4 million pounds of milk, which rep- resents a little more than two months of his production. Premiums to cover produc- tion above 4 million pounds are significantly higher, mak- ing it unaffordable to cover a higher margin on more of his milk, he said. His milk price sank to a low of $12.60 per hundred- weight. in May of that year, while his cost of production was about $17. But USDA computed a na- tional margin that was higher than $7.50 all year, and he didn’t receive one cent from the insurance program. “It should have triggered some kind of a safety net. I put several thousand dollars in the program and got no benefit,” he said. The following year, he didn’t buy any additional coverage — and he wasn’t alone. The program’s perfor- mance “soured a lot of peo- ple,” he said. Producers who signed up are locked into the program for the life of the farm bill. But the majority of them are now just paying the required $100 annual fee, shrugging their shoulders and forgetting about it because they believe they won’t get anything out of it, he said. Coverage falters The program is “certain- ly not up to expectations,” said John Newton, director of market intelligence for the American Farm Bureau Fed- eration. In 2015, about half of U.S. dairy farmers signed up, rep- resenting about 80 percent of U.S. milk production, and 56 percent purchased buy- up coverage, he said. Pro- (Administrative fee of $100 per operation; dollars per hundred- weight of milk.) Margin Tier 1* Tier 2** coverage (2016-18) (2014-18) $4.00 None None 4.50 0.010 0.020 5.00 0.025 0.040 5.50 0.040 0.100 6.00 0.055 0.155 6.50 0.090 0.290 7.00 0.217 0.830 7.50 0.300 1.060 8.00 0.475 1.360 Carol Ryan Dumas/Capital Press Rick Onaindia, CFO of Bettencourt Dairy, talks about why buy-up coverage through the Margin Protection Program didn’t pencil out for the operation. ducers paid $73 million in premiums and fees. When milk prices col- lapsed, USDA calculated that margins only fell below in- sured levels at the highest cov- erage of $8 per hundredweight. The program paid a total of $727,000 to the 264 producers who had elected that level of coverage. The other dairy op- erations received nothing. Producers who signed up are locked in but can make an- nual changes to their level of coverage. The program’s poor performance had many back- ing away from higher cover- age and instead opting to par- ticipate only at the $4 margin level, he said. “They voted with their feet,” Newton said. By last year, only 23 per- cent of participating farms paid for buy-up coverage, representing 12 percent of in- sured milk production. “While producers can’t walk away, they weren’t ac- tively participating above the catastrophic level,” he said. Milk prices fell further in 2016, but USDA’s pro- gram margins fell below $8 in only two periods — $7.14 in March-April and $5.76 in May-June. The program paid out only about $11.5 million after taking in $22.8 million in premiums and fees. “Performance again was well below expectations, and producers rolled back cover- age,” he said. For 2017, only 8 percent of participating producers bought buy-up coverage on only 2 percent of the insured milk. “People look at premiums paid in and dollars paid out as a measuring stick,” Newton said. Nonetheless, “I think it’s working exactly how Con- gress designed it to work, it just hasn’t delivered program payments. It can definitely be improved,” he said. Origin and outcome In 2009, dairymen faced crippling losses that revealed a gaping hole in the USDA safety net. Mending that hole with antiquated dairy policy developed in simpler times was not a viable option. The dairy safety net in- cluded the Dairy Price Sup- port Program, which indirect- ly supported minimum milk prices through government purchases of dairy products such as cheese and milk pow- der. It also included Milk Income Loss Contract pay- ments, which paid 45 percent of the difference between a set price for fluid milk — called Class I — in Boston and the actual market price on a limit- ed amount of production. Both proved woefully in- adequate in the 2009 devas- tation, which saw dairymen burning through equity to borrow money to try to stay in business. The National Milk Pro- ducers Federation set about to develop a 21st century risk-management tool that would be more flexible, com- prehensive and equitable than *Covered production history less than 4 million pounds. **Covered production history more than 4 million pounds. Source: USDA Farm Service Agency any previous federal program. The result was the Mar- gin Protection Program, but significant changes to the program during congressio- nal deliberations on the 2014 Farm Bill rendered it inef- fective, according to NMPF leaders. As originally designed, the MPP program “would work fine for us right now,” said Jim Mulhern, NMPF presi- dent and CEO. The problem is the chang- es made by Congress — prin- cipally the feed cost calcula- tion in the margin formula, which was reduced by 10 per- cent, he said. The resulting formula un- derestimates true feed costs by about $1 per hundred- weight. That might not seem like a lot, but it is, he said. “That’s the major fix we have proposed for the pro- gram going forward,” he said. Changes to NMPF’s orig- inal proposal were based on Congressional Budget Office cost projections, which turned out to be inaccurate, he said. CBO’s numbers continue to be dramatically off base, said John Hollay, NMPF vice president of government af- fairs. The original scoring was that the program would cost about $1 billion over 10 years and could be too expensive in some years. That led to the reduction in the feed calcula- tion, he said. “But what we’ve seen is the exact opposite,” with the government making money on the program, he said. Going forward, CBO is acting under the same as- sumptions, projecting signifi- cant government outlays. “Obviously there is some confusion at CBO on what it actually costs,” he said. While CBO scoring will challenge changes to the program, it won’t preclude NMPF from trying to get the policy right first and working on the budget issues after a policy is in place for a funda- mentally sound safety net, he said. NMPF is recommending other changes as well, includ- ing using more precise data to calculate feed costs, lowering premiums, greater sign-up flexibility and expanding the use of other risk-management tools in conjunction with MPP. “The real point of all these changes is that together they will provide the safety net en- visioned when MPP was first formulated,” Mulhern said. Another route Rick Onaindia, CFO of Bettencourt Dairy in Wendell, Idaho, said he doesn’t see why dairymen wouldn’t sign up at the catastrophic $4 level and pay the $100 fee. By any- one’s calculations, he said, it would pay off in a disastrous year like 2009. But most dairymen he knows didn’t see a benefit in purchasing additional cover- age, and he can’t think of any- one who did, he said. He went back and com- pared historical national milk prices and feed costs with Bet- tencourt’s numbers, and the program just didn’t pencil out for the operation. “The correlation was real- ly poor, under 60 percent,” he said. The income-over-feed mar- gin is so different around the country that using a national average is probably an inherent problem in the program, he said. Besides, the average dairy- man today has plenty of ability to hedge his feed cost and milk price, and most in Idaho — who haven’t operated under a federal milk marketing order in quite some time — are active in hedging income over feed, he said. “I don’t know anybody that hasn’t got a variety of options at minimal cost,” he said. Dairymen can lock in their feed prices with grain brokers for an extended period, and milk processors offer a wide variety of options to mitigate revenue risks, such as forward contracting. In addition, pro- ducers can work with broker- age firms, such as Rice Dairy or FCStone, to hedge their risks through futures trading. “Most dairymen will look at those opportunities rather than paying for buy-up coverage for a $6 or $7 margin. So you get to the same place arguably eas- ier,” he said. NMPF’s recommendation to change the feed calculation in MPP is a step in the right di- rection, but it still won’t be ade- quate, Contente, the California dairyman, said. At this point, most dairy- men have no trust or faith in the program, he said. “I think we chose to go down the wrong path in the last farm bill,” he said. Supply management was stripped out of the original proposal, the calculations and triggers were tweaked and the budget baseline for dairy was reduced to a ridiculously low level, he said. “We wound up with a pro- gram that leaves us with no safety net,” he said. In addition, there are a lot of issues with the milk-pricing system, he said. “I don’t have too much faith in National Milk coming up with some strong policy for a safety net,” he said. The organization pushed MPP, saying it was going to be “the cat’s meow, a new safety net better than before … but in the end, we wound up with basically nothing out of it,” he said. Mulhern said he under- stands producers’ frustration. “There is no question the producers have diminished confidence in MPP because of the way the program has per- formed the last two years,” he said. But the program in its orig- inal form would have been ef- fective, and restoring key pro- visions that Congress removed is the goal. “Once people see the changes and how the program operates under the changes, I have no doubt that they’ll see it is the effective safety net pro- gram that our industry needs,” he said. No growers in Oregon have taken advantage of mediation program to resolve GMO disputes GMO from Page 1 While supporters of SB 1037 said they face market shutdowns from the presence of biotech traits in their seeds, opponents of the bill said very few organic growers report- ed crop loss from GMOs to USDA. No growers in Oregon have taken advantage of a mediation program overseen by USDA to resolve GMO disputes, said Barry Bushue, president of the Oregon Farm Bureau, which opposed the bill. The right to self-determi- nation among local govern- ments versus the efficiency of statewide agricultural rules was also debated during a leg- islative hearing. “We’re asking for flexi- bility in Oregon,” said Mary Middleton, director of Or- egonians for Safe Farms and Families, a group that supported a ballot initiative banning GMOs in Josephine County. While voters in Josephine County voted in favor of the GMO ban in 2014, a state judge has ruled the ordinance is pre-empted by state law. Middleton urged the com- mittee members to “honor the will of the people” by pass- ing SB 1037, which would retroactively make Josephine County’s ordinance effective. Proponents of SB 1037 ar- gued that lawmakers passed the statewide pre-emption on local seed rules with the understanding that Oregon regulators would step into the breach, but that hasn’t mate- rialized. “Our farms remain at risk of contamination because the state has not put any protec- tions in place,” said Carol Valentine, a Josephine County resident. The Association of Oregon Counties opposed SB 1037 because genetic engineering is a complex issue best left to the state government, said Mike McArthur, the group’s executive director. “This is not the proper role for a county government to be engaged in,” he said. Lawmakers created an ex- ception to the 2013 pre-emp- tion bill for Jackson County, which already had a GMO ban proposal on its ballot at that point. McArthur said the gov- ernment of Jackson County is nonetheless not enforcing the GMO ban due to a lack of re- sources. Craig Pope, a Polk County commissioner, said he sympa- thizes with the organic farm- ing community but said coun- ty governments need to focus on public safety and other key services. “Continuing to hammer at pre-emption is not going to solve this problem,” Pope said. The economic threat of cross-pollination among or- ganic, conventional and GMO crops was also debated at the April 12 hearing. Buyers of organic seed have no tolerance for traces of biotech traits, so the risk posed by GMO crops is a one- way street that can only dam- age organic growers, said Don Tipping, an organic producer in Southern Oregon. “For us, this is an econom- ic issue,” he said. Helle Ruddenklau, a seed grower in Polk County who opposed SB 1037, said the problem of cross-pollination isn’t limited to GMO crops, but farmers find ways to re- solve the issue. For example, if a neighbor is planting a related seed crop, Ruddenklau establishes a buf- fer strip to distance her crop from the pollen, she said. “That’s a financial burden for us, but it’s a cost of being a certified seed grower in Ore- gon,” she said. 16-2/#6