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.
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