Impact of Agriculture Reform, Food and Jobs Act of 2012 on Dairy Farmers

The National Law Review recently published an article regarding Agriculture Reform written by Kristiana M. Coutu of Varnum LLP:

Varnum LLP

This summer, the U.S. Senate voted to proceed to consideration of theAgriculture Reform, Food and Jobs Act of 2012 (2012 Farm Bill). The proposed bill can be accessed on the Senate Agriculture Committee’s website, however, be warned, it will take time and perseverance to wade through the 1010 pages of text.  While a complete study of the 2012 Farm Bill may be fascinating for some of us, the practical concern is how it will affect specific industries within agriculture and individual farms. Because Michigan dairy farms are a vital component of our state’s economy, it seems appropriate to consider how this proposed legislation will affect dairy farmers.

Two new programs will replace the current Dairy Product Price Support Payment and the Milk Income Loss Contract Program (MILC).  The new programs are the Dairy Production Margin Protection Program (“Margin Protection Program”) and the Dairy Market Stabilization Program (“Stabilization Program”) which have the stated purpose of guaranteeing dairy farmers a certain margin of milk price over feed costs and assisting in balancing the supply of milk with demand when participating dairy farms are experiencing low or negative operating margins by encouraging dairy farmers to produce less milk.  The two programs must be looked at together since any dairy operation that participates in the voluntary Margin Production Program must also participate in the Stabilization Program.

In its most basic terms, the Margin Protection Program insures farmers a minimum $4.00 margin of average national milk price, termed the “all milk price” over the national average feed price based on the price of corn, soybean meal and alfalfa.   A margin of less than $4.00 for two consecutive months triggers a government payment based 80% of historical milk production. Dairy farmers may also purchase supplemental margin protection to insure up to an $8.00 margin on 90% of historical production.  Although these programs are sometimes referred to as insurance, they are not associated with the federal crop insurance program and no insurance agents are involved.

The Stabilization Program encourages farmers to produce less milk by ordering handlers not to pay farmers for a percentage of milk shipped during any month the Stabilization Program is “in effect” based on low national margins.   Handlers must reduce the producer’s milk check when milk shipped exceeds what is called the “dairy operation’s stabilization base.”  The money that would have gone to the producer is instead paid to the Secretary of Agriculture to use for building demand for dairy products and purchasing dairy products for donation.

These new programs provide a good deal of food for thought, including questions about the effectiveness in various geographic regions of the U.S., considering the difference in milk price and input costs; the effect on various farms based on size; and whether forcing handlers to submit milk proceeds to the government is essentially a tax on dairy farmers.  Dairy farmers should evaluate these programs in light of their individual farm’s circumstances to determine the impact should these programs be included in the final Farm Bill.

It is estimated that debate on the Senate floor will be ongoing for at least the next two weeks and that several amendments to the bill will be proposed and debated.  We will continue to monitor the progress of the Farm Bill in general and also specific dairy provisions.

© 2012 Varnum LLP

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