Producer federation says USDA’s dairy program isn’t ‘friendly’

ARLINGTON, Va. – Contrary to the estimates from several other sources, the terms of the new dairy payment program, which began last week, will penalize dairy farmers to the cost of approximately $48 million in FY 2002, with most of the penalty falling on medium-sized farms, according to the National Milk Producers Federation.

The federation has asked the USDA to rethink the restrictions it is placing on payments for the current fiscal year before the implementing regulations are made final.

Producer friendly. “At a time of such low milk prices, and with the administration expressing concern about the state of our agricultural economy, we would hope that decisions of such magnitude would be made on a more producer-friendly basis,” said Jerry Kozak, president of the federation.

Under the new Milk Income Loss Contract program authorized by the 2002 Farm Bill, dairy producers can now sign up to receive monthly payments whenever the Class I price in Boston drops below $16.94 per hundredweight.

Producers will be paid 45 percent of the difference between that $16.94 target and the monthly Class I market price, on annual production up to 2.4 million pounds of milk.

Backing out? Because Congress made the new counter-cyclical program retroactive back to December 2001, producers are entitled to receive a transition payment for their milk production between last December and this August, up to the annual production ceiling.

Nevertheless, USDA has announced, through its instructions to the local Farm Service Agency offices handling the sign-ups for the new program, that those dairy farmers whose production exceeds 2.4 million pounds (approximately the production of a 120-cow herd) will not be able to choose the month in FY 2002 during which their eligibility will begin.

In other words, all producers electing to receive a transition payment will be paid starting last December, until their eligibility is exhausted once 2.4 million pounds of milk have been produced.

Defeating the purpose. The National Milk Producers Federation thinks the USDA’s decision not to allow medium-sized producers a choice on the transition payment “defeats the purpose of having a counter-cyclical payment program, and penalizes the same mid-sized farmers that Congress was trying to help with the new payment program,” according to Kozak.

“We are urging the USDA to revisit a decision that will cost dairy farmers millions of dollars in lost revenue,” Kozak said.

Farms with herd sizes between 150-800 cows will be the most affected and the impact will be felt most severely at the state level on mid-sized farms in California, Idaho, Michigan, Minnesota, Wisconsin, New York, Ohio, Pennsylvania, Texas, Oregon, Utah, Vermont, Virginia and Washington.

Reason for concern. Part of the reason for the federation’s concern is that payment rates for the early months of the transition period, from December 2001 through February 2002, averaged 78 cents per hundredweight.

Payment rates this summer, however, are nearly twice as high, averaging nearly $1.40 per hundredweight in July through September. Thus, farmers who reached the 2.4 million pound cap by the end of February 2002 will receive almost 50 percent less than if USDA had given them the discretion to choose when their payments were to start for the transition period.

Farmers will have the ability in future fiscal years to decide when they wish to begin receiving payments, either at the start of each fiscal year (October), or in subsequent months when payments might be higher.

But once a decision is made to begin receiving payments, those payments will be made in consecutive months until the 2.4-million-pound ceiling is reached.

Benefits. The terms of the Milk Income Loss Contract program states that farmers can elect to forgo their retroactive transition payment for FY 2002, and that those who do will still be paid on production in September 2002, when the payment rate will be approximately $1.44 per hundredweight.

But that only benefits much larger farmers, with herd sizes above 700 cows, whose eligibility will be exhausted in one or two months’ time. Even if they are paid for only one month, they will benefit from being paid September’s much higher payment rate, than if they elect to be paid a transition payment starting with December’s much lower rate of 77 cents per hundredweight.

The federation has asked that USDA to either allow producers the choice of months during which they receive the payment or give producers the transition period’s average payment of approximately $1.08 per hundredweight on their production limit of 2.4 million pounds.

Avoidable. Kozak said the inequities resulting from USDA’s decision were “not only unacceptable, but completely avoidable.”

“We are hopeful that the transition payment issues can still be reconsidered before the implementing regulations are published,” he said.

Kozak stated that USDA’s handling of information about the program has also added to dairy producers’ frustration.

“In announcing the start of the program, Secretary Veneman’s initial press release led dairy farmers to believe that they would have the option of choosing the starting month for both the transition period payments and future payments,” Kozak said. “Since the department ultimately decided to reverse this announcement, the fact that thousands of producers are now upset should surprise no one.”