DairyLine Broadcast: Innovative Ideas Emerge for Improved Dairy Safety Net

As the 2007 Farm Bill debate moves into second gear, new ideas are emerging to replace the Dairy Price Support Program and the Milk Income Loss Contract (MILC) program with a more effective dairy safety net.

One of the most comprehensive was offered recently by the Pennsylvania Department of Agriculture.

In its proposal, the Pennsylvania Department of Agriculture is urging Congress to eliminate the Dairy Price Support Program, restructure the MILC program and develop a milk revenue insurance program to help farmers create their own revenue protection.

This is significant because Pennsylvania is a leading dairy state — ranking fifth in milk production with nearly 14% of all U.S. dairy herds. Pennsylvania farmers also received $213 million in MILC payments through November 2006, ranking them third behind farmers in Wisconsin and New York.

Let's look at the details. Pennsylvania's proposed MILC-replacement, called a "Milk Target Price Program," would make payments to all dairy farmers whenever the Class III price falls below a determined target level. Unlike MILC, which pays on only 34% of the milk produced by a farmer, Pennsylvania's program would pay on 100% of the difference between the target price and a lower market price. This approach would establish a better price floor than the price support program and provide more income security than the MILC payment.

Pennsylvania's revenue insurance program would provide farmers with income protection against milk revenue losses from natural disasters and price fluctuations. It would enable dairy producers to purchase insurance based upon the five-year adjusted average milk revenue per cow. This will help producers reduce downside risks and improve their ability to make long-term business investment with greater certainty.

Pennsylvania also calls for the re-establishment of the Dairy Options Pilot Program and the Dairy Forward Contracting Pilot Program, so all producers can have even more access to risk management tools.

These new ideas deserve our attention. They move dairy policy forward and are more responsive to the needs of today's dairy producers and processors. We hope Congress will look at them when it looks at the Farm Bill.

DairyLine is heard on more than 90 radio stations, and Kunde provides listeners with a processor perspective on industry issues during his broadcasts twice a month.

Posted March 19, 2007