UPDATED: June 17, 2013, 7:00 p.m.

Peggy Armstrong
parmstrong@idfa.org
(202) 220-3508

Supply Management Will Hurt Small Farms the Most

(Washington, D.C. – June 17, 2013) A new study by Cornell University professor Joshua Woodard shows that the proposed Farm Bill dairy program is expected to cost more than a bipartisan amendment that will be offered this week by Representatives Bob Goodlatte (R-VA) and David Scott (D-GA). The study, “2013 Farm Bill Dairy Title Proposal Redistributes Program Benefits toward States with Larger Farms,” also finds that the currently proposed Dairy Security Act is significantly weighted to benefit large farms.

“As did the Congressional Budget Office, Professor Woodard’s report finds that the Dairy Security Act is expected to cost taxpayers more than the alternative,” said Jerry Slominski, senior vice president of legislative affairs and economic policy for the International Dairy Foods Association. “The report also contradicts a previous study from the University of Missouri, which claimed the opposite.”

According to Woodard’s report, “In general, the government loss ratio [based on average forecasted payments] is significantly higher for the [Dairy Security Act] proposal than the Goodlatte-Scott proposal,” which is also known as the Dairy Freedom Act. The expected loss ratio is the ratio of expected payments divided by premiums, and thus it represents the multiple of losses the government expects to pay relative to premiums paid by producers. “For example, for $4.50 margin coverage, the expected loss ratio is 20.56 for DSA, versus only 6.71 for DFA.”

The study also refutes the argument that the Dairy Security Act will help small farms more than the Goodlatte-Scott proposal. The study is conducted with similar price forecasts under both programs and points out that it is questionable whether the supply controls will reduce national milk price risk relative to Goodlatte-Scott, particularly if producers in states dominated by smaller operations – such those in the Northeast – choose not to participate in the program.  In such a scenario, "the implication would be further government flows towards regions dominated by larger producers – many of which are in the process of contracting production growth – at the expense of consumers, taxpayers and regions dominated by smaller producers” under the Dairy Security Act.

Both the Dairy Security Act and the Goodlatte-Scott proposal will replace the current Milk Income Loss Contract (MILC) program with a new margin insurance program for producers. Under both alternatives, larger producers will be provided an improved and effective safety net to help them through difficult economic times. But only the Dairy Security Act adds a second program for dairy farmers that is intended to increase milk prices by imposing government limits on milk production.       

The Goodlatte-Scott amendment helps small farmers by requiring lower premium payments from smaller farms and higher premiums for larger producers than does the Dairy Security Act. In fact, more than 90 percent of all dairy farmers, those with fewer than 200 cows, will pay less for margin insurance under Goodlatte-Scott than the Dairy Security Act. 

The full report is available here.

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The International Dairy Foods Association (IDFA), Washington, DC, represents the nation's dairy manufacturing and marketing industries and their suppliers, with a membership of 550 companies within a $125-billion a year industry. IDFA is composed of three constituent organizations: the Milk Industry Foundation (MIF), the National Cheese Institute (NCI) and the International Ice Cream Association (IICA). IDFA's 220 dairy processing members run nearly 600 plant operations, and range from large multi-national organizations to single-plant companies. Together they represent more than 85% of the milk, cultured products, cheese and frozen desserts produced and marketed in the United States. IDFA can be found online at www.idfa.org.