0403H1-1422A
DMPP CONCERN: The Dairy Margin Protection Program doesn't directly protect milk price like previous programs, but instead protects the margin between milk price and feed cost. A concern raised by dairy producers is that the 2014 Farm Bill included a 10% cut in the feed cost formula relative to the dairy producers' original proposal.

Where do livestock producers fit in the farm bill discussion?

Policy Report: Livestock producers, especially dairy producers, are proponents of specific programs in the farm bill discussion. The biggest piece of farm bill legislation affecting livestock is the dairy program.

By Brad Lubben

The recent Senate Agriculture Committee hearing to consider the nomination of Sonny Perdue as secretary of agriculture served not so much as a public examination of the nominee as it did a platform to discuss a number of current ag issues, including the next farm bill. At the same time, both the Senate and House ag committees are underway with a slate of hearings on the next farm. Like the confirmation hearing, these committee hearings don't examine and resolve issues as much as they raise awareness and perspectives that will be a fundamental part of the debate and development of the next farm bill.

Previous columns have covered some of the issues, including commodity programs, crop insurance and conservation. One of the topics worth some attention is the unique role livestock and livestock programs and policies play in the farm bill. Livestock producers, particularly dairy producers, certainly champion specific programs in the farm bill, but their message often includes what they don't want in a farm bill.

Dairy policy a complex mix
The largest component of farm bill legislation affecting livestock is the long-standing dairy program. Dairy policy is an extremely complex mix of milk pricing, marketing orders and federal safety net programs. Even focusing on just the safety net involves a complex evolution of policy from price support and supply control to income support tied to target prices for milk to a new risk management-focused program in the 2014 Farm Bill.

The Dairy Margin Protection Program doesn't directly protect milk price like previous programs, but instead protects the margin between milk price and feed cost. Furthermore, DMPP functions like an insurance program in the sense that producers must choose whether to participate in DMPP and make a decision on what level of margin protection to purchase between $4 and $8 per cwt of milk. DMPP differs from true insurance in that the premium costs were fixed in the legislation and are not a function of current market prices or actuarial performance.

The first issues raised by dairy producers regarding DMPP is that language of the 2014 Farm Bill included a 10% cut in the feed cost formula relative to the dairy producers' original proposal. While the cut was made to reduce projected budget costs as the 2014 Farm Bill was written, the result has been a reduction in estimated feed cost of about $1 per cwt of milk, given calculated feed costs near $10 per cwt. As a result, the estimated margins have been higher and the amount of DMPP payments has been substantially reduced, relative to what the original proposal would have produced. Dairy producers are pushing to restore the cut in the formula, but they will face the same budget challenge, with current discussions suggesting a $2 billion price tag over current spending levels.

The second issue is the current inability to use DMPP alongside Livestock Gross Margin insurance for dairy. LGM for dairy is a federally supported insurance policy delivered through private insurance agents to offer producers similar milk-price-minus-feed-cost margin protection. Premiums for the LGM program for dairy are actuarially set based on current price expectations and market volatility. But federal spending for premium support is limited. Current rules limit dairy producers to participating in either DMPP or LGM for dairy, but not both, due to perceived overlap in coverage. But there could be a role for both commodity and insurance programs, with producers effectively relying on DMPP when margins are low, and on LGM or other insurance tools to be developed when margins or prices are higher, but still volatile, much like crop producers can utilize both crop insurance and the Agriculture Risk Coverage (ARC) or Price Loss Coverage (PLC) programs.

Producers look to conservation programs
Other elements of the farm bill with general support and agreement among livestock producers include conservation programs, disaster assistance and animal disease management. Given that livestock producers (other than dairy) have not been traditional participants of federal commodity programs, they have looked more to conservation programs and continue to value the role of working lands programs like the Environmental Quality Incentives Program and the Conservation Stewardship Program to help provide cost-share assistance and incentive payments for conservation practices for many livestock production and pasture and rangeland practices. In fact, by legislative mandate, EQIP focuses at least 60% of its funding on livestock producers and practices.

Continued support for disaster assistance is also high on the list, with substantial reference to the tragic effects of recent wildfires in the Southern Plains states. Disaster programs, including the Livestock Indemnity Program for death losses due to weather disasters and the Livestock Forage Disaster Program for grazing losses due to drought were permanently authorized and funded in the last farm bill and do not appear to be up for much debate in the next farm bill. The Emergency Conservation Program is also part of the disaster response to help producers respond to and repair disaster losses, although it is authorized and funded through the conservation title.

Animal disease management is also a critical issue for livestock producers and an issue for the next farm bill, whether focused on further research support or on federal animal disease management preparation. With recent cases of avian influenza increasing attention to animal disease issues, producers have called for continued support and increased planning, from additional research to the development of vaccine banks to prepare for potential future disease outbreaks.

Other farm bill policies
Beyond dairy, conservation and disaster programs, a common refrain from many livestock producers is to keep livestock out of the farm bill. Recent farm bills have included additional policy language addressing issues from country-of-origin labeling to concentration and contracting in livestock production and marketing. A trade complaint regarding mandatory COOL requirements for beef and pork was resolved with the repeal of mandatory COOL provisions in 2016 (other commodities not part of the dispute remain covered by mandatory COOL). But the topic has re-emerged in relation to some of the current administration's trade agenda.

Provisions directing the USDA to issue new regulations on contracting practices were included in a livestock title in the 2008 Farm Bill and continue on the books, although annual funding provisions prohibited finalizing rules for several years. The debate continues among livestock interests as to whether the proposed rules announced by the previous administration would protect producers from unfair practices and pricing or whether the rules would effectively require packers to pay equal prices for all livestock and eliminate any potential premiums for quality. Whether either issue gets addressed again in a new farm bill or gets resolved through other legislation and action is certainly on the minds of livestock producers.

Livestock issues and the next farm bill — whether addressing programs in the bill or specifically addressing policies left out of the bill — are an important part of the current agricultural policy discussion. The livestock industry is also affected by numerous other policy issues ranging from trade to taxes to food safety to immigration. Livestock producers and organizations have historically recognized the broad landscape of issues beyond just the farm bill that affect the industry. They will need to keep that attention going forward during and beyond the debate over the next farm bill as well. Understanding the programs, keeping abreast of the issues and engaging in the policy process will be important for producers and for ag policy stakeholders in the months ahead.

Lubben is an Extension policy specialist at the University of Nebraska-Lincoln.

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