Farm Bill Makes Significant Changes to Margin Protection Program for Dairy

 

Note: USDA has created a new decision tool for the new Dairy Margin Coverage program. You can access it at this link.

For decades Congress has created and modified risk management programs to help producers combat changes in production costs and low profits. In the 2014 Farm Bill, Congress created the Margin Protection Program (MPP) for dairy.[1] This was a voluntary risk management program for dairy producers. Dairy producers would select a coverage level and amount of production covered. When the difference between the average farm price of milk and the national average feed costs dropped below a certain dollar amount, payments would be provided to producers. Coverage levels started at $4.00/cwt and increased in $0.50 intervals up to $8.00/cwt.

Congress created MPP with the intent to provide insurance against both low milk prices and high feed costs. However, many producers felt the program failed to live up to these expectations when producers did not receive payments significant enough to offset the costs of enrolling in the program. For example, some estimate that farmers paid $75 million more in premiums than were received in payments.[2]

The Agriculture Improvement Act of 2018, passed by Congress this past December, made several changes to the MPP. The first notable change was the switch to a new name. MPP would now be called the Dairy Margin Coverage (DMC) program.[3] Similar to MPP, a producer continues to choose at what margin she would like to be covered and at what percentage of production.

Another major change is the pricing structure. DMC provides coverage at 5 million pounds or less (Tier 1) for a small administrative fee and adds margin coverage at higher levels of production. For $100, a producer can receive coverage at $4.00/cwt. Additional coverage may be bought for $4.50/cwt to $9.50/cwt.[4] For production over 5 million pounds (Tier II), prices vary depending on the margin chosen. Producers in either Tier may choose to cover 5% to 95% of their production.

Overall, Tier I will have lower payments under DMC than MPP in order to encourage dairy farmers to choose higher levels of coverage. From 2015 through 2017, 24,748, 25,663, and 20,314 dairy operations enrolled in MPP. During those years, 56%, 22.5%, and 7.4% of producers enrolled at coverage levels of $4.50/cwt or higher.

Under DMC, a producer may annually choose a coverage level. However, producers will receive a 25% discount on premiums if they commit to five years of a selected coverage.[5] DMC also allows for reimbursement of MPP premium payments less any payments received.[6] If the reimbursement is used for DMC payments, the producer may receive up to 75% of the MPP payments made.[7] Otherwise the producer may receive up to 50% of the payments made.[8] Unlike MPP, producers may choose to participate in both DMC and Livestock Gross Margin for Dairy Program. DMC is authorized through December 31, 2023.[9]

2014 and 2018 Farm Bills Differences and Similarities - Dairy

 

2014 Farm Bill

2018 Farm Bill

Both

Name of Program

Margin Protection Program

Dairy Margin Coverage

 

Tier I

4 million pounds or less

5 million pounds or less

 

Tier II

4 million pounds or more

5 million pounds or more

 

Tier I Coverage Level

$4.00/cwt to $8.00/cwt

$4.00/cwt to $9.50/cwt

 

Tier II Coverage Level

    

     

$4.00/cwt to $8.00/cwt

Amount of coverage available

5% to 95%

25% to 90%

 

Fee to enroll

 

 

$100

Ability to enroll in other programs

No

May also enroll in Livestock Gross Margin-Dairy

 

 

MPP Producer Premiums per cwt. (2015 - 2018) (2014 Farm Bill)

Coverage Level

Tier 1 (4 million pounds or less)

Tier 2 (4 million pounds or more)

$4.00

None

None

$4.50

$0.010

$0.020

$5.00

$0.025

$0.040

$5.50

$0.040

$0.100

$6.00

$0.055

$0.155

$6.50

$0.090

$0.190

$7.00

$0.217

$0.830

$7.50

$0.300

$1.060

$8.00

$0.475

$1.360

 

DMC Producer Premiums per cwt. (2019 forward) (2018 Farm Bill)

Coverage Level

Tier 1 (5 million pounds or less) Premium[10]

Tier 2 (5 million pounds or more) Premium[11]

$4.00

None

None

$4.50

$0.0025

$0.0025

$5.00

$0.005

$0.005

$5.50

$0.030

$0.100

$6.00

$0.050

$0.310

$6.50

$0.070

$0.650

$7.00

$0.080

$1.107

$7.50

$0.090

$1.413

$8.00

$0.100

$1.813

$8.50

$0.105

NA

$9.00

$0.110

NA

$9.50

$0.150

NA

 


[1] Agriculture Act of 2014, § 1403

[2] Wolf, C. and C. Zulauf. "Dairy Margin Protection Program in the next Farm Bill." farmdoc daily (8):219, Department of Agricultural and Consumer Economics, University of Illinois at Urbana-Champaign, November 30, 2018.

[3] Agriculture Improvement Act of 2018, § 1401(k)(1).

[4] Agriculture Improvement Act of 2018, § 1401(g).

[5] Agriculture Improvement Act of 2018, § 1401(j).

[6] Agriculture Improvement Act of 2018, § 1401(i).

[7] Id.

[8] Id.

[9] Agriculture Improvement Act of 2018, § 1401(l).

[10] Agriculture Improvement Act of 2018, § 1401(h)(1)

[11] Id.

CALT does not provide legal advice. Any information provided on this website is not intended to be a substitute for legal services from a competent professional. CALT's work is supported by fee-based seminars and generous private gifts. Any opinions, findings, conclusions or recommendations expressed in the material contained on this website do not necessarily reflect the views of Iowa State University.

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