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FARM BILL: Dairy Provisions The"Farm Security and Rural Investment Act of 2002", passed the House 280 to 141 and the Senate 64 to 35. While not perfect, IDFA believes the new and temporary federal dairy compromise reached by conferees is far better than mandating a national milk pricing floor or reinstating regional dairy compacts. IDFA advocates policies that enable America's dairy industry to grow and compete in today's dynamic marketplace. Progress still needs to be made in simplifying federal dairy regulations so that market distortions are minimized. What follows is a detailed description of the dairy-related provisions in the recently-passed farm bill.
In mid-November last year, the Senate Agriculture Committee approved a farm bill that included dramatic Class I price increases, a new government subsidy payment for farmers, and new, regional supply management programs. It also set up a new assessment on Class I processors of up to 5-cents a hundredweight, another $30 million on top of what is already paid by processors to operate federal dairy programs. This program was modified in the final version passed by the full Senate to include a $2 billion two-tier payment system for dairy producers with higher payments going to farmers in 12 Northeastern states. These provisions, backed by Senator Patrick Leahy (D-VT) were watered down significantly by the conference committee, thanks to strong grassroots contacts, lobbying and third party pressure. In the end, however, Senator Leahy did get a payment program to replace the Northeast Interstate Dairy Compact which expired on September 30, 2001. Instead of setting higher prices nationwide or creating new dairy compacts, conferees included a new federal subsidy program for dairy farmers across the U.S. Dairy producers will receive monthly payments from the federal government, retroactive to December 1, 2001. Payments are calculated by taking 45 percent of the difference between $16.94/cwt and the monthly Boston Class I price on the first 2.4 million pounds of milk production from each farm per year. This is equal to the average production of about 133 cows. Even though this new payment program for dairy producers is limited, it is expected to encourage some production increases and therefore, slight decreases in milk prices. For smaller farms, these price decreases will be more than offset by the payments; some larger farms may realize overall reductions in their combined revenue from milk sales and this new payment. An analysis done by the Food and Agricultural Policy Research Institute (FAPRI) estimates the change in both annual average milk prices and direct payments under this new plan. FAPRI estimates a decrease in Class III prices of $.11/cwt and a decrease of $.19/cwt for Class IV prices. However, FAPRI estimates an average direct payment across all milk production of $.33/cwt. The net effect on producer revenue, combining these two impacts, will on average be an increase of $.20/cwt. In addition, there are regional implications; for instance, FAPRI's analysis suggests average farm revenue actually declines in Arizona, California, Colorado, Florida, New Mexico and Washington. While we do not know exactly what percentage of U.S. milk production will be eligible for this payment, we estimate it to be between 50 and 60 percent of total milk production. This means that for the first six months of the program (Dec. 2001-May 2002), total payments will likely amount to between $385 and $460 million. Based on current milk futures prices, the cost for the next six months (June-Nov. 2002) is likely to be between $260 and $315 million; with a total of up to $775 million for the first year alone. The widely-reported initial cost estimate of the new program for the entire 3 ½ years, as provided by the Congressional Budget Office, of $1.3 billion is likely to be an underestimate. The cost will most likely be much higher using the program formula. The program will expire on September 30, 2005. The Milk Processor Education Program was reauthorized along with an amendment to raise the threshold for requiring milk processors' participation in the program from 500,000 pounds of monthly milk sales, up to 3 million pounds of fluid milk products sold per month. In addition, milk which is delivered directly to the consumer through home delivery will not count toward this new 3 million pound threshold. For example, if a milk processor produces 7 million/pounds a month, 5 million pounds of which are home delivered, the non-home delivery milk equals only 2 million; therefore this processor DOES NOT have to pay into the MilkPEP program on any of its milk. On the other hand, if the same processor produces 7 million/pounds a month and only 2 million pounds are home delivered, the 5 million that is not home delivered exceeds the 3 million pound threshold; therefore this processor WILL PAY into the program on all 7 million pounds. While the law does not require it, the MilkPEP board will likely voluntarily call for a referendum in the next year or so to ensure that the program continues to have broad industry support. Included in the final bill is a new promotion assessment on all dairy imports including cheese, MPC, casein and caseinates. USDA will have to determine the milk equivalent for each imported product, then calculate the assessment equivalent to 15-cents per cwt of milk. The money would fund the domestic dairy producer check off program. The legislation requires that the Secretary of Agriculture consult with the U.S. Trade Representative's office in order to ensure consistency with the international trade obligations of the United States. The new assessment will only take effect upon completion of a rulemaking by USDA; there is no timeline established yet for when this will occur. There were many concerns raised about extending this assessment to imports. Users and importers objected strenuously to the increased costs that would be added to all imports, including ingredients used in a wide variety of dairy and other products. The issue also was raised that most dairy imports would receive little or no benefit from increased U.S. sales because of existing tariff rate quotas. In addition, up until now, the producer-funded program has focused promotion on American dairy products; some expressed concern this broadening to imports could even jeopardize the use of the "REAL" seal on American dairy products. Whether or not this new assessment on dairy imports is implemented will be decided by USDA's ruling on the compatibility of this program with existing trade obligations. The bill authorizes the Secretary to purchase butter, nonfat dry milk powder or cheese to maintain a milk support price of $9.90/cwt on a 3.67 percent fat basis through December 31, 2007. The Secretary can modify purchase prices for butter and nonfat dry milk not more than 2 times per year (which is the same as the current authority). Last minute attempts to force USDA to provide advance notice to Congress of any CCC purchase price changes and to freeze the tilt (at the current level) for the life of the new dairy program failed. The final language does require the Secretary to notify the Agriculture Committees within 10 days after making any tilt adjustments. IDFA fought to ensure that no conditions were added that would affect the Secretary's authority to make adjustments to the butter-powder tilt and that the program be operated in a manner that minimizes market distortions. The bill allows for the continuation of these programs through 2007. Requires the Secretary to provide guidelines for voluntary country of origin labeling on meat, fruits and vegetables, fish and peanuts for the first two years. For a commodity to be deemed a U.S. product, it must be born, raised and processed in the U.S. By September 30, 2002, the Secretary has the authority to make the program mandatory. This provision almost required food processors to label the country of origin for several ingredients within a finished product. For example, ice cream manufacturers would have had to label the country of origin for fruit and nut ingredients within ice cream produced in the United States. IDFA and other leading food organizations quickly opposed the idea, stating such unnecessary labeling would be both burdensome to the food processing industry and confusing for consumers. Fortunately, the farm bill conferees dropped the inclusion of processed foods during its final negotiations. This provision clarifies that USDA must collect information on commercial inventories for products whose price is used to set federal order minimums. This is currently done on a voluntary basis, therefore not completely reliable. Mandatory reporting of inventories is essential for the dairy industry. It is even more critical for the government since these prices are then used to set regulated minimum prices. It is important to note that this is the only example where data collected by USDA is used to set federal minimum prices for a commodity. The bill calls for: (1) A comprehensive economic evaluation of the potential direct and indirect effects of the various elements of national dairy policy on farm price stability, feeding programs, and the price of milk; (2) A study of the effects of terminating all Federal dairy programs and giving states the authority to manage milk prices and supply; and (3) A study of the effect of raising the standard of identity for fluid milk to include a higher minimum protein content that is commensurate with the average nonfat solids content of milk produced in the U.S. The Managers included a provision to require the Secretary of Health and Human Services to complete rule making to review current FDA requirements for the labeling of irradiated foods. They also encourage the Secretary to pursue a comparable pasteurization labeling program for meat and poultry products. Such labeling could allow use of the term pasteurization for meat and poultry products treated by similar processing technologies, such as irradiation. The definition of pasteurization for dairy remains unchanged. IDFA will participate in the rule making process to protect the definition of pasteurization as it is currently defined. Authorizes the establishment of a new organic research and promotion check off program, which must be proposed and approved by a majority of certified organic producers and handlers. The language allows for the person who produces and markets only 100 percent organic products and who does not produce any conventional products to be exempt from paying an assessment under a commodity promotion law. The Secretary will promulgate regulations and implement this program within one year. Establishes a Food Safety Commission composed of 15 members, including consumer groups, food processors, producers, retailers, public health professionals, food inspectors, food safety regulators, and members of academia. The Commission's goal is to, within one year, make specific recommendations to Congress and the President to improve public health, help create a harmonized framework for managing Federal food safety programs and enhance the effectiveness of Federal food safety resources. Farm Bill Report Language:
Report language was included to ensure the enforcement of federal standards of identity for fluid milk products purchased by the federal government for distribution in all federally supported feeding and nutrition programs. This could bring increased regulatory attention to the composition of fluid milk products sold to the government (e.g., military, federal prisons). June 2002 |
