Dairy in the 2018 farm bill

Farm Bill 2018: Guide to Proposed Changes to Dairy Provisions

Howard Leathers
University of Maryland 
Department of Agricultural and Resource Economics
University of Maryland Extension

As the 2018 Farm Bill process got underway in 2017, it was widely believed that the 2014 farm bill dairy provisions had not worked as well as anticipated to help dairy farmers.  Now, with the passage of the  Bipartisan Budget Act, in February 2018 and the two current versions of the 2018 farm bill – one passed in the Senate in late June and one passed in the House of Representatives in mid June – we are able to make a fairly good guess of the dairy provisions in the 2018 farm bill.

The general structure of dairy program under the new farm bill will be similar in structure to the Margin Protection Program (MPP) authorized by the 2014 farm bill.    As a reminder,  that structure is this: 

  • A price-feed cost margin is calculated by subtracting the cost of feed needed to produce a hundredweight of milk from the price of a hundredweight of milk.
  • When the margin falls below a fixed level (sometimes referred to as the “insured margin”,  farmers collect a payment.
  • The basic level of insured margin is $4, but farmers are permitted to “buy-up” raising the insured margin level,  by paying a premium for higher coverage.
  • The premium structure has two “tiers” – the cost of insuring the first 5 million pounds of milk (per year)  -- Tier I --  is lower than the cost of insuring pounds above the 5 million pound level  -- Tier II.

The dairy program in the 2018 farm bill essentially reauthorizes the MPP program, under a new name Dairy Risk Coverage program (DRC or DRCP).

In a number of ways the 2018 farm bill (incorporating the changes already made in the Bipartisan Budget Act) will make the dairy program more generous, and especially so for smaller dairy farmers (herd sizes of less than 200 or so). 

  • In the 2014 farm bill the lower (Tier I) premiums applied to coverage under 4 million pounds.  That cut off level has now been increased to 5 million pounds.
  • The lower Tier I premiums will be significantly lower than those authorized in the 2014 farm bill. 
  • Tier I coverage can be “bought up” to $9 in the 2018 bill, compared to $8 in the 2014 bill.
  • Payments under the program will be based on margin calculations each month, rather than on two-month average margins in the 2014 MPP program.

These changes are summarized in the table below.

Table Summarizing changes
*The Bipartisan Budget Act removed buyup premiums for the $4.50 and $5 levels for 2018. Buy up levels that are not authorized are labeled “n.a.”

One way to compare the 2018 program to that authorized in 2014 is to do an artificial calculation of the payments and premiums for the period January 2016 to April 2018 for a farmer who covers maximum tier I quantities at the maximum allowed buy up.   (Because of rule changes,  the 2014 MPP rules were not in effect for this entire period.)  If the 2014 farm bill rules had been in place for this 28 month period,  this farmer would have paid $50,666 in premiums for the buy-up to $8 insured margin,  and would have received $14,275 in payments.  If the House version of the 2018 farm bill rules had been in effect,  this farmer would have paid $23,333 in buy up premiums to the $9 insured margin level, and would have received $38,000 in payments. 

The 2014 law also contained provisions that discouraged the use of Livestock Gross Margin insurance (LGM-Dairy):  Farmers who participated in MPP were not permitted to buy LGM-Dairy;  and there was a limit on  total premium subsidy payments for LGM products.   Both of those provisions have been changed.     So large dairy farms will (under the likely 2018 farm bill) cover 5 million pounds of production using the low tier I premiums, and cover additional production (if that is desired) using LGM-Dairy.

Sources:  https://www.progressivedairy.com/news/industry-news/what-s-in-it-for-you-senate-house-farm-bill-dairy-proposals-compared