The Farm Security and Rural Investment Act of 2002

1
The Farm Security and Rural Investment Act of
2002The Dairy Subtitle
2002 Farm Bill Education Conference Kansas City,
Missouri May 20-21, 2002 Mark Stephenson Cornell
University
2
Major Pieces

• Milk Price Support Program extended
• Dairy Export Incentive Program extended
• Promotion fees for imports
• Fluid milk promotion extended
• Mandatory reporting
• National Dairy Market Loss Payments
• Three dairy studies

3
Related Pieces

• Environmental
• Field crops

4
Milk Price Support Program

• Has been around in some form since the 1930s
• Sets a price goalnot a price
• Original idea was price stabilitynot price
  enhancement
• Found in 1970s that you can buy votes with price
  enhancement
• Found in 1980s that votes can be expensive

5
CCC Purchases Expenditures
6
Price Support Tilt

• Current price support level is 9.90 and is to be
  maintained at that level
• Program extended through 2007
• Twice a year, the secretary may adjust purchase
  price of nonfat dry milk and butter to minimize
  CCC expenditures

7
Dairy Export Incentive Program

• Government accepts bids to close the gap between
  domestic prices and world market prices
• There are dollar and volume limits on DEIP
  exports
• Program provides a low-cost means of relieving
  downward pressure on domestic markets

8
Promotion

• Imports will contribute to National Dairy
  Promotion and Research Board (Got Milk)
• Some of the NDPRB monies will be used to promote
  U.S. products in export markets
• Fluid Milk Promotion extended indefinitely (milk
  mustache)

9
Mandatory Reporting

• Regulated milk prices are now determined with
  product price formulas
• Manufacturing firms must report sales data (price
  and volume) to NASS
• Manufacturing firms must report inventory data to
  NASS

10
National Dairy Market Loss PaymentsBackground

• Something for everyone
• Compact-like in structure (New England is happy)
• Tax-payers foot the bill, not consumers
  (processors are happy)
• Regionally uniform access to benefits (Upper
  Midwest is happylooks like national pooling)
• Losers
• Possibly larger dairy producers
• Less than average milk drinkers
• (Must be a deadweight loss in here somewhere)

11
Features

• Trigger16.94 class I price in Boston
• 45 of the difference when the class I price is
  lower
• Direct payment every month
• Payments are retroactive from December 1, 2001
  through September 30, 2005 (not entire farm bill)
• Only on 2,400,000 pounds of milk per fiscal year
  (on current production, not a base)
• Signup, probably with FSA

12
Detail Questions

• How easy will it be to divide farm into 2.4
  million pound units?
• Bill says no reconstitution of farms
• Probably difficult to enforce
• Is the payment on the first 2.4 million pounds or
  can you choose time period?
• Want to pick lowest class I prices

13
Percent of Maximum Payment
14
Impacts

• FAPRI estimates
• 89 payment on eligible milk production over the
  life of the program
• 17 decline in class III price
• 28 decline in class IV price
• Roughly, 500 cows is break even size

15
Concluding Thoughts

• Is this policy?
• I think that FAPRIs price impact estimates are
  conservative
• We are coming off of the largest market price
  year ever and milk production is coming on strong
• These payments will probably retard the loss of
  small farms and large farms will react favorably
  to the low feed grain prices.

16
Concluding Thoughts

• Big production and low milk prices are inevitable
• CCC purchases will be considerable even with a
  tilt
• The NDMLP will cost much more than the 1.3
  billion CBO score
• QEDLow milk prices prove the need for the program