The 2014 Farm Bill included many changes to the Dairy Title. The Milk Income Loss Contract program was eliminated and replaced with the Dairy Margin Protection Program (MPP). The MPP offers dairy producers the ability to insure the difference between the all-milk price and average feed costs, and makes payments when the national average income-over-feed-cost margin index falls below a farmer-selected coverage level. Different coverage options reflect a dairy farmer’s ability to protect different margin levels. Dairy producers pay premiums for coverage and must take an active role in selecting their coverage options each year. In 2015 and 2016 dairy farmers paid premiums and fees of approximately $96 million and MPP paid out approximately $12 million to farmers enrolled in the program. Most dairy farmers believe MPP has not provided an adequate safety net.
To save money, the MPP feed cost formula was reduced 10 percent by Congress during final 2014 Farm Bill negotiations and does not reflect actual feed costs. Dairy farmers believe there should be a restoration of the original industry proposed MPP feed cost ratio. If the MPP ration formula had been 10 percent higher over the last one and a half years of the program, MPP would have provided a much stronger safety net.
Numerous discussions have occurred regarding development of an actuarially sound revenue protection program for dairy that would operate similarly to crop insurance revenue products. The concept would offer insurance protection on the quarterly revenue risk on the dairy farm (milk price multiplied by milk production). Dairy farmers could choose a milk price on which to insure based on futures market prices and could cover a volume of milk production per cow reflective of their state’s milk production (providing regional-based risk protection). Farmers would then select what percentage of the revenue guarantee to protect (e.g., a 10 percent deductible). The total guarantee would be equal to the product of the milk price, milk production, and insurance coverage level. Indemnity payments would be triggered when price or production declines result in actual revenue below the guaranteed revenue.
AFBF: #238 National Dairy Program
Michigan Farm News: Dairy revenue protection: An insurance option for dairy producers?
AFBF Farm Bill Working Group Dairy Decision Memo
AFBF Dairy concepts