As our October 10 issue closed, Representatives Collin Peterson (D-Minn.) and Mike Simpson (R-Idaho) introduced the Dairy Security Act (DSA) in the House. "I would like to move this forward before the 2012 Farm Bill," said Peterson in introducing this bill.

It is patterned after the National Milk Producers Federation's (NMPF) Foundation for the Future (FFTF) plan featured in the August 25 issue on page 523 and the September 10 issue on page 568.

While similar to FFTF, the DSA does have some important revisions. These updates are a result of a discussion draft released by Representative Peterson earlier this summer along with comments received from nearly 1,300 dairy producers during National Milk's dozen-city road show this summer.

"This will be the most significant change in dairy policy ever," noted Peterson. "It will be more market oriented. We do not believe this will interfere with the export market."

Producers have a choice
A key change in the Dairy Security Act was a modification to the Dairy Market Stabilization Program (DMSP). Under the revised proposal, dairy producers could choose whether or not to be involved in supply reductions during times of compressed margins either from low milk prices or high feed costs. However, if producers want to participate in the dairy insurance safety net known as Dairy Producer Margin Protection Program (DPMPP), they would have to participate in the supply program.

One of the many reasons producers would have to participate in both portions is to make the entire plan more budget friendly for the federal government. Under the July discussion draft, all dairy producers were obligated to participate in both programs. That is no longer the case. However, if passed, the DSA would become the only government-sponsored producer safety net. Overall, the DSA is expected to cost $541 million over 10 years compared to current costs of $672 million for dairy programs.

Money goes to product
Since the program is labeled voluntary, all the money collected in the stabilization program would be remitted to the Commodity Credit Corporation. That would make 100 percent of the funds available to the program's board. Under the original discussion draft, the mandatory DMSP component would have seen 50 percent of collected funds going to the U.S. Treasury and the remainder to the program board.

Slightly more milk, 80 versus 75 percent, will be covered for those dairy producers participating in the basic margin protection program. The upward shift is due to potentially favorable scoring by the Congressional Budget Office. As with the original proposal, the margin protection insurance rates remain fixed for the five years of the entire program.

New to the dairy legislation are administrative fees which are required because of federal budget shortfalls. The three-tier annual fee structure is: $100 for producers marketing less than 10 million pounds of milk; $400 for producers marketing between 10 million and 40 million pounds of milk; and $1,000 for producers marketing more than 40 million pounds of milk. These fees are somewhat higher than those issued after the NMPF September board meeting and press conference.

Another change is repeal of the Dairy Export Incentive Program. Known as DEIP, it paid cash bonuses to exporters, allowing them to sell certain U.S. dairy products at prices below exporter's costs. USDA has not utilized this program in some time and the program is outdated. Lastly, the DSA directs the Office of the Inspector General to audit and evaluate the stabilization program.

The third part of the original discussion draft, federal order reform, would be handled through the traditional hearing process . . . with one exception. There is a call by NMPF to expedite the replacement of end-product price formulas, including make allowances, with a competitive price for determining Class III milk prices.

Differences in bill
There are a few differences between the NMPF plan and the DSA that may become clearer as the bill moves through Congress. Since the Congressional Budget Office cannot score some recently suggested changes by NMPF in a timely fashion, updates to the stabilization's interaction with export markets likely will be added to the legislation once the CBO scoring is completed. Those provisions make the entire program more responsive to both domestic and international market conditions.

At NMPF's September board meeting, the organization also ap­­­­­­­­­­­proved provisions to cover additional milk for margin protection during the five years the potential law is in effect. The supplemental plan which requires additional premiums from participating farmers would cover up to 90 percent of production history with a growth coverage option. Under this concept, a producer's history could change as the production grows. While the production history remains fixed for the basic 80 percent coverage plan, it could be updated annually if the growth option is selected under supplemental insurance coverage.