When 97.5 percent of milk — 149.7 billion pounds of the total 153.4 billion pounds of 2017 MPP-Dairy production history — was signed up at the $4 coverage level, it was clear that the Margin Protection Program for Dairy (MPP-Dairy) wasn’t working as designed and producers had little interest in taking the higher MPP-Dairy coverage levels between $4 and $8. The low participation rate for the higher coverage levels resulted from producers evaluating the premium cost relative to the likelihood of receiving a payment.
Most dairy producers have shown little interest in paying any MPP-Dairy premiums given the lack of payments that have occurred since passage of the MPP-Dairy. While lower MPP-Dairy premiums should result in additional participation at the higher coverage levels, lower premiums will still be judged relative to the expectation of receiving a payment.
Two potential fixes
Two possible ways under discussion in dairy policy circles to enhance the frequency of a payment at a given coverage level is:
1. A monthly payment trigger
2. Raising the effective MPP-Dairy coverage level
Dairy farmers have already experienced market conditions when a monthly payment scheme would have triggered a payment with the elimination of the bimonthly payment.
In looking at historical data over the 2008 to 2017 period, a monthly payment scheme improves the frequency of a payment by 4.1 percent at the $8 coverage level. The lower the coverage level chosen, the smaller the effect of moving to a monthly payment trigger. For example, at a $5 coverage level the frequency of a payment rises less than one percent over the 2008 to 2017 period.
The second approach is to move to higher coverage options. The direct approach is to raise the coverage level to allow higher coverage levels than the current maximum $8 level. Another nearly equivalent option is to allow the current feed coefficients to revert to higher levels such as those found in the National Milk Producers Federation’s original proposal.
Moving to a $9 coverage level would have increased the frequency of an MPP-Dairy payment over the 2008 to 2017 period by nearly 20 percent. The average payment at $8 using a monthly payment trigger is 89 cents per hundredweight (cwt.) over the 2008 to 2017 period while it grows to $1.44 per cwt. at a $9 coverage level.
Any option that raises the frequency of a payment or reduces premiums will need to be weighed relative to the cost score provided by the Congressional Budget Office. It remains critical that any change to the MPP-Dairy program increases participation, especially at higher coverage levels . . . or else many dairy farmers will still find MPP-Dairy an inadequate safety net program for dairy producers.
Editor's note: On February 9, after this item was written, Congress passed a two-year federal budget deal that also included improvements for the dairy safety net. This includes reforms to the Margin Protection Program for Dairy (MPP-Dairy) for 2018.
•New sign ups: Directs USDA to immediately reopen the program for 2018 signup.
• Fee waiver: Waives the $100 administrative fee for underserved farmers including limited resource, beginning, veterans, and socially disadvantaged.
• Monthly calculations: Calculations will now be made monthly versus bimonthly as in the past.
• $5 catastrophic coverage: The catastrophic coverage level moves from $4 to $5.
• Five million pounds: First-tier coverage levels that include reduced premiums move from 4 million to 5 million pounds.
• Reduced premiums: The first 5 million pounds can be insured at reduced rates.