August 23, 2002

The terms of the new dairy payment program which began last week will penalize dairy farmers to the cost of approximately $48 million in FY02, with most of the penalty falling on medium-sized farms, according to the National Milk Producers Federation. NMPF has asked USDA to rethink the restrictions it is placing on payments for the current fiscal year before the implementing regulations are made final.

"At a time of such low milk prices, and with the administration expressing concern about the state of our agricultural economy, we would hope that decisions of such magnitude would be made on a more producer-friendly basis," said Jerry Kozak, president and CEO of NMPF.

Under the new milk income loss contract (MILC) program authorized by the 2002 farm law, dairy producers can now sign up to receive monthly payments whenever the Class I price in Boston declines below $16.94/cwt. Producers will be paid 45% of the difference between that $16.94 target, and the monthly Class I market price, on annual production up to 2.4 million pounds of milk.

Because Congress made the new counter cyclical program retroactive back to December 2001, producers are entitled to receive a transition payment for their milk production between last December and this August, up to the annual production ceiling.

However, USDA has announced, through its instructions to the local Farm Service Agency offices handling the sign-ups for the new program, that those dairy farmers whose production exceeds 2.4 million pounds (approximately the production of a 120 cow herd) will not be able to choose the month in FY 2002 during which their eligibility will begin.

In other words, all producers electing to receive a transition payment will be paid starting last December, until their eligibility is exhausted once 2.4 million pounds of milk have been produced.

NMPF believes that the USDA's decision not to allow medium-sized producers a choice on the transition payment "defeats the purpose of having a counter cyclical payment program, and penalizes the same mid-sized farmers that Congress was trying to help with the new payment program," according to Kozak. "We are urging the USDA to revisit a decision that will cost dairy farmers millions of dollars in lost revenue."

Farms with herd sizes between 150-800 cows will be the most affected and the impact will be felt most severely at the state level on mid-sized farms in California, Idaho, Michigan, Minnesota, Wisconsin, New York, Ohio, Pennsylvania, Texas, Oregon, Utah, Vermont, Virginia, and Washington.

Part of the reason for NMPF's concern is that payment rates for the early months of the transition period, from December 2001 through February 2002, averaged just $0.78 per hundredweight. Payment rates this summer, however, are nearly twice as high, averaging nearly $1.40/cwt. in July through September. Thus, farmers who reached the 2.4 million pound cap by the end of February 2002 will receive almost 50% less than if USDA had given them the discretion to choose when their payments were to start for the transition period.