FARE Blog

Food, Agriculture, and Resource Economics

Tentative Changes to Dairy Support in the 2018 Farm Bill (Senate)

by Levi Russell

UPDATE: This post has been updated to include information from Senate amendments passed June 27th and 28th, 2018. The changes have been made by marking through the previous text and adding new text after it in italics.

Last night’s cloture vote on the 2018 Farm Bill in the Senate is an indication that we are progressing well on passage of a bill this year. Though that vote was for the House version of the bill (which you can read about here), I thought I’d give an update on my reading of what the Senate Ag Committee changed in Title 1 for dairy since the changes are significant. Keep in mind that things are in flux right now and that this information could be obsolete in the near future. If that is the case, I will write a new post to let you know and provide updates to the process as it unfolds.

The Margin Protection Program has been renamed Dairy Risk Coverage and extends through the year 2023. The basic logic of the program remains the same, but there are significant changes to margin coverage levels and premiums. The margin calculation remains the same.

  • Premiums are still split into two tiers and the threshold remains the same. Lower premiums for less than or equal to 5 million pounds of milk covered and higher premiums for milk covered in excess of 5 million pounds.
  • Premiums are discounted based on the dairy’s total annual production. For dairies with 10 million pounds or more of production, there is no discount. For dairies with 2 million to 10 million pounds of total annual production, there is a 25% discount on all premiums. For dairies with 2 million pounds of production or less, there is a 50% discount on all premiums.
  • In addition to the $4.00, $4.50, $5.00, $5.50, $6.00, $6.50, $7.00, $7.50, and $8.00 margin coverage levels producers covering less than 5 million pounds of milk can choose $8.50 and $9.00 coverage levels.
  • Producers can select a catastrophic coverage level that covers a $5.00 margin. Producers can cover 40% of historical production. No other choice of coverage level is allowed under the catastrophic coverage option.
  • Producers who select catastrophic coverage will be required to pay an additional $100 administrative fee on top of the original $100 administrative fee carried over from the 2014 Farm Bill. There is no other premium associated with catastrophic coverage.
  • There is no longer a 25% minimum production coverage level. Producers can choose coverage as low as 5% up to 90% of their production in 5% increments.
  • Production history is still based on 2011-2013 production, but adjustments will end in 2019.
  • Other changes made in the Bipartisan Budget Act of 2018 remain the same, such as the monthly calculation of the margin and payments.
  • Producers who paid MPP premiums in excess of the indemnity payments they received in 2015, 2016, and 2017 will receive a refund of the difference between the premiums they paid and the payments they received.

The tables below show the premiums for the three different levels of annual production. In general, premiums for both Tier I and Tier II are higher than the current premiums for 2018. However, these higher premiums are offset to some extent by discounts for what the proposed law calls “small and medium” dairies. The 50% discount for dairies with 2 million pounds of annual production or less pushes the new premiums lower than those in the Bipartisan Budget Act of 2018 this year. The 25% discount offsets the increase in premiums to a degree, but not completely.

The program is now more flexible in that it allows producers to purchase coverage for as little as 5% of their annual production. While this doesn’t offset the higher premiums, it does allow producers to cover a smaller percentage of their production if they wish. For example, a larger dairy could use hedging techniques or the new dairy insurance product created by Farm Bureau to manage most of their risk and still participate in the Dairy Risk Coverage program at a lower level.

I will keep this site updated with new information as votes occur and changes are made.