Dairy Policy Issues

Publication Date: May 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Agriculture, forestry and fishing

Type:

Abstract:

Several dairy issues have been or are being considered by the 109th Congress, some of which affect the three major federal dairy policy tools -- the Milk Income Loss Contract (MILC) program, federal milk marketing orders, and the dairy price support program.

Under the MILC program, eligible dairy farmers receive a government payment when the farm price of milk used for fluid consumption falls below an established target price. The original legislative authority for the MILC program expired on September 30, 2005. However, a provision in the FY2006 budget reconciliation act (P.L. 109-171) extended the program for two additional years. As a costsaving measure, P.L. 109-171 prohibits any MILC payments for the last month of its extended authority (September 2007), which, under current budget rules, means that the program will have no baseline budget spending allocated to it beyond its expiration date. A provision in the House-reported version of the FY2007 agriculture appropriations bill (H.R. 5384) would have allowed payments in September 2007 and preserved the program's budget baseline for the next farm bill debate in 2007. However, the provision was deleted on a point of order on the House floor, primarily because of its budget implications.

Federal milk marketing orders regulate the farm price of milk for roughly two-thirds of U.S. milk production by requiring processors to pay minimum prices for farm milk depending in its end use. On April 11, 2006, the President signed into law a measure (P.L. 109-215, S. 2120) that addresses farm milk pricing issues relevant to the western United States. Under previous regulations, producerhandlers (i.e., fluid milk handlers who produce and process their own milk) were exempt from federal order price regulation. P.L. 109215 requires a large producer-handler in Arizona to become regulated. The provision was supported by other milk producer and processor groups who contend that unregulated processors undercut the competition. The producer-handler argues that the provision is a tax being placed on its operations that adversely affect its business, and ultimately result in higher prices to consumers. Meanwhile, USDA has issued final regulations effective April 1, 2006, that eliminates the exemption from federal order pricing for any producer-handler in the Southwest or Pacific Northwest who bottles more than 3 million pounds of milk per month. A Southwest producer-handler has challenged USDA's new regulation in the courts.

Separately, the Administration's FY2007 budget request contains three legislative proposals that would reduce net federal dairy expenditures by more than $1.2 billion over 10 years -- (1) an assessment of 3 cents for every one hundred pounds of milk production, to be paid by all dairy farmers; (2) a 5% across-the-board reduction in government spending for all farm commodity support programs, which would apply to the MILC program; and (3) enhanced authorities for USDA to adjust federal purchase prices of surplus dairy commodities.

Dairy farmer groups are concerned that imports of milk protein concentrates (MPCs) are displacing domestic dairy ingredients and thus depressing farm milk prices. Bills have been introduced (H.R. 521 and S. 1417) to impose tariff rate quotas on certain MPCs. Dairy processor groups are opposed to this provision.