A new plan needed: Federal insurance program a horrible deal for dairy farmers

The Margin Protection Program for Dairy Producers is a voluntary risk management strategy operated by the U.S. Department of Agriculture’s Farm Service Agency. It offers protection to dairy producers when the difference between the all-milk price and the average feed cost — the margin — falls below a certain dollar amount selected by the producer.

The program offers catastrophic coverage at no cost other than the annual $100 administrative fee. Participants also may obtain varying levels of buy-up coverage.

“Catastrophic coverage provides payments to participating producers when the national dairy production margin is less than $4 per hundredweight,” according to the Farm Service Agency. “The national dairy production margin is the difference between the all-milk price and average feed costs. Producers may purchase buy-up coverage that provides payments when margins are between $4 and $8 per cwt. To participate in buy-up coverage, a producer must pay a premium that varies with the level of protection the producer elects.”

Since the program was implemented, however, dairy farmers have pointed out that the program takes in far more money than it pays out. In 2015, the USDA collected $73 million in fees and premiums from participants while paying out only $700,000 to farmers in the program.

That information came from a letter that U.S. Sen. Kirsten E. Gillibrand, D-N.Y., wrote in 2016 to then-Secretary of Agriculture Thomas J. Vilsack. She has now followed up by sponsoring the Dairy Premium Refund Act of 2018 that, if enacted, would require the USDA to pay producers an amount equal to the money they spent subtracted from the funding they received and the department’s operational expenses.

“I’ve heard from dairy farmers all over New York that the current dairy insurance program is not working,” Ms. Gillibrand was quoted as saying in a news release issued Monday by her office. “Right now, our dairy farmers are in the midst of a serious financial slump through no fault of their own. Milk prices are now much lower than the cost it takes for farmers to produce that milk, and farmers are struggling to pay their workers and their bills. The Dairy Margin Protection Program was supposed to help our dairy farmers in situations like this, but even though farmers have paid millions of dollars into the program, they’ve barely been paid out a dime. My bill would put all of those unused insurance premiums back into the pockets of our dairy farmers, who work day and night to provide milk for our families are and deserve better than the raw deal they’re getting with the current dairy insurance program.”

One of the primary problems with the MPP-Dairy is that it uses the national average price of milk to calculate losses. Dairy farmers in distinct regions of the country, however, confront unique market circumstances depending on where they live.

Ms. Gillibrand’s legislation is being lauded by members of the farming community.

“Her proposal underscores the bigger picture of needing to reform the Margin Protection Program,” Steve Ammerman, manager of public affairs for the New York Farm Bureau, said in a statement. “It is clear by low participation numbers that MPP is not an effective safety net during these difficult times nor has it addressed regional differences across the country.”

We support Ms. Gillibrand’s effort. This issue has previously attracted the attention of U.S. Sen. Charles E. Schumer, D-N.Y., and U.S. Rep. Elise M. Stefanik, R-Willsboro. We urge them to join Ms. Gillibrand in reforming this program.

 

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