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Livestock and the 2018 Farm Bill

By Matt Reese

By most accounts, the 2018 Farm Bill was a big win for livestock producers. Effective policy for the sector has largely been left out of farm bills in the past, but that trend appears changing in the Agriculture Improvement Act of 2018.

The 2018 Farm Bill is expected to cost $867 billion over the next decade and features major changes with dairy policy with higher coverage levels in the new Dairy Margin Coverage program (DMC). The DMC allows all dairy producers to insure margins up to $9.50 per hundredweight on their first 5 million pounds of Tier 1 production history. The DMC features lower-cost $5 margin coverage, allowing farm operations wishing to cover more than 5 million pounds of production to have a higher level of affordable catastrophic protection and expanded access to additional risk management tools allowing producers to participate in options including the Livestock Gross Margin insurance program and the new Dairy Revenue Protection program. The USDA has also indicated that the dairy programs will be an early priority for farm bill implementation and that producers will be able to sign up for their coverage retroactive to Jan. 1.

Retired Ohio State University agricultural economics professor Carl Zulauf recently shared his thoughts on the dramatic dairy changes in the DMC provisions in Title I.

“The highest margin levels for Tier I production are 9.50, up from $8. This is a big increase in coverage and a major change in payment levels for dairy. They lowered premiums at the same time and gave discounts,” he said. “It is clear that Congress wants this to be the dairy policy and they are trying to make it as attractive to producers as possible.”

Zulauf and Christopher Wolf, with the Michigan State University Department of Agricultural, Food, and Resource Economics, took an in depth look at the significant changes to the dairy sector in the Agricultural Improvement Act of 2018. Here are their observations from Dairy Provisions in the 2018 Farm Bill.

  • This confirms a strong commitment to dairy policy based on the margin between milk prices and feed costs, not the price of milk and milk products as characterized dairy support policy prior to the 2014 farm bill.
  • The 2018 dairy policy changes are clearly designed to increase payments to dairy farms, likely driven by concerns over financial stress in the U.S. dairy sector.
  • The 2018 dairy policy changes most benefit small dairy farms in terms of dollars per hundredweight.
  • When measured by percent change in profit or loss, mid-size dairies appear to benefit most.
  • The analysis suggests that the 2018 dairy policy changes do not appear to alter the economies of size forces at work pressing dairy farms to get larger or differentiate out of commodity milk production. For example, no farm size has 2014-2017 losses turned into profits.
  • The 2018 dairy policy changes do, however, raise a policy issue of potentially great importance: “Is DMC providing so much support that it increases the economic incentive to produce milk and/or reduce the willingness of financially stressed dairy farms to leave the sector?” To the extent the future reveals a “yes” answer, more milk production means lower milk prices and thus higher cost of the DMC program to the Federal government. Emergence of this outcome could mean that, in its desire to help financially struggling dairy farmers, Congress has created a DMC program that may cost so much that political friction for change emerges. In the past, this type of dairy policy has often resulted in various programs to buy out dairy herds. In short, whatever the future holds, DMC will likely be watched closely by both supporters and detractors, both within and outside the U.S. dairy sector.

Ohio State University Program Manager for the Farm Management Program Ben Brown also urges caution with big farm bill wins for the dairy industry.

“If I’m a dairy producer, I am happy with the program changes that were made and the refunds that will help with cash flow,” Brown said. “But there is a fundamental debate about the role of government in agriculture. The challenge for dairy is to have a program that meets your needs and operates in an effective way, but you don’t want to go so far that the next farm bill they come back and make big changes the other way because they felt it went too far. It is a like a pendulum that, if it swings too far, can swing opposite the other way. A prime example of this is what cotton had in the early 2000s. The next go around they were left completely out of the farm bill.”

There are also farm bill livestock perks outside of Title I, Brown said.

“For all of livestock there is actually the inclusion of the National Animal Preparedness and Response Program in the Miscellaneous Title. This is the really the first time we have seen the Miscellaneous Title have the biggest increase in funding compared to all of the other titles. At least we can’t find it. We went back to the ‘96 Farm Bill and we haven’t found one yet that had the Miscellaneous Title with the biggest increase in funding. Part of the reason that was such an increase was the inclusion of this program,” Brown said. “Livestock producers, for a number of years, have been advocating for a vaccine bank in this program — a storage facility for the diseases and the vaccines for them. They have been advocating for $150 million a year. The farm bill is funding it for $150 million over 10 years, so by far less than what livestock groups have asked for or wanted. But I think it is a positive direction because the first thing is always getting your foot in the door and I think this does that.”

Growing global disease concerns help set the political stage for the inclusion of the National Animal Preparedness and Response Program, Brown said.

“One reason we saw this is what we are seeing in Asia with the African Swine Fever. That is a very tangible issue that helped get that into the farm bill,” Brown said. “The next phase is implementation, and we don’t know how that will work yet, but this is a step in the right direction.”

The Miscellaneous Title also includes provisions for the cleaning and distribution of wool and measures to help young farmers.

“Congress has been working on the barriers for entry for young farmers and ranchers. There was a report in the 2014 Farm bill that outlined the problem, but there was no definite policy to work on fixing the problem,” Brown said. “This farm bill puts around $43 million a year into a young farmers and ranchers program to see if they can bolster some enrollment for young farmers. There are some states trying programs that could be part of our national policy. Iowa has a program that defers taxes for farmers who sell land to a young farmer. We’ll have to see what comes of this. I think this is the first step. I think this is the foot in the door that could be a really positive thing down the road.”

Even though it has been signed by President Trump, there is still plenty of work yet to be done with the implementation of the bill.

“The implementation is as important or more important than getting the farm bill passed. We’ll have to see how some of these things get implemented and if they are more relevant or less relevant based on how this goes. This is a win for livestock in this farm bill,” Brown said. “Given the large voting margins, I think there was something in this bill that appealed to everybody, whether you’re living in a rural area or an urban area.”

 

 

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