Current Issues in Dairy Policy Hal Harris, Clemson University ERS Dairy Policy Workshop

Current Issues in Dairy Current Issues in Dairy PolicyPolicy

Hal Harris, Clemson UniversityHal Harris, Clemson UniversityERS Dairy Policy WorkshopERS Dairy Policy Workshop

Washington, DC

September 2002

Dairy Programs in 2002 Farm Bill

DPSP Extended DEIP Extended MILC Created (through FY95)

Other Dairy Provisions

Promotion Assessment, Imports Fluid Milk Promotion Mandatory Price Reporting Indemnity Payments Studies

Other Provisions

Conservation, Environment Feedgrain, oilseeds Energy Disaster Relief

Federal Orders Ignored

Pooling Higher of III or IV Number of Classes Imports/Exports

Interrelated Issues

Support price level Program cost WTO compliance Tilt Equity Efficiency DPSP and MILC? Payment Limits

Support Price Level

Is $9.90 too high?

Program Cost

Is $2.0-$3.0 bil/year too high?

CCC Dairy Program Cost

-$250$0

$250$500$750

$1,000$1,250$1,500$1,750$2,000$2,250$2,500

94 95 96 97 98 99 00 01 02 03

$M

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WTO Compliance

$19 bil Amber Box Limit Dairy is Largest Component ($4.3 billion

in 1998) By 2005 Dairy Contribution Could Approach $6 bil.

Tilt

Little Room to Maneuver

Equity, Efficiency

MILC Penalizes Most Efficient Operations, Regions

Operations With Over 500 Cows Lose Money ($.20-$.30 decline in price)

Retards Loss of Small Farms

Farming the Program

MILC returns $200-$300/cow You do the arithmetic

DPSP plus MILC

Cumulative Effect

Result

High Production, Low Prices Considerable CCC Purchases Higher Program Cost

“Stephenson’s Irony”

Results of the Program – Prove the Need for It!

Payment Limits

Crop Farms, Nominally– Countercyclical $65,000– Direct $40,000– Market Loan, LDP $75,000

$180,000

But 3-Entity Rule, Certificates, No Effective Limit

Dairy Limit Per Farm

$24,000

Winners– Small dairies– Upper midwest– Consumers– Processors

Losers– Large dairies (over 500 cows)– Taxpayers

“Is this policy”Respected Cornell Dairy Economist