Third generation Arizona dairy farmer Paul Rovey has one basic wish for the 2007 federal farm program – don’t transfer the milk income loss contract (MILC) provision from the existing 2002 farm law to the ’07 successor legislation. Yet he conceded the new Democrat-controlled Congress would likely include the MILC into the final ’07 farm formula.
Rovey is in the minority in his MILC stance. Most of the nation’s dairy farmers are smaller-scale producers who gain the most from the MILC provision, he said. But larger dairy farmers like the Rovey family produce the majority of the nation’s milk supply but don’t gain as much.
“A big part of the dairy world thinks the MILC is a good thing,” said Rovey. “I don’t receive the benefits the smaller producers get.”
Rovey’s leadership roots in the dairy industry are deeply planted. A third generation dairy producer, he is the chairman of Dairy Management Inc. (DMI) and the vice-president of the United Dairymen of Arizona (UDA).
Yet he made it clear his viewpoints on MILC and the other following issues are strictly his - not in any way tethered linked to the DMI or UDA.
“The MILC payment program is not equitable across all sizes of dairy operations across the country,” said Rovey. “It favors smaller dairy farmers with milk production up to 2.4 million pounds per year. Those producers have a financial advantage and can receive higher milk price supports than larger dairies.” Rovey Dairy in Glendale, Ariz., produces about 42 million pounds annually.
Rovey said the inequitable MILC payment is just one part of the current farm law that makes current dairy policy very confusing. His suggestion - a MILC-less 2007 farm law.
According to the U.S. Department of Agriculture’s Farm Service Agency (FSA), the 2002 farm bill (a.k.a. the Farm Bill the Farm Security and Rural Investment Act of 2002) authorized the MILC program through Sept. 30, 2005. The Agricultural Reconciliation Act of 2005 reauthorized the program through Sept. 30, 2007. The extended program period is called MILCX. The program has no set funding level.
The MILC program compensates dairy producers when domestic milk prices fall below a specified level. The FSA makes MILC payments on a monthly basis when the Boston Class I milk price falls below $16.94 per hundredweight. When the Boston milk price exceeds $16.94, the FSA makes no MILC payments to the dairy operation, and production for that month doesn’t count towards the operation's maximum eligible production.
The FSA issues payments to a maximum of 2.4 million pounds of milk produced and marketed by each operation per fiscal year. This is where Rovey sees the problem. Producers see no payment over the 2.4 million pound base.
Rovey who milks 2,000 cows, mostly jerseys, also sees a trade problem with the MILC program. As the 149-member nation World Trade Organization continues to ratchet down on farm support payments across all sectors of agriculture, Rovey says the MILC program violates the current WTO movement toward reducing farm support payments that encourage milk production.
Colored box concept
According to the WTO, agricultural subsidies are evaluated based on the colored box concept:
Amber box: Includes all domestic support measures considered to distort production and trade with some exceptions. These include measures to support prices or subsidies directly related to production quantities.
Blue box: This is the “amber box with conditions” designed to reduce distortion, the WTO says. Any support that would normally be in the amber box is placed in the blue box if the support also requires farmers to limit production. Currently there are no limits on spending on blue box subsidies.
In current WTO negotiations, some countries want to keep the blue box as is because they view it as a crucial means of moving away from distorting amber box subsidies without causing too much hardship. Others wanted to set limits or reduction commitments - some advocating moving these supports into the amber box.
Green box: In order to qualify, green box subsidies must not distort trade, or at most cause minimal distortion, the WTO says. Subsidies must be government-funded (not by charging consumers higher prices) and must not involve price supports. They tend to be programs not targeted at particular products, and include direct income supports for farmers that are not related to (are “decoupled” from) current production levels or prices.
Rovey said, “I think the MILC fits into the amber box which encourages production. In the green and blue, you can have payments but they do not encourage production levels.” He said all WTO member countries have a problem with the U.S.’s MILC program. The WTO is conveying that every country with an amber box program must change. New Zealand is the only country without dairy supports that encourage production, Rovey said.
With Congress now led by the Democratic Party, the 2007 farm program will be developed under new leadership of the House and Senate agriculture committees. The reins of the Senate Agriculture Committee now are in the hands of Sen. Tom Harkin of Iowa, while the House chair is Rep. Collin Peterson of Minnesota.
Rovey is afraid the Democrats will lean toward the continuation of the MILC payment but he’s not giving up hope.
“You sometimes hear congressmen say they will not devise a farm bill around the WTO. If they don’t have that in the back of their minds and get dairy and other farm bill provisions somewhere in line with where that might land, then world trade is goofed up,” he noted. “Then you don’t have access to world markets and trade around the world happening on a workable basis.”
Besides eliminating the MILC, Rovey believes the next farm program should continue the dairy safety net included in the 2002 law. The safety net establishes a price floor that keeps prices from hitting rock bottom.
Rovey is passionate about farm programs which don’t create artificial production. He frowns on dairy farmers who produce milk for a farm program, which has happened in the past.
“Milk should only be produced for a market.”