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New dairy policy plan unveiled in Congress

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WASHINGTON — A plan to revamp the safety net that protects dairy farmers from big dips in milk prices gained new legitimacy — if not promise — in Congress on Friday.

Rep. Collin C. Peterson, D-Minn., the ranking Democrat on the House Agriculture Committee, introduced legislation to redesign a system that many dairy industry experts say did not adequately protect farmers during a 2009 price crisis.

If enacted, Mr. Peterson’s bill would impose new controls on farmers’ tendency to overproduce when milk prices are high and replace a government milk subsidy with a margin insurance program that protects farmers from a combination of low milk prices and high feed costs.

But Mr. Peterson backed off an earlier proposal, never formally introduced as legislation, for a mandatory supply management program that could have reduced farmers’ milk payments when their farms were most profitable and productive. That aspect of the plan will now be voluntary, kicking in only for farmers who buy into the new margin insurance program.

North country producers would lose some key programs that protect them when milk prices are low, but gain new protections that take feed prices into greater account. The new program will save the government about $167 million during the next five years, the Congressional Budget Office estimated.

“If we have another crisis like we had in 2009, when milk prices dropped and input costs skyrocketed, I fear we could lose half our dairies. The dairy safety net did not work then and it won’t work if similar events occur now,” said Mr. Peterson, D-Minn., in a news release.

That crisis sent milk prices paid to farmers tumbling to levels well below the cost of production, although they have since recovered.

Mr. Peterson’s new proposal closely resembles one issued earlier this week by the National Milk Producers Federation, representing dairy farmers’ bargaining cooperatives. His earlier draft also mirrored a proposal from the NMPF.

People on Capitol Hill who work on dairy policy say the supply management plan, called market stabilization, will be the most controversial aspect because it more deeply involves the government in milk markets at a time when free-market conservatives hold sway in the House. Mr. Peterson’s agreement to make that provision optional may reflect that reality.

But Mr. Peterson, who joined with a Republican, Rep. Mike Simpson of Idaho, in the bill’s introduction, also made other moves aimed at limiting government involvement — and expense. He proposed to do away with the Dairy Export Incentive Program, which subsidizes exports. And he kept some aspects of his earlier version, including eliminating a subsidy the government pays farmers when milk prices fall below a federal target and ending the Dairy Price Support Program, which buys excess dairy products.

Whether the lawmakers’ plan can advance far remains to be seen. Mr. Peterson has urged its consideration this year, but the chairman of the House Agriculture Committee, Rep. Frank Lucas, repeated comments he made this summer that any dairy proposal must have support across the industry — and this one still faces criticism from the International Dairy Foods Association, representing milk processors.

“This latest draft seems to represent a movement toward common ground, but I continue to seek a package that’s supported by all sectors of the dairy industry,” Mr. Lucas said in a statement.

Rep. William L. Owens, D-Plattsburgh, said his initial read of the proposal was positive.

In particular, he said he liked the idea of an optional supply management and margin insurance program, which resembles an idea he proposed recently to a less-than-enthusiastic Mr. Peterson. In the interim, Mr. Owens said, the idea appeared to gain traction.

“Different regions need different plans,” said Mr. Owens. “This allows people who want to take the risk to do it.”

Mr. Owens is a member of the House Agriculture Committee and will play a role in crafting the next five-year farm bill next year. The dairy plan is likely to evolve then, unless circumstances change enough to speed its consideration separate from other farm policy.

The IDFA said earlier this week that even an optional supply management system dictated by the government is unacceptable and will push milk prices higher — an outcome the organization has long warned will drive away consumers. The IDFA supports a margin insurance program without such strings attached, said IDFA President and Chief Executive Officer Connie Tipton.

The dairy cooperatives have been pushing hard for a new program that doesn’t rely solely on propping up prices, but takes into account the effect of high feed costs. The margin insurance program would pay farmers when margins narrow between feed costs and milk prices; the supply management program dictates that farmers be paid on less than their average production when those margins grow to a certain point.

Mr. Peterson’s measure also charges farmers anywhere from $100 to $1,000 a year to participate in the margin insurance program, depending how much milk they produce.

In the Senate, Sen. Kirsten E. Gillibrand, D-N.Y., has proposed letting some regions opt out of the market stabilization program if demand for milk outstrips local production, as is the case in New York. She will work on the farm bill as a member of the Senate Agriculture Committee.

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