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Board of Directors Approves Recommended Changes to Improve Margin Protection Program

March 9, 2017

At their March 7 meeting, the NMPF Board of Directors approved a comprehensive package of recommendations to improve the dairy Margin Protection Program (MPP). If adopted by Congress, these improvements will restore several key elements from the original program as envisioned by NMPF in 2012, and enhance the viability of the program.

The final proposal includes changing the way feed costs and milk prices are calculated, to providing farmers greater flexibility in signing up for coverage. The four-point plan was developed by NMPF’s Economic Policy Committee, and reflects feedback from dairy producers, economists and members of Congress.

“Re-establishing a realistic, effective safety net is a key focus for our membership in 2017, now that we have a comprehensive and well-balanced set of ideas to make it better,” said NMPF Chairman Randy Mooney. “For dairy farmers to have confidence the MPP, we need Congress to make these corrections as soon as possible.”

NMPF developed the MPP following the dairy financial crisis of 2009. It allows farmers to insure against low margins – the gap between milk prices and feed costs – with participants paying higher premiums for higher levels of coverage. After several components of the MPP were altered in the final 2014 farm bill, NMPF began reviewing the program for much-needed changes.

NMPF’s proposal includes a series of adjustments that will affect the way both feed and milk prices are calculated. The most critical change is restoring the feed cost formula to the one originally developed by NMPF. During Congress’ deliberations on the 2014 farm bill, it implemented a 10-percent cut to the weightings of all three feedstuff components (corn, soybean meal and alfalfa hay) of the MPP feed cost formula, based on an analysis by the Congressional Budget Office. The resulting feed formula understates the price to farmers of producing 100 pounds of milk, thereby overstating the real margins farmers are experiencing.

NMPF also recommends changing how USDA determines the individual monthly prices of corn, soybean meal and hay, as well as how it measures the national average price farmers receive for milk.

Another element in need of change involves the accuracy and affordability of MPP premiums. NMPF is asking for an adjustment to premiums paid into the program for coverage above the basic, $4 margin level. This is necessary to incentivize additional participation by farmers.

Other recommendations include determining margins monthly, rather than bimonthly, and issuing payments on a more frequent basis when margins drop. NMPF also suggests placing the deadline for annual enrollment toward the end of the year prior to the calendar year for which they want coverage.

Finally, NMPF recommends that the Livestock Gross Margin (LGM) program be expanded and that producers be allowed to use both the MPP and LGM simultaneously.

To help NMPF strengthen its message to Congress, Kansas dairy farmer Lynda Foster testified last month on improvements to MPP and other farm policy issues like trade and immigration.

During a farm bill hearing on Feb. 23 at Kansas State University, Foster, a member of Dairy Farmers of America, told members of the Senate Agriculture Committee that “dairy farmers deserve better” than the current MPP.

“We need Congress to act swiftly this year and make the necessary changes in order for our industry to be able to protect ourselves from the bad year that could arrive at any time, even in years where experts are predicting higher margins,” she said.

Following the board’s approval, NMPF’s members will encourage members of the Senate and House to incorporate these changes into the farm bill as soon as possible.