As 2017 draws to a close, Congress’ top priority is overhauling the current federal tax code. The U.S. House of Representatives and Senate each has passed their own tax reform bills, and are now reconciling the two versions to send a final bill to President Trump’s desk before the holidays. NMPF is working closely with members of Congress to shape the massive, complicated legislation so that it delivers a positive outcome for dairy farmers and their cooperatives.

NMPF is working with others in agriculture to preserve the benefits that farmers and cooperatives enjoy from the Domestic Production Activities Deduction (DPAD), also known as Section 199.  NMPF has long supported this deduction, which cooperatives claim on the proceeds from sales of agricultural products like milk.  Cooperatives pass through a majority of the benefit – nearly $2 billion nationwide – directly to their farmer owners, and reinvest the remaining proceeds in infrastructure improvements to help both the farmer and the cooperative.

While the House and Senate bills both repeal DPAD, the Senate legislation allows cooperative members to claim a new 23-percent deduction on their taxable income for qualified cooperative dividends, which refers to patronage dividends, per-unit retain allocations, qualified written notices of allocations, and similar amounts. Cooperatives could also claim the 23-percent deduction on taxable income, but it would be limited to 50 percent of their wages.  NMPF is attempting to improve these provisions to ensure that the final tax reform legislation continues to recognize the unique nature of how cooperatives are taxed.

In addition to DPAD, NMPF is working on several other issues in the legislation of importance, including:

• Estate Tax Relief – NMPF supports repealing the federal estate tax, which penalizes the transfer of farms between generations of family members. The House and Senate bills both make additional progress on this issue. The House doubles the existing exemption to $11 million for individuals and $22 million for couples, and fully repeals the tax after 2023. The Senate similarly doubles the exemption levels, but leaves the tax in place.  Importantly, both bills preserve a full stepped-up basis for inherited property, thereby avoiding what could have been another tax increase to offset repealing or reducing the estate tax.
• Depreciation – Both the House and Senate bills would allow farms and other businesses to immediately write off 100 percent of qualified property costs through 2022. Current law allows businesses a 50-percent write-off for 2017, which decreases in the coming years.
• Expensing – The House and Senate take different approaches to expanding the Section 179 provision made permanent by the NMPF-backed 2015 PATH Act. The House bill would temporarily increase the maximum allowance from $500,000 to $5 million through 2022, and would expand the provision to cover used and new equipment. The Senate bill would permanently adjust the maximum allowance to $1 million, but would not expand the provision to include used equipment.
• Interest Deductibility – Both bills attempt to preserve the business interest deduction for most farmers. The House bill allows farms with less than $25 million in annual receipts to continue to deduct interest expenses, while the Senate bill allows farms with less than $15 million in annual receipts to continue to do so. However, the Senate bill exempts farms from that dollar limit if they agree to follow an alternative set of depreciation rules to offset the cost.
• Cash Accounting – Both the House and Senate measures would continue to allow farms to use cash accounting.
• Like-Kind Exchanges – Both the House and Senate would limit the use of Section 1031 like-kind exchanges to real property, removing their use for equipment.
• Environmental Stewardship – The House and Senate bills both phase down the Section 48 Investment Tax Credit is after several more years, per the 2015 PATH Act. Given the decision to let this tax credit expire, the Agriculture Environmental Stewardship Act to expand Section 48 to cover nutrient recovery systems and digesters was not incorporated into either chamber’s bill. NMPF will seek other legislative opportunities to address this issue over the coming months.

As the House and Senate work this month to prepare the final tax reform legislation, NMPF will remain closely engaged in seeking the best possible results on these issues.

I recently spent several days in Mexico City, which hosted the fifth round of the North American Free Trade Agreement (NAFTA) negotiating sessions, just before Thanksgiving. Following conversations there with lead negotiators from the United States, Mexico and Canada, I am cautiously optimistic about where things stand, while remaining concerned about the damage that withdrawal from this agreement would impose on America’s dairy farmers and processors.

There is reason for some optimism because, despite concern over the huge differences between the United States and our most important trading partners on some very big, difficult issues, we started to see signs in Mexico City of incremental progress. Additionally, while President Trump’s threat of withdrawal from NAFTA cast a pall over previous negotiating rounds, there was less focus on that threat as negotiators tried to move forward on some of the less controversial issues.

Our organization has worked hard to advance dairy-specific goals as priority areas for NAFTA 2.0, and we’re very pleased those goals are strongly reflected in key provisions of the U.S. government’s proposal.  We’ve repeatedly stressed that for NAFTA to generate a positive outcome for the U.S. dairy sector, the agreement must end Canada’s new Class 7 pricing scheme and provide U.S. dairy access to customers and markets north of our border. Canada is reluctant to bend on these issues, but the Trump Administration made clear in its updated negotiating objectives, released shortly before last month’s meeting, that action on these two issues is critical.

To gain a final agreement, the Ottawa government will eventually have to recognize that change in their dairy policies is needed.  Even they know that a free trade agreement is about reducing trade barriers, not erecting new trade-distorting ones like Class 7.

I am also reassured by how high-profile and impactful our parallel message on NAFTA has been: that nothing be done that would jeopardize our strong dairy trade with Mexico, including any harmful actions by Mexico on geographical indications (GIs) in their parallel trade negotiations with the European Union.

In scores of conversations with our trade negotiators and members of Congress, we have continually reminded officials that damaging our $1 billion-plus-per-year export market – a market specifically created by NAFTA – would be disastrous for America’s dairy farmers.

On GIs, we are very pleased that the U.S. government has communicated clearly to Mexico that any loss of market access into Mexico by sanctioning the EU’s attempted confiscation of common names such as asiago, gorgonzola and many other cheeses is unacceptable.

For U.S. agriculture as a whole, our collective customer base in Mexico has become an invaluable asset, one that would be placed at great risk if tariff-free access were to change. In a letter sent in October to Commerce Secretary Wilbur Ross, NMPF joined dozens of other farm groups in reminding the administration that the United States sold $43 billion worth of food and agriculture goods to Canada and Mexico last year, making our NAFTA partners the largest foreign consumers of U.S. agricultural products. We emphasized that a U.S. withdrawal from NAFTA would also disrupt critical industry supply chains, close markets, eliminate jobs, and increase prices for many of the basic goods purchased by American consumers.

There are certainly still reasons to be concerned. Specifically, while these negotiations have clearly spelled out each nation’s goals and interests, they have yet to resolve any of the stickiest points. Issues largely outside of agriculture, like rules of origin, dispute settlement, government procurement and a proposed sunset clause, are major challenges that the three countries must address.

But we saw a ray of hope on these tough issues when Mexico’s Economic Minister proposed an alternative to the administration’s much-criticized sunset clause. Rather than simply rejecting the U.S. proposal that NAFTA terminate after five years, Minister Ildefonso Guajardo indicated a desire for periodic reviews to assess how the treaty is working. Building on that positive development, the U.S. seemed to suggest some flexibility and a possible willingness to adjust its position.

If the parties can come to agreement on this issue, it would portend the possibility of compromise on some of the other tough issues. It’s that kind of momentum that is needed to bring these negotiations to a successful conclusion.

Negotiators will get together again later this month in Washington, with more formal talks on the agenda in early 2018.  But the clock is ticking. With Mexico holding presidential elections in June, it is generally viewed that major progress toward an agreement must be achieved by the end of March. The longer this process drags on, the greater the likelihood that an impasse could derail the negotiations. So this recent progress – though small – is important.

All negotiations must carefully calibrate competing agendas and achieve balanced trade-offs. Hopefully the NAFTA parties are beginning to recognize that progress comes only through dialogue that strengthens the pact by addressing its shortcomings.  NAFTA can be modernized and improved, and a key part of that for our industry is fixing a major shortcoming: Canada’s egregious dairy policies – both on Class 7 and market access.

In addition, the final agreement must maintain the great progress that the existing NAFTA agreement has created for our growing dairy trade with Mexico, our most important market.

While we have a long way to go, and the negotiations could still founder, the small signs of progress are positive. Now is the time to pick up the pace.

Washington, D.C. – The nation’s two leading dairy organizations applauded Agriculture Secretary Sonny Perdue on Wednesday for allowing school districts to offer low-fat (1%) flavored milk as part of the National School Lunch and School Breakfast programs. An interim final rule implementing the regulatory changes needed to reinstate low-fat flavored milk in schools was announced today on the Federal Register site and goes into effect for the 2018-2019 school year.

The regulation implements changes that Secretary Purdue proposed earlier this year to streamline the process by which schools can serve low-fat flavored milk without first obtaining a special exemption. In 2012, the U.S. Department of Agriculture eliminated low-fat flavored milk as an option in the school meal and a la carte programs, which resulted in a large drop in milk consumption in schools. Students consumed 288 million fewer half-pints of milk from 2012-2015, even though public school enrollment was growing.

“We appreciate the Secretary’s understanding that the regulatory process needed to move quickly so schools may include low-fat favored milk in their menu planning and procurement processes,” said Michael Dykes, D.V.M., president and CEO of the International Dairy Foods Association (IDFA). “Today’s action will help reverse declining milk consumption by allowing schools to provide kids with access to a variety of milk options, including the flavored milks they enjoy.”

“Secretary Perdue’s willingness to provide greater flexibility to schools recognizes that a variety of milks and other healthy dairy foods is critically important to improving the nutritional contributions of child nutrition programs in schools,” said Jim Mulhern, president and CEO of the National Milk Producers Federation (NMPF). “The math here is quite simple: More milk consumption equals better nutrition for America’s kids.”

Earlier this year, Congress passed the FY 2017 omnibus appropriations bill that included provisions to allow schools to offer low-fat flavored milk.  In addition, Reps. Glenn Thompson (R-PA) and Joe Courtney (D-CT) have introduced legislation, the School Milk Nutrition Act, to expand the ability of schools to offer various milk options.  Their ongoing efforts in Congress have led to a greater awareness of the milk shortfall challenge in schools that today’s USDA action begins to address.

In a joint letter last June, IDFA and NMPF urged Secretary Perdue to quickly finalize plans for low-fat flavored milk’s return to school menus for the 2018-2019 school year.

The publication of the interim final rule will allow school districts to solicit bids for low-fat flavored milk next spring before the 2018-19 school year begins, giving milk processors time to formulate and produce a low-fat flavored milk that meets the specifications of a particular school district. The USDA action now allows schools to offer low-fat flavored milk during the next school year without requiring schools to demonstrate either a reduction in student milk consumption, or an increase in school milk waste.

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The National Milk Producers Federation (NMPF), based in Arlington, VA, develops and carries out policies that advance the well-being of dairy producers and the cooperatives they own. The members of NMPF’s cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of dairy producers on Capitol Hill and with government agencies. For more on NMPF’s activities, visit our website at www.nmpf.org.

The International Dairy Foods Association (IDFA), Washington, D.C., represents the nation’s dairy manufacturing and marketing industries and their suppliers with a membership of nearly 525 companies within a $125-billion a year industry. IDFA is composed of three constituent organizations: the Milk Industry Foundation (MIF), the National Cheese Institute (NCI) and the International Ice Cream Association (IICA). IDFA’s nearly 200 dairy processing members operate more than 600 manufacturing facilities and range from large multi-national organizations to single-plant companies. Together they represent more than 85 percent of the milk, cultured products, cheese, ice cream and frozen desserts produced and marketed in the United States. Visit IDFA at www.idfa.org.

From Emily Meredith, Chief of Staff, NMPF:

ARLINGTON, VA – “The National Dairy FARM (Farmers Assuring Responsible Management) Program – like farmers and residents across the state of Florida – is outraged and saddened by the recent videos showing improper animal care practices on Florida dairy farms. The dairy industry cannot succeed without healthy and well-cared for animals, and animal abuse of any kind is never tolerated.

“All of the Okeechobee County farms appearing in the video are members of Southeast Milk (SMI), a dairy cooperative that has been a participating member of the National Dairy FARM™ (Farmers Assuring Responsible Management) Program since 2016.

“The FARM Program, established in 2009 by the National Milk Producers Federation, comprises dairy farmers, cooperatives and processors across the United States. The program, whose participating farms produce 98% of the nation’s milk supply, expects its members to follow rigorous guidelines for dairy farm animal care practices. In helping members keep pace with the latest available veterinary science and with evolving agriculture technology, the FARM Program creates a culture of continuous improvement.

“In the coming weeks, the FARM Program’s animal care experts will work with SMI to accelerate the adoption and implementation of the newest iteration of the program, Version 3.0. This version requires:

• Enhanced training of workers,
• Stricter requirements for working relationships with veterinarians, and
• Stronger corrective action plan requirements for farms that are not meeting guidelines and standards.

“The FARM Program is also exploring options to make more on-farm monitoring solutions and employee training and management solutions even more available and accessible to all farmers. Dairies are 24-7-365, always-on facilities, and it is essential for farmers and farm managers to be able to evaluate every part of day-to-day operations to ensure compliance with FARM Program training and best practices.

“This past month has been a sobering reminder of the need not just for continuous improvement in our on-farm best practices, but also for continued adherence to the standards established by our industry.”

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The National Milk Producers Federation (NMPF), based in Arlington, VA, develops and carries out policies that advance the well-being of dairy producers and the cooperatives they own. The members of NMPF’s cooperatives produce the majority of the U.S. milk supply, making NMPF the voice of dairy producers on Capitol Hill and with government agencies. For more on NMPF’s activities, visit our website at www.nmpf.org.

 

This month’s CEO Corner is a video of Jim Mulhern’s presentation at the recent 2017 NMPF annual meeting in Anaheim, California.

Jim provides an overview of the federation’s activities with its members, checkoff groups, and other farm and dairy organizations.  These include making needed improvements in the farm bill; reforming immigration policy; protecting and expanding export opportunities; prompting the FDA to enforce food labeling standards; and challenging the fear-based marketing claims made about modern farming practices.

For more on NMPF’s 2017 annual meeting, click here.

Months of legal discussion over whether and how livestock farms must comply with air emissions regulations have yet to be resolved in court, and National Milk remains firm in its recommendation that farms that could be impacted should not file emissions reports until the legal process is complete.

NMPF has been actively engaged with the Environmental Protection Agency, Congress and other animal agriculture organizations to find a solution to the problem created by the U.S. Court of Appeals’ decision to end the nine-year-old federal exemption for reporting air emissions from manure. In 2008, EPA exempted all livestock operations from reporting under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) regulation, and exempted all but the largest livestock operations from reporting under the Emergency Planning Community Right to Know Act (EPCRA).

However, last April, a federal appeals court ended EPA’s exemption for reporting of livestock air emissions under CERCLA/EPCRA, following legal challenges made by activist groups. EPA sought and was granted additional time from the court to delay the effective compliance date so that the agency could develop materials to help farmers understand their obligations. In late October, the EPA filed a motion requesting that the stay remain in place until January 17, 2018.  The appeals court has yet to act on that motion, and several others, even though the Nov. 14 court-established compliance deadline has passed.

Based on our interpretation of the regulations and the various court findings, NMPF believes any reporting now would be premature as the industry waits for additional legal direction.  Confirming NMPF’s guidance, the EPA’s website concurs that “farms with continuous releases do not have to submit their initial continuous release notification until the D.C. Circuit Court of Appeals issues its order, or mandate, enforcing the Court’s opinion of April 11, 2017.  No reporting is necessary until the mandate is issued.”

NMPF maintained its full-court press on its NAFTA priorities as negotiations over the North American Free Trade Agreement (NAFTA) continue this month. NMPF President and CEO Jim Mulhern and Senior Vice President for Strategic Initiatives and Trade Policy Jaime Castaneda will attend the next round of negotiations, which started Nov. 15 in Mexico City, where they will continue to press trade officials to open Canada’s dairy market and maintain existing access to Mexico’s.

As a prelude to this weekend’s fifth round of talks, NMPF participated in an early November roundtable discussion with House Agriculture Committee members that was organized by Chairman Mike Conaway (R-TX) and Ranking Member Collin Peterson (D-MN). The roundtable was part of the committee’s continued focus on obtaining input from the agriculture community about the stakes for farmers in the NAFTA talks.

Shawna Morris, NMPF’s vice president for trade policy, was one of a handful of farm association executives there discussing the importance of the agreement with Mexico and Canada to America’s dairy farmers. Morris told the House committee that “U.S. dairy farmers cannot afford to lose NAFTA or see new restrictions on U.S. agricultural exports put in place. We support mending but not ending NAFTA by preserving the market access established under the agreement already and focusing on how to further deepen our most important FTA.”

Following the discussion, Rep. Conaway noted that “All parties today were on the same page – NAFTA is important to agriculture and agriculture must remain a top priority in the negotiations. I am hopeful that both Canada and Mexico will come to the next round of negotiations prepared to have substantive conversations.”

Rep. Peterson expressed his concerns about the impact Canada’s supply management program is having on U.S. dairy and poultry producers: “I have expressed my concerns to the administration and urge them to continue working to get these farmers a fair deal. We can’t go backward,” he said.

The critical importance of preserving the agreement and building upon it has been a key talking point that NMPF and numerous other organizations and companies have hammered home in letters to Commerce Secretary Wilbur Ross in October and to America’s governors in mid-November.

Strategies to create more opportunities for the U.S. dairy industry were a dominant theme as over 800 dairy producers, cooperative leaders and industry stakeholders gathered at the Disneyland Hotel in Anaheim, Calif., last month to attend National Milk’s 101^st annual meeting, and the joint meeting of NMPF, the National Dairy Board and United Dairy Industry Association. about how. As marketing challenges abound, both domestically and internationally, attendees heard from their policy and promotion organizations about the importance of increased collaboration across the dairy community, pursuing innovative new marketing strategies, and promoting dairy’s critical role in people’s diets and its place in the supermarket.

This year’s meeting was themed “We Are Undeniably Dairy,” referencing the campaign launched earlier this year that celebrates dairy’s undeniable goodness in the areas of nutrition, sustainability and community involvement.

“We have to stop looking at other U.S. cooperatives as if we’re competitors,” said NMPF Chairman Randy Mooney in his opening remarks. “We have to recognize that in a globalized dairy market, our competitors are outside of America’s borders, and we have to work together to fight for a larger share of those markets.” Mooney said NMPF’s members need to find more ways to collaborate in the coming years. He said a visit to Europe earlier this summer by NMPF’s Officers convinced him that U.S. dairy cooperatives must redouble efforts to work together, as even the domestic dairy market is feeling pressure from foreign-based entities expanding their presence in the United States.

NMPF’s annual Town Hall event featured presentations from staff on the latest policy issues affecting the industry, including immigration reform and the ongoing negotiations over the North American Free Trade Agreement. Later in the day, NMPF President and CEO Jim Mulhern discussed the organization’s work this year to improve the dairy safety net in 2018 Farm Bill, as well as its new campaign to push back on fear-based food marketing, Peel Back the Label.

Trace Sheehan, co-producer of the documentary “Food Evolution,” was the meeting’s keynote speaker. The film, which centers on the contentious debate over genetically modified organisms (GMOs), was screened for attendees later that evening.

The NMPF Board of Directors welcome four new members during its meeting: Tom Beringer of Bongards’ Creameries, Leon Berthiaume of St. Albans Cooperative Creamery, Brad Nosbush of First District Association, and Brian Rexing of Dairy Farmers of America. NMPF also honored retiring board members Ralph McNall of St. Albans Cooperative Creamery and George Mertens of Dairy Farmers of America.

In another meeting highlight, NMPF’s annual cheese competition was won by a pepperjack cheese made by Michigan Milk Producers Association in its Middlebury, Ind., processing plant. Dairy Farmers of America’s communications team was awarded “Communicator of the Year” in the annual NMPF communications competition. The 2018 Young Cooperator Advisory Council also selected its leadership for the upcoming year: Justin and Jennifer Malott of Maryland & Virginia Milk Producers Cooperative Association were elected as the new Chaircouple; Josh and Emily Reinhardt of Prairie Farms were elected Vice Chaircouple; and Nate and Jenny Elzinga of Michigan Milk Producers Association were elected Secretary Couple.

At its 2017 annual meeting in Anaheim, Calif., NMPF’s Board of Directors endorsed a proposal to improve the price risk management of fluid milk in a way that also captures for farmers the monetary value of the current fluid milk pricing system. The proposal will be one element of a larger package of farm bill risk management improvements that NMPF will ask Congress to approve in the coming months, as the House and Senate Agriculture committees begin to formulate the next farm bill.

The proposal approved by the board was developed earlier this year by a task force of NMPF members, who engaged in discussions with members of the International Dairy Foods Association to find a mutually acceptable approach to improving the risk management of Class I milk while preserving the farm-level revenue that the Class I formula generates for producers’ milk checks.

The current classified pricing system, established in 2000, uses the higher of the Class III or IV price in each month, plus a location-specific differential in each milk marketing order region, to set the monthly Class I price. Use of the “higher of” makes it difficult for Class I milk handlers to hedge risk because they don’t know which class will be the mover for a particular month. However, the “higher of” calculation as the Class I mover has benefited dairy producers since its implementation, and NMPF task force members made clear that value needed to be reflected in any alternative pricing formula going forward.

Under the terms of the agreement, which will ultimately require approval by Congress, the current Class I system would be adjusted using the simple average of Classes III and IV as the Class I mover.  This will reduce some of the unpredictability of pricing beverage milk, as it gives processors the ability to hedge Class I milk prices using Class III and IV futures.

To compensate for any loss of the “higher-of” pricing approach, this proposal applies a $0.74/cwt increase to the monthly skim milk value in each federal milk marketing order. This represents the average value of the “higher-of” system dating back to 2000. The adjustment is needed so that moving to an average of the two market-determined manufacturing class prices does not diminish the contribution to the blend price provided by Class I revenue.

“This action will improve price risk management by reducing some of the unpredictability of beverage milk prices, as it gives fluid milk handlers and their customers the ability to hedge milk prices using the futures market,” said Jim Mulhern, president and CEO of NMPF. “This change locks in the value of the ‘higher-of’ pricing approach, protects the integrity of the Federal Order system, and aligns the policy interests of dairy farmers and processors as we begin work with Congress on a new farm bill.”

NMPF applauded the efforts of the House Judiciary Committee and its Chairman Bob Goodlatte (R-VA) last month after the committee approved legislation that would establish an entirely new visa program for the agriculture workforce.

The Agriculture Guestworker (AG) Act (H.R. 4092) would replace the existing H-2A temporary visa program, which dairy farmers largely cannot use because their labor needs are year-round, not seasonal. In addition, it would allow currently undocumented farm workers to apply for H-2C visas so that they can participate legally in the agricultural workforce. The measure was developed by Goodlatte after NMPF provided input to the committee about the workforce needs of America’s dairy farms.

NMPF President and CEO Jim Mulhern said the AG Act would help advance efforts to assure a stable, dependable and legal workforce for America’s dairy farmers, now and in the future. “The AG Act is the first step in a long process of establishing a workable solution for dairy farmers’ labor needs,” he said. “While it is not the ideal bill, it does recognize that we must improve on the current system by pursuing a new approach to matching the supply and demand for workers in U.S. agriculture.”

He added that the bill merits the support of America’s farming community, and its refinement and passage must be a priority for congressional leaders. It will also be important for dairy farmers to continue making their voices heard on this critically important issue, he said.