News for Dairy Co-Ops

Last week, the Department of Labor (DOL) withdrew its contentious proposed rule restricting the work that children could do on farms. In a statement issued by the DOL, it was made clear that the proposed rule would not be pursued for the duration of the Obama Administration.

NMPF was encouraged by the Department’s recognition that the path it was on with this proposal was an affront to millions of family members on farms and ranches across America. Many of them had objected to what the Labor Department was planning to do, and they voiced their concerns to the DOL, as well as to Congress. The withdrawal of the proposal “is a victory for common sense,” according to NMPF President and CEO Jerry Kozak.

The proposed child labor rule would have changed the definition of the “parental exemption,” changed the student learner exemption, and significantly redefined what practices would be acceptable for youth under the age of 16 to participate in. These changes drew objections from NMPF, along with other major agricultural organizations, because of the significant impact the change would have had on rural communities and families. Instead, the DOL says it will work with rural stakeholders to develop education programs to reduce accidents to young workers and promote safer agricultural working practices.

The Commodity Futures Trading Commission (CFTC) approved two final rules on April 18 that will help farmers, cooperative, handlers, grain elevators, and other agricultural businesses avoid unintended regulation under the Dodd-Frank Wall Street Reform Act, which has been a priority for NMPF during the past two years.

The first of these rules defines “Commodity Options” subject to regulation by the Commission. The Commission excluded most of the ancillary “trade options” (including penalties, buyouts, etc.) in contracts whose main purpose is not the option, but to buy and sell physical commodities. This exclusion was in response to comments – including those from NMPF – noting that excessive regulation of trade options in commercial contracts would paralyze American business, and urging CFTC to define an effective exclusion.

The second rule defined “swap dealers.” Many farmer cooperatives, grain elevators, and handlers provide farmers effective specialized risk management services. Initial versions of this rule would have defined such services as “swap dealing,” subjecting the service provider to heavy reporting requirement and limits on their business, driving many of them out of the risk management business, and making effective risk management difficult or impossible for many farmers to find. The final rule 1) provides an exception for bona fide hedging of physical commodity risk, 2) exempts affiliate transactions such as cooperative-member dealing, and 3) provides an additional de minimis exemption for other commodity trading of up to $8 billion in transactions per year. This $8 billion exemption phases down to $3 billion per year, which will allow agricultural businesses to adjust to the new rules.

These rules are the culmination of two years of work by NMPF in making the Dodd-Frank rules manageable for farmers and their cooperatives. This began with ensuring that the original legislation provided for substantial end-user exemptions, and continued through a long series of CFTC notices and rules which NMPF has reviewed and commented upon. Many of these rules, as initially proposed, would have brought agricultural businesses under heavy regulatory burdens, imposed extreme record-keeping requirements, set unworkable position limits, and discouraged many current providers of farm risk management services from continuing in that business. NMPF, along with other agricultural commodity groups, submitted comments, attended meetings, and made a strong case for agriculture’s risk management needs. Ultimately, CFTC recognized these needs and provided for effective differentiation in the rules between speculation and commercial agricultural hedging.

On April 13, the D.C. Court of Appeals issued its decision upholding the Milk Regulatory Equity Act, supported by NMPF and passed by Congress in 2005 to provide for more consistent regulation of milk handlers in the Southwestern United States. Among other things, the law put a size limit on the producer-handler exemption in the Arizona Federal Milk Marketing Order.

The owners of one large producer-handler took the government to court over this change, arguing that the law was an illegal attack on his business alone, and that he was denied due process and equal protection of the law. In its decision, the Court of Appeals agreed with the lower court that the government was well within its rights, based on settled constitutional law, to bring the producer-handler under the same regulation faced by other, competing handlers. According to that decision, such producer-handlers “have no liberty or property interest in the regulatory status quo.” That is, they don’t own the old regulation or have any right to compensation or remedy for its amendment.

Prior to completing work on the Senate Agriculture Committee’s Farm Bill last month, committee staff provided a preview of certain draft titles. NMPF had the opportunity to see an outline of the key aspects of Title II, the conservation title. For the most part, the elements were similar to those included in the failed Super Committee package, which has earned praise from nearly all stakeholders representing agricultural and conservation organizations. Altogether, the legislation would remove $6 billion from the conservation title, while consolidating and simplifying a number of the programs. These provisions are featured in the bill that was ultimately approved by the committee last Thursday.

For dairy farmers, the major priority in the conservation title is to continue a strong Environmental Quality Incentives Program (EQIP), while maintaining the carve-out for livestock at 60 percent. NMPF was also pleased to see additional attention to haying and grazing.

The conservation title would set up four new provisions of the title: Working Lands, Easements, Conservation Reserve Program (CRP) and Partnerships. Here is a brief synopsis of each provision:

Working Lands

Three existing programs would be consolidated into this section, which would include EQIP, Wildlife Habitat Incentives Program (WHIP) and the Conservation Stewardship Program (CSP). WHIP would be folded into EQIP since both programs can be duplicative in their efforts on the farm. WHIP would receive a carve-out of 5 percent of the funding. Again, EQIP would maintain the 60 percent funding carve out for livestock – a major victory for dairy farmers. The CSP program would be simplified and administered on more of a science-based process.

Easements

This section would consolidate the Farmland Protection Program (FRP), Grassland Reserve Program (GRP) and the Wetlands Reserve Program (WRP) into one program, with two program options dealing with agriculture lands and wetlands. An important element of this section is extra attention to haying and grazing, including making permanent a grazing pilot program from the 2008 farm bill. Also, the 2008 farm bill prohibited enrollment of land if ownership had changed during the previous seven years. This has now been changed to two years.

CRP