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Dairy policy in the United States includes both Federal and State
programs. The two major Federal dairy programs are the system of
federal milk
marketing orders and the milk
price support program. Government programs designed to assist
international trade (see below) and provide domestic and international
food aid also affect the dairy industry.
Price Support Programs
The current purchase program for supporting farm milk prices started
with the Agricultural Act of 1949 and has been modestly
modified several times since then. The Commodity Credit
Corporation (CCC) will buy any butter, Cheddar cheese, or
nonfat dry milk that meets specifications and that is offered
to it at current support purchase prices. The support purchase
prices for each of the three products are set to ensure
that plants of average efficiency can pay to producers,
on average, a manufacturing milk price that is at least
the milk support price, which is $9.90 per hundred pounds
(cwt). Under the 1996 Farm Act, the purchase/price support
program was to have ended on December 31, 1999, but was
twice extended for 1 year (to the end of 2000 and then 2001),
with a support price of $9.90 per cwt. The Farm Security
and Rural Investment Act of 2002 (2002 Farm Act) continues
the milk price support program through 2007. The support
price remains at $9.90 per cwt, and CCC continues to have
authority to adjust relative purchase prices of butter,
Cheddar cheese, and nonfat dry milk twice during each calendar
year.
The Dairy
Export Incentive Program (DEIP) pays cash bonuses that allow
dairy product exporters to buy at U.S. prices and sell abroad at
prevailing (lower) international prices. DEIP removes nonfat dry
milk, butterfat, and certain cheeses from the domestic market, helps
develop export markets, and has played an important part in milk
price support since the 1990 Farm Act. As a member of the World
Trade Organization (WTO), the United States is committed to reducing
subsidized exports, in both quantity and budgetary expenditure terms.
This does not preclude the use of DEIP. In fact, the Secretary of
Agriculture is directed to use the program to the maximum extent
allowable under WTO commitments.
National Dairy Market Loss Payments
A new program for direct counter-cyclical payments to milk producers
is legislated in the 2002 Farm Act. Eligible producers can receive
a monthly payment calculated as 45 percent of the difference between
$16.94 per cwt and the monthly Class I price in Boston announced
under Federal Milk Marketing Order 1 multiplied by their monthly
"eligible milk production marketed." The payment for a single farm
is made only on eligible production, up to 2.4 million pounds per
fiscal year. Producers may not reorganize dairy operations for the
sole purpose of receiving additional payments. This program covers
eligible milk production from December 1, 2001 to September 30,
2005.
Fluid Milk Marketing
Federal milk marketing orders were first authorized by the Agricultural
Marketing Agreement Act of 1937 and have been modified many
times since then. These orders are intended to help establish
orderly marketing conditions for the benefit of both milk
producers and dairy product consumers. A classified
pricing system and revenue
pooling are the two key elements of milk marketing orders.
The milk marketing orders define the relationship among
prices of fluid and manufactured dairy products and a geographic
price structure, sometimes called the price surface.
The 1996 Farm Act called for consolidation and reform of Federal
milk marketing orders. The reforms implemented January 1, 2000,
established 11 federal milk marketing orders (reduced from 33 in
1996), put new methods for determining class prices into effect,
and made some of the language of the orders more uniform. The Western
Federal milk marketing order disbanded as of April 1, 2004, leaving
10 Federal milk marketing orders in operation.
The 2002 Farm Act does not alter the marketing order system. Not
all areas of the country are covered by federal milk marketing orders.
California, the top milk producing State, has its own milk marketing
program.
For more information on price support, DEIP, and marketing orders,
see Milk
Pricing in the United States.
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