U.S. dairy policy has evolved over many years. The recent Agricultural Act of 2014 has brought about substantial changes in protections for dairy farmers. Milk marketing orders continue to play an important role.

Milk Marketing Orders

The Agricultural Marketing Agreement Act of 1937 authorized Federal milk marketing orders, which have been modified many times since then, to help establish orderly marketing conditions for the benefit of both dairy farmers and dairy product consumers. A classified pricing system and revenue pooling are two key elements of milk marketing orders. Milk marketing orders set minimum prices paid by milk processors for milk used in fluid beverage purposes and manufactured dairy products. These minimum milk prices are set by formulas and change each month with changes in prices of major dairy commodities. Minimum prices of milk used for fluid beverage purposes differ according to a geographic price structure. For more information, see Federal Milk Marketing Orders. While most U.S. milk is marketed through Federal milk marketing orders, some milk is marketed through similar State programs (the largest being California’s). The rest of the milk is not included in either the Federal or a State program.

New Programs Established by the Agricultural Act of 2014

Margin Protection Program for Dairy (MPP-Dairy)

The Margin Protection Program for Dairy (MPP-Dairy) offers dairy operations insurance based on the average national dairy production margin (the difference between the U.S. all-milk price and average feed cost). Benefits apply to a participating operation’s production history, adjusted annually to reflect national average milk production increases. All dairy farm operations are eligible to participate, and pay only the administrative fee ($100) if they select protection at the minimum margin level ($4.00 per hundredweight (cwt) of milk). Higher levels of protection are available, for which dairy farmers must pay both the administrative fee and a premium.

A participating dairy operation will pay a premium based on the level of coverage elected. Premiums will be calculated by multiplying the coverage percentage selected (from 25 percent to 90 percent) multiplied by the production history of the dairy operation to obtain the covered milk marketings. The covered milk marketings are multiplied by the premium per cwt applicable for the coverage level selected. Premiums will be calculated from Tier 1 for covered production history up to 4 million pounds and from Tier 2 for covered production history exceeding 4 million pounds. For calendar years 2014 and 2015, the premium rate will be reduced by 25 percent for production under the Tier 1 premium schedule, except at the $8.00 per cwt margin level.

Premiums for Margin Protection Program – Dairy ($/cwt)
Coverage level (margin) Tier 1 premium for 2014–20151 Tier 1 premium for 2016–20182 Tier 2 premium for 2014–20183
4.00 None None None
4.50 0.008 0.010 0.020
5.00 0.019 0.025 0.040
5.50 0.030 0.040 0.100
6.00 0.041 0.055 0.155
6.50 0.068 0.090 0.290
7.00 0.163 0.217 0.830
7.50 0.225 0.300 1.060
8.00 0.475 0.475 1.360
1Covered production history less than 4 million lb with 25 percent reduction.
2Covered production history less than 4 million lb.
3Covered production history less than 4 million lb.
Source: USDA, Farm Service Agency.

Dairy Product Donation Program

The Dairy Product Donation Program (DPDP) requires the Secretary of Agriculture to purchase dairy products for donation to low-income groups when dairy margins, as determined under the MPP-Dairy, fall below $4.00 per cwt the 2 prior months. The program remains in effect until specified margin or product price levels are met or until purchases have been made for 3 consecutive months. Dairy products will be purchased at prevailing market prices in consultation with public and private nonprofit organizations serving the nutrition needs of low-income populations, which will distribute the donations through food banks and other feeding programs.

Programs Recently Discontinued

Milk Income Loss Contract (MILC) Program

The Milk Income Loss Contract (MILC) Program was repealed by the Agricultural Act of 2014. As authorized by the 2002 Farm Bill, payments were made to dairy operations based on their milk marketed when the Class I price in Boston (Federal Milk Marketing Order 1) fell below $16.94 per cwt. Payments were capped at 2.4 million pounds of production per fiscal year per operation. With the 2008 Farm Bill, a mechanism was added to account for feed prices; when a specified measure of feed price rose above a target level, the target milk price was raised by a percentage of the difference in the feed price and the target feed-price level. The payment cap was raised to 2.985 million pounds per fiscal year.

Dairy Product Price Support Program (DPPSP)

The Dairy Product Price Support Program (DPPSP) was repealed by the Agricultural Act of 2014. A purchase program for supporting farm milk prices started with the Agricultural Act of 1949 and was amended several times since then. The Food, Conservation, and Energy Act of 2008 (2008 Farm Act) fundamentally changed the milk support purchase program by specifying support prices of purchased manufactured products instead of the price of milk. At the time the program was repealed, the Commodity Credit Corporation (CCC) stood ready to buy bulk quantities of butter, cheddar cheese, and nonfat dry milk that met specifications at the following wholesale prices:

  • $1.05 per pound for butter,
  • $1.13 per pound for cheese in blocks,
  • $1.10 per pound for cheese in barrels, and
  • $0.80 per pound for nonfat dry milk.

Market prices have exceeded support prices in recent years. Therefore, no price support purchases occurred after 2009.

Dairy Export Incentive Program (DEIP)

The Dairy Export Incentive Program (DEIP) was repealed by the Agricultural Act of 2014. DEIP paid cash bonuses to exporters, allowing them to buy at U.S. prices and sell abroad at prevailing (lower) international prices. DEIP removed nonfat dry milk, butterfat, and certain cheeses from the domestic market and helped develop export markets. The DEIP was announced by USDA on May 15, 1985. DEIP quantities and dollar amounts were subject to World Trade Organization (WTO) restrictions under the Uruguay Round Agreement on Agriculture. Because U.S. market prices have been competitive with international prices in recent years, no DEIP bonuses occurred after 2010.