Dairy Security Act offers best safety net, report says

ARLINGTON, Va., April 17, 2013 – The provisions of the Dairy Security Act (DSA), when compared to a margin insurance-only proposal, provides the most effective safety net for farmers, according to a report released Tuesday.

The report, created by the Midwest Program on Dairy Markets and Policy 2013 Farm Bill Dairy Analysis Group, found that the DSA provides catastrophic risk insurance, helps enhance farmer revenue, and does so in a way that minimizes government outlays.

“This new report provides independent corroboration of why the DSA is the best choice for saving dairy farmers while protecting taxpayers. Congress needs to heed this report and pass the Dairy Security Act in 2013 as part of the farm bill,” said Jerry Kozak, president and chief executive officer of the National Milk Producers Federation (NMPF).

Meanwhile, the International Dairy Foods Association (IDFA) released a paper contending that the DSA “will raise milk prices and force consumers to pay more for dairy products.”

The report released by NMPF, Kozak said debunks “any concerns that the DSA’s market stabilization element will hinder the growth of our industry or detrimentally affect the future of the dairy business. This says those fears are unfounded.”

The report seeks to compares the dairy farmer-backed DSA, a voluntary program which pairs margin insurance with a Dairy Market Stabilization Program, against an alternative approach that offers a smaller-scale, limited margin insurance program alone.

The paper addresses four critical questions comparing the DSA to the margin insurance-only proposal, offered last year by Reps. Bob Goodlatte, R-Va., and David Scott, D-Ga. The paper estimates how the programs would operate in 2013.

The issues addressed in the report include the extent to which the DSA and the alternative plan offer effective catastrophic risk insurance; whether they reduce government costs; and whether they present a long-term obstacle to the growth of farms wishing to expand.

After running a variety of milk price, feed cost, and participation scenarios, the report offered several conclusions:

• The Dairy Security Act does provide effective risk insurance, removing 66.6 percent of the catastrophic risk a typical farm would face in the future. It noted that the alternative measure would force farms with growth plans to rely more on private markets, rather than the farm bill, to effectively protect against catastrophic risks, because the G-S does not provide a means to insure future milk production.
• The DSA’s market stabilization plan helps reduce the frequency and severity of insurance indemnity payments, generating higher milk prices for farmers and reducing the taxpayer burden. The report notes that the main limitation on government financial liability in the G-S measure is achieved by limiting farmers’ ability to insure their production to 80 percent of a farm’s production history.
• The DSA’s market stabilization plan does not present a long-term obstacle to farm growth, even for those operations with a very aggressive farm growth plan.

The DSA was approved by both the House and Senate agriculture committees during consideration of last year’s farm bill. The full Senate also approved the bill, but the House failed to vote on the farm bill last year.

The group who wrote the report include: John Newton, doctoral student at the Ohio State University (OSU); Cameron Thraen, OSU professor; Marin Bozic, professor at the University of Minnesota; Mark Stephenson, professor at the University of Wisconsin; Brian Gould, professor at the University of Wisconsin; and Christopher Wolf, professor at the Michigan State University.

The IDFA-offered paper, “Goodlatte-Scott vs. the Dairy Security Act: Shared Potential, Shared Concerns and Open Questions,” concludes that the alternative offered by Goodlatte and Scott would be “a more responsible approach to a government-funded farm bill,” said Jerry Slominski, IDFA senior vice president of economic and legislative affairs.

Slominski said the alternative offers an effective safety net for farmers without a “growth management” component that would “limit dairy industry growth, curtail dairy exports and hinder job creation.”

With a “more conservative subsidy on large-volume producers, Goodlatte-Scott would limit government liability” and entail lower government costs than DSA, according to IDFA.

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