	Overview

The Food, Conservation, and Energy Act of 2008 ( P.L. Subtitle E of the commodity programs title (Title I) of the enacted 2008 farm bill contains the authority for two major ongoing dairy policy tools used by the U.S. Department of Agriculture (USDA) to support the prices and incomes received by dairy farmers—the dairy price support program (DPSP) and the Milk Income Loss Contract (MILC) program. The DPSP provides indirect price support to dairy farmers through government purchases of surplus dairy products at statutory prices. A third federal dairy policy tool, federal milk marketing orders, requires dairy processors to pay a minimum price for farm milk depending on its end use. Federal orders are permanently authorized and hence do not require periodic reauthorization. Instead, changes are generally made administratively by USDA and approved by farmer referendum. However, issues such as the proposed authority for processors to be exempt from federal order minimum prices processors when they forward contract with dairy farmers were brought to the attention of Congress in the farm bill debate. Separately, the 2008 farm bill reauthorizes the Dairy Export Incentive Program. This provision was included to allow USDA to implement a 2002 farm bill-mandated extension of this assessment to imported dairy products. This provision was supported by most milk producer groups, but opposed by dairy importers and processors. See the Appendix at the end of this report for a side-by-side comparison of the enacted 2008 farm bill with previous law and the House and Senate farm bill dairy provisions. 2008 Farm Bill Provisions and Issues

Under the now-expired 2002 farm bill authority for the MILC program, participating dairy farmers nationwide were eligible for a federal payment whenever the minimum monthly market price for farm milk used for fluid consumption (Class I) in Boston fell below $16.94 per hundredweight (cwt.). The payment percentage rate will revert to the 34% level for the final month of the program (September 2012). Since the inception of the MILC program, large dairy farm operators expressed concern that the 2.4 million lb. The final 2008 farm bill includes a provision that adjusts upward the $16.94 target price in any month when feed prices are above a certain threshold. The International Dairy Foods Association (IDFA), the largest trade association of dairy processors, opposed extension of the MILC program, contending that it works at cross purposes with the dairy price support program and contributes to the overproduction of milk and to high government costs. target price. Falling milk prices in recent months, however, have raised the likelihood of MILC payments in 2009. 110-246 ) extends the dairy support program for five years (through December 31, 2012), but modifies the program so that it directly supports the prices of manufactured dairy products at mandated levels. Under previous law, the support price for farm milk was statutorily set at $9.90 per cwt., and USDA was given the administrative authority to establish a combination of dairy product purchase prices that indirectly supported the farm price of milk at $9.90. The enacted 2008 farm bill also reduces the assessment on imports from 15 cents to 7.5 cents. The import assessment is supported by most dairy producer groups.
Two ongoing federal programs that support the price and income received by dairy farmers—the dairy price support program and the Milk Income Loss Contract (MILC) program—were reauthorized with modifications in the Food, Conservation, and Energy Act of 2008 (P.L. 110-246, the 2008 farm bill).
The MILC program allows participating dairy farmers to receive a government payment when the farm price of milk used for fluid consumption falls below an established target price. The enacted 2008 farm bill extends the MILC program through FY2012 at the existing level of support, but increases the payment percentage rate and the amount of eligible production. The target price also can be increased in any month that feed costs are above a certain threshold. The MILC program is supported by milk producer groups in the Northeast and the Upper Midwest. Large farmers, particularly in the West, contend that the program payment limit is biased against them. Market prices for farm milk have recently declined to levels near the target price, increasing the likelihood of MILC payments in 2009.
Separately, under previous farm law, the dairy price support program indirectly supported the farm price of milk at $9.90 per hundredweight (cwt.) through government purchases of surplus dairy products from dairy processors. The 2008 farm bill extends the dairy support program through December 31, 2012, but modifies the program so that it directly supports the prices of dairy products at mandated levels. This program shift was designed to help reduce the program's exposure under World Trade Organization limitations. Most dairy farm groups and the Administration view the program as a necessary safety net in a market that is frequently characterized by volatile prices. Dairy processors consider the price support and MILC programs to operate at cross-purposes, which they say contributes to surplus milk production. A recent milk product price decline has resulted in government purchases of nonfat dry milk.
A third federal dairy pricing policy tool, federal milk marketing orders, requires dairy processors in many regions to pay a minimum price for farm milk depending on its end use. Federal orders are permanently authorized and most changes are made administratively by USDA through the rulemaking process. However, a number of federal order issues were brought to the attention of Congress for the farm bill debate. Included in the final bill is a provision that exempts dairy processors from paying the federal minimum price whenever they forward contract prices with dairy farmers for milk used in manufactured products.
Separately, the enacted 2008 farm bill reauthorizes the Dairy Export Incentive Program, which subsidizes dairy product exports. The program was created in the 1985 farm bill and was particularly active during the 1990s.
The enacted 2008 farm bill also contains a provision that allows USDA to implement a 2002 farm bill-mandated assessment on imported dairy products, but reduces the import assessment to 7.5 cents per cwt. The import assessment is supported by most milk producer groups, but opposed by dairy importers and processors.
See the Appendix at the end of this report for a side-by-side comparison of the enacted 2008 farm bill dairy provisions with previous law and the House- and Senate-passed versions of the farm bill.