MANDAN, N.D. – Participate or not. That is the question dairy producers will have to answer some time next year concerning the new federal dairy policy that will take effect upon passage of a long-awaited farm bill.
One thing is certain: Significant changes to dairy policy are coming.
“We are doing away with the price support programs that we had for many years,’’ said Dr. Marin Bozic, assistant professor of Dairy Foods Marketing Economics from the University of Minnesota.
One of them is the Milk Income Lost Contract (MILC) which had the government paying farmers when milk prices fell below a federal target. The program, Bozic said, has been a great help, especially for small farmers around the country. Another is the Dairy Product Price Support Program (DPPSP).
In its place is a Dairy Producer Margin Protection Program (DPMPP) and the Dairy Market Stabilization Program (DMSP).
Nobody has to be a part of supply management and only those producers who decide to sign up for the margin insurance would have to be enrolled in the stabilization program.
The question is should they enroll?
Bozic is part of a group of dairy economists from the upper Midwest who are currently working on an Internet-based decision support tool that can help farmers decide if these programs are good for them.
The support tool website has not yet been released, however, dairy farmers in North Dakota were the first to get a preview at the N.D. Dairy Association Convention earlier this month.
Bozic reviewed some of the early data with attendees.
“What we are finding right now is that margin insurance, especially for small farms, is heavily subsidized,’’ he said.
“And if you are just looking at the bottom line, their profit margin and how this could impact them, even after accounting for penalties for stabilization or the occasional need to cut back production, we see that the subsidies are such that it makes sense to participate.”
Bozic acknowledged that not everyone is going to agree with or accept this recommendation, and that’s OK.
He did caution that those who are going to participate in the new farm policy should buy some supplemental margin insurance.
"One thing to take away from the new farm policy is this: If you are going to participate, please do buy some supplemental margin insurance," Bozic said.
“Yes, $4 margin is free, quote unquote, however, the penalties from the stabilization program are probably going to hurt you more than you will benefit from the free part of the margin insurance. Right now we are looking at about between $6 and $7 margin (being) the best return of investment.”
Farmers will likely have six to nine months to plot a course.
Bozic said it’s a decision everyone has to make, but the initial results are showing that supply management may be a good decision.