Editor's note: Another proposal, based on the NMPF-IDFA Milk Crisis Plan described here, was unveiled after Progressive Dairy's publication deadline. Read: Dairy CORE proposal seeks immediate cash infusion, regional supply management flexibility
With COVID-19’s impact wreaking economic havoc on dairy farmers and processors, the National Milk Producers Federation (NMPF) and International Dairy Foods Association (IDFA) have jointly proposed a “Milk Crisis Plan,” designed to cut milk production and stabilize markets, aid others in the dairy supply chain and increase dairy product availability to consumers facing increased food insecurity.
For processors and marketers, the collapse of the food service industry and the closure of schools and other institutions, which normally utilize large quantities of bulk-packaged dairy products and high volumes of fluid milk, has meant lost orders and plunging sales. Processing plants are curtailing or ceasing operations, resulting in canceled milk orders.
At the farm and dairy cooperative level, that’s meant widespread milk dumping as the supply exceeds intake processing capacity, leading to the collapse of milk and dairy commodity prices.
At the same time, job losses are resulting in significant increases in demand at food banks, a trend that will likely only intensify in the weeks ahead.
“As most of the country shelters in place and large swaths of the food service sector come to a standstill, dairy sales outside retail channels have plummeted. Market prices have fallen rapidly, creating a crushing economic outlook for producers of nutritious, and necessary, milk and dairy products,” said Jim Mulhern, NMPF president and CEO. “While no plan can wholly remedy the losses that are occurring, dairy is responding with a united plan that can help mitigate the damage caused to it by the COVID-19 pandemic. After extensive discussions across the industry, we have developed this comprehensive action plan to address many of the key marketplace challenges created by the pandemic and are presenting it to USDA.”
The Milk Crisis Plan includes three primary initiatives, targeting producers, processors and consumers.
Producer initiatives
NMPF and IDFA estimate the current raw milk supply exceeds demand by about 10%. That gap could widen as milk supply increases to its seasonal peak and as COVID-19 shelter-in-place conditions are extended.
To help offset steep decline in farm milk prices and encourage a reduction in the excess milk supply, the proposal would pay producers $3 per hundredweight (cwt) above the market price on 90% of their production, if they cut production by 10% from a March 2020 baseline. The supply management program would run for six months (April through September 2020), and payments during any one of the months would be suspended if the average of the Class III and Class IV prices for that month exceeds $16 per cwt.
In addition, the proposal establishes a temporary mechanism to reimburse producers and handlers for milk that must be disposed of because of supply chain disruptions resulting from the COVID-19 pandemic. Administered through the Federal Milk Marketing Order (FMMO) system, it would provide producer payments for dumped milk at the USDA Class IV (or lowest value Class) price. The program would run for three months (April through June) during the peak production season.
Processor initiatives
For processors, the proposal establishes two loan programs:
- A recourse loan program, providing working capital in an effort to address financial and liquidity risk and assist them with carrying heavier-than-normal inventories – the loans would cover FMMO component ingredient costs.
- A forgivable loan program to support processor milk purchases, operations and staffing while enduring significant reductions in sales
Consumer initiatives
Addressing food security by those facing job losses and financial hardship, the proposal calls for:
- Increased dairy product purchases for food banks and federal feeding programs
- Easing restrictions related to product choices and packaging sizes under Women, Infant and Children (WIC) and other feeding programs
- Continue to allow flexibility of school meals, operating under Summer Food Service Program rules that permit all fat levels and types of milk and expand options for serving sizes of milk larger than 8 ounces to be offered with meals
The proposal identifies 2020 food bank needs as follows: 17 million pounds of butter, 170 million pounds of cheese, 360 million pounds of fresh milk and 60 million pounds of powdered milk. Factoring in a 20% markup over basic commodity prices for processing, packaging, etc., total cost for those commodities would be $525 million.
Increased federal dairy purchases would also create more demand for dairy products while stabilizing markets, the proposal notes.
IDFA and NMPF urged the USDA’s Food and Nutrition Service to expand, on an emergency basis, maximum allowable family spending allotments under the Supplemental Nutrition Assistance Program (SNAP) program. The proposal would address the gap between current maximum monthly SNAP allotments of $450 for a family of four and the average American household food spending of $700 per month.
Longer term, IDFA and NMPF urged the USDA to release a request for proposals under the Healthy Fluid Milk Incentive Program (HFMIP). The program, created in the 2018 Fam Bill, authorizes federal funding of projects involving nonprofit organization, retailers and government entities to develop and test methods for increasing milk purchases through SNAP.
Reopen DMC
Outside of direct financial support, the proposal calls on the USDA to reopen the Dairy Margin Coverage (DMC) program, allowing producers to retroactively sign up for the program for 2020 and extending through the life of the 2018 Farm Bill, which expires in 2023. Retroactive enrollees would not be eligible for premium discounts initially offered to those signing up for the full five-year length of the program.
