1. Current Issues in Dairy Policy Hal Harris, Clemson University ERS Dairy Policy Workshop Washington, DC September 2002

2. Dairy Programs in 2002 Farm Bill  DPSP Extended  DEIP Extended  MILC Created (through FY95)

3. Other Dairy Provisions  Promotion Assessment, Imports  Fluid Milk Promotion  Mandatory Price Reporting  Indemnity Payments  Studies

4. Other Provisions  Conservation, Environment  Feedgrain, oilseeds  Energy  Disaster Relief

5. Federal Orders Ignored  Pooling  Higher of III or IV  Number of Classes  Imports/Exports

6. Interrelated Issues  Support price level  Program cost  WTO compliance  Tilt  Equity  Efficiency  DPSP and MILC?  Payment Limits

7. Support Price Level  Is $9.90 too high?

8. Program Cost  Is $2.0-$3.0 bil/year too high?

10. WTO Compliance  $19 bil Amber Box Limit  Dairy is Largest Component ($4.3 billion in 1998)  By 2005 Dairy Contribution  Could Approach $6 bil.

11. Tilt  Little Room to Maneuver

12. Equity, Efficiency  MILC Penalizes Most Efficient Operations, Regions  Operations With Over 500 Cows Lose Money ($.20-$.30 decline in price)  Retards Loss of Small Farms

13. Farming the Program  MILC returns $200-$300/cow  You do the arithmetic

14. DPSP plus MILC  Cumulative Effect

15. Result  High Production, Low Prices  Considerable CCC Purchases  Higher Program Cost

16. “Stephenson’s Irony”  Results of the Program – Prove the Need for It!

17. Payment Limits  Crop Farms, Nominally – Countercyclical$65,000 – Direct$40,000 – Market Loan, LDP$75,000 $180,000

18.  But 3-Entity Rule, Certificates, No Effective Limit

19. Dairy Limit Per Farm  $24,000

20.  Winners – Small dairies – Upper midwest – Consumers – Processors  Losers – Large dairies (over 500 cows) – Taxpayers

21. “Is this policy” Respected Cornell Dairy Economist