1. Milk Price Support Program Authorized by 1933 Act and made permanent by 1949 Act Secretary of Ag directed to support the price of manufacturing grade milk by purchasing manufactured dairy products (cheese, butter, and Nonfat dry milk) Current support price is set at $9.90/cwt –Make allowances –Product purchase prices

2. Federal Milk Marketing Orders Combination of: –Classified pricing based on end use Class I – beverage milk Class II – fluid cream products, yogurt, perishable manufactured products (ice cream, cottage cheese, and others) Class III – Cream cheese and hard manufactured cheeses Class IV – Butter and milk in dried form –Market-wide revenue pooling meaning that all producers who market in a particular order receive the same minimum “blend” price –Blend prices are weighted average based on use in each category by marketing area Only pertains to minimum prices for Grade A milk

3. Dairy Export Incentive Program (DEIP) Helps exporters of dairy products meet prevailing world prices for targeted commodities and destinations Objective: –Develop export markets where U.S. dairy products are not competitive due to the presence of subsidized exports from other countries Eligible commodities: –Nonfat dry milk, butter, and cheeses (cheddar, mozzarella, gouda, feta, cream, and processed American)

4. Milk Income Loss Contract (MILC) Payments Established in 2002 farm bill Set to end September 30, 2005 (3.5 year program) Scored at $3.5 million over 2002-2005 period Counter-cyclical program –Payment rate is 45% of the difference in monthly Boston Class I price and $16.94 (target price) –Monthly payment is equal to calculated payment rate multiplied by the eligible quantity. –Annual eligible payment quantity of 2.4 million pounds

5. An Assessment of the Equitability of Farm Program Payments across Crops James W Richardson Co-Director AFPC, Regents Professor and TAES Faculty Fellow Joe L Outlaw Co-Director AFPC, Associate Professor and Extension Economist-Policy Lindsey Higgins Research Assistant

6. Measures of Equitability What do we mean by equity? –What share of payments does each crop receive? There are many measures of equity –Payment per acre –Payment per dollar of value –Payment by farm size –Etc.

7. Breakdown of Payments 1990 to 2002 Average Support By Crop

8. Breakdown of Payments 1990 to 1996 Average Support By Crop 2002 Support By Crop

9. Support per Planted Acre ($/acre)

10. Effective Benefits Relative to Effective Variable Costs

11. Per Acre Support Relative to Total Costs

12. Total Annual Support/ Total Value of Production

13. Summary Important to keep in mind the intentions of the farm bill No single commodity consistently receives the most or least support throughout all the measures Results depend on which measure best defines equitable

14. Overview Milk is the most regulated product in the U.S. Produced in every state Milk is not all the same –Depends on sanitary conditions produced under –Grade A Eligible for fluid consumption –Grade B Only eligible for making manufactured products Represents less than 10% of total milk supply