Milk Producers Council
  "Serving the Dairy Industry for more than 60 Years"

 

 

From The MPC Newsletter
Friday, July 30, 2010

The Fee is Temporary; The Dividend Is Permanent
Continuing to Explore the "Dairy Price Stabilization Act of 2010"

By Rob Vandenheuvel, General Manager

As regular readers of this newsletter know, MPC continues to work hard to promote the “Dairy Price Stabilization Act of 2010,” which has been introduced in the U.S. House and Senate as H.R. 5288 and S. 3531, respectively.  We’ve written numerous articles about the details of these two bills (all of which can be found on our website at www.milkproducers.org).  Yet I am constantly reminded that there are many folks that still don’t fully understand the bill.  Today, I want to focus on a basic premise in the bill: “THE FEE IS TEMPORARY; THE DIVIDEND IS PERMANENT.”

What does this mean?  Let’s start with the first part: “The Fee Is Temporary.”  In short, under H.R. 5288/ S. 3531, dairies that wish to expand their production beyond the 3% allowable year-over-year growth and grab a larger share of the market will have to pay a temporary “market access fee,” which will be paid for a year following an expansion.  Dairymen who will have to pay this temporary fee will have the choice to pay either a higher fee per-hundredweight that is only applied to the milk produced above your allowable year-over-year growth, or a lower fee per-hundredweight on all your facility’s milk produced during that quarter – whatever amount is lower.  This fee is clearly outlined in the legislation and a chart of those fees is below:

Milk/Feed Ratio

Allowable Year-Over-Year Growth

“New Milk”
Market Access Fee

“All-Milk”
Market Access Fee

> 3.00

3%

$0.15 per cwt

$0.03 per cwt

2.50 – 2.99

3%

$0.65 per cwt

$0.13 per cwt

2.00 – 2.49

3%

$1.25 per cwt

$0.25 per cwt

1.75 – 1.99

0%

$2.50 per cwt

$0.50 per cwt

< 1.75

-3%

$2.50 per cwt

$0.50 per cwt

 It’s important to note that in recent history, during periods of relative balance in supply and demand, the milk/feed ratio has largely been in the 2.00-2.99 range.  So if H.R. 5288/S. 3531 is affective in helping to maintain that balance, we can reasonably expect that under most circumstances, the allowable year-over-year growth will be 3%, as noted in the chart above.

Now for the next part: “The Dividend Is Permanent.”  This is a point that often gets lost in this legislative proposal.  The knee-jerk reaction when examining H.R. 5288/S. 3531 is to focus on the fee that must be paid if/when you choose to expand your operation or get the next generation started on their own farm.  What is almost always overlooked is the other side of that equation – the actual check that your dairy will receive in any quarter you manage your production to less than the 3% allowable year-over-year growth.

In any given quarter, you will be in one of the two groups: either you will be paying a temporary fee because you’re expanding your production beyond the 3% allowable year-over-year growth, or you will be receiving your share of those fees being paid.  It’s as simple as that.  Obviously, the amount of the dividend will be directly dependant on how many dairymen expand their production during any given quarter. 

There are other programs being promoted that would authorize penalties aimed at balancing supply and demand.  But H.R. 5288/S. 3531 is the only program that sends an additional signal: an actual check in your mailbox if you manage your production growth.  That direct financial signal sent to individual dairies each quarter is exactly what we’re missing in our industry.  Every incentive in the dairy industry sends the signal to grow, grow, and grow some more.  This is the only program being proposed that sends a positive incentive to manage your production growth.  Remember that as you evaluate the best long-term policy for our industry.

 

Send mail to office@milkproducers.org with questions or comments about this web site.
Copyright © 2007 Milk Producers Council