Washington, D.C. – U.S. Senator Kirsten Gillibrand today wrote to the U.S. Department of Agriculture (USDA) urging the Agency to reimburse insurance premiums and fees to dairy producers after a significant fall in milk prices in the last two years. With decreased export market opportunities, an abundant domestic supply of dairy products, and limited processing capacity creating a significant loss in revenue for dairy producers, the Senator urged USDA to reimburse a significant portion of the premiums and fees paid by dairy producers who participated in the Dairy Margin Protection Program (DMPP), authorized by the 2014 Farm Bill. The DMPP is a government backed risk management program available to dairy producers that enables them to flexibly insure against loss when milk prices fall or feed costs rise.
“Our dairy farmers are struggling. Some dairy farmers are unable to meet their debt obligations, and families are forced to sell off their herds, or are faced with the dilemma of having to make the decision between buying grain or buying groceries,” said Senator Kirsten Gillibrand, first New York Senator to serve on the Senate Agriculture Committee in nearly 40 years. “With limited processing capacity and continued uncertainty, especially in the international markets, returning a significant portion of these premiums and fees originally paid by dairy producers would ease some of their financial strain. We must not hesitate to take swift action to aid the troubled dairy farmers of New York.”
In her letter, Gillibrand also cited year-end summaries that show in 2015, USDA collected $73 million in premiums and fees for the DMPP while returning approximately $700,000–only 0.1 percent–to farmers who purchased coverage. The remainder of those premiums were returned to the U.S. Treasury.
The full text of Senator Gillibrand’s letter to the U.S. Department of Agriculture included below.
The Honorable Thomas J. Vilsack
Secretary of Agriculture
U.S. Department of Agriculture
1400 Independence Avenue, SW
Washington, DC 20250
Dear Secretary Vilsack,
During the Rural Summit held on June 29, 2016, you spoke with great passion and resolve on the need to support our rural and agricultural communities to ensure that they continue to be places where American families can live prosperous and full lives. I share your commitment to those communities and ask that you turn your consideration to the plight of the dairy farmer and the grave state of the American dairy industry.
In 2014, national milk prices exceeded $24 per hundred weight allowing dairy farmers across the country to recover from several years of very poor milk prices and make critical investments in their facilities and herds to improve production. During the previous two years however, prices have dropped precipitously to nearly $13 per hundred weight. This drop coupled with high production levels, limited processing capacity, and continued uncertainty in the international markets indicate that prices paid to our dairy farmers may drop even further. As the price paid for milk remains below the cost of production, I have been receiving regular reports about the dire circumstances of dairy farmers unable to meet their debt obligations, selling off their herds, and farm families having to decide between buying grain or buying groceries.
Historically, there have been programs to help farmers persist through times of low milk prices. The Dairy Margin Protection Program (DMPP) authorized by the 2014 Farm Bill was designed to give dairy producers the opportunity to manage risk and protect the margin earned on their milk at a level they determined was appropriate for them and their farm. What was not anticipated during the creation of the DMPP was that milk prices and feed costs could fall together to a point where milk prices were below the cost of production but margins were preserved to a degree that very few farmers received DMPP payments. Nor was it expected that the previously cyclic period of low milk prices would persist for such an extended period of time in the face of decreased export market opportunities and abundant domestic supply. Year-end summaries by the USDA show that in 2015 the DMPP earned $73 million in premiums and fees while returning approximately $700,000–only 0.1 percent–to farmers who purchased coverage. The remainder of those premiums were returned to the US Treasury. This year, fewer than 48 percent of New York dairy producers have opted to enroll in the DMPP and of those, only 0.6 percent, or 14 farms, will have received a DMPP payment.
I ask that you consider returning a significant portion of the premiums and fees paid by dairy producers so that they are better able to endure this period of great difficulty. The DMPP is not a traditional insurance program, with engagement of private underwriters and requirements that loss ratios be such that programs maintain actuarial soundness, but rather a government backed risk management tool. Returning some of these premiums to producers during this period of difficulty would not unduly harm the ability of the DMPP to pay producers in the future. Not only is this action warranted, it is feasible and has precedent. In clarifying the date by which DMPP premiums were due in 2016 it became necessary for USDA to refund partial premiums paid by producers. USDA created a process that allowed Farm Service Agency (FSA) staff to process refunds to producers without affecting the status of their policy.
If you feel that you require additional authority to rebate the DMPP fees and premiums to producers, I ask that you work with me and the other Senators who share my concerns so that we can provide such authority. While the opportunity to modify the DMPP into a program that permits more effective risk and supply management for our dairy producers must wait, I hope that you will not hesitate to take swift action to aid the troubled dairy farmers of New York and the nation.
Sincerely,
Kirsten Gillibrand
United States Senator