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2008 Farm Bill: Livestock and M-COOL. Geoff Benson Dept. of Agricultural & Resource Economics NC State University. 2008 Farm Bill. 2. 2008 Farm Bill Dairy Provisions. Program areas Price support program Milk Income Loss Contracts (MILC) Federal milk marketing orders

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2008 Farm Bill: Livestock and M-COOL

Geoff Benson

Dept. of Agricultural & Resource Economics

NC State University


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2008 Farm Bill

GEOFF BENSON, ARE, NCSU

2


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2008 Farm Bill Dairy Provisions

  • Program areas

    • Price support program

    • Milk Income Loss Contracts (MILC)

    • Federal milk marketing orders

    • Mandatory price reporting

    • Forward pricing contracts

    • Dairy Export Incentive Program

    • Dairy promotion and research

    • Dairy Indemnity Program

GEOFF BENSON, ARE, NCSU

3


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Price Support Proposals

  • Program was changed to directly set dairy product prices at existing levels -- No “farm milk” support price.

    • Cheese: $1.13 per pound for block cheese, $1.10 for barrel cheese

    • Butter: $1.05 per pound

    • Nonfat Dry Milk Powder: $0.80 per pound

    • Price s may be reduced if CCC purchases become excessive

  • Effectively leaves the level of support unchanged but dramatically reduces the estimated WTO producer subsidy equivalents calculated for the program

  • This is a very low producer safety net relative to current cost of production

GEOFF BENSON, ARE, NCSU


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MILC Proposals

  • Continues the program through 9/30/2012

  • Payments = (Actual Milk Price – Trigger) X Payment Rate%

    • Trigger price: Modified by adding a feed cost adjuster. Base is a Class I price of $16.94/cwt in the Boston market. The base price is increases by the same percentage as the increase in estimated feed cost above $7.35/cwt through 8/31/12 and $9.50 thereafter

    • Payment rate: Remained at 34% initially but increases to 45% from 10/1/08 thru 8/31/12, then it reverts to 34%

    • Payment cap: Maintained at 2.4 million pounds initially but increases it to 2.985 mil. lb from 10/1/08 through 8/31/12, after which it reverts to 2.4 million

GEOFF BENSON, ARE, NCSU



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Federal Milk Market Orders

GEOFF BENSON, ARE, NCSU


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Federal Orders

  • Orders

    • Classify milk according to use (I = fluid, II = soft product, III = cheese, IV = butter & powder)

    • Establish monthly minimum producer prices for each class that are derived form wholesale product prices

    • Pay producers under pooling arrangements

    • Audit processors

  • Widespread dissatisfaction with how FOs are “working” and the time it takes to get changes made

GEOFF BENSON, ARE, NCSU


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Federal Milk Marketing Orders

  • Secretary to issue rules to speed up the amendment process within 60 days of farm bill passage

  • Federal Order Review Commission

    • To conduct a comprehensive review of milk marketing options -- both Federal Orders and non-Federal order systems

    • 14 appointed members

    • Report back within 2 years

  • GEOFF BENSON, ARE, NCSU


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    Forward Pricing Contracts

    A substitute for federal order pricing

    Establishes a permanent program until 9/30/2012

    Participation is voluntary – if you opt out, federal order pricing applies

    Applies to producers, Coops and Associations of Coops

    GEOFF BENSON, ARE, NCSU


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    2008 Farm Bill

    GEOFF BENSON, ARE, NCSU

    11


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    Livestock Provisions

    • Program areas

      • Country of origin labeling (COOL)

      • Mandatory price reporting, evaluation and education programs

      • Forward pricing contracts for hogs & poultry

      • State-inspected meat & poultry processing plant rules

      • Livestock health and disease initiatives

      • Food Safety

      • Study bio-energy from livestock

    GEOFF BENSON, ARE, NCSU

    12


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    Country of Origin Labeling

    • 2002 Farm Bill created a COOL program

    • Implementation was delayed until September 30th, 2008 except for fish

    • 2008 version applies to the following :

      • Muscle cuts of beef, pork, goat, and lamb

      • Ground beef, pork, goat, and lamb

      • Poultry, whole and parts

      • Peanuts, pecans and macadamia nuts

      • “Perishable agricultural commodities” – fresh fruits, vegetables, herbs

      • Fish and shellfish (implemented 4/4/2005)

    GEOFF BENSON, ARE, NCSU


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    COOL

    • Retailers must clearly label or provide signage for covered products

    • For covered meats there are four labels:

      • U.S. Origin (Born, raised and slaughtered in the US)

      • Multiple Countries of Origin that include the United States (list all)

      • Imported Direct for Slaughter (Both countries)

      • Imported meat (Country of origin)

    GEOFF BENSON, ARE, NCSU


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    COOL

    • Exemptions:

      • Foodservice sales

      • Small retailers’ sales. Defined as less than $230,000 of perishable product sales per year

      • Processed meats. Defined as “substantially changed in character or combined with other products”. The rules of the Tariff Act of 1930 may apply, however.

    GEOFF BENSON, ARE, NCSU


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    COOL

    Photo courtesy of Nate Jaeger, NCBA

    GEOFF BENSON, ARE, NCSU


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    Scope of M-COOL

    1 Carcass weight. 2 Ready to cook weight

    GEOFF BENSON, ARE, NCSU


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    Scope of M-COOL

    • Pork:

      • ~60% processed & 40% fresh

      • ~80% consumed at home, 40% is fresh = 33% falls under M-COOL

    • Beef:

      • ~75% fresh & 25% processed

      • ~65% consumed at home, 75% is fresh = 50% falls under M-COOL

        Source: ERS, USDA reports

    GEOFF BENSON, ARE, NCSU


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    M-COOL

    • For covered livestock products, the packer, processor or importer provides labeling information to the retailer

    • Producers in the supply chain with “first hand knowledge” can provide an affidavit to the buyer to certify the country of origin of an animal

    • US producers are not required to undertake additional record keeping other than “records maintained in the course of the normal conduct of the business”

    GEOFF BENSON, ARE, NCSU


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    Summary

    • Dairy

      • Continues to be subject to heavy government intervention through farm bill and other legislation but the impact on prices, price volatility and industry trends likely is limited

    • Other livestock

      • Little intervention in prices and incomes through farm bill provisions

      • Mostly concerned with market power and price transparency issues

      • M-COOL is a major new initiative

    GEOFF BENSON, ARE, NCSU


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    Geoff Benson

    Phone: 919.515.5184

    Fax: 919.515.6268

    E-mail: [email protected]

    Web page:

    http://www.ag-econ.ncsu.edu/ faculty/benson/benson.html

    GEOFF BENSON, ARE, NCSU

    21


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