2008 Farm Bill: Livestock and M-COOL

Geoff BensonGeoff BensonDept. of Agricultural & Resource Dept. of Agricultural & Resource

EconomicsEconomicsNC State UniversityNC State University

2008 Farm Bill

22GEOFF BENSON, ARE, NCSU

2008 Farm Bill Dairy Provisions Program areas

Price support programMilk Income Loss Contracts (MILC)Federal milk marketing ordersMandatory price reportingForward pricing contractsDairy Export Incentive ProgramDairy promotion and researchDairy Indemnity Program

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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

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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

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Federal Milk Market Orders

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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

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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

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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

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2008 Farm Bill

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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 &

poultryState-inspected meat & poultry

processing plant rulesLivestock health and disease

initiativesFood SafetyStudy bio-energy from livestock

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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 lambGround beef, pork, goat, and lambPoultry, whole and partsPeanuts, pecans and macadamia nuts“Perishable agricultural commodities” – fresh

fruits, vegetables, herbsFish and shellfish (implemented 4/4/2005)

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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)

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COOL

Exemptions:Foodservice salesSmall 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.

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COOL

16GEOFF BENSON, ARE, NCSUPhoto courtesy of Nate Jaeger, NCBA

Scope of M-COOL

Item Beef1 Pork1 Poultry2

US Production, MMT 60.9 97.1 80.0

US Consumption, MMT 60.5 96.9 75.4

Exports, MMT 7.7 5.5 8.3

Imports, MMT 7.2 5.2 7.6

Imports, % of consumption 11.8% 5.3% 9.5%

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1 Carcass weight. 2 Ready to cook weight

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 18

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”

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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 livestockLittle intervention in prices and incomes

through farm bill provisions Mostly concerned with market power and

price transparency issuesM-COOL is a major new initiative

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Geoff Benson

Phone: 919.515.5184 Fax: 919.515.6268 E-mail: Geoff_Benson@ncsu.edu Web page: http://www.ag-econ.ncsu.edu/

faculty/benson/benson.html

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