Dairy policy in the United States includes both Federal and State programs. The two major Federal dairy programs are the system of federal milk marketing orders and the milk price support program. Government programs designed to assist international trade (see below) and provide domestic and international food aid also affect the dairy industry.

Price support programs
The current purchase program for supporting farm milk prices started with the Agricultural Act of 1949 and has been modestly modified several times since then. The Commodity Credit Corporation (CCC) will buy any butter, Cheddar cheese, or nonfat dry milk that meets specifications and that is offered to it at current support purchase prices. The support purchase prices for each of the three products are set to ensure that plants of average efficiency can pay to producers, on average, a manufacturing milk price that is at least the milk support price, which is $9.90 per hundred pounds (cwt). Under the 1996 Farm Act, the purchase/price support program was to have ended on December 31, 1999, but was twice extended for 1 year (to the end of 2000 and then 2001), with a support price of $9.90 per cwt. The Farm Security and Rural Investment Act of 2002 (2002 Farm Act) continues the milk price support program through 2007. The support price remains at $9.90 per cwt, and CCC continues to have authority to adjust relative purchase prices of butter, Cheddar cheese, and nonfat dry milk twice during each calendar year.

The Dairy Export Incentive Program (DEIP) pays cash bonuses that allow dairy product exporters to buy at U.S. prices and sell abroad at prevailing (lower) international prices. DEIP removes nonfat dry milk, butterfat, and certain cheeses from the domestic market, helps develop export markets, and has played an important part in milk price support since the 1990 Farm Act. As a member of the World Trade Organization (WTO), the United States is committed to reducing subsidized exports, in both quantity and budgetary expenditure terms. This does not preclude the use of DEIP. In fact, the Secretary of Agriculture is directed to use the program to the maximum extent allowable under WTO commitments.

National Dairy Market Loss Payments
A new program for direct counter-cyclical payments to milk producers is legislated in the 2002 Farm Act. Eligible producers can receive a monthly payment calculated as 45 percent of the difference between $16.94 per cwt and the monthly Class I price in Boston announced under Federal Milk Marketing Order 1 multiplied by their monthly "eligible milk production marketed." The payment for a single farm is made only on eligible production, up to 2.4 million pounds per fiscal year. Producers may not reorganize dairy operations for the sole purpose of receiving additional payments. This program covers eligible milk production from December 1, 2001 to September 30, 2005.

Fluid milk marketing
Federal milk marketing orders were first authorized by the Agricultural Marketing Agreement Act of 1937 and have been modified many times since then. These orders are intended to help establish orderly marketing conditions for the benefit of both milk producers and dairy product consumers. A classified pricing system and revenue pooling are the two key elements of milk marketing orders. The milk marketing orders define the relationship among prices of fluid and manufactured dairy products and a geographic price structure, sometimes called the price surface.

The 1996 Farm Act called for consolidation and reform of Federal milk marketing orders. The reforms implemented January 1, 2000, established 11 federal milk marketing orders (reduced from 33 in 1996), put new methods for determining class prices into effect, and made some of the language of the orders more uniform. The Western Federal milk marketing order disbanded as of April 1, 2004, leaving 10 Federal milk marketing orders in operation.

The 2002 Farm Act does not alter the marketing order system. Not all areas of the country are covered by federal milk marketing orders. California, the top milk producing State, has its own milk marketing program.

For more information on price support, DEIP, and marketing orders, see Milk Pricing in the United States.

for more information, contact: James J. Miller
web administration: webadmin@ers.usda.gov
page updated: August 13, 2004