2008 Farm Bill: Livestock and M-COOL

1. 2008 Farm Bill: Livestock and M-COOL Geoff Benson Dept. of Agricultural & Resource Economics NC State University

2. 2008 Farm Bill GEOFF BENSON, ARE, NCSU 2

3. 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

4. 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

5. 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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7. Federal Milk Market Orders GEOFF BENSON, ARE, NCSU

8. 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

9. 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

10. 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

11. 2008 Farm Bill GEOFF BENSON, ARE, NCSU 11

12. 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

13. 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

14. 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

15. 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

16. COOL Photo courtesy of Nate Jaeger, NCBA GEOFF BENSON, ARE, NCSU

17. Scope of M-COOL 1 Carcass weight. 2 Ready to cook weight GEOFF BENSON, ARE, NCSU

18. 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

19. 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

20. 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

21. 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 GEOFF BENSON, ARE, NCSU 21