August, 2004

NOTE: This is the first updated Dairy Price Support Program Fact Sheet since August 1997. The program's name has changed to the Milk Price Support Program and the program was not phased out in January 2000 as once expected.

The Milk Price Support Program (MPSP) is legislatively mandated. The Secretary of Agriculture is authorized to carry out this program under the Commodity Credit Corporation (CCC) borrowing authority. MPSP was established on October 1, 1949, by the Agricultural Act of 1949 to provide farmers a parity level of income. The program has been modified over the years but continues to support prices for dairy farmers. Provisions for inventory control and other programs have been added.

The MPSP has never paid farmers directly, but purchases dairy products from processors and vendors to allow farmers to be paid the mandated support price for their milk.

Basic Legislative Authority: The basic provisions of the Agricultural Act of 1949, as amended, required that the price of milk to producers be supported at a level between 75 and 90 percent parity to assure an adequate supply of milk, reflect changes in the cost of production, and assure a level of farm income to maintain productive capacity sufficient to meet future needs. However, since October 21, 1981, the support price has been established by Congress either at specific price levels, or by formula related to expected surplus, rather than parity levels.

The 1996 Federal Agriculture Improvement and Reform Act authorized the MPSP through December 31, 1999. Due to low prices and concerns from the dairy industry, Congress extended the MPSP until May 31, 2002, through the Agriculture, Rural Development, Food and Drug Administration, and Related Agencies Appropriations Acts of 2000 and 2001. The Farm Security and Rural Investment Act of 2002 authorized the program from June 1, 2002, through December 31, 2007.

The Farm Security and Rural Investment Act of 2002 (Act) authorized the Secretary of Agriculture to support the price of milk produced in the 48 contiguous States through the purchase of cheese, butter, and nonfat dry milk (NDM) produced from the milk. The milk price support rate is $9.90 per hundredweight (cwt) for 3.67% butterfat (milkfat) milk.

Purchase prices are set through formulas that equate the cheese, butter and NDM purchase prices to at least the $9.90 support price. See page 3 for the formulas and Table 2 for purchase prices over time. These purchase prices are consistent for all sellers and at a level that enables plants of average efficiency to pay dairy farmers an annual average milk price that is not less than $9.90 per cwt for 3.67% butterfat (milkfat) milk.

The 2002 Act indicates that the Secretary may allocate the rate of price support between the purchase prices for nonfat dry milk and butter in a manner that will result in the lowest level of expenditures by the CCC or achieve such other objectives as the Secretary considers appropriate. The Secretary may only adjust the price of NDM and butter twice within the calendar year.

MPSP purchases are just one part of overall CCC purchases for Farm Service Agency's (FSA) Commodity Operations. Under CCC's umbrella, FSA Commodity Operations purchases and delivers processed commodities under various domestic food distribution programs, such as the National School Lunch Program or the Commodity Supplemental Food Program. Purchases and deliveries of commodities are also made to foreign countries. Foreign programs are authorized under Titles II and III of Public Law 480; the Food for Progress Program; and Section 416(b) of the Agricultural Act of 1949, utilizing private voluntary agencies, the World Food Program, and government-to-government transfers.

In addition to purchases of bulk products at announced prices, CCC has historically purchased butter, cheese, and NDM in further processed forms or in consumer-size packages to support the price of milk. The prices for these products include "Make Allowances" for additional processing and packaging costs. Purchasing products in consumer-size packages enables CCC to utilize dairy products under donation programs more efficiently.

Under MPSP, in order to facilitate use in food assistance programs, products purchased in bulk are repackaged in forms suitable for sales and donation. These services, which are contracted through competitive bids, include: repackaging bulk butter into 1 pound prints; processing butter into butteroil; processing block or barrel cheese into 5 pound and 2 pound loaves; and instantizing and/or fortifying NDM with vitamins A & D into 25.6 ounce, or 4 pound bags.

Besides MPSP, USDA administers the Milk Income Loss Contract Program (MILC), the Dairy Promotion and Research Program, and the Dairy Export Incentive Program (DEIP). The recourse loan program for milk, as provided for in the 1996 Farm Bill, was never established and was repealed in the 2002 Act.

USDA's Foreign Agricultural Service administers the DEIP. U.S. dairy commercial exporters can apply for cash subsidies through DEIP to offset the difference between world and U.S. prices. This can lower the amount MPSP purchases or increase U.S. Government market removals. CCC funds DEIP subsidies, but does not actually purchase the exported commodities. DEIP is a separate program from MPSP, but is still considered a CCC market removal.

To view the Table of Contents, CCC Purchase Price Formulas, and the Milk Price Support Program tables, please click on this pdf file 294k.

The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs.) Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact USDA's TARGET Center at 202-720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 1400 Independence Avenue, SW, Washington, D.C., 20250-9410, or call (202) 720-5964 (voice or TDD).

USDA is an equal opportunity provider and employer.