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Guide to the Pandemic Market Volatility Assistance Program

Guide to the Pandemic Market Volatility Assistance Program

In August 2021, the USDA announced the launch of a new program for dairy farmers affected by COVID-19 called the Pandemic Market Volatility Assistance Program (PMVAP).

The department’s website made the program’s purpose clear: “USDA will provide about $350 million in pandemic assistance payments to dairy farmers who received a lower value for their products due to market abnormalities caused by the pandemic.”

Designed for dairy farmers who sold milk pooled in the Federal Milk Marketing Order during July – December 2020 timeframe, the program’s goal is to address the lost Class I value of milk due to the Class I skim value formula change. Before the formula change, the value of Class I milk was based on the “higher of” Class III or Class IV. Instead, the value of Class I milk is now based on the “average of” Class III and Class IV. The purpose of the formula change was to make the valuation of milk more revenue neutral so that the value could be more stable. However, the pandemic market has created a unique market that had the opposite effect on the value of Class I milk.

How the PMVAP will work
The USDA will establish individual agreements with each handler and cooperative. Federal Order language defines handlers as processing plants that buy milk from individual dairy farmers or the cooperatives that represent them.

Each agreement must describe three critical items:

  1. the calculation of the payment,
  2. the education plan,
  3. and the requirements for payment audits.

Once the agreement is made, each handler and cooperative will provide total eligible milk data for the payment calculation, and each producer must attest that they meet the requirements. Next, the USDA will distribute PVMAP monies to handlers and cooperatives who will in turn, distribute the funds to each individual dairy farmer. Producers who are no longer in business or switch markets are still included.

Any dairy farmer in multiple markets during the window is included, and their payments could come from multiple handlers or cooperatives if milk was pooled by each handler or/cooperative. All payment to individual producers must be made within 30 days of handlers or/cooperative receipt and must be a separate payment from the normal milk checks. Cooperatives can reblend the payments to members if it reblended all market proceeds originally. Pool plants must pay the dairy cooperative at least the minimum amount due for milk received, but cooperatives do not have to pay their dairy farmers that same price. Cooperatives can “reblend” and give the farmers what they see fit. For producers who do not wish to receive payment, their calculated payment amount will be deducted from the total in the agreement between the handler and USDA. Some dairy farmers do not accept government payments for religious reasons. Handlers and cooperatives will be audited to confirm accurate and timely payments, education requirement fulfilled, and producer eligibility.

Eligibility
The first criterion for eligibility is that the producer’s milk was pooled during any of the months of July to December 2020. The second part is that producers must have either an average Adjusted Gross Income (AGI) of less than $900,000 for tax years 2016, 2017, and 2018 or 75% of their adjusted gross income must come from farming, ranching or forestry-related activities. Farmers that previously qualified for CFAP 2 payments would also qualify for PMVAP since this is the same criterion. The amount of pooled milk to be paid for is capped at 5 million pounds per producer. For dairy farmers in multiple markets, their cap would be prorated based on volumes of milk pooled in each order.

Calculation
The goal of this program is to compensate the dairy farmer for the change in the Class I skim value formula. Therefore, the calculation will be based on the difference between the “higher of” and “average of” formulas. See Table 1 for the differences in value between the two formulas. Once this is determined, the difference is multiplied by the Class I skim utilization rate for that order, and then reduced to 80 percent. For each farmer, the payment is calculated on the amount of their milk that was pooled in their Federal Milk Marketing Order. As mentioned above, there is a 5-million-pound cap per producer.

Table 1:

Effective Price Date

Class I New Method Skim Milk

Class I Old Method Skim Milk

Difference

 
 

Jul-20

10.62

13.29

$2.67

 

Aug-20

13.34

18.08

$4.74

 

Sep-20

13.02

17.43

$4.41

 

Oct-20

9.97

11.01

$1.04

 

Nov-20

12.78

16.07

$3.29

 

Dec-20

14.88

20.07

$5.19

 

 

Education Requirement
Each handler and cooperative must provide an educational outlet for participating producers. The education requirement is flexible. The handlers and cooperatives can decide what topic they want to cover and can distribute an informational mailing, record online trainings, hold live virtual webinars or hold in-person meetings. The USDA will reimburse handlers and cooperatives for allowable administration costs which would mostly include expenses related to the education requirement.

Timeline
Handlers should have notified the USDA of their intent to participate by September 10, 2021. The next step is for each handler and cooperative to have one on one meetings with the USDA. By October, the cooperative agreements are signed and finalized. By November, the USDA hopes to have distributed monies to handlers and cooperatives. By December, the producers should receive assistance payments. In January and February 2022, the Market administrators will start the payment verification audits. Lastly, the education requirement should be administered by March 1, 2022.

While this program is not a Federal milk marketing program, PMVAP aims to help lift some of the financial burden that was caused by COVID-19. If the Class I mover formula had not changed, farmers would have received an estimated $750 million more for the value of their milk. With this program, the USDA hopes to reverse the unintended negative effects of the formula change caused by market disruptions due to COVID-19.

For more information regarding the program visit https://www.ams.usda.gov/services/pandemic-market-volatility-assistance-program or emails can be submitted to PMVAP@usda.gov .

 Article prepared by Alex Albright. For additional information, contact us at info@herbein.com