Geoff Vanden Heuvel
Director of Regulatory and Economic Affairs
Surprise, Surprise, Surprise…USDA awards less than 25% of the announced $1.5 billion Food Box Program purchases. The dairy industry was surprised a couple of weeks ago, when late on Monday, January 4, USDA made the following announcement:
(Washington, D.C., January 4, 2021) – U.S. Secretary of Agriculture Sonny Perdue announced the U.S. Department of Agriculture (USDA) will purchase an additional $1.5 billion worth of food for nationwide distribution through the Farmers to Families Food Box Program.
This was a surprise because there had been a lot of push back to the Food Box Program from the country’s food banks that provide support for the food insecure. The preference of food banks is for the government to grant them money so they can directly buy food that fits their distribution demands. In addition, the recommendation was to increase the Supplemental Nutrition Assistance Program (SNAP) benefits for those who are eligible and rely on public assistance for food. Congress accomplished this by specifically increasing SNAP benefits by 15% for the first half of 2021 in the Coronavirus Relief bill passed at the end of December.
$1.5 billion buys a lot of Food Boxes, but for the dairy industry this is a mixed blessing. The announcement of a fifth round of Food Boxes set off significant market price gyrations. It also prompted a concentrated effort by cooperatives that make a lot of butter and missed out on the economic windfall enjoyed by segments of the industry that sell cheese to convince USDA to require that butter also be in the Food Box (see more detail here).
On Tuesday January 19, the contract awards were announced. They did not require butter to be in the box, and USDA awarded only $354 million worth of contracts, less than 25% of the announced purchase of $1.5 billion (see list of awards here). As might be expected, the dairy markets again are gyrating as folks try to figure out the impact this smaller purchase will have on dairy product prices.
Meanwhile, USDA announced another $40 million worth of Section 32 butter purchases, which is in addition to a $50 million butter purchase program announced in December. $90 million in butter purchases, intelligently designed and occurring sooner rather than later, could go a long way toward shrinking the butter bulge that has hung over the industry since the shutdown of the food service sector at the beginning of the pandemic.
The Coronavirus relief bill also included a $400 million dairy product donation program that shows some promise as a vehicle to deal with managing surplus inventories. We understand that there are discussions beginning on how this type of program could be designed and implemented.
The pandemic – and the government’s response to it – has certainly rocked the dairy industry along with much of the rest of the economy. Farmers have received billions of dollars in direct payments from the government, and programs like the Food Box program did some good in stimulating demand. But the effects of government interference in the markets are very distorting and the process of normalizing the dairy industry will no doubt be painful. Milk production is very strong, feed prices have dramatically increased, and government funded pandemic relief efforts are a mixed bag of help and hurt. Fasten your seatbelts.