Detailed Information on the
Dairy Payment Program Assessment

Eliminating shortcomings identified in financial audits by strengthening the processes and controls in the program's disbursement system.

Establish policy within parameters of new Farm Bill legislation to improve delivery of the program.

Proposing changing the dairy operation definition in the legislation to eliminate State by State variations in the determination of the number of eligible dairy operations under the program.

Measure: Increase percentage of MILC program benefits delivered through a Web environment.

Explanation:FSA would like to use this measure as the efficiency measure for the MILC program. This is a Milk Income Loss Contract Program specific measure that tiers down from the FSA Strategic Plan long-term measure on "increase % of program benefits delivered through a Web environment." - under the objective "Mitigating Market Losses." Baseline: 0% (new mode of delivery starting FY 2005) Note that targets are subject to change, depending on whether there is a need to deliver these benefits in FY 06.

Measure: Maintain or decrease loss rate of dairy farms with 100 cows or less. (Annual & Long-term)

Explanation:FSA would like to use this measure as the annual and long-term outcome measure. This is a Milk Income Loss Contract Program specific measure that contributes to the FSA Strategic Plan long-term measure on "increase profit of farms and ranches." Baseline: 6.4% (2002-2004 average) The program should eliminate precipitous declines in the number of farms with less than 100 cows, but not eliminate the market adjustment toward larger dairy farms. FY05 data will be available in 2006 in a NASS publication, Farms, Land in Farms, and Livestock Operations."

Measure: Maintain or decrease loss rate of dairy farms with 100 cows or less. (Annual & Long-term)

Explanation:

Measure: Maintain or decrease loss rate of dairy farms with 100-199 cows. (New measure, added February 2007)

Explanation:The proposed targets and actual measures for the percentage change in the number of operations with 100-199 cows is calculated from the same data source and by the same method as the measue for the number of farms of less than 100 cows. The 2005 base is calculated as an average of 2002 to 2004 percent changes. Note, farm exit rates were well below the target in 2005 because milk prices were record high in 2004 and continued at relatively high levels in 2005. There is typically about a one-year lag between milk price levels and impact on farm exits.

Is the program purpose clear?

Explanation: The 2002 Farm Bill enacted the MILC program as an expansion of the Northeast Interstate Compact program. The purpose of the MILC program is to keep viable regional dairy production and a local supply of milk nationwide. No new purpose was articulated by Congress when replacing the Compact with MILC. Congress stated that the purpose of the Compact was to assure the viability of local dairy farming in the northeast, and to assure consumers of an adequate, local supply of pure and wholesome milk. Congress found that dairy farms are essential to regional rural economies and have historically defined the character or rural communities. The transition from the Northeast Interstate Compact to the counter-cyclical MILC program broadens this purpose as national in scope.

Evidence: Section 147 of the Agricultural Market Transition Act (Title 1 of Public Law 104-127: 7 U.S.C. 7256 and Joint Resolution of Congress. Program authorization is detailed in 2002 Farm Security and Rural Investment Act (also known as the 2002 Farm Bill), Section 1502 and in the Deficit Reduction Act of 2005.

Does the program address a specific and existing problem, interest, or need?

Explanation: The number of small to medium sized dairy farms in the United States is declining in regions of historical dairy production. Dairy production nationwide is growing due to the expansion in the number and size of dairies in the western states. Congress and the Secretary of Agriculture found a compelling public interest in maintaining regional dairy production when authorizing implementation of the Northeast Interstate Dairy Compact. The MILC program, replacing the Compact, shows that there is continued national interest in maintaining viable diary production in all regions of the country. The transition from the Northeast Interstate Compact to the counter-cyclical MILC program, which provides financial compensation to eligible dairy producers based on market conditions, addresses this specific national interest.

Evidence: NASS MILK production report, Cost Benefit Assessment of the reauthorized MILC program, Farms, Land in Farms, and Livestock Operations 2005 Summary, January 2006, National Agricultural Statistics Service (NASS).

Is the program designed so that it is not redundant or duplicative of any other Federal, state, local or private effort?

Explanation: While no other federal program provides financial compensation to eligible dairy producers based on decreases in domestic fluid milk prices, there is some duplication with state and federal milk marketing orders which also contribute to assuring adequate local milk production through price mechanisms. Private efforts by some dairy farm cooperatives, and state marketing boards, may contribute to improved or increased regional milk production in some states. Among the purposes of the federal milk marketing orders is to assure an adequate local supply of fluid milk.

Evidence: www.ams.usda.gov/DAIRY/orders.htm

Is the program design free of major flaws that would limit the program's effectiveness or efficiency?

Explanation: The program is administered on an operation-by-operation basis in accordance with the same standards USDA applied to previous Dairy Market Loss Assistance (DMLA) programs. The definition of a dairy operation used under the previous DMLA programs varied by State as found by the USDA OIG in December 2004. This design flaw has caused State-to-State variation in the determination of the number of eligible dairy operations under the MILC program.

Evidence: Audit Report No. 03601-10-Ch, December 2004; National Notice LD-552 - OIG Findings; MILC Options Memorandum; and Farm Security and Rural Investment Act of 2002 - Pub. L. 107-171. FSA Cost Benefit Assessment of the MILC extention regulation.

Is the program design effectively targeted so that resources will address the program's purpose directly and will reach intended beneficiaries?

Explanation: The program was designed to maintain small to mid-sized dairy dairy operations, during times of low prices. While all dairy operations are eligible to participate in the program, all milk production is not eligible for payment. All eligible dairy operations may receive MILC program payments up to an annual production cap of 2.4 million pounds. No income eligibility is required to participate in the program. Program resources go proportionately to States according to the number of dairy operations in that State. For instance, California has 3% of all dairy operations, and receives 7% of the MILC program payments. Under the MILC program, payments go to all eligible dairy operations, large and small, but the payment has more of a direct benefit to small and mid-size producers because it covers a larger share of production. This trend indicates that MILC program payments are, by design, benefiting small and mid-sized dairy operations. The program could be more effectively targeted if income eligibility caps were put in place.

Evidence: 7 CFR PART 12; Farms, Land in Farms, and Livestock Operations, 2005 Summary, January 2006, NASS publication; FY 2004 MILC Program Risk Assessment; Statistical Sampling Report for MILC, August 30, 2005; USDA Economic Research Service (ERS) study Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing, July 2004. 2002 Farm Secutiry and Rural INvestment Act.

Does the program have a limited number of specific long-term performance measures that focus on outcomes and meaningfully reflect the purpose of the program?

Explanation: The long-term performance measures are to maintain or decrease loss rate of dairy farms with less than 100 cows and to maintain or decrease the loss rate of dairy farms with 100 - 199 cows. These measures link to the USDA Strategic Goal 2 and the Agency Draft Strategic Plan, Goal 1, Objective 1.2: Mitigating Market Losses. The counter-cyclical MILC program payments help achieve this objective by providing financial compensation to dairy producers when domestic fluid milk prices are low. Low prices challenge small producers ability to stay in business since they tend to have higher production costs, less liquidity of assets, and a narrower profit margin than large-scale operations. Thus, a higher proportion of small dairy operations go out of production following periods of low prices. If the program is successful, then the loss rate of small and mid-scale dairy operations should decrease. The program has demonstrated success in stemming the decline of small and mid-scale dairy operations. For example, prior to the enactment of the MILC program, small-scale dairy producers were going out of business at a rate of up to 8 %. In 2001, the loss rate was 8%, after the record-low dairy prices in 2000. The loss rates during the early years of the MILC program averaged 6.4% compared to nearly 7% in the previous three years (1999 to 2001).

Evidence: Farms, Land in Farms, and Livestock Operations 2005 Summary, January 2006, National Agricultural Statistics Service (NASS); and FSA Draft Strategic Plan Framework.

Does the program have ambitious targets and timeframes for its long-term measures?

Explanation: The program's long-term performance measures maintain or decrease loss rate of dairy farms with less than 100 cows and maintain or decrease loss rate of dairy farms with 100-199 cows tier down from FSA Draft 2005 2010 Strategic Plan, Goal 1, Objective 1.2, Mitigating Market Losses. Targets for the first measure start at the baseline level of 6.4% and are reduced to 5.9% by 2010. The baseline covers a period when the program was in effect, so any reduction from the baseline level of small-scale dairy farms going out of business (exits) will require improved program effectiveness. The baseline was established by averaging the rate of small-scale dairy farm loss for 2002 through 2004. The targets are considered ambitious in light of the fact that the target for small herd decline is set at annual .1 % declines starting at the baseline average of 6.4% when the program was first in effect. This is considerably less than the up to 8% decline when the program was not in effect. Furthermore, the external factors which would contribute to the decline of small and medium size herds are significant. They include: increasingly rapid structural change in the industry, changes in demand for dairy products in both the domestic and international markets, increasing feed prices, and climate/weather changes. The second measure, relating to mid-size dairy farms, similarly has ambitious targets and timeframes, with baseline level of 5.4% and long term target of 4.9% for 2010. Note, farm exit rates were well below the target in 2005 because milk prices were record high in 2004 and continued at relatively high levels in 2005. There is typically about a one year lag between milk price levels and impacts on farm exits.

Evidence: The Deficit Reduction Act of 2005 extended the MILC program to September 30, 2007. The long-term performance measures are included in the Department's Management Information Tracking System (MITS). Data source is Farms, Land in Farms, and Livestock Operations 2005 Summary, January 2006, National Agricultural Statistics Service (NASS).

Does the program have a limited number of specific annual performance measures that can demonstrate progress toward achieving the program's long-term goals?

Explanation: FSA proposes using the same performance measures for annual and long-term outcomes with annual targets set for each year extending out to 2010 for the long-term goal. The performance measure "maintain or decrease loss rate of dairy farms with less than 100 cows," has annual targets starting at the baseline value of 6.4% and declining by 0.1% per year. The performance measure "maintain or decrease loss rate of dairy farms with 101-200 cows" similarly has annual targets, with baseline of 5.4% and declining by .1% per year.

Evidence: Farms, Land in Farms, and Livestock Operations 2005 Summary, January 2006, National Agricultural Statistics Service (NASS); and Management Information Tracking System (MITS) performance data.

Does the program have baselines and ambitious targets for its annual measures?

Explanation: The baseline level for the annual outcome measures were established as the average over the 2002 through 2004 period and targets decline from that level each year. (See explanation in Question #2.2) The targets were set to reflect an expected reduction in small-scale and mid-size dairy operations that go out of business over time; an anticipated direct result of the MILC program. By receiving direct income support payments to help offset low domestic milk prices, small to mid-sized dairy producers will be better positioned to maintain productivity and herd sizes during periods of declining prices and domestic market fluctuations. The targets are considered ambitious in light of the fact that the targets for both measures are set at regular .1% declines below the baseline average. The target for small scale operations is considerably less than the 8% decline for 2001, when the program was not in effect. Furthermore, the external factors which would contribute to the decline of small and medium size dairy operations are significant. They include: increasingly rapid structural change in the industry, changes in demand for dairy products in both the domestic and international markets, increasing feed prices, and climate/weather changes.

Evidence: Farms, Land in Farms, and Livestock Operations, 2005 Summary, January 2006, National Agricultural Statistics Service (NASS); and Management Information Tracking System (MITS) performance data. Chart "Percent Change in the Number of Operations <100 Cows Versus Excess of the All-Milk Price Above the Payment Threshold."

Do all partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) commit to and work toward the annual and/or long-term goals of the program?

Explanation: Government partners work together to help the Farm Service Agency (FSA) achieve programmatic objectives. The Natural Resources Conservation Service (NRCS) works with FSA to determine producers compliance with conservation compliance regulations and highly erodible land and wetland conservation provisions. In addition, the monthly MILC program payment rate is determined from information obtained from the Agricultural Marketing Service (AMS). The FSA field office staff work directly with MILC agents (private citizens or dairy cooperatives who act as liaisons between special groups or communities) to serve special groups or communities that would otherwise not participate in Federal programs. Performance data is used from the National Agricultural Statistics Service (NASS). However, customers, the dairy producers nationwide who receive MILC payments are not in agreement on the program goals. Several dairy producer organizations do not support the MILC program because they believe that slowing the exodus of small to mid-size producers contributes to the growth in excess milk production. Some producer organizations support lifting the production cap which would allow all U.S. milk production to receive MILC payments.

Evidence: 7 CFR Part 12; AMS Federal Marketing Order NO. 1, Northeast Marketing Area; and AMS Payment Calculator; NASS/FSA Memorandum of Understanding dated February 27, 2004.

Are independent evaluations of sufficient scope and quality conducted on a regular basis or as needed to support program improvements and evaluate effectiveness and relevance to the problem, interest, or need?

Explanation: Internally, MILC is periodically reviewed in county offices by an appointed County Operations Reviewer (COR), under County Office Operations Review Program (CORP) procedure to ensure program weaknesses are addressed. These COR reviews are independent of county offices; reviewers work directly for the State Executive Director (SED). Any finding of fraud or county office wrongdoing is reported directly to the SED for appropriate action that could include an OIG investigation. If significant discrepancies are found, either State or National level program managers may request a national MILC target CORP review, focusing on a particular issue or set of issues. OIG, GAO, and ERS have reviewed aspects of the program since MILC was authorized in 2002.

Evidence: OIG Audit # 03601-0013-Ch, FSA Progress to Implement the IPIA 2002 dated March 2006. USDA OIG Audit Report #03601-10-Ch. U.S. GAO Report, "Dairy Industry: Information on Milk Prices, Factors Affecting Prices, and Dairy Policy Options, GAO-05-50 at pp. 202-205, (December 2004). County Office Review Program Handbook (1-COR (Rev.3). SCORP-MILC findings MILC-X Production Payment Report CORP FY 2005 Final Report; CORP FY 2004 Final Report; CORP FY 2003 Final Report.

Are Budget requests explicitly tied to accomplishment of the annual and long-term performance goals, and are the resource needs presented in a complete and transparent manner in the program's budget?

Explanation: The MILC program is a mandatory program authorized by the 2002 Farm Bill, and extended in 2005, which has no set funding level. Budget estimates are prepared annually, based on projected participation levels and average domestic fluid milk prices, and an apportionment is received from OMB each year. Annual budget projections also take into account legislative and proposed policy changes. Spending under the MILC program is triggered by the level of Class I milk price in Boston, as established by formula under the Agricultural Marketing Agreement Act of 1937. Changes to the classified formula have a direct impact on the cost of the MILC program. MILC is a program directly included in two key performance measures for the Agency's and USDA's budget. The program is identified with associated costs in budget documents.

Evidence: Program performance measures are contained in FSA's submission to the FY 2007 President's Budget; performance data is available in MITS; and eMILC Web-based login screen.

Has the program taken meaningful steps to correct its strategic planning deficiencies?

Explanation: The MILC program performance measures align to the Agency s and USDA's strategic goals. The MILC outcome measure is maintain or decrease the loss rate of dairy farms with less than 100 cows, which falls under USDA's strategic goal to enhance the competitiveness and sustainability of rural and farm economies and FSA's Strategic Plan objective of "Mitigating Market Losses." The MILC efficiency measure is increase percentage of MILC program benefits delivered through a Web environment. This measure tiers down from the Agency Objective 1.2, and falls under the Agency measure, maintain or increase the percent of program benefits delivered through a Web environment, which is a key measure in USDA's Strategic Plan.

Evidence: USDA Strategic Plan FY 2005-2010; FSA Draft FY 2005-2010 Strategic Plan Framework; and Performance information contained in the FY 2007 President s Budget.

Does the agency regularly collect timely and credible performance information, including information from key program partners, and use it to manage the program and improve performance?

Explanation: Funding reports are generated monthly to monitor program expenditures. However, FSA does not have information on the total volume of milk paid, or the number of producers paid. The agency has not looked at production level changes by dairy operation size to determine the impact, if any, the program has had on volume changes from small farms compared the volume growth from large farm States. The impact of proposed regulatory changes from the federal milk marketing order system on MILC program costs are not made available to the Executive Branch.

Evidence: Improper Payments Information Act of 2002; AMS Federal Milk Marketing Order; AMS Payment Calculator Website; County Operations Review; Improper Payments Analysis FY 2003 Final Report; and MILC Funding Report 12-15-05.

Are Federal managers and program partners (including grantees, sub-grantees, contractors, cost-sharing partners, and other government partners) held accountable for cost, schedule and performance results?

Explanation: Agency managers are responsible for implementing and monitoring program activities. Program managers have introduced electronic processing and delivery features into the programs, and have made e-forms available to improve overall accessibility and program efficiency. This initiative reduces the cost of salaries and expenses that are required to deliver the program, and supports the MILC efficiency measure, increase percentage of MILC program benefits delivered through a Web environment. FSA has included performance measures from the FSA Draft Strategic Plan FY 2005-2010 into individual performance plans of all managers beginning in FY 2004 (FSA/RMA Notice PM-2494). Manager's performance indicators are evaluated at least semi-annually for responsiveness to the objectives and requirements of the Agency at each organizational level of the Agency through the Department level. Annual reports are provided to Congress detailing expenditures for the program. Program costs are continuously monitored through Agency budget and fiscal management contacts, and reported throughout the Department.

Evidence: ftp://ftp.fsa.usda.gov/public/notices/PM_2494.pdf; and FSA Draft FY 2005-2010 Strategic Plan.

Are funds (Federal and partners') obligated in a timely manner, spent for the intended purpose and accurately reported?

Explanation: Field offices have 60 days after a producer submits all needed information to issue a payment to that producer. Congress established no limit on program funding, so all eligible production must be paid at the rate established by legislation. The Commodity Credit Corporation (CCC) funds are allocated as needed and no funds are left over at the end of the year. New procedures have been developed to improve program management efficiency (e.g., direct deposit and electronic funds control). To achieve further efficiencies, the Agency has introduced a Web-based platform for MILC program transactions. MILC program funds are obligated and disbursed at the same time. MILC disbursements are estimated in the Presidents Budget process. There have been no significant findings of payments being made incorrectly. Accounting records are maintained in the CCC CORE accounting system. FSA has performed a Risk Assessment of erroneous payments for this program under guidelines as set forth by OMB as required by the Improper Payments Information Act (IPIA). FSA also, during FY 2005, completed statistical sampling of the payments to determine the actual percentage of improper payments. The results of that identified an error rate of .03%, which is well below the 2.5% threshold established in the IPIA. The Agency also monitors program activity to ensure data integrity and funds availability at the program level, and to make certain that funding information posted to the general ledger is properly confirmed for accuracy. Agency accountants provide a fund status report displaying budgetary authority, obligations, and expenditures.

Evidence: Statistical Sampling Report for MILC, August 30, 2005; FSA Improper Payments Analysis Report; Funds Status Report For Period Ending: 2006; eMILC login screen; and Improper Payments Information Act.

Does the program have procedures (e.g. competitive sourcing/cost comparisons, IT improvements, appropriate incentives) to measure and achieve efficiencies and cost effectiveness in program execution?

Explanation: Prior statutory authority for the MILC program ended September 30, 2005. The President signed the Deficit Reduction Act of 2005, which re-authorized the MILC program, with changes, through August 31, 2007. In the spring of 2006, milk producers have the opportunity to re-enroll in the program. Currently, FSA is launching eMILC, which replaces an antiquated IBM system 36. As a fully-functional Web-based FSA Service Center delivery system, it will allow for nationwide centralized processing, real-time monitoring, an efficient and timely correction process, and superior reporting capability. It also will allow customers to access and track their activities in the program via the internet. FSA currently monitors and evaluates the efficiency of its delivery system primarily through the reporting of prompt payment penalties. The Agency reports the count and amount of prompt payment penalties paid and the ratio of electronic funds transfer (EFT) payments versus payments issued via paper checks. To achieve further efficiencies, the Agency is introducing more electronic forms to improve the data collection process and reduce data input time and errors. Efficiencies are further supported and tracked by an efficiency measure to increase percentage of MILC program benefits delivered through a Web environment, linked to the FSA Strategic Plan Framework. The Agency reports that for the MILC program, the prompt payment penalty amount paid was $1,663.81 for the first two quarters of FY 2005. During the first quarter of FY 2005, 69% of the 831 payments made for MILC by county offices were made by EFT.

Evidence: USDA OIG audit No. 03601-10-Ch; Improper Payment Information Act of 2002, FY 2004 MILC Program Risk Assessment; Debt Collection Improvement Act of 1996; sample county newsletter, AMS Website http://www.fmmone.com/ ; Debt Collection Improvement Act of 1996; Quarterly Prompt Payment Reports 2004-2005; and the Prompt Payment Act Amendments of 1988 (Pub. L. 100-496).

Does the program collaborate and coordinate effectively with related programs?

Explanation: The oversight and implementation of federal dairy programs is coordinated throughout USDA. The MILC program is administered by the FSA, while the classified pricing system on which the payment is based, is under the AMS. FSA in turn allocates the delivery of the MILC payments through a state and county network of offices. The NRCS is tasked with ensuring that program participants comply with conservation regulations. The program utilizes the AMS Website to calculate FSA payment rates. In addition, FSA County Office employees inform producers of other USDA programs pertaining to their specific industry. The MILC program collaborates with FSA conservation and NRCS programs by having an eligibility requirement that eligible applicants be in compliance with Highly Erodible Land Conservation and Wetland Conservation provisions, in accordance with the Food Security Act of 1985 and 7 CFR Part 12.

Evidence:

Does the program use strong financial management practices?

Explanation: The Independent Auditors' Report of the consolidated financial statements of the Commodity Credit Corporation (CCC) as of September 30, 2005 and 2004, reported conditions needing improvement in information security controls: financial system functionality, budget executions process, financial accounting and reporting policies and procedures. These reportable conditions were considered material weaknesses.

Evidence: USDA OIG Audit No. 06401-20-FM.

Has the program taken meaningful steps to address its management deficiencies?

Explanation: With the development of a new Web-based program delivery platform, beginning in April 2006, producer payments will be processed in a more timely and efficient manner with a great improvement on reporting capabilities that can be generated through a centralized system. Several Agency directives have also been issued to ensure proper guidance and instruction regarding programmatic issues. The Agency has also assessed the risks for improper payments in the MILC program so that the appropriate internal controls for prevention can be implemented. Annual County Operations Reviews (COR), as referenced in response to Question 3.1, also identify management and administrative deficiencies for which corrective actions are taken as appropriate. Disbursement procedures are in place to ensure that MILC monthly payments and transition payments are made properly. Disbursement data is collected and reported in the financial statements of the CCC. CCC Financial Statements are audited every year and for FY 2005, CCC received a clean audit opinion. In addition, the programs long-term outcome measure, maintain or decrease loss rate of dairy farms with 100 cows or less, tiers down from FSA Goal 1, Objective 1.2, Mitigating Market Losses. Increased reporting capabilities in the new web-based delivery environment will more efficiently identify program deficiencies because all information will be centralized and available in less time. The Improper Payments Information Act of 2002 is intended to identify those payments that may be susceptible to significant improper payments. There are no material findings on the internal controls related to the disbursement process used by CCC. FSA has performed an assessment of the risk of erroneous payments in this program to identify any program management deficiencies. The results of that evaluation identified an error rate of .03%, which is well below the 2.5% threshold established in the IPIA. The disbursement process is documented for county offices in a national Handbook (1-FI).

Evidence: The Improper Payments Information Act of 2002; FSA National Procedural Handbook, 1-FI, available at: ftp://165.221.16.16/manuals/11-LD.pdf., and the 2005 CCC Financial Statement.

Has the program demonstrated adequate progress in achieving its long-term performance goals?

Explanation: The program has established a long-term outcome measure to maintain or decrease loss rate of farms with less than 100 cows or less, and 100 - 199 cows which aligns to the Agencys Draft FY 2005  2010 Strategic Plan, Goal 1, Objective 1.2 Mitigating Market Losses. The actual loss rate for 2005 of small to mid-sized dairy farms was well below the established target rate. The 2010 target was established 0.5% below the baseline level (2002 to 2004 average 6.4%) at 5.9%. The actual figure in 2005 was 4.5%. Relatively high milk prices contributed to a lower loss rate for small dairy herds. The average herd size for farms with less than 100 cows was 38 head in 2005. The target for this measure allows for continued movement of dairy operations of less than 100 cows out of this herd category. Some of these operations will expand and no longer have less than 100 cows. However, historical movement out of the less than 100 cow herd category has peaked when milk prices are extremely low, and overall cow numbers are declining. Exits also are largest for the smallest size category, 1-29 cows. MILC payments partially alleviate income declines, and should reduce dairy farm exits in farms with less than 100 cows. Add/modify for mid-size operations.

Evidence: USDA NASS publication, Farms, Land in Farms, and Livestock Operations, released annually in January for years 2002-2005.

Does the program (including program partners) achieve its annual performance goals?

Explanation: The program has one performance measure with both annual and long-term targets to maintain or decrease loss rate of dairy farms with 100 cows or less. This measure tiers down from the Agency Goal 1, Objective 1.2 mitigating market losses. The targeted performance measure was successfully met for 2005. The 2005 target was established at the baseline level (2002 to 2004 average) of 6.4% and the actual figure came in at 4.5%. Relatively high milk prices contributed to a lower loss rate for small dairy herds. The same data is used for the annual and long-term measures. The numbers of dairy farms with less than 100 cows is published annually in the NASS publication, Farms, Land in Farms, and Livestock Operations. Farm numbers with less than 100 cows for the previous year is divided by the data for two years earlier then converted to a loss percentage by subtracting the result from 1 and multiplying by 100.

Evidence: USDA NASS publication, Farms, Land in Farms, and Livestock Operations, released annually in January in years 2002-2005.

Does the program demonstrate improved efficiencies or cost effectiveness in achieving program goals each year?

Explanation: Maintaining or decreasing the loss rate of farms with less than 100 cows is a key program goal. FSA strives to achieve this goal by minimizing program delivery costs, but has not addressed how the total payments could be decreased while still achieving the performance goals. Agency directives have focused on prompt payment, and the utilization of the web-based program develivery platform. These improvements have made payment processing more efficient, which reduces agency costs in making disbursement. However, the goal of maintaining small to mid-size dairy operations could be achieved for less cost if FSA did not allow large dairy operations to receive larger MILC payments by allowing choice of payment month. Also, the legislation to standardize the definition of operation between States, was never advanced by FSA through the legislative reauthorization of the MILC program. USDA would be able to more efficiently administer the MILC program across the U.S. if there was no reference to applying the inconsistent standards used from DMLA-III.

Evidence: USDA OIG Reort No. 03601-10-Ch; Prompt Payment Reports DW2025py - Detail Report by Program Type Code ; ACH vs. Checks Reports DW2005py  Number of ACHs vs Check by Program Code; and FY 2005 Report to Congress on Implementation of the The E-Government Act of 2002.

Does the performance of this program compare favorably to other programs, including government, private, etc., with similar purpose and goals?

Explanation: The MILC program is less market distorting than the Dairy Price Support Program (DPSP) because the MILC program does not directly affect dairy product prices as does the DPSP. MILC supplements dairy producer income in poor price periods through a direct federal payment that is capped to limit the impact on overproduction. Payments to states with producers having smaller herd sizes are a larger proportion of total payments than those states proportion of total milk production and the opposite is true for states with primarily producers with large herd sizes.

Evidence: USDA ERS study, "Economic Effects of U.S. Dairy Policy and Alternative Approaches to Milk Pricing," July 2004 (refers to MILC not directly affecting dairy product prices on page 62, dairy product price impacts of MPSP on page 57, and MILC payments distribution relative milk production share on page 49). Include additional academic research comparing MILC support to FMMO, MPS, and prior NE dairy compacts, if applicable.

Do independent evaluations of sufficient scope and quality indicate that the program is effective and achieving results?

Explanation: A major problem in evaluating the MILC program is that it cannot be evaluated alone, it exists alongside other federal and state dairy programs. Anaylsis on the impacts in many cases has been inconclusive. No research has yet shown that MILC has a proven decrease in price. Some analytical focus has been on the potential for MILC to encourage inefficient production on small farms by blocking market signals and encouraging inefficient producers to maintain production without improving their relative efficiency. This impact, while viewed by many as negative, is not in conflict with the congressionally mandated purpose of the program: that is, to preserve or at least mitigate the small to mid-size farms in traditional milk producing regions, even at the cost of subsidinzing farms that are less efficient, and while subsidiing large dairy operations that are highly efficient, but still receive MILC payments. Research study from Mississippi State University

Evidence: "Does the MILC Program Affect Milk Supply Response Across Regions of the U.S.?" Herdon et.al. 2005 Mississippi State University.