The United States Department of Agriculture is responsible for several risk management tools for the dairy industry, including donation programs such as the Milk Donation Reimbursement Program (“MDRP”). Similarly, in 2020, Congress created a new dairy risk management program, the Dairy Donation Program (“DDP”). The program was created to provide an alternative market for excess milk by providing non-profit food donation centers with additional products to distribute to individuals and families, while also reducing food and commodity waste. An interim rule outlining program requirements was published by Agricultural Marketing Services (“AMS”) on August 31, 2021, while the final rule was just released, on August 24, 2023. The final rule makes minor changes to the interim rule published in 2021.
2021 Interim Rule
The purpose of the DDP, as laid out by AMS is to “reimburse dairy organizations for donated dairy products to non-profit organizations for distribution to recipient individuals and families”. Establishment of a Dairy Donation Program, 86 Fed. Reg. 48,887. The interim rule was effective from September 2, 2021, until September 1, 2023. Organizations that were already enrolled in the MDRP were automatically enrolled in the DDP. However, an organization that is eligible for both programs can only be reimbursed up to the amount it is eligible for under DDP.
To be eligible for the program, organizations must meet the definition of an eligible dairy organization (“EDO”). An EDO is “[a] dairy farmer (either individually or as part of a cooperative) or [a] dairy processor that meets the following conditions: (1) account to a Federal Milk Marketing Order (“FMMO”) marketwide pool; and (2) incur a qualified expense.” Establishment of a Dairy Donation Program, 86 Fed. Reg. 48,888. FMMOs set the minimum price that farmers receive for their milk. There are eleven FMMOs across the United States, which cover most of the milk produced in the United States.
Under the DDP, eligible dairy products [are] required to:
- “Be made primarily from cow’s (bovine) milk produced in the United States;
- Be packaged in consumer-sized packaging;
- Meet the applicable provisions for dairy products in the Federal Food, Drug, and Cosmetic Act, as amended. Grade ‘A’ dairy products must meet the applicable provisions of the current edition of the Pasteurized Milk Ordinance; and
- Have a sell-by, best-by, or use-by date no sooner than 12 days from the date the eligible dairy product is delivered to the eligible distributor.”
Establishment of a Dairy Donation Program, 86 Fed. Reg. 48,891. Eligible distributors are “public or private non-profit organizations that distribute donated eligible dairy products to recipient individuals and families,” such as non-profit food banks, shelters, and kitchens. Establishment of a Dairy Donation Program, 86 Fed. Reg. 48,890.
2023 Final Rule
AMS published a final rule on August 24, 2023, because the interim rule was set to expire on September 1, 2023. The final rule kept many of the same provisions from the 2021 rule, but clarified other provisions based on comments received during the interim rule comment period. The final rule did not amend the definition of eligible dairy organization, eligible dairy products or eligible distributors discussed in the section above.
The final rule did not change the definition of an EDO. However, the final rule broadened the definition of “accounting to an FMMO” to allow dairy organizations not regulated by an FMMO to participate in the program more easily. In order to participate, dairy organizations not regulated by an FMMO must file an initial report listing the amount of fresh fluid and/or bulk dairy commodity products purchased and outlining how those products were utilized to produce donated eligible dairy products. This change from the interim rule no longer requires dairy organizations not regulated by an FMMO to submit monthly reports.
According to the rule, “EDOs incur a qualified expense by either purchasing a fluid milk product (raw milk, skim milk, cream, or concentrated fluid milk products) for processing into an eligible dairy product or purchasing bulk dairy commodity product for further processing into an eligible dairy product.” Dairy Donation Program, 88 Fed. Reg. 57,862. Once an organization has met the definition of an EDO, it must partner with an eligible distributor to submit a Dairy Donation and Distribution Plan to AMS. The final rule changes the requirements for working with multiple distributors. Under the previous rule, an EDO working with multiple distributors was required to submit a separate plan for each distributor. Under the final rule, an EDO may now work with multiple distributors on the same plan, however a separate certification form must be included for each distributor. The plans only need to be resubmitted if changes are necessary, not every year.
Reimbursement claim forms and adequate documentation confirming the eligible distributor received the products cannot be submitted until AMS approves the plan and the donation is made. All EDOs, whether regulated by an FMMO or not, must submit a reimbursement claim form for eligible costs.
“To receive reimbursement, the EDO must complete and submit a Reimbursement Claim Form that includes:
- The type, volume, and manufactured date of the eligible dairy products donated;
- The entity type (processor, co-packer facility, distribution center, or eligible distributor);
- The physical address(es) of the eligible diary organization’s processing plant(s), co-pack facility(ies), and distribution center(s), and the eligible distributor’s distribution site(s);
- The universal product code(s) (UPCs) for donated product(s);
- The sell-by, best-by, or use-by date(s) for donated product(s); and
- The dates the donated dairy products were processed and shipped to the eligible distributor.”
Dairy Donation Program, 88 Fed. Reg. 57,866. AMS previously released a claim reimbursement form during the interim rule period and the new form has not been released yet. AMS will update their website when the new form is available.
Eligible costs under the DDP include input costs, manufacturing costs, and transportation costs.
Eligible input costs are the milk equivalent for fresh fluid milk or bulk dairy commodity products. The eligible input cost for fluid milk is the FMMO-minimum classified value applicable on the production date. EDOs cannot request reimbursement for powders or dry dairy products used as an ingredient in production, only fresh fluid milk. However, dry milk products in retail packaging made directly from fresh milk are eligible for reimbursement. EDOs that purchase bulk dairy commodity products for further processing will be reimbursed at the FMMO classified value for the fluid milk contained in the product and the value is based on the milk’s end use.
AMS will reimburse some manufacturing costs at the make allowance for each class in the FMMO system. The make allowance is the estimated processing or manufacturing costs for converting fluid milk into a dairy product like cheese or yogurt. One of the changes between the interim and the final rule is the calculation of the value that may be reimbursed for manufacturing costs. For more information, see the final rule at 88 Fed. Reg. 57,867.
Transportation costs are reimbursed based on the “U.S. monthly average diesel fuel price for the month the donation was made, a fuel economy factor of 6.1 miles per gallon, and the shortest hard-surface distance from the last point of EDO-ownership of the product to the eligible distributor’s physical distribution location.” Dairy Donation Program, 88 Fed. Reg. 57,867. The total reimbursable amount, subject to a regulatory cap, is the sum of the eligible input, manufacturing, and transportation costs.
The COVID-19 pandemic contributed to a dairy market with excess milk because of a decrease in the number of buyers, increased transportation costs, and reduced processing capacity at dairy production facilities. These challenges caused many producers to dump their excess milk. Instead of dumping excess milk, eligible producers can donate their product through the DDP and receive reimbursement for some of the costs. AMS reported that 22.5 million pounds of dairy products were donated during the first year of the DDP, resulting in total payments of $5.8 million to EDOs. AMS estimates that in 2023, approximately 183 million pounds of excess milk will be available to be donated through the DDP.
To read the text of the final Dairy Donation Program rule, click here.
To read the text of the Consolidated Appropriations Act, click here.