Bloomberg News

House Committee Chief Backs Plan to Avoid Milk Price Jump

December 30, 2012

U.S. House Committee Chief Backs Plan to Avoid Dairy Price Jump

Three farm-related bills were filed in the House of Representatives yesterday, all of which would stave off the potential jump in consumer milk prices should government commodity programs begin to lapse Jan. 1. Photographer: Daniel Acker/Bloomberg

House Agriculture Committee Chairman Frank Lucas and Senate Agriculture Committee Chairman Debbie Stabenow backed a short-term extension of a farm law that lapsed Sept. 30 as the Obama administration warned that unless Congress acts, retail milk prices could almost double.

“It is no longer possible to enact a five-year farm bill in this Congress,” Lucas, an Oklahoma Republican, said in a statement today. The “responsible thing to do,” he said, “is to extend the 2008 legislation for one year. This provides certainty to our producers and critical disaster assistance to those affected by record drought conditions.”

Stabenow, a Michigan Democrat, said in a separate statement: “While the Senate passed a bipartisan five-year farm bill in June that cut subsidies and reduced the deficit, the lack of action by the House Republican leadership has put us in a situation where we risk serious damage to our economy unless we pass a temporary extension.”

The agreed-upon draft bill would extend current law, along with disaster aid for producers affected by this year’s U.S. drought and changes to current milk policy, through Sept. 30. It would reduce mandatory outlays by $30 million through fiscal 2022, according to the Congressional Budget Office. The bulk of the spending would come in the first year, and as such it would actually increase spending by an estimated $555 million through fiscal 2017.

Three Bills

The proposal is one of three farm-related draft bills released yesterday in the House of Representatives; all of them would stave off the potential jump in consumer milk prices should government commodity programs begin to lapse Jan. 1.

The second measure would extend most of the current law through Jan. 31, and the third would protect only against possible dairy-price spikes. Those two are opposed by House and Senate Democratic agriculture leaders. Representative Collin Peterson of Minnesota, the top Democrat on the House Agriculture Committee, called a 30-day extension a “poor joke on farmers that offers no certainty.”

The most recent farm law, enacted in 2008, expired after attempts to pass a new five-year proposal failed. Without that plan, agricultural programs automatically return to rules passed in 1949, the basis of all subsequent legislation.

The effects of that transition have been delayed because of the growing seasons of different crops. Dairy production, a year-round business, is the first major commodity affected. In November, the U.S. Department of Agriculture put the price of a gallon of fresh whole milk at just under $3.54.

Price Doubled

Under President Harry S. Truman’s farm policy, the government bought supplies of a product until its price reached “parity” with the cost immediately before World War I. Adjusted for a century of inflation, the Agriculture Department’s milk-support price today would be $39.08 per hundred pounds, more than double the dairy futures price in Chicago on Dec. 28.

Under the revised dairy plan, written by Peterson, the government would manage the milk supply by setting milk- production limits for farmers who enroll in a market- stabilization program. The proposal eliminates programs that pay farmers when prices fall below a certain level, replacing them with initiatives designed to protect profit margins through insurance programs and by limiting output, which would raise prices.

Perpetual Problem

Oversupply of milk that drives down prices has been a perpetual problem for dairy producers. The National Milk Producers Federation, an organization of farmers and dairy cooperatives, has supported the plan, while the International Dairy Foods Association, which represents milk processors such as Dallas-based Dean Foods Co. (DF:US), has opposed it for potentially driving up the cost of their raw materials.

The market-stabilization plan was included in both the Senate’s 10-year, $1 trillion version of the farm bill it passed in June and a bill approved in July by the House Agriculture Committee but not taken up by the full chamber. It wasn’t in the 2008 farm law, which the one-year draft legislation would extend -- adding the new dairy program. House Speaker John Boehner, an Ohio Republican, has called the current dairy program “Soviet- style” management of the farm economy that the Peterson plan would worsen.

Milk-Price ‘Ripple’

Agriculture Secretary Tom Vilsack today warned that consumers will pay the price without a new farm bill.

“Consumers, when they go in the grocery store, are going to be a bit shocked when instead of seeing $3.60 for milk, they see $7 a gallon for milk,” he said on CNN’s “State of the Union” program. “That’s going to ripple throughout all of the commodities if this thing goes on for an extended period of time.”

Lawmakers are considering a farm package as part of a resolution to the larger budget dispute involving more than $600 billion in tax increases and spending cuts set to take effect Jan. 1. Stabenow said she has been frustrated with congressional inaction on the agriculture law, which funds food aid to poor families as well as subsidies to growers of corn, cotton and other crops while lowering projected federal spending, according to the Congressional Budget Office.

“If the leadership were waiting until the last minute,” said Senator Pat Roberts of Kansas, the top Republican on the Senate Agriculture Committee, “we’re sure as hell there.”

To contact the reporters on this story: Alan Bjerga in Washington at abjerga@bloomberg.net; Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net


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