If Congress doesn’t avoid ‘dairy cliff,’ milk prices could double

December 27, 2012

Add another, more prosaic item to the list of things Congress has left until the last minute to resolve this year: the price of milk.

Distracted by dealing with the Bush tax cuts, lawmakers are running out of time to pass the latest version of the country’s sweeping farm bill and avoid what’s become known as the “dairy cliff.” If Congress misses the Jan. 1 deadline, the price of milk could rise significantly — some say by more than $3 a gallon — as the country’s farm policy reverts back to laws dating from 1949.

The Department of Agriculture said prices would not jump immediately in 2013 and that the agency is exploring all options for heading off a mess. But hopes are diminishing that lawmakers will deal with the farm bill in time to avoid throwing the nation’s farm policy back more than six decades.

“The best outcome would be for Congress to do its job and pass a five-year bill,” Agriculture Secretary Tom Vilsack said last week. “The worst outcome is for us to continue to see Congress do nothing and for permanent law to come into effect.”

It’s not just milk that’s in limbo. The farm bill also includes disaster relief for farmers and foreign food aid that expired Oct. 1 because of inaction by Congress.


‘Fiscal cliff’ calculator’: What it will mean for me

And if Congress does not pass the bill by March, when it’s time for farmers to start planting crops, the antiquated laws could begin to roil production for other products, from peanuts to corn, by applying quotas discarded years ago.

“It would be an administrative nightmare,” said James Dunn, professor of agricultural economics at Penn State. “The farmers would lose a lot of flexibility in what they produce.”

The milk situation is immediately dire because milk is produced throughout the year.

At the heart of the trouble is an old provision designed to create a floor for how much dairy farmers are paid for milk — a kind of minimum wage. The formula for calculating that price, however, is based on assumptions that are a century old, predating the improvements in dairy farming. That old formula, if not replaced by a new farm bill, would push prices higher.

How much higher is difficult to determine because of the complexity of milk pricing. There are middlemen who help determine the price of the supermarket gallon, including processors and companies such as Dean Foods that market dairy products to consumers.

The government’s dated mechanism for controlling the price of milk is also remarkably indirect. The USDA in effect offers to buy bulk butter, nonfat dry milk and cheddar cheese in blocks and barrels in order to alter the price of milk. (The government bought so much cheese in the early 1980s that it had to give it away to families.) Such a process wouldn’t cause prices to spike overnight.

The Senate has already passed a farm bill. The House Agriculture Committee approved a version earlier this year, but the House leadership has not allowed the bill to be debated by the entire House. And there are no signs the bill will surface ahead of the year-end deadline.

The office of Speaker John A. Boehner (R-Ohio) referred questions about the House schedule to majority leader Eric Cantor (R-Va.), whose office did not respond to a request for comment.

Farm bills typically are passed every five years but their provisions are in effect for a fixed time. Just like the “fiscal cliff,” the high stakes surrounding the farm bill’s expiration — and the consequences of throwing the law back to its 1949 version — are designed to force Congress to act.

Farm subsidies have drawn controversy over the years, with some questioning their necessity. Dairy program subsidies have cost $4.9 billion from 1995 to 2011, ranking ninth among farm commodities, according to data compiled by the Environmental Working Group, an advocacy group. Corn has received the most, with $81.7 billion during the same period.

The price of milk, however, is largely determined by market forces. In fact, many farmers have been pushing for more financial support from the government as the number of farms has plummeted in recent decades.

Dairy farmers have faced a brutal year, with the country’s historic drought driving up the cost of feed for cows and the price of milk staying too low to help their margins.

“If this doesn’t turn around, then we won’t have a dairy industry as we think of it in the United States,” said Loren Lopes, a 66-year-old dairy farmer in Turlock Calif. Lopes’s farm milks about 500 cows. Many dairies are shutting down, said Lopes, and his son, who is 40, isn’t sure if the business is right for him anymore.

“We’ve been at it and struggled through it,” Lopes said. “My son is really getting discouraged . . . . We’re getting older and he’s looking at what future is left.”

Jia Lynn Yang is a staff writer at The Washington Post who covers policy and business. Before joining the Post, she worked at Fortune magazine.
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