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A gallon of milk could cost $8 in 2013. Here’s why.

There's one potential casualty of the fiscal cliff that hasn't gotten much attention at all: the price of milk.

Come Dec. 31, Washington's inaction could push the country's milk prices to as much as $6 to $8 per gallon unless Congress passes a farm bill renewing federal support for agriculture programs. 

Might have to scale back on Cheerio consumption if we go over the "milk cliff." (Source: bigstock)

Here's how that would happen: Without legislative action in the next five days, the government will have to revert to a 1949 dairy price subsidy that requires the Agriculture Department to buy milk at inflated prices. Much like the current fiscal cliff, the law was left on the books "as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products," as Vincent Smith, a Montana State University professor, told the New York Times.   

The Farm Bill isn't technically part of the fiscal cliff. Speaker John A. Boehner (R-Ohio.) has resisted the call by Agriculture Secretary Tom Vilsack (D) to incorporate it into the budget negotiations -- to avoid complicating the budget talks and losing GOP votes, a Boehner aide told Politico last week. Legislators from rural districts are also worried that crop subsidies could be a tempting target in the fiscal cliff negotiations, so they've been trying to push Congress toward a separate resolution, to little avail. Although producers would temporarily benefit from the hike in milk prices, it would hurt processors and consumers, and the dairy industry would prefer a long-term resolution as well. 

The legislative impasse is over a host of issues: There's major disagreement about how much to cut food stamps, how much the government should be subsidizing crops, and how dairy prices should be stabilized. As Time explains, the Senate has already passed a $969 billion farm bill that would reduce the deficit by about $24 billion over 10 years, in part by cutting $4.5 billion in food stamps and replacing direct payments to farmers with weather-related crop insurance. The House hasn't passed a bill yet, but the House Agriculture Committee passed a bill that would cut $35 billion over 10 years, with a bigger $16 billion cut to food stamps. 

The bill's biggest supporters now worry that the full Farm Bill is dead in the water until next year. It's unclear whether the White House and Congress will include any stopgap measures or a partial fix before Dec. 31, although the Obama administration may be able to delay milk purchases in 2013 to temporarily blunt the effect of the "milk cliff," Smith tells the Times.



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Sarah Kliff · December 26, 2012

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