The program that Congress created in 1983 to cut the multibillion-dollar cost of federal dairy supports will end on April 1, and dairy farmers are about to spring a surprise on Washington.
Although they sent 3.2 million cows to slaughter last year and trimmed output about 3 percent as part of the plan to reduce surpluses, farmers have readied a small army of replacement cows and will begin milking them when the program expires.
The development promises a new spurt in milk production, another jump in federal purchases of the surplus and the likelihood that Agriculture Secretary John R. Block will decree another cut in the federal milk price support rate in July.
But even if price supports fall to $11.60 per hundredweight from the current $12.60, most dairymen still will turn a profit. As a result, they will continue to crank out more surplus milk, according to dairy specialists who testified before a House subcommittee this week.
Congress has restructured the program at least three times since 1981, but has failed to solve the problem of too much milk. Under current law, the government must buy all the surplus milk, butter and cheese.
Despite efforts to revamp the program, the Agriculture Department has spent more than $6.1 billion to buy the surpluses in the last three years. USDA surplus purchases were almost halved last year, from $2.6 billion to $1.6 billion, but it still was more dairy goods than the government could give away.
With that background, the dairy issue again is shaping up as one of the thorniest parts of a new farm bill before the House and Senate Agriculture committees. The Reagan administration is proposing to phase out the program and to end mandatory federal purchases of surplus production, but its chances appear dim.
Consumer organizations are lining up with the White House on this one, but Rep. James M. Jeffords (R-Vt.) of the livestock, dairy and poultry subcommittee expressed a common sentiment this week: "The program needs changes, the price mechanism is faulty . . . but to suggest scrapping the program is not the answer."
A panel of agricultural economists who specialize in dairying warned the subcommittee that adoption of the administration's "market-oriented" proposals would mean chaos in the industry and bankruptcy for many smaller farmers already on the margin of solvency.
"The immediate impact would be a drop in price and it would create a lot of problems for a great number of farmers who would not survive . . . . There would be great instability," said Harold M. Harris Jr. of Clemson University.
"If you do it today, it is big trouble," said Andrew M. Novakovic of Cornell University. "It would be more costly to produce where there is more uncertainty."
The program that expires next month was born in controversy and is ending the same way. Rather than accept the administration's proposals to cut price-support levels sharply and make it unprofitable to produce excess milk, Congress took a different tack.
It set up a "diversion" plan that paid farmers $10 for every hundred pounds of milk they agreed not to produce. The idea was that it would cost Uncle Sam less than the mandatory purchases at higher rates and that it would save farmers labor and operating costs.
The program was financed by assessing dairy farmers 50 cents on every 100 pounds of milk they produced. Those who did not cut production in effect would subsidize those who did. Block estimated that a production cut of about 10 percent was needed to get supply in line with demand and hold down federal costs.
But farmers did not rush to sign up. They cut production about 3 percent last year. During the first nine months of the year, the assessment brought in $711 million, but only $536 million was paid back to participants. The program also created some milk shortages in some regions, adding to consumer costs as milk was brought in from elsewhere.
Rep. James R. Olin (D-Va.) complained this week that Virginia, a deficit area to begin with, had seen a 265 percent increase in imported milk over the last 13 months as local farmers joined the diversion program. "We have to have a policy," he told the subcommittee.
When the program ends, Block will end the 50-cent-per-100-pounds assessment, which will drop the support level to $12.10, the amount the government guarantees to pay if the farmer can't market his milk. If heavy surplus production continues, as is likely, Block can cut the support to $11.60 in July.
While the economists predicted that surplus production would continue at that lower rate, they also urged the subcommittee to move cautiously in developing a new program. Harris said the problem is apt to get worse before it gets better.
"The potential for excess production is . . . likely to increase in the future as dairy farmers adopt new technology that is coming on stream even today," Harris said. "This potential needs to be explicitly recognized in a dairy program that is flexible enough to deal with increasing productivity on a long-term basis . . . ."