Sour Milk: Prices Will Soar Without Farm Bill Extension

Source: http://www.flickr.com/photos/calliope/

Source: http://www.flickr.com/photos/calliope/

Sticker shock may be coming to a grocery aisle near you. Congress has yet to pass an extension of the 2008 Farm Bill, failure to do so could see dairy prices soar when the law of the land reverts back to legislation from 1949. Analysts speculate that a gallon of milk could increase to $7 per gallon. The law keeping prices in check currently is also an extension of the 2008 Farm Bill, passed as part of the “fiscal cliff” negotiations last year. Non-extension reimplements the Dairy Product Price Support Program (or, DPPSP), originally the Milk Price Support Program (or, MPSP), of the Agricultural Act of 1949.

The United States Department of Agriculture (or, USDA) provides background information on the program. The 1949 law was intended to provide security to dairy farmers. To keep a stable level of milk in the marketplace, the Secretary of Agriculture is authorized to make purchases of dairy products under the Commodity Credit Corporation. Since 1949, provisions affecting how to establish stability have changed. Starting in 1981, the price supports were developed using formulas related to surplus estimations, or by a specific cost level. Since 2002, the Farm Bill gives support to milk prices through cheese, butter, and dry-milk purchases.

Without a Farm Bill extension, by law, U.S. Agriculture Secretary Tom Vilsack will have to use the 1949 policy. Vilsack gave the following scenario, which would exist, to NPR“So you, as a [milk] producer, would have a choice of selling it to your normal purchaser at $18 or $19 a hundred weight or to USDA at $38 a hundred weight. What do you think producers will do?”

Vilsack explains what happens as the dairy farmers begin to sell to the USDA, instead of the normal market. ”Every refrigerated warehouse in the United States would be full of cheese and butter, and nonrefrigerated milk warehouses would be full of powdered milk.” As a result, the government would spend a tremendous amount each year purchasing dairy products. By USDA estimates, at least $12 billion would be spent annually as a result of the 1949 law. The government purchasing at such a large scale results in shortages of dairy products in the supermarket, and an inflated price for consumers.

Chris Galen, senior vice president of communications at the National Milk Producers Federation, told NBC that consumers would not immediately feel the pinch. ”It could take a period of weeks or a month or two for there to be a trickle-down effect at the retail level,” Galen said. The Agriculture Committees in the Senate and the House are meeting to resolve differences between their respective bills. The Senate wishes to create two new programs, to replace DPPSP, and MPSP.

The Dairy Production Market Protection Program (or, DPMPP) would be a voluntary program that includes safeguards such as offering margin protection on the first 4 million pounds of milk marketed by small and medium-sized farms. The Dairy Market Stabilization Program works with DPMPP, and encourages less production when the market is saturated. The National Farmers Union has provided a side-by-side comparison of the bills as they stood on August 1.

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