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‘Milk cliff’ could drive up dairy cost

December 29, 2012
By Ilsa Matthes - Staff Writer , Daily Press

ESCANABA - The "fiscal cliff" isn't the only looming deadline threatening American pocketbooks as 2012 draws to a close. If Congress fails to act quickly, the innocently named "milk cliff" could drive the price of milk up as high as $8 a gallon.

Every five years Congress passes legislation regarding agriculture which is commonly referred to as the "Farm Bill." If a replacement Farm Bill is not passed by Dec. 31, the current bill will expire on Jan. 1 and agricultural policies will revert to policies from the first half of the 20th Century.

The Agricultural Act of 1949, known to farmers as the "permanent law," would take effect to regulate the price of commodities such as dairy. Under the permanent law the USDA would be required to buy dairy products at $40 per hundredweight - roughly twice the current market price.

Article Photos

Holly Richer | Daily Press
Above, Super One Foods employee Nicole Guindon places gallons of milk on a rack in the cooler at the Escanaba store Friday afternoon.

"We do not want to see the doubling of dairy prices. It would mess everything up," said Ken Nobis, president of the Michigan Milk Producers Association. "It would take months to fix."

U.S. Senator from Michigan Debbie Stabenow, chair of the Senate Committee on Agriculture, Nutrition and Forestry, authored the proposed 2012 Farm Bill which could prevent the milk cliff. The bill passed the Senate in June with strong bipartisan support. The House Committee on Agriculture also approved the bill, but it has not been taken up by the House as a whole.

All proposed versions of the bill would save American taxpayers money. The original proposal presented by Stabenow would save $24 billion compared to the current Farm Bill. Revised versions of the bill that have been presented could save as much as $35 billion.

Despite slashing costs, the Farm Bill does not leave dairy farmers without protections. "In the case of dairy it provides a much greater safety net than what we currently have," said Nobis.

Under the current system, if the price of dairy products falls bellow $9.90 per hundredweight the federal government steps in and purchases those products. According the Nobis, the cost of feeding cows is more than $10 per hundredweight of product - making the current safety net inadequate.

The new plan would pay farmers based off cost margin and would never require the government to purchase or store surplus dairy products.

"The price of dairy products could plunge for consumers but the government would be writing checks," said Nobis.

Not all dairy farmers are happy with the proposal.

"They'll actually penalize farmers who improve their work," said State Representative and Upper Peninsula dairy farmer Ed McBroom.

"There's a plan and it's kind of a quota system ... it forces farmers to produce a certain amount of milk and anything over that is sold at reduced rates," he said.

According to McBroom, the Secretary of Agriculture sets the base price for dairy products under the 1949 permanent law. This could mean the $40 per hundredweight would not be the price paid by the government for milk in the long term.

Assuming the price is adjusted for parity - meaning the price of the product is adjusted at the same rate that the cost of producing the product changes - farmers should receive the money they need to operate their farms and make a profit, according to McBroom.

"Parity dairy pricing is going to return us to the price that is more equitable for the farmers," he said.

McBroom also notes while the price on the shelf may increase, the cost of dairy is currently being offset by taxes paid by the consumer to operate the dairy subsidies.

"Unfortunately people's taxes aren't going to go down. The federal government will just put that money somewhere else," said McBroom. "It's a real Catch-22 at this point."

While McBroom does believe that the price of milk on the shelf will rise, he also believes that there will always be milk promotions - like those used at some gas stations - where milk is sold at a loss to get customers through the door.

"I think $8 is a little bit of a scare tactic," he said.

Even with milk promotions the increase in price across stores could cause consumers to look for milk alternatives or suffer from poor nutrition by cutting out dairy and dairy-like products all together.

"It would drastically change our milk sales which would be a shame because children wouldn't get the nutrition they need from milk," said Rod Stende, general manager of Elmer's County Market. "I can't see it happening - not for very long anyway."

Stende also believes the dairy price spike would affect far more than milk. "Think how it would affect pizza prices ... You need to look at it beyond what a gallon of milk would cost," he said.



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