You could pay a lot more for milk soon — because of an arcane federal provision

By Rob Nikolewski on December 28, 2012
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milkdairy cowsThe cow jumped over the moon. And the cost of a gallon of milk might soon follow.

While the talk of the government going over the fiscal cliff has dominated the headlines, another deadline is fast approaching.

The federal government’s current 5-year farm bill is about to expire at the end of 2012 and due to a weird and arcane provision, milk prices could potentially double unless a new bill is passed, giving consumers across New Mexico and the entire country a rude shock.

“We’ve been trying to get a farm bill for months,” Beverly Idsinga, executive director of the Dairy Producers of New Mexico said Friday (Dec. 28).

So why does the absence of a new bill trigger higher prices? Because, due to a statute, if a farm bill expires on Capitol Hill then the provisions of the Agricultural Act of 1949 kick in. The act sets milk prices by guaranteeing a minimum price that covers producers’ costs. That may have made sense 63 years ago but under current conditions, the quota price would lead to a spike in milk prices in a matter of weeks.

The impasse has angered dairy farmers but has also ticked off critics of the complex US farm subsidies programs who argue that government intervention has so distorted the agriculture business that it hardly resembles a free-market system at all.

Idsinga says dairy farmers in New Mexico and elsewhere are “losing money hand over fist, every single day.” She says the cost of providing milk is $18 per hundredweight but that it costs farmers $22 to produce.

“Get rid of the entire system,” Tad DeHaven of the Cato Institute in Washington DC said Friday. “The silliness of this, reverting to a 1949 law shows the entire system should be scrapped … (Milk) is a commodity that farmers can’t adequately plan because they’re waiting for the Politburo in DC to write something.”

So, with just three days to go until the new year, if a new farm bill isn’t hustled through Capitol Hill, how long would it take for you to end up paying a lot more for a gallon of milk?

“I don’t think it will be a January 1st issue,” First Capitol Ag broker Mike North told the Wall Street Journal. “It could show up in the middle of January.”

That gives Congress a little bit of time to pass a new bill and late Friday, a Democratic member of the Senate Agricultural Committee said she’d be reluctantly willing to adopt a 1-year extension in the meantime.

“A farm bill will be passed,” DeHaven said. “They’ll extend the law and big ag folks in Congress will be happy to allow that to happen … If there’s $8 a gallon milk people will go nuts and (politicians) respond to give the people what they want.”

DeHaven says the US should adopt a free-market approach to dairy and agriculture, pointing to the example of New Zealand which did away with subsidies in the 1980s, “and they’ve been better off for it,” DeHaven said.

Agriculture and dairy production is “like any industry,” DeHaven said. “There’s supply and demand and it will adapt to market forces. We don’t know what the price (of milk) should be because it’s never been established … For all ‘the sky is falling’ (rhetoric), maybe some farms will stop producing but there could and would be adjustments.”

There has been some admission on Capitol Hill that at least some agriculture subsidies need to be scaled back. According to the Washington Post, dairy program subsidies have cost $4.9 billion from 1995 to 2011, ranking ninth among farm commodities, while corn has received the most, with $81.7 billion during the same period.

The US Senate passed a farm bill estimated to save $23 billion in the next 10 years. The House Agriculture Committee passed its own bill estimated to save $35 billion. But Speaker of the House John Boehner hasn’t put the bill up to a floor vote.

Idsinga of the New Mexico dairy producers says the speculation is that Boehner was looking for further cuts, especially since “80 percent of the farm bill is made up of food stamps and WIC (Women, Infants and Children)” assistance programs that the federal government funds.

DeHaven blames both parties.

“This is Democrats and Republicans,” he said. “It’s bipartisan. And it’s a perfect example that Republicans, for all their talk about small government, they’re unable and unwilling stand up for free market principles.”

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One Comment For This Post So Far

  1. Martin
    9:56 pm on December 28th, 2012

    How can anybody claim that a bill that increased from 500 Billion to 969 Billion will SAVE 23 or 35 billion. Only in Washington lala land does this make sense.

    Limit government spending to 20 % of GDP and require a balanced budget.

    Martin

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