Extension for dairy subsidies fails to reach vote; reversion to old law could double price of milk

1/1/2013

WASHINGTON — Furious work in Congress to avert gargantuan tax increases and spending cuts starting today obscured another partisan deadlock affecting cereal bowls and school lunches across the country.

While most attention was on the “fiscal cliff” facing the United States at the start of the year, time was running down on a “dairy cliff” threatening to double the cost of milk. With Congress failing to approve a farm bill in 2012, government dairy subsidies were due today to jump back to levels not seen since the Truman administration, which would dramatically drive up milk costs.

The Democratic and Republican chairmen of the Senate and House agriculture committees were pushing a one-year extension of the expiring 2008 farm bill, although the calls were somewhat lost in the din of wider fiscal worries.

On Monday night, there were reports that the House may reconvene today to address the fiscal cliff and other issues, including the farm bill. But Republican leaders in the House and Senate refused to go along with a farm-state plan to avert the “dairy cliff” on Monday, the last day to act before retail milk prices may begin climbing toward $7 a gallon.

Meanwhile some dairy processors said the plan hatched by farm-state lawmakers over the weekend for a farm-bill extension would itself lead to higher dairy prices.

They said the idea ought to be dropped and Congress be given another chance to write a farm bill in the months ahead.

Without last-minute legislative action, the U.S. dairy subsidy program will be run starting today under a 1949 law that would roughly double current dairy prices.

The Truman-era statute takes effect when Congress fails to write a new farm bill on time. The 2008 farm law expired three months ago.

To avoid higher dairy prices, leaders of the House and Senate Agriculture committees proposed to extend key elements of the 2008 law through Sept. 30 and create a dairy program as part of it. The new program would compensate farmers when milk prices are low and feed prices are high.

A spokesman for House Speaker John Boehner was noncommittal if or when a vote would be called on the proposed extension. Monday evening the House adjourned until noon today without considering farm law. A farm lobbyist said Mr. Boehner opposed the new dairy program because it would require farmers to reduce milk output if prices were too low.

Senate Republican Leader Mitch McConnell worked to keep it out of last-minute bills, a Senate staff worker told Reuters. In its place, Mr. McConnell suggested lower-cost versions of the current dairy program.

Without an extension, the Agriculture Department by law would be set to boost its support of milk prices to the 1949 level of $38 per hundred pounds, up from the current $18.

“If you like anything made with milk, you’re going to be impacted by the fact that there’s no farm bill,” Agriculture Secretary Tom Vilsack, a Pittsburgh native and former Iowa governor, said on CNN Sunday. “... Consumers when they go in the grocery store are going to be a bit shocked when instead of seeing $3.60 a gallon for milk, they see $7 a gallon for milk. And that’s going to ripple throughout all of the [farm] commodities if this thing goes on for an extended period of time.”

The Senate approved an updated long-term federal farm bill in the summer, as did the House Agriculture Committee. But GOP House leadership never moved on the bill, partially because of differences over food-stamp funding but also because of language seeking to address a glut in the milk market. Democrats added plans for a government-managed system curtailing milk production and thereby boosting its prices.

The so-called “supply management” system “dictates to a farmer basically how much milk they should produce. That is best left to free market,” said U.S. Rep. Glenn Thompson, (R., Pa.), an agriculture committee member. “The problems we’ve gotten into in the past, in all parts of government, is where the federal government has attempted to manipulate the market. Nothing good usually happens to that.”

Despite such reservations the GOP-controlled committee approved the language with hopes of getting the new five-year farm bill approved, including changes to forestry rules, farming regulations, and other complicated issues. A one-year, retroactive extension of the old 2008 farm bill would likely not include the “supply-management” plank, but would cost the government an estimated $1 billion in drought assistance.

An extension is “the responsible thing to do,” Frank Lucas, (R., Okla.), chairman of the House Agriculture Committee, said in a statement Sunday. “This provides certainty to our producers and critical disaster assistance to those affected by record drought conditions.”

Sen. Debbie Stabenow (D., Mich.) stated “the lack of action by the House Republican leadership has put us in a situation where we risk serious damage to our economy unless we pass a temporary extension.” If that did not happen, the Senate Agriculture Committee chairman said “committee leaders in both chambers and both parties have developed a responsible short-term Farm Bill extension that not only stops milk prices from spiking but also prevents eventual damage to our entire agriculture economy.”

Doubling the government’s milk support — while sticker-shocking consumers — would in a way be a short-term boon to milk producers such as those in Pennsylvania, the nation’s fifth-biggest milk-producing state, who are getting slammed with high feed prices in the wake of this year’s drought. But it would come at too high a long-term price.

“It would be a windfall for farmers quite frankly struggling with milk prices,” Mr. Thompson said. “But it would only be an immediate thing — those prices, and the whole dairy system, would collapse.”

The Block News Alliance consists of The Blade and the Pittsburgh Post-Gazette. Timothy McNulty is a reporter for the Post-Gazette. Contact Timothy McNulty at: tmcnulty@post-gazette.com, or 412-263-1581.