Milk Prices to Skyrocket if 'Cliff' Stalls Farm Bill

Wednesday, 26 Dec 2012 12:57 PM

By Megan Anderle

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"Got milk" that costs three times the price of a gallon of gas? You could soon.
 
With everyone distracted by the looming fiscal cliff, many Americans are unaware that come January inaction on an issue facing dairy farmers across the country could raise the price of milk astronomically, to as much as $6 or $8 a gallon.
 
If Congress doesn’t pass an important farm bill replacing one that expired in September, the cost of a gallon of milk, which averages at $3.65, could double or even triple.
 
The farm bill, which encapsulates U.S. agricultural and food policy, is a comprehensive piece of legislation renewed every five years. When it was renewed in 2008, the $300 billion bill covered everything from food stamps and crop subsidies to conservation and disaster assistance. Sixty-seven percent of that went to food stamps and 15 percent went to agricultural subsidies.
 
Congress has been deadlocked on funding cuts in both of these areas. If lawmakers don’t come to an agreement in January, the U.S. would revert to legislation passed in 1949 — a “permanent law” — that would force Washington to buy milk at wildly inflated prices, creating much higher prices in the dairy case, according to The New York Times.
 
Back in 1949, milk was produced almost entirely by the hands of farmers. The government then purchased the milk and sold it to supermarkets to ensure farmers made enough profit to cover production costs.
 
If the antiquated law is enacted again, the government would be forced to follow this process again. It would be the only way to prop up milk prices and maintain a stable milk market that would ensure milk purchases at the same cost.
 
The economy and way commodities are exchanged is far different than it was 64 years ago. Between the cost of inflation and selling to the government rather than to private super markets, the cost of a gallon would rise to $6 or $8. The price of other dairy products, like yogurt and cheese, would likely rise as well.
 
However, the market wouldn’t become more stable. While Americans would likely buy less or no milk at all, the government would have to sell the surplus they built up, causing prices to plummet. In the short term, consumers would be devastated and dairy producers would have a payday, after which consumers would get a break while dairy producers watched their profits crash and burn, Dailyfinance.com posits.
 
“But it would be short-term euphoria followed by a long hangover that would be difficult for us to recover from,” Dean Norton, president of the New York Farm Bureau, told The Times. “I don’t think customers and food processors are going to pay double what they are paying now for dairy products.”
 
Agriculture Secretary Tom Vilsack said it’s unlikely the bill will pass by Jan. 1.
 
"The reality is that there is a very serious risk that we might not get a farm bill done this year," he said Wednesday at a U.S. Chamber of Commerce event. "The uncertainty of not knowing what the policies are going to be will create difficulties. We need a farm bill and we need it now."
 
So far, the likeliest outcome is an extension of the 2008 law. The National Milk Producers Federation and other farm groups are advocating against an extension, saying a temporary fix would leave issues unresolved.

The Senate’s proposed version would provide $23 billion in savings over the next 10 years, while the House’s would provide a $35 billion deficit reduction. The House has not brought its version to the floor yet.
 
If the farm bill is renewed, it would probably be absorbed into a larger budget-cutting bill that could prevent the “fiscal cliff” of increased taxes and spending cuts, according to the Times. Currently, there is no agricultural legislation included in the fiscal cliff package.
 
Ray Souza, a 66-year-old dairy farmer who milks about 900 cows in Turlock, Calif., told The Associated Press that surging prices for American cheese would give American consumers incentive to switch to cheeses from New Zealand and Europe.
 
"I'm concerned this could put us out of alignment with the global market," he said.
 
Likewise, some families are concerned about the spike and say they would opt for dairy alternatives.
 
Jim Mitchell, a 63-year-old artist from Milwaukee, told the AP his family of four goes through at least a gallon of milk a day but might switch to soy or almond milk.
 
Other ways the farm bill will impact the U.S., according to the Institute for Agriculture and Trade Policy:
 
Food prices
Food prices as a whole would be higher, and the food industry would seek alternatives to higher commodity prices, such as buying commodities from outside of the U.S. Consumers would then be purchasing imported foods, like dairy from New Zealand, rather than stimulating domestic agricultural growth.
 
Environmental effects
There could be more soil erosion and poorer water quality. One of the success stories of the farm bill for the past 25 years is that soil and water quality have improved tremendously. The farm bill’s incentive program for farm conservation protects about 31 million acres of fragile agricultural land. Without new legislation, USDA could no longer contract with farmers for the program and many other programs after Dec. 31.
 
Food stamps
SNAP (formerly called food stamps), by far the largest farm bill program and the largest food assistance program, would be able to continue most of its operations regardless of the state of the farm bill.



 
 
 

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