Dairy cliff: Milk prices could double without new farm bill

As the year comes to a close, many in the nation's capitol are focused on the "fiscal cliff" — the combination of spending cuts and tax increases that will take effect in January if Congress does not reach a new budget deal.

But there's also a "dairy cliff" looming that has farmers across the Midwest anxious. Because Congress failed to pass a new farm bill, price levels for milk are set to expire at the end of the year. If that happens, the price of milk will nearly double.

Rising prices would hurt consumers and also have big ramifications for dairy farmers like Dave Buck, who has worked his land in southeastern Minnesota for 21 years.

Buck, 56, sells about 34,000 pounds of milk a day from 450 cows to the Hastings Co-Op Creamery. Much of it is bottled and sold to ice cream companies and area schools.

The looming milk crisis troubles him because without action from Congress, the industry's current price support system will expire and be replaced by a 1949 law that could double the wholesale cost of milk. Under current law, the federal government helps set a floor on the price of milk by buying milk when it falls below $16.94 per hundredweight, a typical unit of measurement in the industry.

If there is no farm bill by Jan. 1, provisions of the 1949 will take effect, setting a new price support level of more than $38 per hundredweight.

"It sounds good to a farmer to get that much money but long term for the industry would not be good," said Buck, vice president of the board of directors of the Minnesota Milk Producers Association. "That big of a price increase that quickly would turn off a lot of consumers."

Buck said Congressional inaction has sparked enormous frustration in farm country, particularly in Minnesota, the sixth-largest producing dairy state in the United States.

"Every citizen is frustrated right now, and we're no different," he said. "I don't know what the solution is ... We would hope it would be a little more progressive thinking than just trying to beat a deadline but that just seems to be the way it is right now."

Reverting to the old pricing formula would give farmers the option to sell dairy products to the government at significantly higher price than current prices. That means private dairy processors and cooperatives across the country would also have to consider paying more for dairy products.

Dallas Moe, general manager at Plainview Milk Products Cooperative, which processes milk from 225 area farmers, said that if his cooperative has to pay more, so will consumers down the line.

"The bottlers or whoever is buying the milk from a processor like us will only pay so much concerning how much he can get from the consumer," Moe said. "How much you pay to make that milk and how much you can get from it, is the difference of your margin."

Another consequence would come from competition at the supermarkets, said Bob Cropp, dairy marketing professor emeritus at the University of Wisconsin in Madison.

Cropp said the potential for surging prices for American milk and cheese could be enough incentive for consumers to switch to imported products, as well as soy and almond milk, because those products would be cheaper than cow's milk.

"We would see the price of products in the store go up substantially, probably consumer backing off on purchases," he said. "And we would be a lightning rod for attracting imports into this country so we would probably end up with quite a surplus milk situation."

It's unclear when and for how long lawmakers plan to return to Congress between the holidays.

If they come back and vote on anything, they have options — they could vote on a new Farm Bill, extend the current Farm Bill temporarily, or attach dairy price provisions to many different legislative packages.

If none of these happen, Cropp said, it will take several months before consumers begin to see a spike in milk prices at the supermarket.

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