The price of milk may double if legislation isn't renewed by the end of the year.
According to U.S. Sen. Charles Schumer, D-N.Y., the U.S. House of Representatives needs to take action by Jan. 1 to avoid a "Dairy Cliff."
Schumer said the House needs to pass the bipartisan Senate Farm Bill to temporarily bring back the Milk Income Loss Contract program. The renewal will bridge the gap before a new protection program can be passed. If they don't, Schumer said it would devastatingly impact dairy consumers and producers.
The senator said MILC provided more than $41 million to New York dairy farmers in 2012 before it expired on Sept. 30. MILC was the primary safety net that compensated dairy producers when milk prices fluctuated and cow feed costs jumped, as they have done because of this year's drought, Schumer said.
According to the lawmaker, on Jan. 1 the nation will begin to revert to 1940s era agriculture policy if it is not renewed.
"Starting Jan. 1, it goes to policies used after the Great Depression," Schumer said during a conference call about renewing the Farm Bill.
He said as it relates to New York dairy, that 1940s era policy requires the government to purchase non-fat dry milk, cheese and butter at prices significantly above current market rates.
The massive government purchases of dairy products under this outdated law could cause milk prices to rise above $6 per gallon, according to the National Milk Producers Federation.
"They say it is not worth crying over spilled milk, but if we pay over $6 a gallon that is a reason to weep," Schumer said. "Without MILC or any safety net, farmers are left to walk the tight rope without any harness."
Schumer said that the easy way out of this problem is for the House of Representatives to pass the Farm Bill that was passed by a large bipartisan majority in the Senate. He said the bill was passed in June by a vote of 64 to 35. The Farm Bill is enacted every five to seven years and provides farm and food policy for America.
"The 'Dairy Cliff' is fast approaching, and without a House Farm Bill before year's end, it will be consumers and dairy producers alike that go over the edge," Schumer said. "On Jan. 1, families across Upstate New York could start to see over a 100 percent increase in the price of milk at the supermarket, all while dairy farmers would lose important assistance from the feds that helps combat an unstable market and devastatingly high feed prices. What's worse, is that this is an entirely avoidable and unnecessary burden on families, schools and farmers alike, and it could be easily addressed. All the leaders of the House of Representatives must do is put the bipartisan Senate Farm Bill on the floor for a vote, and I'm sure that it will pass."
IMPACT ON CONSUMERS
If the bill is not renewed, the federal government will revert back to depression-era policy that by law will require the purchase of a specified amount of dairy products, such as cheese and butter, in order to maintain a certain minimum price of milk, and a certain level of demand for the nation's dairy farmers, Schumer said. The government determines the price it pays for these products by considering how much milk goes into each product. For example, if a pound of cheese requires five quarts of milk, the federal government would determine how much it would pay for that cheese based on the cost of those five quarts. Assuming that the price of fluid milk is $2 per quart, the federal government would factor $10 worth of milk in their calculations on how much to pay for the cheese.
If the nation reverts back to laws of the 1940s, the government would be required to purchase certain types of dairy products, such as cheese, butter, and dry milk, and act as if the price of the milk going into the product has increased three-fold. The federal government would have determined the price for this cheese based on $10 worth of milk. But starting on Jan. 1, the government will have to purchase cheese based not on $10 worth of milk per pound, but on $30 worth of milk.
This would mean that the government could be essentially required to purchase dairy products at what translates to double the market rate for consumers. The demand for processed dairy products could be so high that demand for fluid milk would dramatically increase, perhaps as much as double its price as well.
IMPACT ON DAIRY FARMERS
The senator said the dairy industry has already felt a serious negative impact from the lack of a final Farm Bill, since many provisions expired on Sept. 30. Dairy farmers are already missing out on payments from this program during a time of extremely high feed prices due to the drought. Feed costs are traditionally the most variable component of dairy production operating margins. Additionally, dairy farmers who have seen an increase in exports in recent years, could lose significant market share abroad if prices were let to soar.