Future of Dairy Farming

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(Host) Commentator John McClaughry reflects on the new national dairy program and the future of dairy farming in Vermont.

(McClaughry) The new farm bill approved by Congress opens a new era for dairy farms. You might call it the New Deal Era, again. Over its five years, the New England Interstate Dairy Compact made Vermont farmers $50 million richer. This was a sweet deal for farmers: an enforced high price and no competition from outside the region. Since it in effect offered free money, farmers naturally expanded production. So the Compact Commission had to escrow funds to reimburse the federal government for buying surplus dairy products. Then it had to offer to pay farmers not to increase their production. It also had to pay off government food programs to compensate them for the higher costs of milk consumed by welfare and WIC program families.

But now the Compact is dead. In its place the Senate, urged on by Senators Leahy and Jeffords, has created a new “national dairy program” that is straight out of Franklin Roosevelt’s New Deal. It will tax taxpayers (instead of milk drinkers) an estimated $1.5 billion a year to support dairy farm incomes. In any month when the Boston fluid milk price drops below $16.94 a hundredweight, the new benchmark price, the farmer will get a federal check for 45% of the difference. The subsidy will be paid on the marketing base, determined by each farm’s milk production over the years 1999-2001. This base is capped at 2.4 million pounds per farm, equivalent to about 140 milking head. This is the same government price guarantee program long used in crops like wheat, cotton and feed grains.

In sum, the new program entitles all dairy farmers to a monthly subsidy check from the taxpayers, whenever the price of milk drops below the established target. This is galling to dairy farmers who prefer to be free of such subsidies, but it at least puts the costs on the taxpayers generally. By contrast, the Compact conferred subsidies on farmers by indirectly increasing prices to consumers, a less wealthy group than taxpayers generally.

Vermont dairy farms will continue to market as much or more milk as they do today, but it will come from an ever-smaller number of large agribusiness farms, plus a very few very well managed and profitable farms using New Zealand-style grass management rather than expensive purchased feed. Under the new bill everybody will know just how much subsidy every farm is getting, and taxpayers will bear the costs generally, rather than shifting the cost disproportionately onto working families with children. That’s an improvement.

This is John McClaughry ¿- thanks for listening.

John McClaughery is president of the Ethan Allen Insitute, a Vermont policy research and education organization.

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