More on Dairy Section of Budget Bill

November 22, 1999

As part of Congress' last act before recessing for the year, lawmakers approved a massive budget bill that included a controversial section on dairy policy. Although much attention has been centered on a change in the milk-pricing system to be used in federal orders, there are three other provisions that apply to the dairy industry.

Milk producer representatives have argued that using the milk-pricing system proposed by USDA in its final milk marketing order reform rule would have caused farmers to lose $200 million a year. Using an option known as Option 1A, as the latest legislation mandates, puts that money back into producers' pockets, they say. The system prices class I differentials for fluid milk. The National Milk Producers Federation claims dairy farm prices in 47 states, including Minnesota and Wisconsin, will be higher under this option.

Senators and producers who opposed Option 1A charged that it perpetuates an outdated system that bases beverage milk prices on a region's distance from Eau Claire, Wisconsin. By encouraging production in higher-cost areas, opponents argue, the current system removes opportunities for efficient producers to sell into these areas. The differential prices for different kinds of milk began decades ago, when milk could not be transported long distances.

The bill also extended the Northeast Dairy Compact through Sept. 20, 2001, and established a pilot program to allow dairy producers to forward price their milk in classes II, III and IV. But it also requires USDA to hold hearings to determine the proper level of make allowances for cheese (class III milk) and butter-powder (class IV) processors.

If, after the hearings, USDA adjusts the make allowance for processors downward, it will result in higher producer prices for their milk used to make cheese, butter and skim milk powder.

NMPF says that although the legislation drew opposition from some dairy producers in the Upper Midwest, option 1A provides Minnesota and Wisconsin with an annual increase of $3.9 million in class I differentials compared to the USDA proposal.

Jerry Kozak, NMPF CEO, says "no discernible change in retail dairy prices" will result from the legislation. "It does not increase the money that farmers will receive in the future above the level they're receiving now; it only prevents a reduction in their income."

Kozak also called for the industry "to focus our efforts on unifying all producers and preparing our community for a new century and a new farm bill." NMPF is organizing a "dairy producer conclave" in January to help address some of the contentious issues confronting dairy farmers.