Leahy Leads the Fight for Compacts

July 26, 2001

Sen. Patrick Leahy (D-VT), now chairman of the Senate Judiciary Committee, is leading a fight to extend the Northeast Dairy Compact and extend compact authority to other regions of the country. He held a hearing Wednesday on the Dairy Consumers And Producers Protection Act of 2001 and declared that the spread between what farmers get paid for their labor and what consumers pay for the product "is huge and increasing throughout the nation." That's not due to the compact, he added, but to concentration of the dairy industry.

He added, "In New England, what farmers get paid has been fairly stable since the dairy compact began working in 1997, and that is one of its great successes. But what processors and stores charge for milk has greatly increased since 1997 – not just in New England, but in the rest of the nation." And, he said, "unlike other legislative remedies that come with price tags, and often hefty ones, compacts cost federal taxpayers nothing."

Consumer prices are lower in New England than in much of the rest of the country, said Leahy, and the $10,000 to $20,000 in added annual income from the compact's over-order pricing "has helped keep New England farmers in business who otherwise would have had to leave farming." The "hidden risk" to consumers and farmers throughout the country, he continued, "is the growing concentration of processors in the milk industry." Dairy compacts are not milk taxes that hurt consumers, "concentration is the major cause of consumer price increases in the milk sector."

Sen. Charles Grassley (R-IA) said the compact serves "one purpose," and that is to "fix prices. The dairy compact's purpose is to raise the price of Class I (beverage) milk above the federal milk marketing order price in a specific region. Dairy producers outside the compact region can ship milk into the compact but only at the compact's premium price, not at a competitive rate. This domestic tariff on milk prevents the market from reacting to supply and demand."

Milk production in the Northeast "doesn't follow the rules of supply and demand, it's just supply and more supply. The surplus is being converted into storable dairy products such as butter and cheese. The excessive amounts of butter and cheese in the marketplace drive down prices and cause the Northeast to export these subsidized products into other states where the products compete against non-subsidized dairy products. If this was an international issue there would probably be a letter circulating in the Senate asking for a ‘dumping' inquiry within the context of the WTO (World Trade Organization)," Grassley added.

He cited studies by the University of Massachusetts and Penn State University that demonstrated "that at least a substantial portion of the artificially high milk price is passed through to consumers in the form of higher retail milk prices. It has been estimated that between July 1997 and December 2000, New England consumers paid up to $135 million in higher milk prices generated by the compact."

The compact also is "evidently promoting the demise of dairy farms. More New England dairy farms have closed down in the three years since the compact began than in the three years prior to the compact."