Back the Dairy Compact

Date: 27 Aug 2001 | posted in: agriculture | 0 Facebooktwitterredditmail

Published by the Minneapolis Star Tribune.

Midwestern lawmakers are working vigorously to defeat congressional reauthorization of the Northeast Dairy Compact, scheduled to expire in September. Dairy farms in the Midwest are failing at an alarming rate and the compact has been widely blamed for their demise. It’s a tempting scapegoat, but in fact has nothing to do with the hard times facing Midwestern dairies.

Established in 1997, the Dairy Compact sets a minimum farm price for beverage milk consumed in the six New England states. When federally regulated milk prices drop below the compact price, processors are required to pay farmers the difference.

The compact has added about $10,000 to the annual income of dairy farms supplying the New England market. It has meant the difference between survival and failure for the region’s farms. More than half of Maine’s dairies, for example, would have lost money last year had it not been for the compact. Even more important than the added income, the compact has stabilized wildly fluctuating prices that once made efficient planning and resource allocation impossible.

The Midwestern case against the compact rests on two arguments. The first is that the compact creates a trade barrier that blocks farmers in other regions from selling milk in New England. This has been stated in numerous news reports, but in fact is not true. Farmers in non-compact states, like New York and even Wisconsin, can and do sell their milk in New England. They receive the same compact price paid to local farmers. New England imports about 40 percent of its dairy products, a ratio that has remained steady since the compact’s inception.

The second argument against the compact is that higher milk prices will encourage New England farmers to produce more milk. This added milk will be converted into “storable” products like cheese. More cheese on the national market will lead to lower cheese prices, dealing a death blow to Midwestern dairies, which sell 80 percent of their milk to cheese plants.

It’s a compelling argument in theory, but the numbers don’t back it up. In the four years since the compact took effect, milk production in the compact region has increased by only 3 percent. Meanwhile, milk production nationally grew by more than 8 percent.

The real threat to Midwestern dairy farms lies not to the east, but to the west. Over the last four years, milk production in just three Western states — California, Idaho, and New Mexico — grew an astronomical 30 percent. That’s an additional 10 billion pounds of milk on the market each year, more than double the entire volume of milk produced throughout New England. And while New England dairies primarily produce beverage milk for local consumption, Western farms produce cheese that competes directly with Wisconsin cheddar.

These new dairies in the West are massive industrial operations. In Tulare County, California, the average farm has more than 1,200 cows. The largest has 12,000, and recent proposals call for herds as big as 50,000. Production costs are incredibly low; cash expenses run under $10 per hundred pounds of milk, compared with about $14 in the Midwest and Northeast.

Big is cheap for producers, but costly to surrounding communities. A 1,200-cow dairy creates more than 100,000 pounds of manure each day. The manure is stored in open-air lagoons, which have become a major source of water and air pollution, as well as sickening odors.

The typical New England dairy, on the other hand, averages about 100 cows and is run by an overworked couple with kids and at least one off-farm job. While big Western dairies often import feed from afar, the typical New England farm gets most of its inputs locally, pumping about $300,000 annually into the local economy.

It’s not surprising then that the compact enjoys broad support among New Englanders. It costs taxpayers nothing. The cost to consumers is marginal: less than 12 cents per gallon, or $3 a year for the typical milk drinker. The alternative is reconstituted milk or fluid milk shipped long distance at a cost of up to 50 cents a gallon. In Florida, where local dairies have collapsed, consumers depend on milk from as far away as New Mexico. Miami milk prices are 20 percent higher than in Boston and Chicago.

Certainly, if New England’s dairies disappeared, Midwestern farmers would gain a new market, albeit a small one. But how long might this last before both regions are engulfed by Western dairy products? Already supermarket shelves in Minnesota are filling up with California cheese.

Midwestern farmers and lawmakers have allied themselves with Western states in an attempt to defeat the Dairy Compact. It’s a strange alliance given the current industry dynamics — one capable of bringing down the compact, but unlikely to yield any real benefits for Midwestern farmers. Why not instead endorse the compact and join with Eastern lawmakers in pressing for policies that defend both regions’ dairy farms?


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Stacy Mitchell

Stacy Mitchell is co-director of the Institute for Local Self-Reliance and directs its Independent Business Initiative, which produces research and designs policy to counter concentrated corporate power and strengthen local economies.