The dairy program has been around for more than 60 years. It was established to buy product that was surplus of market demand in order to support prices. Congress sets the dollar level for the government support on a per-hundredweight, or per 100 pounds of milk. USDA uses this mandated level to determine prices for buying surplus cheese, powdered milk and butter - any storable dairy product that is surplus of current market demands.

In the early 80's the support price level hit an all-time high and the government became the market, buying billions of dollars worth of surplus cheese and storing it in all available warehouses and caves. Since then, budget pressures and more market-minded policies have ratcheted down the support levels. The 1996 Farm bill gave clear direction that dairy policy should continue to move toward increased reliance on markets. The Act mandated the phase-out of the price support program by 2000, directed USDA to consolidate the 330 Federal Milk Marketing Orders and to reform the fluid milk pricing formula. The Northeast Interstate Dairy Compact was to sunset with the implementation of the USDA final rule.

USDA followed that mandate and in the Final Rule on Dairy Reform, released at the end of March 1999, they consolidated the Milk Marketing Orders to 11 and reformed the fluid milk pricing formula to better reflect market conditions. A contentious regional legislative battle began almost immediately. As a result, legislation to maintain the fluid milk formula (known as Option 1-A) was included in the final Appropriations bill passed by Congress at the end of the legislative session, and it was signed into law on November 29, 1999. The legislation also extended the Northeast Interstate Dairy Compact through September 30, 2001. The phase out of the dairy price support has also been delayed through provisions contained in the FY 2000 and FY 2001 Agriculture Appropriations bills.

The Northeast Dairy Compact officially expired on September 30, 2001. The farm bill passed by the U.S. House of Representatives in October 2001 extends the current dairy price support program through the year 2011 at the current support price of $9.90 per hundredweight but did not extend the Northeast compact. During the floor debate in the House, efforts to reauthorize compacts and devise a new “milk tax” proved unsuccessful. The Senate version of the farm bill, which passed in February 2002, contains a new “counter-cyclical” payment program for dairy. The provision authorizes $2 billion to compensate producers in 12 Northeast states when the price fell below a set level. Producers in the rest of the country would receive compensation when the price fell below a 5-year average. While the House provisions are much preferred to the Senate language, either program is far better than compacts or other onerous proposals being pushed by compact supporters.

The dairy producers were also successful in including in the farm bill a mandatory monetary assessment on all imports of dairy products to be used in the dairy producer checkoff program. The dairy producer checkoff program funds generic promotion of fluid milk and cheese. However, imported dairy products include a different range of products such as specialty cheeses and many imported products, like casein and milk protein concentrates, have no domestic counterpart and no promotion program in place. The import assessment, therefore, would operate as an unfair tax on imported diary products that may also be incompatible with trade commitments.

Increasingly, dairy producers have expressed concerns over the imports of casein and milk protein concentrates which are key ingredients in many food products like non-dairy creamers, diet supplements, and even hot dogs. In an attempt to stem the import of these products, new legislation has been introduced that would place these products in a tariff-rate quota, essentially limiting the amount imported and subjecting any over-quota amounts to a prohibitive tariff. Since there is virtually no domestic supply of casein and milk protein concentrate, consuming industries have recently formed a loose coalition to defeat this legislation should it be attached to any up-coming revenue bills.

OUTLOOK

GMA continues to coordinate with the International Dairy Foods Association and the Coalition for Fair Milk Prices in efforts to prevent reauthorization of dairy compacts or approval of new, anti-market pricing schemes in the farm bill or other legislative vehicles. GMA will also work to strip the import assessment from the farm bill and defeat any legislation that would increase import duties on milk protein concentrate or casein.

Staff Contacts

• David Stafford
  

• Gene Grabowski
  

CORRESPONDENCE
• May 28, 2002  GMA Opposition to H.R. 1786
• June 13, 2001  GMA, Coalition Oppose Dairy Compacts
TESTIMONY
• March 12, 2002  GMA Letter of Opposition to Rhode Island rBST Reporting Bill

NEWS RELEASE
• June 15, 2001  Unilever, Kraft Foods Executives to Chair GMA Government and Industry Affairs Councils