CQ NEWS
Dec. 26, 2012 – 9:37 a.m.
USDA Weighing Options If It Is Forced to Buy Up Milk Products
By Ellyn Ferguson, CQ Roll Call
The Agriculture Department is trying to determine the logistical, legal and budgetary challenges it would face under a 1949 agriculture law that could substantially boost dairy price support levels next month.
Agriculture Secretary
“We are prepared to do what we are legally obligated to do in a timely way,” he told reporters on a conference call.
At the same time, though, he continues to press Congress to pass some sort of legislation that would avoid the need to revert to the Truman-era law.
“The best outcome would be for Congress to do its job,” he said. “The worst outcome would be for us to continue to see Congress do nothing and for permanent law to go into effect.”
To keep that from happening, lawmakers must renew and extend the 2008 farm law that expired Sept. 30 or pass a new five-year bill. For decades, the threat that these older laws could go back into effect has guaranteed that lawmakers produce a new farm bill when the old one expires.
The 112th Congress may prove to be the exception to past practices. Although the Senate passed its farm bill (
With no time left this year to move the House farm bill to the floor, the leaders of the House and Senate Agriculture committees recently began negotiations to blend their measures into a compromise version that could be attached to a fiscal cliff agreement or to any must-pass legislation. They were at an impasse over differences in their bills on new insurance-like plans for major crops when Congress broke for the holidays.
The collapse of House Speaker
If Congress passes no farm measure, dairy would be the first agricultural product affected because the industry’s federal programs expire Dec. 31. Subsidies for field crops would start to increase in mid- to late 2013.
Under permanent law, the Agriculture Department would have to buy enough butter, nonfat dry milk and cheese products to reduce supply and raise prices paid to dairy farmers to an estimated $38 to $40 per 100 pounds of milk. The current all-milk market price is about $18 per hundredweight. The higher prices are based on a formula designed to cover dairy farmers’ cost of production two generations ago.
The Agriculture Department makes periodic purchases of surplus meat, fruit and commodity crops to stabilize market prices, but the agency’s lawyers and economists have told congressional staffers that the 1949 law would require unprecedented dairy purchases.
That also raises the question of storage space. The agency has contracts with companies for warehouse and storage facilities around the country, including a large cave in Kansas City, Mo. Not all of the facilities are equipped for dairy products, though, and there’s concern the Agriculture Department may not have adequate storage for what could amount to one-eighth of U.S. dairy production.
USDA Weighing Options If It Is Forced to Buy Up Milk Products
“Market chaos will erupt if we do not divert from this disastrous, reckless, needless, man-made path,” said Democrat
Another dairy state lawmaker also laid out a bleak scenario if the decades-old law takes effect.
“Reverting back to 60-year-old policies will cost taxpayers as much as $15 billion over the next year and would be disastrous for the dairy industry,” Rep.
Although the older law would take effect Jan. 1, Vilsack said it may take some time for his department to implement it. He did not say whether that meant a delay of weeks or months.
The International Dairy Foods Association, which represents private or invester-owned dairy processors, argues that Vilsack can and should use the agency’s rule-making process to delay the price surge or to reduce the permanent law’s support prices. The association’s members would be among the first to feel the consequences of permanent law because they buy raw milk to produce 85 percent of dairy products sold in the United States.
Jerry Slominski, the group’s legislative policy and economic affairs vice president, has said he is also concerned that consumers would switch to alternative products once higher support prices were reflected in supermarket prices. There are estimates that consumers eventually could pay $6 to $8 for a gallon of milk.
Last week, the association gave the White House an assessment of options by the law firm Covington and Burling LLP that Vilsack should consider, Slominski said. While Vilsack has largely argued his hands would be tied by permanent law, the association says that is not the case.
The department also is said to be reviewing its ability to donate dairy products to food banks and other feeding programs as bonus commodities. Under the 1949 law, such donations could be interpreted as reducing market demand and depressing prices.
Under current law, the agency can sell its purchases back to the market once prices have stabilized. The agency is trying to determine if it could continue sell-offs under the 1949 law without depressing dairy prices.
Under a worst-case scenario, the department could be forced to destroy products because it has no other way to dispose of them.
Philip Brasher contributed to this story.