Fiscal Cliff Dairy Prices

Current milk prices of about $3.65 a gallon could double after the first of the year if a new farm bill isn’t passed, farmers say.

A gallon of milk could double in price to nearly $8 early next year if Congress doesn’t take action over the next six days to stave off automatic changes in dairy pricing due to the expiring farm bill.

National agriculture policy forces the implementation of a 1949 system for pricing milk if the country does not have an active farm bill. That antiquated policy uses a complex formula — based on costs of producing milk by hand and including inflation and other adjustments — that will force the U.S. Department of Agriculture to buy milk at nearly double the recent market price.

Few will buy milk the USDA will be forced to sell at prices consumers can’t afford, so Congress has no alternative but to stop the change, UW-Madison agriculture economics professor Bruce Jones said. He added that the chaos within the dairy industry would bring a short-term windfall for dairy farmers but long-term nightmares as milk prices plummet.

"We’ll be swimming in milk, with nobody to consume it," he said.

Despite such a scenario, U.S. Rep. Ron Kind, D-La Crosse, said he is not optimistic that Congress will discuss any farm bill legislation before the end of the year because it is so preoccupied with the pending major tax increases and spending cuts dubbed the "fiscal cliff."

Kind said he lobbied congressional leaders to schedule a stopgap resolution this week that would temporarily continue current farm bill laws. "But there was nothing on the schedule for (this) week to deal with any of this," Kind said.

Kind has tried to call attention to the looming dairy price hikes by calling it the "dairy cliff."

"This is crazy. The thought to going back to mid-20th century policies when we’re in the 21st century now is inexcusable," he said. "The dairy cliff is going to be amazing if no action is taken."

Jones said there would be plenty of negative consequences if the price for milk and other dairy prices doubled. "It’s beyond comprehension," he said. "All of a sudden, consumers would say, ‘I can’t afford that.’ And then you’d see your consumer base find alternative products."

Kind said he was worried that it might be difficult for the dairy industry to lure back consumers who turn away from its products. "We’re playing with fire by letting this transpire the way it is," he added. "It’s very disconcerting."

Grocery shoppers buying milk Monday at Woodman’s Food Market on Gammon Road said they may have few alternatives if prices double.

"We didn’t stop buying gas, did we? And milk is more important than gas," said Maureen Kind, a Madison resident who is not related to the La Crosse congressman.

Virginia Guerra, who has two school-age daughters, said she’d buy milk less often. "And I would go to soy milk or another alternative," she added.

Reid Alisch, who has three children, said he’d keep buying the staple. "It’s part of our diet," Alisch said. "We like it on our cereal in the morning. The kids like milk for dinner."

If Congress doesn’t take any action before it adjourns for the year, Ron Kind said USDA Secretary Tom Vilsack could drag his feet at the start of the year before the agency starts buying milk to give Congress time to take immediate action when it convenes in 2013.

"I don’t think he’s forced to go into the market right away," Kind said.

Jones sees some positives from the next Congress, versus the current lame-duck group, taking on the wide-ranging farm legislation. Disagreements over the food stamp program in the new farm bill, with congressional conservatives calling for deep cuts, helped stall action on it last September.

"It’ll be interesting to see what their priorities are compared to this group," Jones said.

That said, Jones said he’d be surprised if Congress didn’t act on some sort of farm legislation to stave off the dairy price hikes by the end of the year.

"Maybe I’m looking at the world wrong," Jones said. "But here we are trying to come up with budget cuts to live within our means at the federal level, and we would be allowing for a big increase in payments that would go to farmers at the same time we’re cutting. It’s counterintuitive."