Are You Ready for $6 a Gallon Milk?
The debate in Congress over the fiscal cliff has delayed consideration of a new farm bill. Because of that, an obscure 1949 dairy price support law would go into effect on January 1, sending milk and cheese prices soaring by the end of January.
Lawmakers and federal officials say Congress could still approve legislation blocking the 1949 law, or they could pass a temporary extension to the 2008 farm bill. "We are exploring all options to prevent the 1949 farm bill from taking effect, especially as it relates to dairy policy," House Agriculture Committee Chairman Frank Lucas (R., Okla.) said. Most of the previous farm bill expired on Sept. 30, but the dairy section expires at year-end.
The U.S. Department of Agriculture said it is preparing for the possibility that lawmakers don't halt the 1949 pricing law. The department could spend months drawing up implementation plans for the higher-pricing policy, which would effectively delay the increase. But without any permanent legislation, the Department of Agriculture would have to begin buying milk at very high prices, USDA Secretary Tom Vilsack told reporters earlier this month. That would mean shoppers would face "more costly milk products in grocery stores," and food processors would likely turn to dairy substitutes, he said.
The International Dairy Foods Association, a lobbying group, wrote Mr. Vilsack Thursday asking him to take action. Dairy farmers would benefit temporarily from higher prices after a year of drought pushed feed prices to record levels. But higher milk prices could hamper U.S. exports, Mr. Wilson said. "Certainly they'd appreciate higher checks for a little while, but I think most of them appreciate that's not sustainable," Mr. Wilson said.
Mr. Vilsack said imports to the U.S. could rise as foreign suppliers try to take advantage.
It is probable that many retailers will eat some or most of the increase in order to keep customers from fleeing to lower priced outlets. But they can only do that for so long before it seriously eats into their profits.
Congress will probably get something done early in January so the immediate crisis will be resolved. But some permanent mechanism for figuring dairy price supports must be in place soon for the sake of both farmer and consumer.