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Inaction in Congress hurts local dairy farmers, future milk prices uncertain

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Posted on January 2, 2014 |
By Zach Despart



MonumentFarms8765.jpg
JON ROONEY, LEFT, and Peter James of Monument Farms Dairy in Weybridge are both concerned about the new USDA milk pricing standards for 2014 and how they might affect the price for consumers for a gallon of milk. Independent photo/Trent Campbell

ADDISON COUNTY — As a new year dawns across the bleak Vermont landscape, dairy farmers have yet another worry to contend with.

After enduring the loss of USDA resources due to the partial federal government shutdown in October, stalled efforts to reform migrant laborer visa guidelines and the expiration of the government’s dairy support program this fall, Vermont farmers have again been left out in the New England cold by Congress.

Due to Congressional inaction, the nation’s agriculture policy expired Dec. 31, triggering the federal Department of Agriculture to revert to decades-old milk price standards, adjusted for inflation. The abrupt change could significantly increase milk prices for consumers, leaving Addison County dairy farmers with more uncertainty in an already volatile industry.

“Congress has been pretty good at kicking the can down the road instead of facing up to the job,” said Bob Foster of Foster Brothers Farm in Middlebury.

Rep. Peter Welch also expressed frustration with the body, of which he is a member.

“This is tough on farmers, who have to deal with wild market swings,” the Vermont Democrat said in an interview with the Independent. “They shouldn’t have to live with policy uncertainty, when Congress has the responsibility to give certainty.”

The farm bill sets the nation’s food and nutrition policy. First created by Congress in 1933, the farm bill is traditionally passed every five years.

Its most recent incarnation, known as the Food, Conservation and Energy Act of 2008, was set to expire at the end of 2012.

In late December 2012, Congress voted to extend the legislation for nine months to allow more time to pass a new farm bill. The Senate and House of Representatives formed a conference committee to work out differences between two versions of a bill, but ultimately lawmakers were unsuccessful.

Sen. Patrick Leahy, D-Vt., is irritated with the sluggish pace of negotiations — it has been 452 days since the 2008 farm bill originally expired.

“Farmers in Vermont and across the country are desperate to have a new farm bill enacted to give them the much-needed certainty for their planting and other farm decisions,” said Leahy, who is a farm bill conferee, in a statement Dec. 20. “We cannot delay any longer.”

Leahy is the most senior member of the Senate and has presided over seven farm bills since he was first elected in 1974.

While Vermont’s dairy farmers hedge their guesses of the consequences the archaic pricing standards will wreak, both chambers of Congress, 500 miles to the south, are vacant and members won’t reconvene until the second week in January.

MILK Prices Uncertain

In the absence of a new farm bill, the USDA reverts to a 1949 statute that mandates the federal government purchase milk at around $40 per hundredweight — nearly double the current market price of around $20.50 per hundredweight.

The reason for this drastic difference is because the cost of producing milk was much higher 60 years ago. The government, by purchasing surplus milk, wanted to ensure farmers stayed in business when prices plummeted.

Over time, farming methods have improved, and in recent farm bills the government lowered the price it would pay for milk. In theory, reverting to 1949 prices in 2014 would increase the cost of milk for consumers.

How much prices could rise is uncertain — some have argued that the jump would be mild, as the cost of production represents only a portion of what determines the retail price of a gallon of milk.

Foster said he does not believe milk prices will go through the roof.

“I think $8 a gallon is an overstatement of reality,” he said, adding that the increase in what the government will pay for milk will not immediately effect consumers. “If it drags on another month or two, we’ll have problems.”

Peter James of Monument Farms in Weybridge said reverting back to the old price standards would affect his farm less than other dairies, as the farm sells its milk directly to consumers, rather than to a processor.

“I am concerned that the price will increase for the consumer, and that the consumer will not purchase as much fluid milk,” James said. “We’re seeing that the last few years.”

James’ worries are not without merit — a 2013 study by the USDA found that Americans, on average, drink one-third less milk than they did in 1970.

Federal officials have taken steps to ease the impact of reverting to the 1949 law. U.S. Agriculture Secretary Tom Vilsack has said he will delay enforcing the law, allowing Congress time to pass a new bill when it reconvenes this month.

No Safety Net

No matter how the USDA does or does not enforce the 1949 pricing statutes, farmers are still left without a federal price support program. The previous program, the Milk Income Loss Contract (MILC), compensated dairy producers when milk prices fell below a certain level. It expired at the end of September.

Without this crucial safety net, farmers are left unprotected from volatile market swings. In 2009, the global demand for milk fell by just 5 percent, but wholesale milk prices dropped by nearly 50 percent. According to a study by the University of Vermont’s Center for Rural Studies, milk sales in the state fell from $502 million in 2008 to $341 million in 2009.

Foster said he was concerned that without a safety net, the price of milk would be vulnerable to volatile price swings. In 2009, the price of milk fell to $11 per hundredweight, well below the cost of production. Many dairy farms went out of business, while others are still recovering. Foster said a repeat of that scenario would be devastating to the industry.

Throughout 2013, prices remained constant. In January, the price per hundredweight in Boston was $19.73. It steadily rose throughout the year to close at $21.93 in December. Economists for Agri-Mark/Cabot, which buys milk from Foster Brothers Farm, estimate that prices will peak above $22 early in 2014, before declining slightly the rest of the year.

However, variables — such as energy and feed costs, and domestic and foreign demand — make any cost estimates a shot in the dark. Market factors, such as the government paying double what it used to for surplus milk, could shatter this fragile stability.

In addition, globalization has made the dairy industry more vulnerable to price swings. Currently, exports account for 16.3 percent of all milk production. A decrease of more than 2 percent can send prices falling as much as 40 percent, Foster said.

As business decisions on farms are made years in advance, temporary extensions of the farm bill make planning extremely difficult for farmers.

“Decisions we make today effect us for two to three years,” Foster said. “It takes two years to raise a replacement animal — this piecemeal approach does not allow you to plan on anything.”

James agreed that farmers need long-term legislation instead of short-term policies.

“A farmer has to plan a year in advance at least, if not three to four years in advance,” James said. “Without a sound program, and with a very unstable market, it’s tough. It’s a gamble.”

James said he believes there is a disconnect between members of Congress and farmers across the country.

“I think they don’t understand the issues we’re up against to make a real, fair decision,” James said. “Our problems are governed by issues we have no control over; mainly Mother Nature and the public.”

Foster offered a similar sentiment.

“Those in agriculture districts are a lot more connected to the bill than their urban associates,” Foster said. “We’re fortunate in the delegation we do have.”

Foster said that the uncertainty of subsidies and support programs makes lenders hesitant to make loans to farmers.

“The lack of a farm bill does not allow loaners to evaluate risks of a customer,” Foster said. “It’s like the stock market — it does not like risk. Uncertainty leads to higher interest rates.”

DAIRY SECURITY ACT

Rep. Welch said he was confident that a new bill could be passed soon into the new session. He has pushed for the inclusion of a new price support program, called the Dairy Security Act, which was first proposed to him by Vermont farmers.

“Globalization makes the Dairy Security Act more important,” Foster said. “If the price goes down, the tendency is to try and produce more.”

While Welch is not a member of the farm bill conference committee, he said he stays in constant communication with committee ranking member, Rep. Collin Peterson, D-Minn.

Welch characterized current negotiations as stuck on “fierce regional differences” surrounding policies dealing with corn, cotton and soybean crops — none of which affect Vermont agriculture. The complexity and scope of the farm bill, which sets the nation’s farm and food policy, makes it a difficult piece of legislation to pass.

It’s expensive, too — the 2008 bill allocated $288 billion.

“Under the best set of circumstances, it’s always difficult to pass a farm bill,” Welch said. He noted, however, that last year was the first year in the history of the farm bill that replacement legislation was not passed — what Welch called a “manifestation of a do-nothing Congress.”

Foster was more guarded about his expectations.

“I’m reasonably optimistic,” he said. “But we thought we’ve been close before, too.”

Foster, 67, has been farming for more than 40 years. He said he cannot recall a time when Congress has been so gridlocked over a farm bill.

“It hasn’t been anywhere near as long as this between farm bills,” Foster said. “It has only been a couple months at a time before — this new bill is going to be three years old before it’s even born.”

Foster said that the volatility of the industry, along with the uncertain future of federal programs, has discouraged people from getting into dairy. Vermont has slightly less than 1,000 dairy farms, one-sixth of the number in 1965.

“There haven’t been many new entrants into the industry,” Foster said.

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