- The Washington Times - Monday, July 5, 2004

Those who cannot remember the past are condemned to repeat it, so goes the adage attributed to George Santayana. That is a timely admonition for Congress, which is about to consider a new version of an old — and failed — concept in dairy policy: the compact.

Reps. John McHugh, Tom Reynolds, Bob Etheridge and Bernie Sanders have introduced the so-called National Dairy Equity Act (NDEA). A Senate companion bill was introduced by Sens. Arlen Specter, Hillary Rodham Clinton, Jim Jeffords and Chuck Schumer. The proposal takes the futile, and feudal, model of the expired Northeast Interstate Dairy Compact, mutates it and expands it nationwide at a cost of $2 billion annually. It accomplishes this by forcing states to join regional dairy compacts for at least one year, unless, within 30 days of the NDEA’s passage, a particular state adopts legislation withdrawing it from the compact.

The results are predictable: enormous cost for consumers and taxpayers, and economic chaos for dairy farmers.

Consider the record of the old Northeast compact. Under that plan, a regional panel was granted the authority to set the minimum farm gate price that milk processors in six New England states could offer to dairy producers. Implemented in the summer of 1997, the compact panel immediately hiked the farm gate price of milk by the equivalent of 26 cents per gallon, and as a consequence, retail milk prices in New England rose by an equal measure. During the four years it was in place, the compact cost consumers in New England more than $136 million in higher milk prices.

Dairy farmers fared even worse than consumers. The compact was sold to dairymen as a way to keep small New England dairy farms in business, but the region lost roughly 20 percent of its dairy farms between 1997 and 2001. What benefits the compact did provide went disproportionately to the very largest dairy producers, who increased production in order to snatch up more of the windfall profits provided by the program, in turn driving small and middle-sized family farms out of business.

Despite this dismal record, proponents of the NDEA are still trying to justify their plan to expand this model nationwide. Implausibly, they argue it is actually a cost-cutting move, by positioning the plan as a replacement to the Milk Income Loss Contract (MILC) subsidy payments. The MILC program, created by the 2002 farm bill, cost $2 billion and is scheduled to sunset next year. More importantly, it was always conceived to be a temporary program, and therefore one that would not incur any costs after it expires.

To position the NDEA as a cost-saving replacement is disingenuous, at best.

Under the current federal dairy price supports — which NDEA does not reform — the federal government purchases surplus butter, cheese and nonfat dry milk. Back in the late 1970s and early 1980s, subsidy levels were driven to unprecedented heights, which led to federal purchases of dairy products, equivalent to 16.8 billion pounds of milk, which had to be stored in government caves.

Reminiscent of that situation, today the federal government stores more than one billion pounds of overproduced, surplus powdered nonfat dry milk. If reconstituted, that would equal nearly a year-and-a-half’s worth of U.S. consumption of skim milk. The NDEA, like the Northeast compact prior to it, would subsidize overproduction of milk, while simultaneously dampening demand with higher retail prices. Large supply and artificially high prices are the formula for surplus stocks for which Uncle Sam would have to pick up the tab.

Congress would do well to study the history of the Northeast compact before taking seriously the NDEA. But if nothing is learned from that history lesson, a bit of current events might put the NDEA plan in context. This enormous new subsidy program for milk producers is being proposed precisely as farm gate milk prices have hit a new record high, with retail milk prices having reached $4 per gallon in some areas.

This resurrected compact scheme essentially establishes a floor under this inflated price, but would deny consumers any benefit from potential price decreases. Quite simply, the NDEA is not a good idea — now or ever.

John Berthoud is president of the National Taxpayers Union. Grover Norquist is president of Americans for Tax Reform. Tom Schatz is president of the Council for Citizens Against Government Waste.

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