Ruling Against Dairy Program
Could Throw Many Cows On Rail

MINNEAPOLIS — Remember the government dairy buyout of a few years ago — how the deliberate program to fast-forward culling of the nation’s dairy herd broke the beef market for weeks, maybe months?

If dairy industry doomsayers are anywhere near correct, a federal judge’s ruling here last week against the federal milk price support program could make the buyout wreck look like a fender-bender at the feed store dock.

In a decision filed in federal court last Wednesday, U.S. District Judge David Doty ruled that the existing milk pricing rules were "arbitrary and capricious."

He ordered U.S. Agriculture Secretary Dan Glickman to eliminate price differentials that regulate prices on drinking milk. The program bases pay for milk on how far farmers who produce the milk are from Eau Claire, Wis.

The policy was established in the 1930s to offset transportation costs and to artificially encourage the growth of dairy farming in the South, the West and other regions far from Wisconsin.

Critics of the ruling contend that eliminating the price-control scheme could make dairying in those areas unprofitable and lead to the elimination of a large percentage of dairy operations, hence the comparison to the infamous buyout plan.

It is a cruel irony that beef cattle producers, who have never tolerated price-fixing in their own industry, must now face the prospect of being hammered by its elimination in the dairy industry.

Joe Paris of the National Farmers Organization in Ames, Iowa, said the ruling could affect farm milk prices as early as next month.

"It's not a good ruling, in my opinion," Paris said. "Our dairy members in the Northeast and South will take a blood bath" through reduced prices. "It only pits farmers against farmers, and it could hurt Midwestern states such as Ohio and Indiana."

Farmers in the Upper Midwest have complained for years that the differentials were unfair because they gave farmers higher prices for milk the farther they lived from the Wisconsin city, which is about 90 miles from Minneapolis.

Dairy industry observers expect the Agriculture Department will appeal Doty's decision. Tom Amontree, spokesman for Agriculture Secretary Dan Glickman, said an appeal is under consideration.

"Our attorneys are still reviewing the decision. However, that being said, we believe the court's ruling could have a profound effect on how USDA responds to the congressional mandate to reform milk marketing orders," Amontree said.

Sen. Russell Feingold, D-Wis., said that even if the ruling is appealed, its impact could be greatest on how federal milk pricing is structured in the future. USDA is in the midst of considering several options to make changes as required in the 1996 farm bill.

"This federal court decision makes it far more difficult for the secretary to continue to defend the current system," Feingold said. "The cause is not yet won, but this is a major milestone in the battle for a more equitable milk pricing system."

Glickman is expected to make a decision on which reform option to pursue before Jan. 1.

The main component of the federal milk program bases the price paid to farmers east of the Rocky Mountains on their distance from Eau Claire. As the nation's top-producing dairy region, the Upper Midwest once shipped its surplus milk to areas that could not produce enough, and the so-called distance differential was meant to cover transportation costs.

Over the decades, however, most regions have developed sufficient dairy capacity to produce their own milk. Some places even have surpluses. In practice, this means higher milk prices for farmers and consumers far from Wisconsin, and lower prices for those in the Upper Midwest.

Tom Cox, a University of Wisconsin agricultural economist, said that without milk marketing orders, the wholesale price would fall in many parts of the country: the Southeast, Southwest, Appalachia and parts of the Northeast.

In Florida the wholesale price of milk would likely drop by $3 per 100 pounds and in Appalachia by 85 cents, Cox said. But as wholesale prices dropped in some places, the price paid to farmers in Wisconsin and Minnesota would likely rise by 50 cents per 100 pounds.

Farmers closest to Eau Claire have traditionally been the loudest advocates of a more market-based approach. They point out the old system was put in place when transportation was slow, refrigeration less sophisticated.

"We've got new technology. We can move milk anywhere in the country in 24 hours," said Gary Anderson, who ran a dairy operation for 17 years in Cecil, Wis. "Somehow we have to allow the prices to reflect the true demand for milk in the area."

Dairy interests in other parts of the country have fought to continue the distance differential in some form. Earlier this year, 40 senators from areas where prices are high urged Agriculture Secretary Dan Glickman to retain it.

Sen. Patrick Leahy, D-Vt., called the decision a "runaway ruling" that could jeopardize the income of dairy farmers outside the Upper Midwest by effectively creating a single milk price nationwide.

Glickman is scheduled to release his new dairy pricing proposal this year. Feingold said the judge's ruling likely will scrap several options that were under strong consideration but retained a distance component.

"It's hard to imagine a scenario where the secretary can come up with a justification for keeping the status quo," Feingold said.