Cheese Reporter September 14, 2001, page 2

Editorial Comment
Dick Groves
Publisher, Editor

Dairy Compact Expiration Good, Not Great, News

We thought this would never happen, but Sunday will apparently be the final day of existence for the Northeast Dairy Compact.  Congress concluded its business this week without getting around to extending the controversial compact, and that means the compact’s expiration date of September 30, 2001, takes effect.

 This is, from our vantage point, good news for the dairy industry.  However, it probably stops short of being great news.

 It stops short of being “great” news simply because the Northeast Dairy Compact was overrated from the beginning.  It never was as good as its supporters said, nor was it as bad as its detractors maintained.

 This conclusion is supported by the most recent in a long line of studies of the Northeast Dairy Compact’s impact. This study, by the congressional watchdog agency the General Accounting Office, seemed to provide some ammunition to both sides of the compact argument.

 As reported in our paper last week, the GAO found, among other things, that the Northeast Dairy Compact did contribute to retail milk price increases in New England, but it couldn’t be determined exactly how much of those increases could be attributed to the Dairy Compact.  Similarly, the compact did increase over-order payments to dairy farmers, but the GAO couldn’t determine whether some portion or all of those payments would have been made anyway, depending on market conditions.

 Further, the GAO report continued, data on dairy farm structure, milk production and milk consumption show little change in historic trends after the Compact’s implementation.  More specifically, the Compact didn’t lead to big increases in milk production or large declines in consumption, nor did it slow the decline in the number of dairy farms.

 In other words, the Northeast Dairy Compact during its four-plus years in existence had relatively little impact.  The GAO report notes that, at least from a national perspective, this is due in large part to the fact that the Northeast Dairy Compact states account for all of about 3 percent of US milk output.

 One reason why the demise of the Northeast Dairy Compact is really pretty good news for the dairy industry is that the politics of the dairy compact were always ugly, to put it mildly.  What got to be particularly disturbing this year was the move to spread dairy compacts to just enough states to guarantee congressional passage of compact legislation.

 Indeed, the dairy compact legislation introduced a few months ago not only would have extended the Northeast Dairy Compact beyond its expiration date, it would have added five more states to that compact, given congressional consent to a Southern Dairy Compact comprised of 14 states, and given congressional consent to two new compacts covering six western states.

 That adds up to 31 states, or 62 votes in the 100-member US Senate, assuming every senator in a compact states votes in favor.  And our guess is that those 31 states are also more than adequate to ensure House passage (163 House members were listed as co-sponsors, or about 55 less than a majority).

 The problem here is that, in expanding to ensure passage, proponents also expanded the impact of dairy compacts.  According to the GAO study, as dairy compacts grow in size and geographic reach, they also grow in production and price impact.

 States that would have been covered by dairy compacts under the legislation introduced earlier this year included California, New York and Pennsylvania, which rank first, third and fourth, respectively, in national milk production.  So the impacts nationally of compacts would have gone from negligible under the Northeast Dairy Compact to possibly quite considerable under the four compacts created by proposed legislation.

 Also related to the really ugly politics of dairy compacts is what backers had planned to ensure passage of legislation this year.  Last spring, US Sen. Jim Jeffords, the Vermont Republican-turned-Independent, said he was planning to use whatever approach necessary, including sneaking it through in the “stealth of the night,” to get compact legislation passed before this weekend.

 And we recall thinking, “What an asinine approach to making dairy policy.”  Yet that’s essentially how the Northeast Dairy Compact was created (tacked onto the 1996 farm bill) and later extended (as part of a 1999 budget bill that had to be passed).

 Our suggestion to politicians interested in saving small dairy farms in New England (and elsewhere, for that matter) is to follow the lead of the Massachusetts Senate last year: forget the dairy compact and budget some money for direct payments to producers.  Since the Northeast Dairy Compact didn’t save farmers, expanded compacts won’t either.

 Another reason we’re glad to see the Northeast Dairy Compact expire is because of its impact on dairy industry unity.  Basically, the Dairy Compact created two types of dairy producers: the “haves” and the “have nots.”

 As it existed for four-plus years, the “haves” consisted of farmers in the six New England states, plus those in New York who shipped milk to plants in the New England states.  The “have nots” were dairy farmers everywhere else.  Legislation to expand dairy compacts certainly expanded the number of “haves,” but also likely would have increased the resentment of the “have nots.”  That’s in part due to the fact that many producers in the “have not” regions already think they’re getting shafted by federal dairy policies.

 That includes producers in such non-compact states as Wisconsin, Minnesota and Idaho, which benefited very little, compared to producers elsewhere, from the “higher of” Class I pricing provisions under federal order reform.  Give producers elsewhere a compact on top of “higher of” pricing and you’ll really see dairy disunity, particularly if cheese prices decline substantially.

 So we say “good riddance” to the controversial and divisive Northeast Dairy Compact.  But we’ll stop short of saying “great riddance.”