Impact of the Northeast Interstate Dairy Compact on Consumer Prices for Fluid Milk

The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission, and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. The Pennsylvania State University does not discriminate against any person because of age Introduction The objective of the Northeast Interstate Dairy Compact (Northeast Compact) has been to assure the continued viability of dairy farming in the northeast, and to assure consumers of an adequate local supply of pure and wholesome milk (Dyer). The Northeast Compact affects milk pricing in six New England states. Despite socially appealing goals, the Northeast Compact has been mired in controversy since it was included in the 1996 Farm Bill. There have been limited studies on the economics of dairy compacts. The Office of Management and Budget (OMB) completed a preliminary study on the economic impact of the Northeast Compact. Their study was limited to the first six months of the compact, July 1997-December 1997. Bailey (2000) examined the economic impact of multi-regional dairy compacts. And the University of Vermont developed a number of econometric models to examine the market implications of the Northeast Compact (Nicholson). Proponents of the Northeast Compact assert that it will provide additional economic support to small northeast dairy farmers and have only limited impact on New England consumers. In fact, proponents argue that the Compact should reduce retail milk prices by stabilizing wholesale milk costs and thereby reducing the risk premium in the farm-to-retail margin (Federal Register). Opponents of the Northeast Compact, most notably the International Dairy Foods Association, a trade association representing dairy processors, assert it will cost New England consumers an additional $70 million a year for fluid milk and will depress fluid milk sales (IDFA, July 1997). The economic implications of the Northeast Compact have taken on added importance in recent years. Pennsylvania and New York have petitioned Congress for inclusion in the Northeast Compact. In addition, a number of southern states have passed legislation in their statehouses in order to begin the process of creating a Southern Dairy Compact. Growing demands for regional dairy compacts could have national implications if such efforts affect interstate commerce for milk and dairy products. The viability of the Northeast Compact was recently called into question when the Massachusetts Senate voted to remove the state from the …