Dairy Policy

The major components of federal dairy policy — the price support program, federal milk marketing orders, and import quotas — have been in place for more than 50 years. These programs have tried to address the market effects which result from a commodity that is highly perishable; bulky (expensive to transport long distances); produced 365 days a year with a limited ability to alter short-run production decisions; and has many more sellers than buyers. These properties have given the industry a history of volatile milk prices and policies that have been addressed with varying degrees of success. This paper will consider the major issues and options for dairy policy in the 2002 Farm Bill. The last Farm Bill, the1996 Federal Agriculture Improvement and Reform (FAIR) Act, attempted to move agriculture toward greater market orientation by phasing down the price support level over 4 years from an initial $10.35 per hundredweight down to $9.90, and terminating the support program the end of 1999. When the support program was terminated, it would be replaced with a recourse loan program on dairy products for dairy manufactures. The FAIR Act also directed the Secretary of Agriculture to consolidate the number of federal milk marketing orders to no less than 10, and no more than 14. The Act also authorized the Secretary to establish a Northeast Dairy Compact until the time that federal order reform was implemented. However, agricultural appropriation bills delayed implementation of federal order reform until January 1, 2000, extended the support price at $9.90 for both 2000 and 2001, and extended the Northeast Dairy Compact until September 30, 2001. Progress toward a greater degree of market orientation was not as complete as what was envisioned by the authors of the FAIR Act.