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'Dairy cliff'? Milk prices poised to spike unless Congress acts.

Prices could surge in January, but probably not double, if inaction by Congress results in the revival of a 1949 price system. And it probably won't come to that, as lawmakers work to avert dairy-case price shock.

By Staff writer / December 31, 2012

As the nation inches toward the economic 'fiscal cliff,' anxiety is growing in farm country about a separate looming deadline, one that reaches into the dairy industry and, indirectly, into the household budgets of consumers who buy milk and cheese.

Dinesh Ramde/AP/File

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Unless Congress acts to update its legislation on farming, milk prices could rise sharply in 2013.

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That's a worrisome prospect for budget-strapped families who already don't like paying $3.53 – the average price per gallon of whole milk nationwide.

But prices wouldn't spike overnight. Prices probably wouldn't double, despite recent news reports citing the risk of $8 or $9 milk. And many political analysts expect that Congress will act to avoid having farm policy revert to a 1949 law's arcane formula on milk pricing.

Top leaders on the House and Senate Agriculture Committees have agreed to a one-year extension of the 2008 farm bill that expired in October, according to news reports as calendar year 2012 ticked to a close. But a vote by the full Congress on a farm-bill extension hasn't been scheduled.

So for now, American consumers are still waiting to see they are pushed over a so-called "dairy cliff." That clunky name is, of course, derived from the "cliff" metaphor that's being used for Congress's larger debate on tax and spending policies. In both cases, the similarity is that something will happen that most people don't like, unless lawmakers act soon.

Senate Agriculture Committee Chairman Debbie Stabenow (D) of Michigan indicated the House could vote on the bill soon, though House leaders have not yet agreed to put the bill on the floor. In addition to the one-year extension that has the backing of the committees, the House GOP is also considering two other extension bills: a one-month extension and an even smaller bill that would merely extend dairy policy that expires Jan. 1.

Without legislative action by year-end, US farm policy would revert on Jan. 1 to the provisions of the last permanent farm bill, the Agricultural Act of 1949.

Under that law the government would be bound to offer so-called "parity pricing" for fluid milk, under a scheme originally designed to ensure that farmers would be adequately compensated relative to the changing cost of living.

But "parity" was based on price relationships among various goods dating back to the period of 1910 to 1914. Agriculture experts say the original basket of prices used in the calculations included the price of a mule as a useful benchmark.

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