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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.

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The result of reimposing the 1949 formula today would roughly double the wholesale price that dairy farmers currently receive for their milk.

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But that doesn't mean retail prices would double.

"Such a headline is a little reckless," Mark Stephenson, a dairy policy analyst at the University of Wisconsin in Madison, writes in an analysis on the university website. He notes that costs for processing, distribution, and retail marketing "are about half of the total cost of today’s gallon of milk," and these costs would not change.

Still, if the "dairy cliff" isn't addressed by Congress, the resulting price hike could be a hefty $1.75 per gallon, he writes.

Mr. Stephenson expects that lawmakers will pass legislation soon to keep milk prices from surging. If by some chance the law did revert to 1949 provisions, it would obligate the US government to start offering farmers the "parity" price for milk. Dairy farmers would presumably start selling at the higher price, and the government would then sell the milk to firms that wanted to sell the milk in stores or use it for other food products.

But Stephenson says it could take weeks before the US Agriculture Department would be ready to start buying milk, and that dairy farmers might be wary of disrupting their sales to regular customers who they hope to maintain relations with for years to come.

The big point, he and others agree, is that reverting to the old law would make no sense. Tim Worstall, a fellow at the Adam Smith Institute in London, said on the Forbes website Monday that "the ratio of farm prices to non-farm prices has been falling since the neolithic [age]," so it's wrong-headed to try to force the price of a farm product into parity with nonfarm prices.

"The very point of inventing farming [is] that food should become ever cheaper," he says, adding that the declining cost of food production was the foundation of civilization.

Does this mean America is facing not just a "dairy cliff" but a "civilization cliff"? We can hope that, with a little cooperation from Congress, we won't have to carry the cliff metaphors quite that far.
 
Material from wire services was used in this report.

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