Northeastern States Regulate Milk Prices to Protect Dairy Farmers

STRUGGLING dairy farmers in the Northeastern United States will soon see a small boost in their milk checks, as several states have decided to overstep the federal government and take action to help them. The increase is welcome news for farmers whose milk income has plummeted roughly 30 percent in the past seven months; it now costs farmers more to produce milk than they receive for it.

New York State is leading the way in emergency farm relief. This month Gov. Mario Cuomo (D) signed into law a provision that would increase milk prices paid to farmers but would keep retail prices roughly the same. Vermont, Maine, and New Hampshire have passed similar legislation; Pennsylvania has had such a law on its books since 1988. Similar laws are pending in Massachusetts, Connecticut, and Rhode Island.

Proponents of the New York law warned that the state would lose 10 percent of its 12,000 dairy farmers if it did not act quickly to raise prices. Under New York's law, the $10.90 that farmers now receive for 100 pounds of milk will increase to roughly $12.20 per hundredweight.

But the "price gouging" provision will prevent retail stores from marking up the price of milk more than the usual 200 percent above the price paid the farmer. Of the $2.60 per gallon consumers pay for milk in New York City, the farmer receives $1.09 of that. For most farmers, it costs $1.30 to produce one gallon.

Who will pay for the increase?

Retailers, who have not lowered their prices even as the wholesale price has plummeted, says Gerald Moore of New York's Department of Agriculture. "Retail margins have gone up 19 cents [per gallon] as the farm prices fell. A lot of people felt if we divert 12 cents to farmers, retailers will still be making 7 cents a gallon more than they were last fall."

New York supports the nation's third largest dairy industry, generating $2 billion annually. Helping farmers means helping local economies, Mr. Moore says. "If you lose two or three dairy farms in some of these rural towns, you begin to have erosion in rural communities."

But the breakdown in the dairy industry has already occurred.

"It's a good effort, but it's too little too late to do any good effectively," says Ken Dibbell, a dairy farmer from South New Berlin, N.Y.

Dairy prices on the farm began to tumble last fall, almost down to the federal government's guaranteed minimum of $10.10 per hundredweight. More milk flooded the market after a summer of good weather, high-quality feeds, and more efficient per-cow output. Meanwhile, costs of producing milk range from $12 to $15 per hundred pounds of milk.

Just two years ago, however, milk prices peaked at an all-time high of $15 per hundredweight, after a federal buy-out program helped shrink the supply of milk and boost prices.

Such fluctuations are toughest on young farmers with a high debt load. More established farmers have to milk even more cows.

Says dairy farmer Mr. Dibbell: "Farms are going like wildfire. The sale barn is running three and four farms through it a week, 50 cows a day. Everyone who stays in business has to make more milk for less money."

Not all Northeastern states are willing to increase milk prices. Massachusetts Gov. William Weld (R) has said an increase in milk prices will hurt those who consume the most milk - women and children.

But Massachusetts imports three-fourths of the milk it consumes from Vermont and New York, so consumers will have to pay the increase allowed in those states anyway.

Massachusetts has 400 dairy farmers, half as many as 10 years ago.

Yet if regional markets work to help farmers in the Northeast, farmers in the Midwest lack such a structure.

Because of the federal pricing system, farmers in Minnesota and Wisconsin receive the lowest prices for their milk. In Minnesota, low milk prices are forcing 100 farmers a month out of business.

Rather than coming up with a short-term solution as New York and the other Northeastern states have done, advocates in the Midwest have been petitioning the US Department of Agriculture for long-term structural changes in the way milk prices are established.

"We think the milk marketing order system is outdated, making artificially high prices in some parts of the country, and artificially low prices in other parts," says Bill Oemichen, legal counsel for Minnesota's Department of Agriculture. "We don't see much value keeping struggling farmers in business now if they're not going to be able to stay in business for a long time."