Statement Of Senator Patrick Leahy On The Northeast Interstate Dairy Compact Hearing By The Senate Committee On Agriculture, Nutrition, And Forestry

February 08, 2000

Mr. Chairman, one thing that is great about dairy policy is that it brings people together. Look at all of us it has brought together this morning. It also makes some unusual partnerships. For instance I would guess that one of the few things that Hillary Clinton and Rudy Giuliani agree on at this point in their campaign is the Northeast Dairy Compact. They are both for it.

Mr. Chairman, I do thank you and want to leaven our discussion with a little levity. But before I start, I want to say that dairy policy is a serious topic – it represents a way a life for farm families throughout America.

I do not want dairy farmers in Minnesota, Wisconsin, Mississippi, Iowa, North Carolina, Vermont, or anywhere else to go out of business because of failed dairy policies or a stacked deck.

I say this to everyone: I will support, and vote for, reasonable legislation that helps dairy farmers in the Upper Midwest, in the South, in California, or elsewhere to get a fair price for their labor. I will work with any region of the country.

Back in my office I have a tall stack of the floor speeches and industry diatribes that have been leveled against the Northeast Dairy Compact.

Scores of charges were made before the Compact legislation was passed the first time. They were wrong, and the Compact has gone on to do just what we said it would do. To help the committee along I summarized the top ten of these myths and indicated what the real facts are. I do not want to be harsh in characterizing these charges, so I have used some euphemistic language in my heading. My staff claims that's a real word. I hope for their sake they are right. Let's just say that some unfair things have been said about the Compact.

Number Ten is the claim I have heard some make, that the Northeast Dairy Compact erects a barrier to milk just like the Great Wall of China. Actually, the Compact law mandates that all milk must be allowed to be sold into the region.

The reason that Mrs. Clinton and Mayor Guiliani support the compact is that it has been great for farmers living near the Compact region, since they can sell into the region and gain its benefits. Over one-quarter of Compact benefits have been paid to New York State dairy farmers.

Allegation 9. I have to disagree with those who think the Compact is more "terrifying than the Blair Witch Project." I certainly know it does not add "50 cents to $1 to the price of a gallon of milk."

A 1998 GAO report noted that milk prices in Minnesota and Wisconsin were much higher than prices in the Northeast.

For example, on February, 1998, the average price of a gallon of whole milk in Augusta, Maine was $2.47. The price for Milwaukee was $2.63 a gallon. Prices in Minneapolis were $2.94/gallon. In Boston the price of a gallon was $2.54. I could go on and on. I will just give you one more example.

The cost of 1 percent milk for November, 1997, in Augusta, Maine was $2.37 a gallon, the same average price as for Boston and for New Hampshire and Rhode Island. In Minnesota, the price was $2.82. Number 8 is the claim that the Compact is like a "milk tax." Well, if Compact prices represent a "milk tax" then other states outside New England have higher milk taxes because they have higher prices.

This allegation is ironic – according to OMB, a special WIC reimbursement program actually gets extra funding from the Compact Commission to put additional eligible women, infants and children on the WIC program at no cost to taxpayers.

The allegation suggests a serious problem that we might be able to solve. The school lunch program is being ripped off in some non-Compact states. School contracts often establish a fixed price for an entire school year for milk purchases. So when there is a drop in the cost of milk to processors, those processors can make a killing on their year-long school lunch contracts since they make windfall profits as they pay farmers less for milk.

We could introduce legislation to recoup these windfall profits and put the money back into the school lunch program. Allegation 7 asserts that the [The Compact] "does have dramatic effects and impacts upon prices of farmers in other areas, especially in the Upper Midwest."

The OMB report says that is not the case. However, the reverse is certainly true – the Upper Midwest with many times the farmers as New England certainly has a major impact in the South and the Midwest.

I have read many statements in newspapers and in the Congressional Record that the Upper Midwest wants to produce milk for the entire nation using new technologies such as rehydration or reconstituting milk. The only problem for the Upper Midwest is that Southern farmers, Mid-Atlantic and Western farmers are in the way. All of these farmers want to stay in business and provide fresh, local supplies of milk to their communities. Also in the way are consumers, who for some reason do not seem ready to develop a taste for reconstituted milk.

Allegation 6 raises a similar point, that New England's success depresses the nonfluid prices nationwide. Generally speaking, production in New England addresses its own needs. Yet, milk is so overproduced in Minnesota and Wisconsin that 85 percent of it goes into manufactured products such as cheese which we find for sale throughout New England, the South and other regions.

Allegation 5. I was surprised that some think that the Secretary of Agriculture opposes the Compact. That would be news to me, and to Secretary Glickman. The Secretary found that the Compact was in the compelling public interest on the region after holding a rulemaking and receiving comments from the Upper Midwest.

Allegation 4 is that the Compact helps large farms more than it helps small farms.

There is a kernel of truth to this. Like most farm safety net programs, benefits are determined by the volume of your past production or your "base." Thus, just as farmers with more cows in the Upper Midwest usually make more than farmers with fewer cows – it is also the case that New England farmers with more cows get more Compact benefits since they are paid on a hundredweight basis.

However, there should be some limits. The Compact Commission is looking at imposing some type of limit, similar to payment limitations, that would prohibit these safety-net benefits beyond a certain level of production. They also could simply not provide the safety-net benefit for any increases in milk production above a certain base. I think these limits would be a good idea and would act to limit any potential increases in production.

Allegation Number is that "With higher prices, consumption goes down, and children are the biggest losers." This also suffers from a fatal flaw.

Since milk prices in the Compact region are considerably lower during many months than in Wisconsin or Minnesota consumption of milk should remain strong in New England. And it has.

But I need to make another point. The safety net provided by the Compact helps protect our local supplies of fresh milk. I do not want prices to skyrocket every time there is a snow storm or ice storm anywhere from the Upper Midwest to Maine. At $5, or more, a gallon, consumption would indeed go down if parents in New Hampshire could not find milk for their children because of an ice storm in Ohio.

Allegation 2 says that the Compact does not help smaller farms. For small farms the Compact can make the difference between staying in business and going bankrupt. The larger farms can better withstand downturns without a Compact – but smaller ones cannot.

The Farm Bureau Federation reports significantly below-average losses of farms in New England with some Compact states reporting slight increases in the number of farms.

Allegation 1 came up during the competing ice cream socials we had last summer. The IDFA has its social, and Ben & Jerry's Vermont's Finest Ice Cream had their social. I think ours out-drew theirs, by the way. In any event it certainly was more fun.

One Senator suggested that the Northeast Senators "should give away cow manure instead."

I passed that suggestion onto Ben. They don't have high hopes for it, but "Phish Food" and "Chunky Monkey" worked.

Mr. Chairman, I want to stress again that there must be some solution to this dairy situation that works for all regions of the country.

There are some special challenges different from many other farm products. Milk is very perishable – you can't just store it for four months to get a better price. Dairy farmers can't just switch from diary to soybeans, one year, and then back to dairy the next. Dairy is also very labor intensive. I also do not think that most consumers will want reconstituted milk -- where you add water later.

Also, milk is not covered by Freedom to Farm payments and the milk price support program ends soon. And, Northern states face around 300 percent tariffs if we try to sell fluid milk into Canada. But, politics is the art of making the impossible, possible. I am ready to get to work.

The compact has been vilified with comparisons to everything from "The Blair Witch Project" to cow manure. It's time to get past the high decibel rhetoric and accept the fact that the compact is working. Dairy policy should not be a war of attrition between regions. It should be a united effort to help all farmers. I'm committed to doing that, and I hope our Midwestern colleagues someday will join us.