Topic:
DAIRY PRODUCTS;
Location:
DAIRY PRODUCTS;

OLR Research Report


October 31, 2003

 

2003-R-0765

NORTHEAST INTERSTATE DAIRY COMPACT

By: Joseph Holstead, Research Analyst

You asked (1) about the history of the Northeast Interstate Dairy Compact; (2) what the arguments for and against it were; and (3) what the state has done (a) to reinstate the compact, (b) to dairy farmers, and (c) what other states have done.

SUMMARY

In response to complaints from New England dairy farmers and with support from the state governments, the 1996 federal farm bill authorized the agriculture secretary to allow New England states to enter into a regional dairy compact. Connecticut and five other states agreed to enter into the Northeast Interstate Dairy Compact (Connecticut approved the compact in 1993 contingent on subsequent authorization from Congress, which is required for all interstate compacts).

A commission consisting of representatives of the member states governed the compact. The law allowed the commission to set a minimum price for fluid milk that could exceed the price the federal government sets in its marketing order. In setting the price, the commission had to consider various factors, including the price needed to provide a reasonable return to dairy farmers and milk distributors.

The compact expired September 30, 2001 when Congress chose not to renew it. Compact proponents argued that it helped New England dairy farmers and preserved land without using federal aid. Its opponents said it created an unfair advantage for New England dairy farmers and argued that the compact hurt consumers.

During the 2003 legislative session, the General Assembly considered a joint resolution to urge Congress to reinstate the compact (SJ 24) and a bill that made explicit the state Milk Board's oversight of fair milk prices, including fair compensation for farmers (SB 852). Neither bill passed. (SB 852 was originally a bill from the attorney general that sought to limit the mark-up on milk prices charged by processors and retailers.)

Other New England and northeast states have also expressed interest in reinstating the compact.

MILK PRICING IN NEW ENGLAND AND THE COMPACT

Federal law governs the price paid to dairy farmers for milk. Generally, U. S. Department of Agriculture marketing orders set the price for milk and milk products by region. One order prescribes the price paid in New England and the Mid-Atlantic states. The order is broken down into class 1 (fluid) milk and various other classes of milk products.

In 1993, to help Connecticut dairy farmers, the General Assembly authorized the Northeast Interstate Dairy Compact, under Public Act 93-320, stating that it would become effective when consented to by Congress and adopted by any two or more of the following states: Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia. The compact was open to states contiguous to named or participating states. The act also repealed a milk pricing regulation statute that was legally unenforceable.

In 1996, Congress authorized the creation of the compact and empowered it to set a minimum price for fluid milk, which could exceed the price set by the relevant order. The compact consisted of the New England states. It did not have jurisdiction over the prices paid for milk sold for other milk products (e.g., butter).

A commission consisting of representatives of the member states, including five from Connecticut, governed the compact. In setting the minimum price, the commission had to consider various factors, including the price needed to provide a reasonable return to dairy farmers and milk distributors. For example, in July 2000, the price under the order for fluid milk was $15.71 per hundredweight (11. 6 gallons); the price set by the compact was $16.94 per hundredweight.

When the federally regulated fluid price in Boston fell below $16.94, fluid processors paid the difference to the commission, who then distributed the proceeds to compact farmers in monthly checks, according to a winter 2001 article by Pennsylvania State University's Kenneth Bailey entitled, “Congress's Dairy Dilemma,” in the CATO Institute's Regulation magazine. (The CATO Institute is a libertarian oriented nonprofit, public policy research foundation. Attachment 1 is a copy of the report.)

There were no caps on the incomes of milk marketers or other entities involved in processing and distributing milk under the compact.

THE COMPACT'S DEMISE

Congress did not extend the compact's approval and it expired September 30, 2001. The commission's executive director, Daniel Smith, noted in his final remarks to the commission on September 28, 2001, that (1) state laws authorizing the compact remained and (2) Congress' failure to renew the compact only eliminated the state laws' legal force. If Congress approves the compact in the future, the compact would be back in force, he said. Attachment 2 is a copy of Smith's remarks.

Proponents

Proponents of the compact argued that it helped New England dairy farms (many of which were small, family owned operations) without using federal aid. They also argued that the compact helped to promote tourism, rural economic development, and green space, according to the CATO Institute report.

According to the Conservation Law Foundation (CLF), a nonprofit environmental advocacy organization, the compact was working well and several additional states had voted to join it (or a similar southern compact) by 2000. CLF worked for an extension of the compact for nearly a year, along with many other groups, before its scheduled 2001 expiration date. CLF noted that multinational dairy processors and certain midwestern senators had fought the compact despite the lack of popular support and that the dairy processors' lobbying effort broke spending records.

Opponents

Because the compact set farm milk prices for fluid milk above the minimum federal prices, it generally ensured a higher cost for such milk products in New England and shut out milk from neighboring regions, according to the International Dairy Foods Association (IDFA), an organization representing 500 dairy food manufacturers, marketers, distributors, and industry suppliers. IDFA argued in a September 2001 news release that the compact cost New England consumers $146 million in higher milk prices from its start in July 1997. But the cost to consumers has remained high despite decreasing fluid milk costs since the compact ended (see attachment 3, “Secret in the Dairy Aisle: Milk is a Cash Cow,” Wall Street Journal, July 28, 2003).

Federal Aid

To help farmers in lieu of the compact, CLF reported that Congress added a new subsidy program in the farm bill enacted in Spring 2002. Under the subsidy program, when market prices for milk drop below a certain level, farmers receive payments. CLF also noted that taxpayers instead of consumers foot the bill for preserving local milk supplies under this system.

RECENT ACTIVITY IN CONNECTICUT AND OTHER STATES

Connecticut

In 2003, the legislature considered a bill to review the state's milk market and a resolution to review the compact. SB 852 required the Milk Regulation Board, beginning July 1, 2003, to review annually the state's milk market and annually to determine October 1 whether (1) milk is affordable to state consumers, (2) there are enough retail outlets for it, (3) sufficient processing capacity exists for the state's needs, and (4) farmers are adequately paid for it.

Under SB 852, the board would have had to recommend any administrative, legislative, or other action to ensure a competitive, responsive market and report its findings to the Environment Committee. The Senate recommitted the bill to the Environment Committee. (During the 2003 session, Dr. Ronald Cotterill, University of Connecticut's (UCONN) Department of Agriculture and Resource Economics, worked with legislators on a version of the bill that proposed a price regulating system.)

SJ 24, urging Congress to reinstate the compact, died in the Legislative Management Committee.

Other States

NewFarm.org reported in February 2003 that a report by Cotterill fueled legislative efforts in several New England states, including in Maine, Massachusetts, and Connecticut, to reduce grocery chains' power. Cotterill's November 2002 study, "Milk Prices in New England and Neighboring Areas of New York: A Prologue to Action?", examined milk prices at 191 stores in four states and found that retail prices remain at record highs despite the fact that farm prices had dropped to 25-year lows, NewFarm.org reported. (NewFarm.org is a part of the Rodale Institute, a nonprofit organization that works internationally to achieve a regenerative food system to improve the environment and human health, according to it's website.)

JH:ts