The Dairy Fix Is In
Jeffords wields his power.

By Dave Juday, a commodity market analyst & an adjunct fellow with the Hudson Institute's Center for Global Food Issues
August 17, 2001 11:35 a.m.

hen Vermont Senator James Jeffords bolted the Republican party, tossing control of the U.S. Senate to the Democrats, he brought with him his pet issue, dairy compacts, which assures there will be more "switches" in Washington. Consider Senate Majority Leader Tom Daschle's position on dairy compacts. He's on record as saying he "opposes compacts in any form." But that was before Jeffords made him Senate Majority Leader. Now Daschle has made a pledge to Jeffords that when the Northeast Interstate Dairy Compact expires next month, Daschle will deliver at least a temporary extension — by parliamentary sleight-of-hand if necessary.

That won't be the first time. Daschle is playing the role that then-Majority Leader Trent Lott (R., Miss) played in October 1999, when Jeffords convinced Republicans he faced a tough reelection the next year, and that his chances were nil without delivering an extension of the dairy compact to his farmers. Ironically, Jeffords reasoned, Republican control of the Senate was on the line. Thus Lott assured the compact was extended by burying it deep in a must-pass appropriations bill — despite Daschle's protests. Jeffords won reelection, and the rest is history.

But what is this dairy compact around which such high-stakes politics turn in Washington? It was created by the 1996 farm bill. In concept, it was intended to be a temporary measure to tide over dairy farmers in the six New England states until a more comprehensive national dairy policy reform — unachievable during the farm bill debate — was crafted. The compact empowers an appointed commission to effectively set the minimum farm gate price that bottlers must pay for beverage milk. This price-setting power even applies to milk entering from states outside the compact, establishing a sort of economic Maginot line around the region.

But what started as a temporary means to help New England dairymen — who supply about three percent of the nation's milk — now could cover half the country permanently. A total of 25 states are scheduled to either join an expanded Northeast Compact, or become part of the proposed 14-state Southern Compact — part of the effort to gain more political support in Congress.

Despite this push to expand the concept, the Northeast Compact has largely failed, even by its own standards. The States Ratification Committee, a self-described "grass roots coalition of state departments of agriculture and farmer organizations" that lobbies for an extension of the Northeast Compact and for the creation of a Southern Dairy Compact, argues that "experience has shown that Dairy Compacts are the best safety net available to farms." Yet, in the two years after the Northeast Compact was established, about 30 percent more New England dairy farms — many of them small farms — closed down than during the two years before it.

Not surprisingly, consumers fare no better than small farmers, though their interests are supposed to be voiced by representatives on the compact commission. One look at the list of so-called consumer representatives, however, betrays their agenda. Representing consumers on the Northeast Compact Commission are: the commissioners of agriculture for the state of Massachusetts and Rhode Island, the executive director of the Rhode Island Farm Bureau, and a professor from the University of New Hampshire's school of agriculture. In addition to these unlikely consumer watchdogs, is the administrator of the Women, Infants, and Children (WIC) program in Massachusetts; WIC is the only government program which, by law, must be reimbursed for the higher milk prices it is forced to pay under the compact. In short, none of these five commissioners truly represents the milk consumer.

According to the Northeast Compact Commission, part of the purpose of their compact is "to assure consumers of an adequate, local supply of pure and wholesome milk." With an expansion in the offing, that proposition is laughable. Consider, Maryland would be part of the Northeast Compact. Virginia, part of the Southern Compact. Thus communities which lie only a few hundred yards apart on either bank of the Potomac will, by federal law, be in different "local" markets. The price of the milk sold in Bethesda, Maryland will be tied to milk prices in Bar Harbor, Maine. The price of the milk sold in Falls Church, Virginia will be tied to the price of milk in Cherokee, Oklahoma.

Moreover, the compact is a drain to most state economies. Because the Northeast Compact provides for a minimum price for milk, Massachusetts milk drinkers, for example, have paid upwards of $53 million more for milk. Yet, nearly 85 percent of that milk price overage has been distributed as payments to dairy farmers outside Massachusetts — primarily Vermont. Indeed, that's why Senator Jeffords is such a diehard compact supporter. Vermont dairymen get more than 40 percent of the windfall revenues generated by the compact's price fixing. To maintain that, Jeffords has to continue to negotiate a political fix in Washington.