WASHINGTON — As if the “fiscal cliff” and the long-suffering farm bill weren’t enough, Iowans may soon face a new dilemma — a “dairy cliff.”
If Congress fails to act in the handful of weeks it has left in its lame-duck session before adjourning for Christmas recess, the nation’s dairy programs for farmers will expire Jan. 1.
The effects won’t be limited to the dairy industry — retail prices for all sorts of dairy-related products could soar. U.S. Secretary of Agriculture Tom Vilsack has predicted the price of milk could rise to $6 a gallon, just as almost all Americans’ income taxes are scheduled to increase.
Iowa farmers have been largely shielded from the effects of the farm bill’s expiration on Oct. 1, since the bill was written to apply to crop years, not calendar years, giving Congress until roughly next spring to renew the bill. But dairy programs have long been an exception in the farm bill and expire months earlier.
The National Milk Producers Federation, one of the principal national lobbying groups for the dairy industry, paints a potentially dire picture of what could happen shortly after the start of the year if dairy programs disappear.
Federation spokesman Chris Galen said the biggest loss will be the decades-old dairy price support program.
Under that program, the U.S. Department of Agriculture serves as a buyer of last resort for certain dairy commodities like cheese, skim milk powder and butter that are often components of other products. The goal is to drive up the price and increase demand — but if it expires, a 1949-era price support program will take its place, as has happened with other parts of the farm bill.
Those prices would be significantly higher, meaning farmers would presumably be more willing to sell to the government, easily squeezing out all other potential buyers. The result, Galen said, is that the industry could be upended.
PRICES COULD DOUBLE
“That’s why the dairy cliff is similar to the fiscal cliff, because if nothing is done, in January the USDA’s price support level could be so high that the price the government will offer for things like cheese and butter will be about double what the current market price is,” Galen told The Gazette. “So if you wanted to buy cheese for your pizza company or a large supermarket chain, you’d be competing with the government.”
Dairy farmers are already struggling with the loss of Milk Income Loss Contracts, another program that expired on Sept. 30. That direct payment program aided farmers whenever the price of milk dropped too low, and although that happened earlier this year, the market is considered to have rebounded and fewer future payments are expected.
“But it is relevant because it’s part of the landscape,” said Galen. “Even though it’s already expired, and it’s relevant only when the price of milk is below a certain threshold, if you talk to farmers about what they miss about the farm bill some of them may say the (loss contract) program.”
The possibility of a chaotic dairy industry is so possible that Rep. Collin Peterson of Minnesota, the top Democrat on the House Agriculture Committee, said in an interview this month that Republican obstruction to renewing dairy programs could force milk price supports to $38 per hundredweight, up from the current price of about $22 .
“If they are going to dilly-dally around and not get this thing done, I am ready for $38 milk on Jan. 1,” Peterson told AgriTalk radio.
Galen said the biggest uncertainty of the situation is just that — the uncertainty. Since the country has never reverted its dairy programs to 60-year-old levels, no one knows what will happen.
“The powers that be are certainly aware of what could happen here, like former governor (and current USDA Secretary) Tom Vilsack, but this is kind of uncharted waters and we don’t know what would happen if we got this much higher price support level,” he said.
“Farmers would see a trickle-down effect and higher prices for their milk at least in the short term.
“But if the price of cheese doubles, what would that do to demand? Would people still eat a pizza if it cost a couple of dollars more?” he wondered. “That’s the flip side: If there is a run-up in wholesale prices, what would that do to retail prices? Since we’ve never crossed this bridge before, we don’t really know.”
BRANSTAD SEES UPSIDES
Among the few upsides, Iowa Gov. Terry Branstad, a Republican, who was in Washington this month to lobby Congress, told The Gazette that Iowa has so far been fortunate in weathering the farm bill’s expiration. He cited the view of many that the drought was not as bad as expected, farmers are seeing improved prices for their products and property values, and international exporting opportunities are increasing.
He said the state of agriculture in Iowa “is actually pretty encouraging and promising.”
“I was governor during the ‘80s, when we really had a dire situation in agriculture, so I don’t want to be somebody crying wolf this time,” Branstad said. “We have farmland in Iowa that continues to go up in value, we’ve got a couple of new big investments in our state like fertilizer plants, we’re seeing significant food processing and we’ve got companies investing in our state.
“I’m not saying there aren’t some problems. If you’re a pork producer with a high price of corn and soybeans, the (farm bill expiration) has made it very difficult right now. So there are some challenges that need to be addressed.”
One of the few optimists about the expiration of the farm bill and dairy programs is Sen. Tom Harkin, D-Iowa, a senior member and past chairman of the Senate Agriculture Committee. He said financial markets are expecting inaction, and that Republicans may allow the bill’s renewal once the new Congress is sworn in in January.
“Nothing will happen immediately,” Harkin said. “Positions will change after Jan. 1. And that’s why I think no deal is better than a bad deal.”