Sources: USDA Would Likely Postpone Implementing 'Dairy Fiscal Cliff' if No Solution at Year's End

December 27, 2012 03:26 AM

Farm-state lawmakers for decades have always thought they had the "leverage" on other lawmakers and the Executive Branch if a new farm bill was not in store because if a new version was not in place by the start of a new year, "permanent (1949) legislation" would take effect forcing a big increase in dairy price support, USDA dairy purchases and a major impact on milk prices.

But overreaching is typical of Congress, especially some farm-state lawmakers in this Congress.

USDA Secretary Tom Vilsack has been reticent to provide much information about the matter, but sources deep inside the Obama administration and Capitol Hill predict the dairy "fiscal cliff" would not occur Jan. 1 as those farm-state lawmakers threatened. The reason, sources say, is that USDA has that ability to and should take the proposed rule route and ask for public comments on dairy policy provisions - a timeframe that could take months if the administration wanted to delay the topsy-turvy events for dairy policy until a very anemic Congress could right itself on a host of matters they have let linger for 13 months. Think of it as agriculture's version of the debt limit hike when the Treasury Secretary takes a host of actions to take to avert hitting the debt ceiling even though the statutory limit has been reached.

"We are prepared to do what we are legally obligated to do in a timely way," Vilsack said recently. Timely in Washington has a different meaning.

It is clear that House Speaker John Boehner (R-Ohio) does not want to "simply" attach nearly 1,000 pages of farm bill language to whatever fiscal cliff package is eventually proposed and agreed to. The most likely scenario, sources signal, is some type of extension of the 2008 Farm Bill - an option that was always a possibility with this turtle-like Congress.

Under permanent law, USDA would have to buy enough butter, nonfat dry milk and cheese products to reduce supply and raise prices paid to dairy farmers to an estimated $38 to $40 per 100 pounds of milk. The current all-milk market price is about $18 per hundredweight. The higher prices are based on a formula designed to cover dairy farmers' cost of production two generations ago. When a non-farm observer was told this, he said, "Now this is another reason I think Washington is filled with knuckleheads."

"Market chaos will erupt if we do not divert from this disastrous, reckless, needless, man-made path," said Sen. Patrick Leahy (D-Vt.), from a dairy state. "Chaos, from the fact that farmers will be pressed to increase production at this inflated price, and chaos as we see an influx of imported dairy products as processors in other countries would divert products to the US."

Rep. Ron Kind (D-Wis.), from key dairy state Wisconsin, said in a Dec. 21 statement, "Reverting back to 60-year-old policies will cost taxpayers as much as $15 billion over the next year and would be disastrous for the dairy industry."

But should the dairy fiscal cliff come about, because with this Congress nothing should be ruled out, USDA officials have indicated they have been reviewing a host of options (space to store dairy products, food aid, etc.). Just in case.

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