Number of the week: 6

In order to avoid the “dairy cliff”, the 2002 Farm Bill was extended 6 times in spring 2008, before the 2008 Farm bill was finally passed. This year, the 2008 Farm bill has expired, the new Farm Bill has not been passed, yet there is no agreement to extend the 2008 Farm Bill into 2014.

“So this is Christmas. And what have we done? Another year over. And a new one just begun.”

 John Lennon

 As John Lennon asks, what have we done this year? Well, one thing we did not get done is a new Farm Bill. As I am writing this, the four leaders of the Farm Bill Conference Committee seem to be converging on compromise bill language that they hope will be acceptable to a majority in both the Senate and the House of Representatives. One of the few issues still left unresolved is the design of the new dairy policy. For the last two years, the debate has been framed as a binary choice between two proposals best known under nicknames, the Dairy Security Act and the Goodlatte-Scott Amendment. Are these two proposals really the only two possible outcomes? Let us remind ourselves how the Milk Income Loss Contract was born. This policy instrument, a foundation of U.S. dairy safety net over the past decade, was not contrived by any stakeholder group, and it did not go through public debate. Instead, it was contrived by the leaders of the 2002 Farm Bill Conference Committee. As a poet once said, “what’s past is prologue”, and as the 2014 Farm Bill Conference Committee negotiates the new dairy policy, we should at least consider the possibility that the final outcome could be neither DSA nor Goodlatte-Scott, but something completely different.

The delay in completing the new Farm Bill negotiations means that the final votes will not happen until the first few weeks of January. For a brief period of time, U.S. dairy policy will be based on an antiquated law passed more than 64 years ago. Legally speaking, the Agricultural Act of 1949 requires the Secretary of Agriculture to implement measures that would result in milk checks nearly doubling, with per hundredweight milk price just under $40. So should we fear higher prices for dairy foods? Should we fear $8-a-gallon milk, or as the mainstream media likes to call it, the “dairy cliff”?

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We can rephrase that question to the following – do we need another short term Farm bill extension, to avoid the ‘dairy cliff’? The House of Representatives passed a bill last week that would extend the 2008 Farm bill for one month, to allow enough time for the Conference Committee to complete its work. The Senate did not agree to extend the bill. Why might the Senate not wish to do such a simple and non-controversial action? In order to understand their motivation, you need to recall what happened in Spring 2008, when 2008 Farm bill was being finalized. As the figure above illustrates, 2002 Farm bill was first extended for 3 months. Then, when all deadlines were again broken, another one-month extension was passed. Four more extensions were enacted, each one only one or two weeks in duration. Short-term extensions are simply not credible, and once that path is chosen, there is nothing to stop yet another and another short-term extension.

The odds of January retail milk prices reflecting the 1949-based support prices are about as high as having your gallon of milk turn into pumpkin at the stroke of midnight on December 31. Sec. Vilsack made it clear that the ‘dairy cliff’, will not happen, as long as a new Farm Bill is agreed to quickly. By refusing to go along with the House plan, the Senate is signaling – the fear from ‘dairy cliff’ is not grounded in reality, and it is time to close the book on the 2014 Farm bill.

A very Merry Christmas, And a happy New Year. Let’s hope it’s a good one. Without any fear.

This week’s Minnesota in Numbers was produced with financial support from Dairy Star and Minnesota Milk Producers Association.

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