Texas Agriculture
11:55 am
Wed October 9, 2013

Shutdown could push milk prices over 'dairy cliff'

If Congress can't come up with a new Farm Bill before 2014, a default to old price controls could cause chaos for producers and consumers of dairy products.

Audio transcript

Haslett: The Farm Bill is one of the most complicated and contentious pieces of legislation in Congress, even when the legislative branch of the federal government is functioning smoothly. But in recent years, the farm bill has been running behind schedule, with missed deadlines and stop-gap measures becoming part of the story. One of the things Congress will need to do whenever the business of governance resumes is to pass a new farm bill. If it doesn’t do so in time, one industry that could be hit hardest is the dairy industry.

Klippenstein: Come the end of this calendar year, we expect to see the press start talking about the “dairy cliff,” which would increase prices at the farm gate, but also increase prices to consumers, which is a big concern, because when prices at the grocery store go too high for consumers, they just stop purchasing nutritious milk and other dairy products. We like to see dairy prices to consumers and to producers stay stable, so everyone can make a living and afford the products we’re producing.

Haslett: That’s Jackie Klippenstein with Dairy Farmers of America. The reason why she and others in the industry fear a big jump in dairy prices has to do with what happens when the current farm bill expires. Every farm bill is actually an amendment to legislation passed in 1949. If the farm bill expires, the law defaults back to the 1949 rules, which include price supports. Those supports were designed to make sure the price of commodities was high enough for agricultural producers to be able to keep on producing basic food commodities. The problem with the 1949 law as it applies to dairy is that a default to those price controls would increase the price of milk and other dairy products dramatically. David Anderson is a Texas Agrilife economist.

Anderson: What does that mean for consumers? If we truly have to revert to the permanent legislation and have to start paying that kind of price for milk, that’s going to be reflected fairly quickly in what consumers have to pay for milk and dairy products.

Haslett: From the dairy farmer to the dairy retailer, people all along the dairy product supply chain want to avoid higher prices. They know that if prices are too high, sales will drop. Darren Turley is director of the Texas Association of Dairymen.

Turley: We’re not in favor of this change due to the fact of the impact it’ll have on the market. There’s no question that there will be less milk sold at six dollars a gallon than there is currently. And so we’re not in favor of the change and we’ve worked hard to avoid it. We’re kind of at the hands of legislators now.

Haslett: Turley says the delay with the farm bill had less to do with ag policy and more to do with other parts of the farm bill - the food stamp program and other nutrition programs, which have become divisive topics in Congress.

Turley: That’s really the issue that has been holding up the Farm Bill in negotiations. And that goes back to our budget situation and some of the legislators wanting us to try to cut back and start reining in some of the spending. With that, the Farm Bill has got caught in the negotiations.

Haslett: Jackie Klippenstien with Dairy Farmers of America agrees.

Klippenstein: So that’s the biggest challenge we have, to help Congress get over the food-stamp hurdle.

Haslett: That was before the shutdown. Now, with the end of the calendar year less than three months away, the clock is ticking toward the dairy cliff. Whether dairy prices would double as some predict is unknown. Texas Agrilife’s David Anderson says no one can really say what will happen if the 1949 price controls take effect in 2014.

Anderson: I think there’s a lot of uncertainty throughout the industry on what’s really going to happen and what does it mean and how it’s going to work – just a lot of uncertainty.

Web extra

Dr. David Anderson is a Professor and Extension Economist in the Department of Agricultural Economics at Texas A&M University. His research and extension education activities are in livestock, and food products marketing and agricultural policy, focusing on relevant issues for Texas producers. He is the Texas AgriLife Extension Livestock and Food Products Marketing economist.
Dr. David Anderson is a Professor and Extension Economist in the Department of Agricultural Economics at Texas A&M University. His research and extension education activities are in livestock, and food products marketing and agricultural policy, focusing on relevant issues for Texas producers. He is the Texas AgriLife Extension Livestock and Food Products Marketing economist.
Credit Texas Agrilife

  Texas Agrilife economist David Anderson discusses the past and present of the dairy-product economy in the United States.