Milk prices could soar in coming months

Dan Piller, The Des Moines Register

DES MOINES, Iowa -- The new year could bring new worries for American consumers: Milk prices could double or triple.

Without a new Farm Bill by Tuesday, milk prices by law would revert to rules set in 1949, which could send milk prices soaring. Those pricing laws, complete with inflation adjusters, have the potential to send prices as high as $8 a gallon from the present $3.50 a gallon national average by as soon as February.

But milk producers and processors believe action will be taken to avert the price spike.

Underscoring the nervousness around a potentially hot consumer issue, President Barack Obama on Friday urged Congress to at least pass an extension of the current Farm Bill, according to Politico.

The 64-year-old Farm Bill gives the secretary of agriculture the authority to step in to adjust prices, which Tom Vilsack is expected to do.

Vilsack said on Dec. 20 that he and his agency are "prepared to do whatever it is legally obliged to do" in the absence of a new farm bill.

"You certainly wouldn't think that the secretary of agriculture would let the price of milk double," said Miriam Erickson Brown, chief executive officer of the Anderson-Erickson Dairy in Des Moines. The company is one of the largest dairy processors in the Midwest.

While a giant leap in prices might seem like a windfall for both producers and processors, Brown and others say that wouldn't be so.

"We don't want a big spike in prices," Brown said, noting that per capita milk consumption has been flat in recent years because of what she said was an undue consumer focus on fat and calories at the expense of the nutritional value of milk.

Chris Hoeger, vice president for procurement for Swiss Valley Farms in Davenport, Iowa, said a major price increase would make U.S. milk uncompetitive in world markets and open the door to imports.

"We would continue to lose market share in the U.S. as most consumers will not spend or be able to spend $8 for a gallon of milk," Hoeger said.

Dairy producer Joe Lyon, who runs a family operation near Tama, Iowa, scoffed at the idea that prices would be allowed to more than double.

"It's just a lot of talk to scare people into passing a Farm Bill," he said.

For all its wholesome image, the politics and economics of milk have proved to be complicated.

Unlike virtually all other agricultural commodities, which long ago were sprung from government controls to the free market, milk prices still are controlled by what are known as "market orders" issued monthly by the U.S. Department of Agriculture.

The market orders the USDA sent to producers and retailers a week ago guarantee that milk prices won't rise in January.

"We know that our prices won't rise on Jan. 1, and if anything, might go down a bit through the month," said Ruth Comer of Hy-Vee Inc., the West Des Moines-based grocery chain.

"There's been some publicity, and we've had questions about it, but we've assured customers there won't be an increase after New Year's," she said.

Lyon, the Tama dairy producer, said milk is heavily regulated for "good reasons, including health and to make sure it is affordable to consumers."

"It is fashionable to criticize regulations. But regulations aren't always a bad thing," he said.

Processors like Brown see the matter differently. In April, Brown testified before a congressional committee, urging that price controls be removed from milk.

The International Dairy Foods Association, representing processors, opposes a new program included in the 2012 Farm Bill that's designed to control milk prices. Instead, the group said, the Farm Bill should emulate the programs for other commodities and focus on providing safety-net programs, such as revenue insurance, typically used to protect growers of corn, soybeans and wheat.

Disagreement between producers and processors was one of many reasons Congress was unable to pass a new Farm Bill before the November election and is thought to be unlikely to pass one before the new year. One of the key disagreements: The House wanted deeper cuts in spending, including in food stamps, than the Senate approved in its bill.