Testimony of Congressman Mark Green

Senate Committee on Agriculture, Nutrition, and Forestry

February 8, 2000

Thank you Mr. Chairman.

Mr. Chairman, I'm honored to have this opportunity to offer a few thoughts on what is taking place in our nation's dairy industry. This is obviously an issue of great importance to consumers and dairy producers all across America. Rest assured, it is an issue of survival to dairy producers in the upper Midwest.

Over the next two days, as I understand it, you are going to broadly examine the government's role in our nation's dairy policies. I believe you will find clear evidence that federal regulations, including our current milk marketing orders and the Northeast dairy compact, are having a dramatic negative impact on Midwestern dairy farmers.

Mr. Chairman, as we all know, farmers all across the nation are suffering economically. In 1999, when Congress moved to undo the United States Department of Agriculture's (USDA) very modest dairy reform rules, the effort was led by members of the House and Senate sincerely trying to address the financial pain their dairy farmers were experiencing. But what many did not realize was (a) the crisis facing upper Midwest dairy producers was and is much worse than anywhere else or (b) that overturning the USDA's modest reform plan would only extend and deepen that crisis.

At the end of 1999, the Basic Formula Price for milk fell past 20-year lows to $9.63 per hundred weight. As of last week, the price of milk had fallen nearly 30% from this time last year. But these numbers don't adequately tell the tragic story. Over the last two years, Wisconsin lost about five dairy farms each and every day (it is currently losing three dairy farms per day). In the last nine years, my state has lost over 11,000 dairy farms. Or, put another way, over the last decade, Wisconsin has lost more dairy farms than nearly any other state ever had.

Today's milk marketing order system was originally developed in 1937 when the state of Wisconsin was the largest dairy producer in the country and most states were deficit producing dairy states. In 1937, it was difficult to transport drinkable milk across the country. Price incentives were thus created to spur dairy production in deficit states. The system mandated that dairy producers receive more for their milk depending on how far their farming operation was from Eau Claire, Wisconsin.

Today we have refrigerated trucks and an infrastructure that allows us to rapidly and efficiently move milk from one region to another. More importantly, we now have 35 states producing dairy surpluses - there is no area of the US that doesn't have easy access to fresh milk. Many things have changed since 1937, but the milk marketing order program has remained the same.

As you know, the milk pricing system is one of the most difficult issues members of Congress are asked to understand. In fact, I have to rely on a little crutch to illustrate the true unfairness of the Milk Marketing Order Program. Behind me is a cartoon that I believe says it best (refer to figure 1).

I would like to ask members of this Committee if they truly believe if it makes sense to price milk based upon its distance from Eau Claire, Wisconsin or the upper Midwest? If so, should beer producers receive more for the beer they brew based upon their distance from the Anheuser-Busch facility in Saint Louis, Missouri? Should Congress mandate that poultry producers get paid more for their chickens the farther they are from Arkansas? While Wisconsin's climate is not conducive for orange production, we could produce oranges if the government subsidized us enough.

The real question is whether or not any of this makes economic sense. If you answer yes, then support our current dairy policy. But if you believe it is fundamentally wrong to price a product based upon its distance from a surplus producing area, then you recognize the need to reform this inequitable and obsolete system.

Furthermore, at the very time when America is pushing countries all over the globe to open their markets and drop trade barriers, how can we possibly defend maintaining artificially imposed economic barriers for dairy trade between the states? At best, it is hypocritical. At worst, it may be unconstitutional.

As you are probably aware, efforts have been made to reform our antiquated dairy policies. During the debate on the 1996 Farm Bill, Congress was unable to form a consensus on dairy reform and the impasse threatened to kill this landmark legislation.

As a result, dairy interests from around the country and across the spectrum agreed to leave out dairy reforms and they directed the Agriculture Secretary to develop a reform plan with the understanding that all sides would live with the Secretary's final rule. The legislation that was added to the Fiscal 2000 Consolidated Appropriations Act directly contradicted the Secretary's rule and violated the 1996 understanding. Furthermore, because the Secretary's dairy reforms require approval by 2/3 of dairy farmers within each new proposed order, this legislation also denied our nation's dairy farmers the opportunity to cast their vote on an issue that affects them so deeply.

Agriculture Secretary Dan Glickman's attempted reforms to the Federal Milk Marketing Order program were modest - very modest from the perspective of Upper Midwest dairy farmers. However, the Secretary's proposal would for the first time in the 62 years of the Milk Marketing Order system move toward a more market-oriented dairy system that benefits the taxpayer by lowering the price of milk.

Unfortunately, as I have just alluded to, Midwestern farmers aren't the only losers with our current dairy policies. A 1995 Congressional Budget Office report indicated that reform of the Milk Marketing Order program could save taxpayers $149 million annually. In fact, the Milk Marketing program is the third program mentioned in Citizens Against Government Waste's "Prime Cuts" Summary of Forty-Four Ways to Leaner Government. This system also hurts taxpayers by reducing the strength of basic support programs like WIC. Nonpartisan groups like Citizens Against Government Waste and Americans for Tax Reform agree that efforts to maintain this system are anti-taxpayer.

The Northeast Dairy Compact is another component of our dairy policy that is increasing the burden on both Midwest producers and consumers nationwide. Compacts are little more than multi-state cartels that artificially inflate the price of milk by limiting competition from more efficient producers outside the compact area.

Compacts establish a minimum price for milk that processors must pay dairy producers in the compact region. Processors within the compact are prohibited from buying milk from producers outside of the compact region at a lower price than the minimum compact price, and they prohibit processors outside the compact from shipping milk into the compact area unless the processor paid at least the minimum compact price. This amounts to nothing more than a milk tariff imposed by one state or compact region on another region. Instead of facilitating commerce between the states it creates economic protectionism at the expense of national consumers and healthy competition.

Dairy compacts increase the costs to consumers in the compact region and drive down consumption rates of dairy products. Recently, economists have indicated that a 10 percent increase in the retail price of milk can lead to as much as 8 percent decline in milk consumption. When the Northeast Dairy Compact was established consumers were required to pay an additional $.22 per gallon of milk. According to the Consumer Federation of America, if the Northeast Dairy Compact is extended and a Southern Dairy Compact is authorized consumers can expect to pay an additional $485.2 million for the milk they drink in the first six months of the compacts. These increased costs will result in declines in milk consumption rates.

Today, Wisconsin has 22,000 dairy operations -- more than twice as many producers as the next highest state. It is not surprising then that Wisconsin is a large exporter of dairy products. Closing dairy markets through compacts will devastate dairy farming operations in our state. Not only will we be unable to compete in the compact markets but compact surpluses will invade non-compact markets and erode demand for our dairy products.

Requiring taxpayers to prop up dairy producers in one area at the expense of more efficient dairy operations in another region is not sound public policy. For good reason, our founding fathers sought to facilitate and protect interstate commerce rather than restrict it. Our current dairy policies clearly show that restricted interstate trade is both bad for consumers and for business. But, unfortunately, we now face more "business as usual," more of what has driven so many family farmers out of their livelihoods and forced consumers to pay inflated milk prices.

If our current dairy policies continue unchanged by Congress, our remaining dairy farmers will fall victim to congressionally condoned interstate economic isolationism instead of healthy trade and fair competition. Midwestern farmers deserve an equal playing field.

Hopefully, these hearings can open our eyes to the negative impact of our nation's dairy policies. For 63 years, my dairy farmers have had to fight federal dairy policies that punish them for living in my district. Again, let me ask you; does this make sense? Is this sound public policy, or an unreasonable and unfair price fixing scheme?

Unfortunately, never before has the need for reform been so great. This antiquated and outdated system must be replaced. Without changes, the future livelihood of Wisconsin's 20,000 remaining dairy farmers remains in doubt.