STATEMENT OF SENATOR ARLEN SPECTER

SENATE AGRICULTURE COMMITTEE

FEDERAL DAIRY POLICY

FEBRUARY 8, 2000

Chairman Lugar, Senator Harkin -- Thank you for scheduling this hearing to discuss federal dairy programs and the need for reform. I understand that you will be hearing from a wide variety of experts on this subject over the next two days. Tomorrow you will hear from one of my constituents, James Vanblarcom, a Pennsylvania dairy farmer from Bradford County, Pennsylvania who will discuss how Dairy Compacts would assist dairy farmers in Pennsylvania.

Dairy policy is an issue of great importance to America and of special importance to Pennsylvania. Agriculture is the largest industry in Pennsylvania and dairy is the single largest component of this industry. Pennsylvania is the fourth largest dairy producer and there are approximately 9,900 dairy farms which produce $1.73 billion worth of milk each year. Over the past decade, however, Pennsylvania has lost an average of 300-500 farmers per year. Between 1993-1998, Pennsylvania lost 11.4% of its dairy farmers.

As we all know, the Basic Formula Price dropped to $9.63 at the end of 1999, the lowest price in 21 years (since August of 1978). This is a drop of $7.71 since the end of 1998. Over the past several years, the prices have fluctuated greatly setting new record highs and lows, thereby making any long-term planning impossible for farmers. Price swings of 30 to 40 percent from one month to the next have almost become common in the past few years.

While facing record low prices, Pennsylvania farmers were forced to face record droughts last year. Costs are up in Pennsylvania, because farmers are now buying the feed they already tried to grow. One of the factors that keeps Pennsylvania producers competitive traditionally is their ability to grow their own feed. With extremely low commodity prices nationwide and drought conditions in Pennsylvania, dairy farmers have lost that competitive aspect of producing milk in the State.

We must work together to provide additional drought assistance to the hard hit dairy farmers who are struggling to economically survive each month. The Mid-Atlantic States suffered $2.5 billion in losses as a result of the drought in 1999. Pennsylvania alone suffered $700 million in drought losses. While the FY2000 Agriculture Appropriations bill provided $8.7 billion in disaster assistance for farmers, the vast majority of this money went to farmers in the Midwest to compensate for low commodity prices. Only $1.2 billion of the total $8.7 billion package was provided for natural disasters which had to compensate for all natural disasters nationwide, including Hurricane Floyd, flooding in the Midwest, livestock loss and fishery loss.

We must also work to ensure that we provide maximum funding for the Dairy Export Incentive Program. This program, which facilitates the development of an international market for United States dairy products, is authorized at $66 million for FY2001. We must work to expand foreign markets if our dairy farmers are to be give a fair chance to succeed.

Pennsylvania has a state milk pricing agency that establishes minimum producer, wholesale and retail prices. While the Pennsylvania Milk Marketing Board has been able to provide an over-order premium at various levels on Class I milk to help address producer price needs, the benefit to many of Pennsylvania's producers has been very limited by interstate commerce law and the lack of market-wide distribution of the premium to producers. A regional approach to milk pricing is a better method of helping to stabilize producer prices and address producer price needs affected by local marketing conditions. If properly administered, we now know Dairy Compact pricing can bring benefits to producers at little, if any, cost to consumers, and with no impact on national marketing conditions. I believe future national dairy policy should allow for the expansion of Dairy Compacts.

Dairy Compacts create stability in the dairy markets. In Dairy Compacts, States are able to enter into a voluntary agreement to create a minimum price for milk in the Compact region that takes into account the regional differences in the costs of production. Everyone benefits from Dairy Compacts. Stable prices provided by the Compact help dairy farmers recover their production costs, keep their dairy farms economically viable, and maintain environmental efficiency. Income produced by dairy farms has an economic multiplier effect in rural communities that provide business for feed, seed, fertilizer and equipment dealers, truckers, veterinarians, retail stores, insurance companies and banks. More stable milk prices would be provided to consumers under the Compact. A recent government study showed consumer prices for milk increasing over 30% in the past decade, while producer prices only increased 10%. By stabilizing milk prices to dairy producers and increasing the economic viability of their farms, more land near urbanizing areas will be kept in agriculture to maintain a healthy environment in rural communities.

There are no costs to the government as a result of the Compact. The Compact legislation requires dairy producers receiving the Compact price to pay for any increased costs to government programs that result from Compact pricing regulations being in effect. Milk prices will not increase to Pennsylvania consumers. Retail milk prices in the existing Compact region averaged 5 cents per gallon lower than prices nationally in the first six months of the Compact price being established.

There are other important aspects of the Compact that positively affect consumers. First, the Commission establishing prices under the Compact has representation from the producer and the consumer. Second, the Commission is responsible for continually evaluating milk marketing conditions within the region when establishing prices above the federal minimums. Third, consumer impact and regional milk supply are important considerations of the Commission when establishing the safety-net price for each six month period. This is because Compact provisions require assessments to be made on producer prices within the Compact region if milk production increases within the region to levels that exceed the national average. Although the Compact price is not totally determined by the marketplace, it is certainly impacted by regional marketing conditions. And finally, school lunch and WIC programs will be unaffected due to Compact provisions that these programs be reimbursed for any increase in prices resulting from the Compact price.

Dairy Compacts are supported by the American Farm Bureau, the Dairy Farmers of America, the National Milk Producers Federation and twenty-five Governors and State Legislatures, including the current members of the Northeast Compact (Vermont, Massachusetts, Maine, Rhode Island, New Hampshire, Connecticut); Northeastern States who have agreed to join the Northeast Compact (Pennsylvania, Delaware, New York, Maryland, New Jersey); and Southern States who have agreed to form a Southern Compact (Virginia, Georgia, West Virginia, Mississippi, North Carolina, Arkansas, South Carolina, Kansas, Alabama, Oklahoma, Louisiana, Tennessee, Missouri, Kentucky).

I have been working with my colleagues in the Senate for many years to assist our dairy farmers. On February 13, 1997, in an attempt to bring greater stability to the dairy market, I introduced a Sense of the Senate Resolution which passed by a vote of 83-15. The Resolution stated that the Secretary of Agriculture should consider acting immediately to replace the National Cheese Exchange as a factor to be considered in setting the Basic Formula Price for Dairy. I successfully attached an amendment requiring the Department of Agriculture to replace the National Cheese Exchange with a systematic national survey of cheese producers to the 1997 Supplemental Appropriations Bill, which was signed into law on June 12, 1997.

Unfortunately, this action alone is not sufficient to bring long-term stability to the dairy market. Consequently, on April 17, 1997, I introduced legislation to require the Secretary of Agriculture to use the price of feed grains and other cash expenses in determining the basic formula price for milk. Further, on September 9, 1997, I joined with Senator Feingold of Wisconsin in introducing S.Res.119, which urges the Secretary of Agriculture to set a temporary minimum milk price that is equitable to all milk producers nationwide and provides price relief to economically stressed milk producers.

During the 106^th Congress, we dedicated much time working to find a solution to the urgent problem faced by our nation's dairy farmers. On April 27, 1999, I joined with Senators Jeffords and Leahy in introducing legislation to reauthorize the Northeast Dairy Compact. The legislation currently has 40 cosponsors. On August 4, 1999, fifty-three Senators voted to invoke cloture on Senator Jeffords amendment to the FY2000 Agriculture Appropriations bill that would extended the current Dairy Compacts for one year. Further, I worked with Senator Jeffords and many other Senators to include a provision in the final Agriculture Appropriations bill that allowed the current Dairy Compact to continue and required the Secretary of Agriculture to use OPTION 1A for reforming the Milk Marketing Order System, thereby ensuring that dairy farmers nationwide would not loose in excess of $200 million annually.

However, as we can see by the steady decrease in dairy prices, these actions alone are not sufficient to assist dairy farmers. We must take immediate action to enhance the safety net for dairy farmers. I look forward to working with you during the next several months as we work to expand Dairy Compacts and focus on other actions to provide the assistance necessary to ensure the future viability of our nation's dairy farmers.