A taxpayer-funded program to help dairy farmers cope with slumping milk prices will likely cost billions of dollars more than expected, from an original cost of $1.3 billion to a new estimate of as much as $4 billion, a federal official said last month.
The Milk Income Loss Contract program, or MILC, was launched late last year to help milk producers cope with dips in the market price. Milk prices have been in a long slump that saw prices drop to 20-year lows.
As a result, MILC has already spent more than the $1.3 billion originally projected less than a year ago by the Congressional Budget Office. Prices have begun moving up in recent months.
The new estimate is a cost of $3 billion to $4 billion before MILC expires in 2005, said Milt Madison, an agricultural economist with the Farm Service Agency of the U.S. Department of Agriculture.
"It's turned out to be a fairly costly program because of the increases in milk production . . . and a bit of a downturn in demand," said Madison. "We think the demand is probably starting to rebound at this point."
While the current uptick in milk prices will reduce the strain on the MILC program, the cost could still reach three times the original estimate, Madison said.
The cost overruns will likely become part of the political effort to replace the program when it expires in 2005. A number of House Republicans from New York, the No. 3 milk producer in the country, are crafting legislation designed to replace MILC with a new nationwide price program.
New York dairy farmers have complained since MILC's inception that it favors Midwestern farms over theirs by capping aid to mid- to large-size dairy producers.