Politics trumped principle in Congress’s decision to resurrect a milk producer’s subsidy that causes the yo-yoing of milk prices paid by dairy product businesses.

The whole point of the massive budget reconciliation bill Congress just about finalized at the end of December was to cut the federal deficit over the next five years by doing away with needless federal spending programs. Yet in order to help endangered Republican incumbents facing tight races in states like Wisconsin and Pennsylvania, the House, Senate and GOP leadership agreed to include a resurrection of the Milk Income Loss Contract program (MILC), which expired September 30, 2005. It will cost the federal Treasury about $1 billion over the next two years.  

The program pays farmers only on their first 2.4 million gallons of milk each year, which translates to about 120 cows. So small farms, predominantly in the Midwest and East, get the biggest benefits. But that incentive causes dairy farmers to continue producing excess milk when the price of milk falls below a specified level (currently set at the high level of $16.94/cwt). In doing so, they drive prices down even further, forcing the government to purchase more excess milk under the separate, long-standing Dairy Price Support Program (DPSP), which cost taxpayers an average of $500 million per year from fiscal 1999 to fiscal 2004. In the process, milk prices swing wildly.  

“By reviving MILC, Congress has delayed the inevitable debate regarding dueling dairy subsidies,” says Chip Kunde, senior vice president of legislative affairs for the International Dairy Foods Association (IDFA). “We must reform and harmonize the various dairy policies into a single approach that will allow U.S. producers and processors to remain competitive.”         

The vast majority of the MILC cream goes to states such as Pennsylvania, home to Sen. Rick Santorum, the No. 3 Republican in the Senate GOP leadership and a member of the Senate Agriculture Committee. That committee was responsible for sticking a resurrection of the MILC program in its version of the reconciliation bill.      

Santorum is running behind Democrat state treasurer Robert Casey Jr. in the early going before the 2006 election. But while Santorum was able to get a campaign boost from his MILC money, Rep. Mark Green (R-Wis.) failed to duplicate Santorum’s feat in the House version of the bill.

Green is running for governor of his state, and the Wisconsin Democratic Party clobbered Green for that failure. However, Green and other moderate Republicans from the Midwest went to House Speaker Dennis Hastert (R-Ill.) and pleaded with him to use his substantial influence to insure that the Senate’s MILC restoration survived the House-Senate conference committee agreement on a budget reconciliation bill. Hastert wrote a letter to Green promising “to maintain a strong safety net for your dairy producers.”

If there is a silver lining here, it is that Congress ignored Sen. Norm Coleman’s bill, which would have raised the MILC volume cap from 2.4 million pounds to 4.8 million pounds. But the Farm Bill will be rewritten in 2007. Coleman, a Minnesota Republican, is up for re-election in 2008. Oh, and yeah, he is a member of the Agriculture Committee, too.  

Stephen Barlas has been a full-time freelance Washington editor for business and trade magazines since 1981.