One issue stands out as the behemoth for dairy food marketers as the new Congress gets underway: the 2007 farm bill and prospective changes to the three major federal milk  programs.

Cheese, ice cream and yogurt companies all agree that milk marketing orders, milk price supports and the Milk Income Loss Contract (MILC) program need to either be eliminated or radically clipped back so that milk prices sit at free market levels.

“Unfortunately, we cannot fix all the problems with the federal dairy policies overnight, but we can initiate a transition from a multiple, divisive and costly subsidies to a single, national dairy farmer safety net,” says James Green, president and chief executive officer of Minneapolis-based Kemps LLC, a unit of HP Hood, Chelsea, Mass. Kemps manufactures and markets a wide variety of dairy products, including fluid milk, cottage cheese, yogurt, sour cream and dips.

Chip Kunde, senior vice president at the International Dairy Foods Association (IDFA), agrees that the federal milk subsidy programs are head and shoulders above all other issues, and not only because of the way they distort the market for milk. They are also objectionable, Kunde says, because those subsidies are also used as an excuse for export markets to throw up barriers to imports of U.S. cheese and other dairy products on the basis of U.S. “market distorting” subsidies.

However, it is highly unlikely that the agriculture committees in the House and Senate will make major changes to milk subsidies. That is because the Democrats now chairing those committees are from much stronger milk-producing states than the Republicans they replace.

Minnesota is home to new House Ag Committee Chairman Collin Peterson, who replaces Rep. Bob Goodlatte. Goodlatte is from Virginia, which, according to the USDA, produced 152 million pounds of milk in 2005, making it the No. 20 producer state. Minnesota, on the other hand, is No. 6 at 694 million pounds.

Similarly, Sen. Tom Harkin, the new Senate Ag Committee chairman, is from Iowa, which is a much bigger milk-producing state than Georgia, home to the former chairman, Sen. Saxby Chambliss.

In addition, Rep. David Obey (D-Wis.) will chair the House Appropriations Committee and Sen. Herbert Kohl (D-Wis.) is in line to chair the Senate Appropriations Committee subcommittee on agriculture. Granted, Wisconsin is a big cheese state, too. But it is hard to see Obey and Kohl allowing major changes to the price support system or the MILC subsidy.

However, a top House Agriculture Committee staffer explains that the key political fact influencing the shape of the 2007 Farm Bill is that there will be less federal money available for support programs — milk and otherwise — than there was in 2002, the last time a Farm Bill was written, when the federal government was flush with a budget surplus. “That is not the case any more,” the staffer emphasizes. “There will be fewer dollars to work with.”

That is why the IDFA’s Kunde thinks there will be a fight over the milk subsidy programs, but on the House and Senate floors, where the power of the Ag and Appropriations Committee chairmen will be somewhat diluted. Kunde concedes: “It is by no means a slam dunk.”