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Milk prices could skyrocket without action by House, Casey says

| Friday, Dec. 28, 2012, 11:22 a.m.

A gallon of milk could cost $6 to $8 early in 2013 unless the U.S. House adopts farm legislation by New Year's Day, Sen. Bob Casey warned Friday, although some Pennsylvania agriculture experts scoff at the prospect.

“We dealt with it months ago,” said Casey, D-Scranton, referring to Senate's passage of a farm bill to replace one that expires at year's end. “I don't know why they would let this go to the last minute.”

Casey said House action is needed to keep dairy prices from reverting to a 1940s-era method of price calculations that could force the government to spend an extra $12 billion to $15 billion a year on subsidies and cause milk prices to skyrocket.

He urged the House to pass “tax-rate certainty” provisions that the Senate OK'd in July, when lawmakers try last-minute steps to avoid a “fiscal cliff” of tax hikes and federal spending cuts.

Congress typically enacts farm bills every five years. Without one, milk pricing goes back to a “parity” system under a 1949 law that sets minimum payments to dairy farmers.

Parity pricing is based on economic conditions from 1912 to 1914, before modern farming methods raised production levels and efficiency, and with adjustments for inflation it would lead to steeper costs.

The formula hasn't been used since the early 1980s. Milk costs are based on market prices for two types of cheese, plus butter, nonfat dry milk and whey, said Alan Zepp, risk management program coordinator for the Pennsylvania Department of Agriculture's Center for Dairy Excellence.

In Western Pennsylvania, the minimum retail price for a gallon of regular milk is set at $3.95 for January, according to Pennsylvania's Milk Marketing Board.

“I'm very comfortable that Congress will enact something, that we won't revert to parity pricing,” Zepp said. “All the mechanisms and people and bureaucracies that were in place are not in place now. To go back to parity pricing would take a major overhaul of the Department of Agriculture.”

Higher milk prices seemingly would benefit the state's 5,000 dairy farmers — an $8-a-gallon retail price translates to $36 per hundred pounds paid to a farmer, compared to $18.50 now — but parity pricing would trigger higher feed prices and other production costs.

“It makes for a lot of sidebar conversation but not too many people take it seriously,” Zepp said.

The House Agriculture Committee passed a farm bill in a 36-11 vote. But disagreements over the federal food stamp portion of it — representing 88 percent of total spending, even with cuts — are a hurdle to bringing the measure to a full vote, said Rep. Glenn Thompson, R-Centre County, a committee member who voted for the bill.

At this point, “everyone in Washington is aware of the negative consequences” of reverting to the old pricing method, Thompson said, but passing the farm bill in coming days is unlikely.

“What I am hoping for, within the complexities of the fiscal cliff (talks), is a six-month extension” of the law, Thompson said. The House could work on changes and vote by March, he said.

Even without action, prices wouldn't shoot up right away because agriculture officials would have to write pricing rules, said Rick Ebert, vice president of the Pennsylvania Farmers Bureau. He and his brother, Bill, operate a farm in Derry with 80 Holstein cows.

Milk prices are volatile.

“We are hitting higher highs and lower lows,” based on whether domestic and, increasingly, world markets are deemed to be under- or oversupplied, Ebert said. “It's extremely hard to do business.”

Kim Leonard is a staff writer for Trib Total Media. She can be reached at 412-380-5606 or kleonard@tribweb.com.

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