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Stimulus may bolster dairy industry


WASHINGTON — A stimulus package may be a lifeline for the nation's economy, but it could be a death sentence for a lot of cows.

Lawmakers are looking for ways to use the forthcoming stimulus bill to help dairy farmers, and the number one priority is to dampen milk supplies and prop up prices. Translation: reduce the nation's dairy herd.

Exactly how Congress will accomplish that remains uncertain. An initial effort to use stimulus money to pay farmers to retire cows failed when House Appropriations Committee Chairman Rep. David R. Obey, D-Wis., objected on the grounds that it violated a promise not to include earmarks in the bill, said Rep. Collin C. Peterson, D-Minn., chairman of the House Agriculture Committee.

Taking milk cows out of production as a way to control milk prices is a controversial approach. The federal government tried that in the 1980s through the whole herd buyout program, and while the policy worked for a time, milk production eventually bounced back and farmers were once again grappling with low milk prices.

The buyout also sent beef prices crashing, as slaughtered cows entered the meat supply.

Economists say the problem for the dairy industry is that when milk supplies fall, and prices climb, farmers generally push their cows to produce more to cash in. Then milk prices tumble again.

This time, falling milk prices come as the economy is in a tailspin and farmers have a harder time finding credit to buy equipment, expand their farms or otherwise improve their businesses. California, the nation's top milk producer, has been hit especially hard because its farms are producing more milk than the state's plants can process, Mr. Peterson said Wednesday.

"We've got a problem," said Mr. Peterson, who had approached the National Milk Producers Federation about ways to reduce herds.

California is somewhat separated from the rest of the nation's dairy industry and has its own marketing order system that sets minimum prices. But milk prices across the country, including in the north country, are not totally immune from such a big milk-producing region's effects.

The National Milk Producers Federation, representing bargaining cooperatives for dairy farmers, already has a herd retirement program that is not publicly funded. The so-called Cooperatives Working Together program has paid farmers since 2003 to retire cows. In 2007, the program helped take 52,783 cows out of production.

Mr. Peterson said he asked the NMPF if it could use stimulus money to speed up the CWT program.

The program also coordinates sales of dairy products to foreign countries, in an effort to reduce domestic supplies.

A study last year indicated that the program raised milk prices paid to farmers by an average of 55 cents per 100 pounds since 2004.

But some farm groups object to the practice. The National Family Farm Coalition generally opposes herd reductions to manage milk supplies and has pushed against using the stimulus for that purpose, said Kathy Ozer, the group's executive director.

By some measures, the United States already has a milk deficit, not a surplus, the NFFC has said. Instead of slaughtering cows, the NFFC has said, Congress should implement more generous price protections and crack down on anti-competitive behavior by cooperatives and milk processors that holds down milk prices.

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