Senators ask: Got MILC?

A controversial milk subsidy program could spoil during this year’s budget process, with few lawmakers prepared to fund its extension despite President Bush’s campaign promise to extend the payments to small dairy farmers. The subsidy, known as the milk income-loss contract, or MILC, kicks in when the price of milk drops below a federally regulated level, ostensibly to encourage more production.

A controversial milk subsidy program could spoil during this year’s budget process, with few lawmakers prepared to fund its extension despite President Bush’s campaign promise to extend the payments to small dairy farmers.

The subsidy, known as the milk income-loss contract, or MILC, kicks in when the price of milk drops below a federally regulated level, ostensibly to encourage more production. While larger producers rail against MILC as rewarding inefficiency and conflicting with general dairy price support, the political allegiance of Wisconsin milk makers was a coveted prize during last year’s presidential campaign and both Bush and Sen. John Kerry (D-Mass.) promised to extend the subsidies if elected.

The federal deficit and the difficulty of controlling it, more than the vigorous lobbying from some dairy companies, have been the greatest obstacle to renewing MILC. Though Bush stayed true to his Wisconsin word by putting MILC into his proposed budget, despite losing the state to Kerry, the House Agriculture Committee is already struggling to find $3 billion in general savings and adding $1.4 billion for MILC to its offset priorities is a tall order.

Any one of the 29 Senate co-sponsors of a MILC extension bill, most likely Patrick Leahy (D-Vt.) or Herb Kohl (D-Wis.), will probably try to add money for the program to the budget reconciliation package. But House leadership blocked a similar attempt by Kohl during last year’s budget conference negotiations.

“It’s not definitely in, and it’s not definitely out,” said Alise Kowalski, an aide to Agriculture Committee Chairman Rep. Bob Goodlatte (R-Va.). “As of right now, there hasn’t been a proposal for where the offsets will come from. The committee is just looking for the $3 billion.” MILC is due to end in September

The U.S. Department of Agriculture (USDA) released a study to Congress last year that found the milk subsidies to be a major drag on the natural rise of milk prices, which helped galvanize opponents of the program. Leahy and Kohl, who conceived of MILC during negotiations on the 2002 farm bill, have been searching ever since for another way to keep small dairies afloat.

Four bids to save MILC have been offered in this session alone, and one Senate version attracted significant support, especially from Northeast lawmakers looking to lock down the dairy vote. Some members saw MILC as a possible precursor to reviving the Northeast Dairy Compact, which allowed the region’s milk farmers to set their own prices before complaints from their Midwestern counterparts led Congress to kill the Compact in 2001.

MILC “just hasn’t proved to be very effective in terms of the way it functions,” said Chip Kunde, vice president and top lobbyist at the International Dairy Foods Association (IDFA). “It’s expensive, and it does pit producer against producer, farm against farm.”

MILC has attracted the baleful eye of the World Trade Organization (WTO), which classifies it as an “amber box” subsidy because it rewards farmers without limiting production. A reduction in amber-box subsidies will likely be requested as part of the WTO’s Doha Round negotiations.

MILC’s good intentions to decrease the regional feuding that has historically dominated dairy policymaking have been gradually derailed. The National Milk Producers Federation has not taken a position because its members disagree with each other, and the USDA was sued in the late 1990s by a group of Western dairymen upset over the subsidy’s production ceiling.

Dan Colacicco, leader of the USDA’s dairy-analysis group, acknowledged that there was some danger in paying small farmers to overproduce and paying other milk manufacturers through the dairy price-support program when prices drop further.

“There is some overlapping between those two safety nets,” Colacicco said. “Some of the larger dairymen have complained.”

Sensing that time is running out to secure extension, pro-MILC lobbyists are turning their focus from the political advantage of aiding the little guy to an argument for better timing. Because MILC was part of the farm bill, they say, the payments should be evaluated for renewal in 2007 along with every other element of that bill.

“We’re not saying we shouldn’t have a big debate about dairy policy again, but if we’re going to have that debate let’s have it in the context of the farm bill,” said Steven Etka, a lobbyist for the Midwest Dairy Coalition.

He also hinted that the power of a presidential endorsement was paying dividends: “I have seen even the most staunch opponents of agricultural subsidies come out and talk about, ‘Well, this is something the president made a commitment on.’”

The president’s budget made room for MILC by trimming $8 billion from commodities, arousing some ire from farm state lawmakers. Kohl’s fight to attach a MILC extension to the budget had more traction last year because the Congressional Budget Office considered it an advance appropriation that had no effect on the next fiscal year’s balance, making the subsidy’s $1.4 billion price tag easier to bear.

“Unless someone finds a way to bring the costs down, it’s very tough to do,” Kunde said. “The only way to fund it is to cut commodity programs, take it out of food stamps or conservations.”

Regardless of MILC’s eventual fate, dairy will continue to be a contentious topic leading up to the farm bill’s expiration. Milk looms large among the trade-distorting agricultural programs that officials haggle over during each WTO round, and the White House’s Performance Management Initiative, which rates the effectiveness of all government programs, took a dim view of the general milk-price-support subsidy. The rapidly swelling Western share of the dairy market also has led that region’s legislators to wade into the MILC debate.
Kohl has not given up hope that small dairies will get their due at some point in the process. He defended the wisdom of paying a select group of farmers, adding, “It’s the whole world economy where that money is invested. That money is spent to pay bills in local grocery stores and small towns. It’s really rural areas that benefit.”