Forget about the fiscal cliff. Brace yourself for the “provolone precipice.” According to the New York Times, if Congress does not pass a farm bill by the end of the year, dairy prices could double in 2013.
The last farm bill, passed in 2008, expired in September, and with it went the federal government’s milk price support program. Under that program, whenever the market price of milk falls below the minimum price set by Washington, the federal government buys dairy products from farmers, driving the prices of those products up. “Since milk prices have remained above that minimum price in recent years,” the Times notes, “dairy farmers usually do better by selling their products commercially rather than to the government.”
The Senate passed a farm bill in July; the House of Representatives has yet to vote on one. If none is passed by December 31, federal milk policy will revert to that of the Agricultural Act of 1949, the last permanent farm bill passed by Congress. Because that law is based on contemporaneous dairy farm production costs, which were considerably higher in real terms than they are today, “the government would be required to buy dairy products at around $40 per hundredweight — roughly twice the current market price — to drive up the price of milk to cover dairy producers’ cost,” says the Times.
What would happen then? The paper writes:
Farmers, at first, would experience a financial windfall as they rushed to sell dairy products to the government at higher prices than those they would get on the commercial market. Then the prices customers pay at the supermarket would surge as shortages developed and fewer gallons of milk were available for consumers and for manufacturers of products like cheese and butter.
Milk prices could climb from an average of $3.65 a gallon to between $6 and $8 a gallon, the Times claims.
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