After the Dairy Compact

The Northeast Interstate Dairy Compact expired on September 30. Efforts in Congress to revive it continue, but with every week it seems more likely that the passing of this price fixing cartel will open a new chapter in Vermont's agricultural history.

The idea of the Compact was hatched in 1988, upon the failure of a voluntary price fixing scheme called RCMA. The Compact scheme was classically simple: a mandatory, state-enforced cartel to dictate fluid milk prices high enough to "save our farms". The beauty of the Compact (to the producers, their feed and equipment suppliers, and their bankers) was that in the name of "saving" Vermont's most economically threatened farms, the mandated higher milk price would benefit hundreds of efficient and profitable dairy farmers who had little or no claim to windfall benefits at consumer expense.

The Compact was vigorously promoted in the legislature by the chairs of the agriculture committees, Rep. Robert Starr and the late Sen. Francis Howrigan. They whistled through a bill authorizing Vermont participation in the proposed Compact. In what was rightly considered a legislative miracle, Congress in 1996 ratified the Compact for an initial term.

In 1999 the Compact got another two years of life when Senate Majority Leader Trent Lott agreed to an extension in an effort - later found to be seriously misguided - to strengthen the fragile loyalty of then-GOP Sen. James Jeffords. Jeffords, like Sen. Patrick Leahy and Rep. Bernie Sanders, has been an ardent champion of making the Compact permanent, vowing to try to "sneak it in through the stealth of night, get it through when people aren't looking."

In its five years of operation the Compact added $146 million to the wallets of New England's dairy farmers. But the money received by farmers had to come from somewhere. New England farmers, through their cooperatives, sell their milk to handlers, chief among them the huge Dallas-based conglomerate Suiza Foods. The handlers simply mark up their higher fluid milk costs and pass them on to consumers.

The Compact scheme thus leads to the "Robin Hood in reverse" result that milk drinkers - mainly young families with children - pay as much as a 20 cents per gallon premium at the checkout counter. Most of the proceeds of this exaction are then turned over to far more prosperous dairy producers, many of them million dollar operations. Because of their dependence on cartel profits, many Vermont farmers have shown little interest in strategies that could lower their cost of production or increase their net farm income. These techniques include agritourism, management-intensive grazing, on-farm energy production from animal and crop wastes, better cow management, new information technology, capturing more downstream profits through their cooperatives, organic and specialty crop marketing, and product diversification (beef, pork, ratites, timber, ginseng, maple, etc.) Instead, most Vermont farmers are marching - or are being led - down the road to Quebec-style supply management. This is the equivalent of the New Deal-era peanut and tobacco programs with their allotments, price supports, production quotas, and rigid government controls. Sanders and Vermont's Progressive Party, who view dairy along with any other politically useful industry as a potential public utility, are ardently promoting that result. In the meantime, Sanders is promoting legislation to create one big national Compact.

The end of the Compact premium will bring unhappy consequences for many high-cost farms and their hard working farm families. It will also bring new opportunities for the best managed and most profitable farms, who will take over the assets of their weaker neighbors and make them more productive even without the Compact over-order premium. A strong farm economy is very important to Vermont. Its importance goes far beyond the dollar value of exported dairy products. Farms are vital to the beauty of Vermont's landscape. Though the tradition is now in retreat, farmers have historically given a special character to our state's public life.

Now that this government-enforced cartel scheme is (probably) history, those concerned about the preservation of Vermont agriculture need to begin taking a new look at that industry. For their part, legislators should reexamine the state's tax and regulatory structure to lower the costs, obstacles, and annoyances visited upon farmers. Once farmers realize that capturing the coercive power of government to increase their incomes is no longer an option, their native ingenuity will begin to find new ways to organize, produce, compete, and prosper. The sooner this begins to happen, the better for us all.

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October 2001