Published on 02/18/98

UGA Economist: Dairy Compact Vital to Georgia Dairies

Just 60 miles from Atlanta, Thomas Bell is right where he wants to be. The dairy he runs, as his father and grandfather did before him, is in his blood. But he wonders whether the next generation of Bells will call it home.

"As bad as I want to, if things don't change, I'm not going to milk cows," Bell said. "I'm not complaining. Us dairy farmers are tough. But there's a thin line between hard and stupid."

Bill Thomas, an Extension Service economist with the University of Georgia College of Agricultural and Environmental Sciences, said Bell is hardly alone.

Falling milk prices, he said, could soon close 90 percent of Georgia's dairies. But he figures the proposed Southern Dairy Compact could save the farm for many.

"We have 445 dairies in Georgia now," Thomas said. "Of that number, about 400 are family farms on the bubble."

The Southern Dairy Compact is an attempt to duplicate the Northeast Interstate Dairy Compact in 15 Southeastern states.

The compact would set a minimum price milk handlers could pay dairies for Class I (fluid) milk in Southern states. At the same time, though, the U.S. Department of Agriculture is moving to lower minimum prices nationally and let market forces set dairy product prices.

If milk prices drop further, "I don't think I could make it," Bell said. "I want to milk cows, but I've got a family to look after."

Thomas said lower milk prices would devastate the state's family dairies. "We will not have a dairy industry as we know it today," he said. "Most of those family farms will be forced out. They need prices to go up, not down."

The Georgia Senate passed Senate Bill 420 enabling the compact on Feb. 3. The House has not yet voted on a similar measure, House Bill 1371.

Even if the bill passes both houses and the governor signs it into law, the compact will still have a long way to go, Thomas said.

Similar legislation must be enacted in other Southern states, as Arkansas, Louisiana and North Carolina have already done. (A bill is awaiting the Mississippi governor’s signature.) The U.S. Congress must then approve the regional compact. With the Northeast Dairy Compact, the Secretary of Agriculture also had to declare a compelling public interest to implement it.

"If everything goes smoothly," Thomas said, "we're still probably looking at early '99 before the compact could go into effect."

At that point, the compact would establish a commission to set a minimum fluid milk price to farmers. Each state would name three to five members of the commission. Georgia members would include at least one representative each of consumers, dairymen, processors and school food services.

Opponents say the commission would undoubtedly set fluid milk prices higher.

"I expect prices (to farmers) would go up about 10 cents per gallon, or a penny per half-pint," Thomas said. Prices might actually climb more than that in the store, he said, if handlers, processors or retailers add onto the increase.

But farmers say they need about $1.36 per gallon to break even. "Last year they averaged about $1.26," Thomas said. "At best, 1998 prices may get to about $1.27 per gallon."

The commission would set prices high enough to boost production of fluid milk but not of cheese or other dairy products. "We need more fluid milk," Thomas said. "Georgia is a milk-deficit state (consumes more than is produced) 12 months a year now."

But the news for shoppers wouldn't be all bad.

"The increase would be offset somewhat by price stability," he said. "Prices go up when supplies are short, but they may not come all the way back down when supplies go up again. Over time, prices ease higher."

Dan Rahn is a news editor with the University of Georgia College of Agricultural and Environmental Sciences.