In 1996, the six states of New England (Maine, Vermont, New Hampshire, Connecticut, Rhode Island, and Massachusetts) were authorized by Congress to form the Northeast Dairy Compact. The aim of the Compact was to save the region’s rapidly disappearing dairy farms by setting a minimum price that farmers receive for beverage milk sold within New England. The Constitution (Article I, Section 10) allows states to form interstate compacts, provided that they are approved in identical form by each state involved and then by Congress.
The Northeast Dairy Compact was governed by a 26-member Commission composed of delegations from each New England state. The delegations included at least one farmer and one consumer representative. The Commission took testimony to determine the price necessary to provide a reasonable rate of return to the producer, while taking into account the ability of consumers to purchase milk.
In June 1997, the Commission began regulating farm-level milk prices. The minimum price for beverage milk (fluid or Class I) was set at $16.94 per hundredweight (milk destined to be manufactured into cheese, butter, ice cream, etc. is not regulated by the Compact). The Compact price has remained at this level since then. Between June 1997 and April 2001, the Compact raised net farm prices an average of $0.62 per hundredweight over existing milk prices (which are set monthly by the federal government using a complex formula tied to the market for cheese).
By establishing a minimum price and reducing overall price volatility, the Northeast Dairy Compact slowed the decline of New England’s dairy farms. Through December 2000, the Compact paid out $140 million, or about $10,000 per year to the average farm.
Although consumer milk prices rose 29 cents per gallon since the Compact’s implementation, a study released in April 2001 by the Food Marketing Center at the University of Connecticut found that only 4.5 cents of this increase was due to the Compact. The remaining 24.5 cent price rise was due to factors other than Compact, including an 11 cent per gallon increase in the profits of region’s milk processors and supermarket chains.
Supporters of the Compact contend that without local dairy farms, New England consumers would become dependent on distant milk suppliers. The lack of local competition and the added shipping costs would ultimately lead to higher consumer prices.
In 2000, the Compact Commission established a supply management program, as mandated by Congress, to ensure that the Compact’s minimum price does not create an incentive for farmers to generate additional supplies of milk. For every hundred pounds of milk, 7.5 cents is removed from the Compact pool and placed in a reserve. After one year, the reserve is distributed to farmers whose production did not increase by more than 1 percent the previous year. The formula for distributing the reserve is weighted to provide greater benefits to smaller farms.
The federal legislation authorizing the Compact expired in September 2001. A House bill introduced in May 2001 HR 1827, would have re-authorized the Compact, allowed five other states to join (Delaware, Maryland, New Jersey, New York, and Pennsylvania), and give Congressional consent to the formation of three additional dairy compacts in the Southeast, Pacific Northwest, and Intermountain regions (Colorado, Nevada, and Utah). The bill had 162 co-sponsors, including 82 Republicans, 79 Democrats, and 2 independents.
More Information:
- Back the Dairy Compact – by Stacy Mitchell, Institute for Local Self-Reliance, published in the Twin Cities Star Tribune, August 27, 2001
- “Got (Local) Milk?” from the Fall 1999 issue of The New Rules
- University of Connecticut’s Food Marketing Policy Center has a section on Northeast Dairy Compact Study and Related Documents (Includes press items and industry responses)
- Dairy Industry: Estimated Economic Impacts of Dairy Compacts – US General Accounting Office, September 2001
- “The Public Interest and Private Economic Power: A Case Study of the Northeast Dairy Compact” by Ronald W. Cotterill and Andrew W. Franklin, Food Marketing Center of the University of Connecticut, May 2001.
