The Northeast Dairy Compact that regulates the price of milk in Sen. Jim Jeffords' Vermont will expire Sept. 30 unless Congress reauthorizes it. What is a dairy compact, and how does it work?
The Northeast Dairy Compact is a formal agreement among six New England states (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) to keep the price of milk in the region high enough so New England's dairy farmers can stay in business. Because of Congress' authority under the Constitution to regulate interstate commerce, both federal and state legislation was required to create the compact.
Under the compact, a commission of 26 delegates--three from Maine, three from New Hampshire, and five from each of the other states--establishes a minimum price for milk in the region. The minimum price established in July 1997 was $16.94 per hundredweight (100 pounds, or 11.6 gallons). Since then, the compact's minimum price has not changed.
The compact's minimum price for milk is a supplement, not a replacement, for federal milk price supports. The compact's minimum price of $16.94 may be higher or lower than the regional minimum price for milk established monthly by the U.S. Department of Agriculture. When the compact price is lower than the USDA's price, as it has been for the past three months, the compact has no effect on the market. But when the compact's price is higher than the USDA's price, milk processors that sell milk in New England must pay the difference to the compact. For example, in July 1997, the federal minimum price for milk was $13.94 per hundredweight and the compact price was $16.94. The milk processors paid $3 per hundredweight (the difference in the two prices) to the compact. The compact commission then redistributed the money to New England's dairy farmers. Last year, the payments worked out to an average of $18,000 for each farm in the region.
The compact increases the price consumers pay for milk in New England, though economists disagree on how much. The Wall Street Journal editorial page says the compact increases the price of milk by 15 to 20 cents a gallon. The compact commission believes the cost to consumers is likely between 8 and 11 cents per gallon.
The Northeast Dairy Compact is currently the only dairy compact in the United States. But some Southern and Western states want to form their own compacts, and other states want to join the Northeast Dairy Compact.