[Senate Hearing 107-520]
[From the U.S. Government Printing Office]



                                                        S. Hrg. 107-520
 
   S. 1157, THE DAIRY CONSUMERS AND PRODUCERS PROTECTION ACT OF 2001
=======================================================================

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                      ONE HUNDRED SEVENTH CONGRESS

                             FIRST SESSION
                               __________

                             JULY 25, 2001
                               __________

                          Serial No. J-107-34
                               __________

         Printed for the use of the Committee on the Judiciary







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                             WASHINGTON : 2002
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                       COMMITTEE ON THE JUDICIARY

                  PATRICK J. LEAHY, Vermont, Chairman
EDWARD M. KENNEDY, Massachusetts     ORRIN G. HATCH, Utah
JOSEPH R. BIDEN, Jr., Delaware       STROM THURMOND, South Carolina
HERBERT KOHL, Wisconsin              CHARLES E. GRASSLEY, Iowa
DIANNE FEINSTEIN, California         ARLEN SPECTER, Pennsylvania
RUSSELL D. FEINGOLD, Wisconsin       JON KYL, Arizona
CHARLES E. SCHUMER, New York         MIKE DeWINE, Ohio
RICHARD J. DURBIN, Illinois          JEFF SESSIONS, Alabama
MARIA CANTWELL, Washington           SAM BROWNBACK, Kansas
JOHN EDWARDS, North Carolina         MITCH McCONNELL, Kentucky
       Bruce A. Cohen, Majority Chief Counsel and Staff Director
                  Sharon Prost, Minority Chief Counsel
                Makan Delrahim, Minority Staff Director













                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Edwards, Hon. John, a U.S. Senator from the State of North 
  Carolina.......................................................    91
Feingold, Hon. Russell D., a U.S. Senator from the State of 
  Wisconsin......................................................    14
Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.    16
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......    12
Kohl, Hon. Herb, a U.S. Senator from the State of Wisconsin......    10
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1
Schumer, Hon. Charles E., a U.S. Senator from the State of New 
  York...........................................................    63
Specter, Hon. Arlen, a U.S. Senator from the State of 
  Pennsylvania...................................................     8

                               WITNESSES

Beatty, James F., Economist, Louisiana State University, 
  Franklinton, Louisiana.........................................   101
Brubaker, Hon. Harold, State Representative, State of North 
  Carolina, Asheboro, North Carolina.............................    92
Burrington, Stephen H., Vice President and General Counsel, 
  Conservation Law Foundation, Boston, Massachusetts.............    29
Gorder, Richard, Member, Board of Directors, Wisconsin Farm 
  Bureau Federation, Mineral Point, Wisconsin....................   110
Healy, Hon. Jonathan, Commissioner of Agriculture, Commonwealth 
  of Massachusetts, Boston, Massachusetts........................    67
Neuborne, Burt, John Norton Pomeroy Professor of Law, New York 
  University School of Law, New York, New York...................    47
Norquist, Grover, President, Americans for Tax Reform, 
  Washington, D.C................................................    26
Pines, Lois G., former Massachusetts State Senator, Newton, 
  Massachusetts..................................................    96
Smith, Daniel, Executive Director, Northeast Dairy Compact 
  Commission, Montpelier, Vermont................................    18

                       SUBMISSIONS FOR THE RECORD

Allied Federated Milk Cooperatives, Inc., Judith Aldrich, 
  Director of Information, Canton, New York, statement...........   116
Governors' Council for Interstate Compacts, Washington, DC, 
  letter.........................................................   118







   S. 1157, THE DAIRY CONSUMERS AND PRODUCERS PROTECTION ACT OF 2001

                              ----------                              


                        WEDNESDAY, JULY 25, 2001

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Committee met, pursuant to notice, at 10:03 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Committee, presiding.
    Present: Senators Leahy, Kohl, Feingold, Schumer, Edwards, 
Hatch, Grassley, and Specter.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Chairman Leahy. Good morning. This hearing is an 
opportunity for both sides of the debate on interstate dairy 
compacts to fully present their cases. This is one of those 
issues where every member of this committee can agree on the 
goal, but apparently not how we might get there.
    We all want to support our dairy farmers and we all believe 
that this hard-working segment of our society should be able to 
earn a decent living. We all want ample supplies of fresh milk 
at reasonable prices for our States' consumers.
    Unlike agricultural commodities like wheat, corn and 
soybeans, milk is highly perishable. When a dairy farmer brings 
the milk to market, that milk has to be sold right away or it 
quickly loses its value. You can't set it aside for the winter 
in a silo.
    For big processors, that is just fine. They can buy milk at 
distressed prices and store it away to make cheese or powdered 
milk or ice cream. But that setup hurts farmers, who work 
incredibly hard just to make a living. It also hurts consumers, 
who want farmers around to supply fresh milk for the store 
shelves.
    As a Nation, we have tried several remedies to cut through 
this knot, and the record is proving that regional compacts are 
the most sensible and workable answer yet. And unlike other 
legislative remedies that come with price tags, and often hefty 
ones, compacts cost Federal taxpayers nothing.
    We will be talking throughout the summer and into the fall 
about numerous farm support programs, all of which will cost in 
the aggregate billions of dollars of taxpayers' money. We will 
give our speeches on fiscal restraint and balancing the budget 
and all the rest as we will vote for these multi-billion-dollar 
farm programs. If we really believe in fiscal restraint, if we 
really believe in saving the taxpayers' money, if we really 
believe in helping the consumer, and if we really believe in 
helping farmers, here is an easy program. It helps farmers, it 
helps consumers, and costs the taxpayers nothing.
    Milk is one of those unusual foods where the spread between 
what farmers get paid for their labor and what consumers pay 
for the product is huge and increasing throughout the Nation. 
In New England, what farmers get paid has been fairly stable 
since the Dairy Compact began working in 1997, and that is one 
of its great successes.
    But what processors and stores charge for milk has greatly 
increased since 1997, not just in New England but in the rest 
of the Nation. In other words, while farmers are getting about 
the same price, the processors and the stores are making a lot 
more.
    This will show you the difference, and you will see the 
farm price and that has stayed pretty stable. But look at the 
retail price on the top, how that has shot up. We will show 
that consumer prices are lower in New England than in much of 
the rest of the country, and that the $10,000 to $20,000 in 
added annual income has helped keep New England farmers in 
business, farmers who otherwise would have had to leave 
farming.
    I will demonstrate that the hidden risk right now to 
consumers and farmers in New England and the rest of the Nation 
is the growing concentration of power of processors in the milk 
industry.
    In New England, Suiza Foods is rapidly trying to cinch a 
stranglehold on milk supplies. In some parts of New England, 
they already control 70 to 80 percent of the fluid milk supply. 
They have swept in, they have bought processing plants in New 
England, and of course they then closed them, an easy way to 
get rid of any competition. In fact, the ascent of Suiza is 
nothing less than stunning. In a few short years, Suiza has 
gained its dominant position in the milk processing business.
    Now, here are the early 1990's. Suiza started in Puerto 
Rico with three plants, but now look at what it has done just a 
decade later; look where they cover in the year 2000. The third 
chart shows the areas where Suiza and Dean Foods exert their 
massive influence--pretty rapid, but it also explains why a lot 
of the lobbyists who are sitting here, and you are always 
welcome, of course, are going to be getting large paychecks 
from Suiza, directly or indirectly, to block this because they 
are far more interested, obviously, in how much money they make 
than how much money farmers may take home.
    If its purchase of Dean Foods is approved, a strong case 
can be made that Suiza is on the verge of becoming a monopoly 
in the milk processing business. I have asked the Department of 
Justice and its Antitrust Division to closely monitor Suiza's 
market dominance, and I again call their attention to the 
urgency of doing this.
    But equally remarkable is the fact that Suiza is also now 
in the process of consolidating a dominant position as the 
chief purchaser of milk from farmers. What is happening is 
Suiza is now dominating both the purchase and the sale of fluid 
milk. They are becoming all at once both a monopolist and a 
monopsonist in the fluid dairy marketplace.
    Now, you don't often see such a monopsonist in any area, 
especially in food, in this country. They are a new type of 
market force. I have searched our antitrust case law for a name 
for this type of combined market power. You go through all the 
antitrust dictionaries and everything else and it is hard to 
find anything that even amounts to this it is so pervasive. So 
I think I will call these rare market entities ``Suizopolies,'' 
because that is what they are.
    How can suppliers and consumers defend themselves from a 
giant firm, this ``Suizopoly,'' that controls both the purchase 
of a product from thousands of suppliers who have virtually no 
bargaining power and its sale to millions of consumers? Of 
course, the best way is the Dairy Compact. It gives the public 
some control over access to milk, it assures fresh local 
supplies of milk, and it gives farmers some ability to earn a 
living income.
    Let me respond to the seven myths about the Compact that 
the big processors who have spent millions of dollars to 
promote through years of lobbying and advertising, and even 
campaign contributions. They were trumpeting many of these 
myths before the Compact was enacted. They have not changed 
their song sheets, even though the Compact has done just what 
it was supposed to do, proving their arguments dead wrong.
    The first myth is that dairy compacts are milk taxes that 
hurt consumers. Well, as you have just heard, concentration is 
the major cause of consumer price increases. A recent study 
funded by USDA determined that industry profit-taking, 
including profit-taking by Suiza, and cost increases not 
related to the Compact are responsible for more than 90 percent 
of the increases in retail prices in New England.
    A recent GAO report requested by Senator Feingold and 
myself says it all. It compares the prices of a gallon of 2-
percent milk in Boston and Milwaukee for last year, and you 
will see that the wholesale price of milk in Boston, which has 
the Compact, was $2.03. In Milwaukee, which doesn't have the 
Compact, it was $2.08, 5 cents more. The Compact certainly 
isn't causing the difference.
    But Suiza controls around 70 percent of the milk supply in 
Massachusetts and a greater amount in Boston. The average 
retail price listed by GAO is $2.74 in Boston for a gallon of 
milk, but only $2.26 in Milwaukee. So the Compact doesn't cause 
the difference. The wholesale prices in Boston are lower than 
they are in Milwaukee.
    Another myth is that the Dairy Compact has harmed 
nutritional programs, such as WIC, school lunch and school 
breakfast, and food stamps. Having helped write many of those 
programs, I would not want to see that. We find that myth is 
wrong. In fact, if anything, it has over-compensated the WIC 
program, as OMB has shown.
    A letter from the Massachusetts WIC director says this: 
``The commission has taken strong steps to protect the WIC 
Program and the School Lunch program from any impacts due to 
the compact...Because of this, our WIC Program was able to 
serve approximately 5,875 more participants with fresh 
wholesome milk without added costs...'' The New England Compact 
Commission has exempted school breakfast and lunch programs 
from any pricing impacts.
    Commissioner Kassler in Massachusetts tells me in writing 
that ``without the Compact, this [regional New England] milk 
shed will dwindle and milk would be brought in from greater 
distances and at greater costs,'' ranging from 20 to 67 cents 
per gallon. So the Compact has helped our WIC programs and our 
school lunch programs and those feeding programs.
    Then there is the myth that dairy compacts are 
unconstitutional price-fixing cartels. Now, this is my favorite 
example of the twisted logic that those who oppose it use. I 
think their argument goes something like this: interstate 
compacts would be unconstitutional if the Constitution didn't 
explicitly contain a clause allowing the creation of interstate 
compacts with the consent of Congress.
    What they are complaining about is that we have done it 
constitutionally, and because they can't answer that fact, they 
call it unconstitutional. There is the Constitution [referring 
to a graphic], and it makes it very clear that we can do this.
    Then there is the myth that dairy compacts are barriers to 
interstate trade. The fact is, of course, that dairy compacts 
encourage greater competition in the marketplace by preserving 
more family farms and increasing trade. The OMB concluded that 
trade into the Compact region actually increased after 
implementation. I would also point out that farmers in non-
Compact States like New York or even Wisconsin are perfectly 
free to sell their milk in the Compact region at Compact rates. 
In fact, New York, as I understand it, is doing just that.
    Then there is the myth that dairy compacts encourage 
farmers to over-produce milk and will lead to a flood of milk 
in the market. The fact is just the opposite. The Dairy Compact 
regulatory process includes a supply management program that 
helps to prevent over-production. In 2000, the Northeast Dairy 
Compact States produced 4.7 billion pounds of milk, actually a 
decline from 1999.
    You can see that in the nearly 4 years the Compact has been 
in place that Compact region production has risen by just 2.2 
percent. Compare that to other States: Wisconsin, 4 percent; 
U.S. overall, 7.4 percent; California, almost 17 percent.
    Then there is the myth that dairy compacts only help bigger 
farms at the expense of smaller ones--an easy myth to knock 
down. Like most commodity programs, the Compact benefits all 
participants. In fact, 75 percent of the farms in New England 
have fewer than 100 cows.
    Then there is the seventh myth, the one that really gets 
me, that the Dairy Compact has not been successful. We hear 
this from the large processors. With all the money they spend, 
they are just concerned about these small farmers throughout 
New England and I know they lie awake at night just worrying 
about them and that it might not be successful. Well, the fact 
is it has been successful. Thanks to the Northeast Compact, 
farmers receive higher incomes that help them stay in business.
    If one is a proponents of States' rights, then the Compact 
is for you. The States initiated it, they ratified it, and they 
supported it. I will enter into the record a letter that is 
being delivered today to all Members of Congress from 22 
Governors who are endorsing the Dairy Compact bill because it 
would ratify they compacts their States have negotiated among 
themselves.
    If you support interstate trade, regional compacts are the 
answer. If you support a balanced budget, then regional 
compacts are the answer. The Northeast Compact has not cost 
taxpayers a single cent, unlike most of the other farm programs 
we vote on.
    If you support farmland protection programs, then regional 
compacts are the answer. Major environmental groups have 
endorsed it because the know it is going to prevent urban 
sprawl and preserve open land.
    If you are concerned about prices to consumers, then 
regional compacts are the answer because retail milk prices 
within the Compact region are lower, on average, than the rest 
of the Nation.
    So the Compact has done exactly what it was established to 
do. It has stabilized wildly fluctuating dairy prices, it has 
ensured a fair price for dairy farmers, it has made it possible 
for farm families to stay in business, and it has protected 
consumer supplies of fresh milk.
    So what we have here is a classic case of David against 
Goliath. David is the small family farmers. Goliath is mega-
corporations like Suiza Foods and others. They are willing to 
spend millions upon millions of dollars to defeat this. The 
small dairy farmers are willing to spend their sweat and their 
toil to keep their family in business and to supply consumers 
with fresh milk, and incidentally do it at no cost to the 
taxpayers and a lower cost to the consumers. That is why the 
Dairy Compact is so important.
    [The prepared statement of Senator Leahy follows:]

  Opening Statement of Hon. Patrick J. Leahy, A U.S. Senator from the 
                            State of Vermont

    This hearing is an opportunity for both sides of the debate on 
interstate dairy compacts to fully present their cases.
    This is one of those issues where every member of this committee 
can agree on the goal, but not on how to get there. We all want to 
support our dairy farmers and we all believe that they should be able 
to earn a decent living for their families. We all want ample supplies 
of fresh milk, at reasonable prices, for our states' consumers.
    Unlike agricultural commodities like wheat, corn and soybeans, milk 
is highly perishable. When a dairy farmer brings the milk to market, 
that milk has to be sold right away, or it quickly loses its value. It 
can't be set aside in a silo. For big processors, that's just fine. 
They can buy milk at distress prices and store it away to make cheese 
or powdered milk or ice cream. But that setup hurts farmers, who work 
incredibly hard just to make a living, and consumers, who want farmers 
around to supply fresh milk for the store shelves. As a nation we have 
tried several remedies to cut through this knot, and the record is 
proving that regional compacts are the most sensible and workable 
answer yet. And unlike other legislative remedies that come with price 
tags, and often hefty ones, compacts cost federal taxpayers nothing.
    Milk is one of those unusual foods where the spread between what 
farmers get paid for their labor, and what consumers pay for the 
product, is huge and increasing throughout the nation. In New England, 
what farmers get paid has been fairly stable since the Dairy Compact 
began working in 1997, and that is one of its great successes. But what 
processors and stores charge for milk has greatly increased since 
1997--not just in New England, but in the rest of the nation.
    We will show that consumer prices are lower in New England than in 
much of the rest of the country and that the $10,000 to $20,000 in 
added annual income has helped keep New England farmers in business who 
otherwise would have had to leave farming.
    I will demonstrate that the hidden risk right now to consumers and 
farmers in New England--and the rest of the nation--is the growing 
concentration of processors in the milk industry.
    In New England, Suiza Foods is rapidly trying to cinch a 
stranglehold on milk supplies. In some parts of New England they 
already control 70 to 80 percent of the fluid milk supply. They have 
swept in, bought processing plants in New England, and then closed 
them--eliminating competition.
    The ascent of Suiza is nothing less than stunning. In a few short 
years, Suiza has gained its dominant position in the milk processing 
business. If its purchase of Dean Foods is approved, a strong case can 
be made that Suiza is on the verge of becoming a monopoly in the milk 
processing business. I have asked the Department of Justice and its 
Antitrust Division to closely monitor Suiza's surging market dominance, 
and I again call to their attention the urgency of doing that.
    But equally remarkable is the fact that Suiza is also now in the 
process of consolidating a dominant position as the chief purchaser of 
milk from farmers. Simply put, in many parts of the country, Suiza 
Foods is the dominant customer--if it is not the only customer--for 
farmers' raw milk to be used for fluid processing. Suiza Foods is now 
dominating both the purchase and the sale of fluid milk in this 
country. Suiza is becoming--all at once--both a monopolist and a 
monopsonist in the fluid dairy marketplace.
    Suiza Foods is a new type of market force. I have searched our 
antitrust case law for a name for this type of combined market power. 
There is no adequate name on the books for what Suiza has become, so 
let's call these rare market entities ``Suizopolies.''
    How can suppliers and consumers defend themselves from a giant firm 
that controls both the purchase of a product--from thousands of 
suppliers with little bargaining power--and its sale to millions of 
consumers?
    The best way is the Dairy Compact--it gives the public some control 
over access to milk, it assures fresh, local supplies of milk, and it 
gives farmers some ability to earn a living income.
    I want to respond to seven myths about the Compact that the big 
processors have spent millions of dollars to promote, through years of 
lobbying and advertising and campaign contributions. They were 
trumpeting many of these myths before the Compact was enacted, and they 
have not changed their songsheets, even though the Compact has done 
just what it was supposed to do, proving their arguments dead wrong.
    1. Myth--Dairy compacts are milk taxes that hurt consumers.
    Fact: As you have just heard, concentration is the major cause of 
consumer price increases in the milk sector.
    And, a recent independent study funded by USDA determined that 
industry profit taking--including profit taking by Suiza--and cost 
increases not related to the Compact are responsible for more than 90 
percent of the increase in retail prices in New England since the 
Compact was implemented. This leaves less than three cents of a gallon 
of milk attributable to the Compact.\1\
---------------------------------------------------------------------------
    \1\ The Public Interest and Public Conomic Power: A Case Study of 
the Northeast Dairy Compact: Cotterill and Franklin, Food Marketing 
Policy Center, Dept. of Agriculture and Resource Economics, University 
of Connecticut, May 2, 2001.
---------------------------------------------------------------------------
    A recent GAO report requested by Senator Feingold and myself says 
it all: It compares the prices of a gallon of 2 percent milk in Boston 
and Milwaukee for last year.
    The wholesale price of milk in Boston was $2.03. The wholesale 
price in Milwaukee was $2.08--five cents MORE than in Boston.
    So you would expect retail prices to be about the same for Boston, 
or slightly less, than for Milwaukee.
    However, Suiza controls around 70 percent of the milk supply in 
Massachusetts, and a greater amount in Boston. The average retail price 
listed by GAO is $2.74 in Boston for a gallon of milk, but only $2.26 
in Milwaukee.
    Obviously, the Compact does not cause the difference--the wholesale 
prices for Boston are lower than in Milwaukee, as the GAO makes clear.
    The GAO report also shows that for most of the cites they examined, 
the consumer prices in the compact region were lower.
    2. Myth--The Dairy Compact has harmed nutritional programs such as 
WIC, school lunch, school breakfast and food stamps.
    Wrong again. The fact is that the Compact Commission requires 
compensation to state WIC and school lunch programs for any potential 
impacts. In fact, if anything it has over-compensated the WIC program, 
as noted in the 1998 OMB study. A letter from the Massachusetts WIC 
Director says this:
    The commission has taken strong steps to protect the WIC Program 
and the School Lunch program from any impacts due to the compact. . . . 
Because of this, our WIC Program was able to serve approximately 5,875 
more participants with fresh wholesome milk without added costs . . . .
    The New England Compact Commission has exempted school breakfast 
and lunch programs from any pricing impacts due to milk price 
regulation.
    Commissioner Kassler of Massachusetts tells me in writing that 
``without the Compact, this [regional New England] milk shed will 
dwindle and milk would be brought in from greater distances and at 
greater costs.'' Those greater costs have been estimated in the range 
of from 20 to 67 cents per gallon.
    3. Myth--Dairy compacts are unconstitutional price-fixing cartels.
    Fact: This is my favorite example of twisted logic. I believe my 
opponents' argument goes something like this: ``Interstate compacts 
would be unconstitutional if the Constitution didn't explicitly contain 
a clause allowing the creation of interstate compacts with the consent 
of Congress.''
    By operation of the Compact Clause, states explicitly have the 
opportunity to solve regional problems in this constitutionally 
permitted way. United States federal courts have continuously 
recognized the Northeast Dairy Compact as a constitutionally exercise 
of Congressional authority under the Commerce and Compact clauses of 
the U.S. Constitution (See: Art. 1, Sec. 10).
    4. Myth--Dairy compacts are barriers to interstate trade.
    Fact: Dairy compacts encourage greater competition in the 
marketplace by preserving more family farms and increasing trade. An 
OMB study concluded that trade into the compact region actually 
increased after implementation. And I would also point out that farmers 
in non-Compact states, like New York, or even Wisconsin, are perfectly 
free to sell their milk in the Compact region at Compact rates. New 
York dairy producers are benefitting today by doing just that.
    5. Myth: Dairy compacts encourage farmers to over-produce milk and 
will lead to a flood of milk in the market.
    Fact: The Dairy Compact regulatory process includes a supply 
management program that helps to prevent over-production. In 2000, the 
Northeast Dairy Compact states produced 4.7 billion pounds of milk, a 
0.6 percent decline from 1999.
    In the nearly four years that the Compact has been in effect, milk 
production in the Compact region has risen by just 2.2 percent. 
Nationally during this same period, milk production rose 7.4 percent.
    6. Myth: Dairy compacts only help bigger farms at the expense of 
smaller ones.
    Fact: Just like most commodity programs, the Compact benefits all 
participants. Also, 75 percent of the farms in New England have fewer 
than 100 cows.
    And the seventh myth: The dairy compact has not been successful.
    Fact: The success of the Northeast Dairy Compact is undeniable.
    Thanks to the Northeast Compact, farmers receive higher income 
which helps then stay in business.
    If you are a proponent of states' rights, regional compacts are the 
answer. Compacts are state-initiated, state-ratified and state-
supported programs that assure a safe supply of milk for consumers. I 
will enter into the record a letter, that is being delivered today to 
all members of Congress, from 22 governors who are endorsing the dairy 
compact bill because it would ratify the compacts that their states 
have negotiated among themselves.
    If you support interstate trade, regional compacts are the answer. 
The Northeast Dairy Compact has prompted an increase in sales of milk 
into the Compact region from neighboring states.
    If you support a balanced budget, regional compacts are the answer. 
The Northeast Compact does not cost taxpayers a single cent. This is 
different from the costliness of many farm programs.
    If you support farmland protection programs, regional compacts are 
the answer. Major environmental groups have endorsed the Northeast 
Dairy Compact because they know it helps preserve farmland and prevent 
urban sprawl. I will enter into the record a list of 33 environmental, 
conservation and public interest membership organizations that as a 
group today are announcing their support of the dairy compact bill.
    And if you are concerned about the impact of prices on consumers, 
regional compacts are the answer. Retail milk prices within the compact 
region are lower on average than in the rest of the nation.
    The Dairy Compact has done exactly what it was established to do: 
It has stabilized wildly fluctuating dairy prices, it has ensured a 
fair price for dairy farmers, it has made it possible for farm families 
to stay in business, and it has protected consumers' supplies of fresh 
milk.
    This is a policy debate that pits some of the nation's most 
powerful corporations against the interests of farmers, of consumers 
and of communities that treasure the open space and quality of life 
that local dairy farming offers.
    Congress should not stand in the way of these state initiatives 
that protect farmers and consumers without costing taxpayers a penny.

    Chairman Leahy. I yield to the Senator from Utah.
    Senator Hatch. Mr. Chairman, I think that Senator Specter--
--
    Chairman Leahy. Senator Specter was here right at the 
beginning.
    Senator Hatch. He needs to leave, so I will defer to him 
and then maybe you can come back to me.
    Chairman Leahy. He was the first one in the room, so he 
should get a chance.
    Senator Hatch. Maybe you can come back to me after Senator 
Specter.
    Chairman Leahy. I will do whatever you want.

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM THE STATE 
                        OF PENNSYLVANIA

    Senator Specter. Well, thank you very much, Mr. Chairman, 
and thank you, Senator Hatch, for yielding. I commend you, 
Senator Leahy, for convening this very important hearing.
    After you have explored the seven myths about dairy 
compacts, there isn't really much more to say, but that seldom 
stops a Senator from saying substantially more in any event and 
I do have a few things to add.
    Earlier this year, I introduced the Dairy Consumers and 
Producers Protection Act of 2001 because the Dairy Compact is 
about to expire in the northeastern part of the United States. 
The legislation which I have introduced, which now has 39 
cosponsors, would reauthorize the Northeast Dairy Compact, to 
include Pennsylvania, New York, Ohio, Maryland, Delaware, and 
New Jersey, and authorize a Southern Dairy Compact and a 
Pacific Northwest Dairy Compact within 3 years, and an Inter-
Mountain Compact within 3 years.
    Some 25 States have enacted legislation calling for a dairy 
compact because of the importance to consumers as well as dairy 
farmers. Admittedly, a Pennsylvania Senator has a very strong 
parochial interest in this subject, since my State is the 
fourth largest producer of milk in the United States.
    But beyond the interests of the farmers is the interest of 
the consumer, and that has long been recognized to require 
legislative action. This goes back to the New Deal days, when 
minimum prices were set for milk. Some of the earliest work I 
did in the practice of law was the representation that my firm 
had of Sealtest National Products and appearances before the 
Pennsylvania Milk Control Commission.
    Since coming to the Senate and working on the Agriculture 
Subcommittee of Appropriations, as well as this committee, I 
have seen the importance of governmental action in this field. 
The fact is that there is such a broad fluctuation of pricing 
that the dairy farmer, really the small dairy farmer, is at the 
mercy of irrational forces. I think they are irrational because 
I have studied them extensively and I can't figure them out.
    I recently had an in-State hearing in Pennsylvania to take 
a look at why, when the prices for the farmers go from $17 per 
hundredweight to less than $10 per hundredweight, the price 
goes up at the store. I know the prices are going down for the 
dairy farmers because I hear a resounding sound when I travel 
through Pennsylvania's upstate counties, and I know the prices 
are going up for consumers because I buy milk at the 
convenience store, and it went up from $1.80 to $1.85 and then 
to $1.95 at precisely the time that I am hearing the complaints 
from the farmers.
    So if we are to retain the small dairy farmer--and I 
believe that is indispensable to maintain a supply of milk in 
America, and a safe supply of milk in America--we have to have 
some stability, and that is provided by the Dairy Compact.
    As Senator Leahy has pointed out, there is no cost to the 
Government and there is no increase in prices to the consumers. 
So this is one of the unique features where it is win-win-win, 
except for one important consideration and that involves the 
regional differences, and we have two very vigorous and very 
able Senators from Wisconsin who will present a somewhat 
different perspective on the matter. It is my expectation, 
beyond my hope, that we will have this Dairy Compact on the 
legislation on dairies which will be considered yet before the 
recess.
    In conclusion, just one short story.
    Before doing that, I want to recognize Mr. Arden Tewsbury, 
who is here today, who is--there you are, Arden--about as 
strong and tough an advocate for the dairy farmer as you can 
find. Usually, when I see Arden, he is bending my ear very, 
very hard, and the part about it that I admire is that he is 
right.
    One short story. A professor of constitutional law at my 
law school named Walter Hale Hamilton would go around and visit 
the participants in major constitutional cases. There was a 
celebrated case called Nebia v. New York, where the Supreme 
Court of the United States upheld minimum pricing when a man 
named Leo Nebia sold milk below the minimum price by adding a 
loaf of bread without charge.
    So Professor Walter Hale Hamilton found out where Leo Nebia 
was long after the case was decided and walked into his store 1 
day and bought a quart of milk. He was paying for it and he 
said, oh, by the way, Mr. Nebia, would you throw in a loaf of 
bread. And Professor Hamilton got kicked out of the store 
promptly.
    I reminisce about that story when I think about this issue 
and the long, tortured history that milk pricing and milk 
control has had. I believe it would be a benefit to the country 
and to the consumer, as well as to the dairy farmer, if this 
compact legislation was approved.
    Thank you, Mr. Chairman.
    Chairman Leahy. I thank the Senator from Pennsylvania. I 
know he has spent time throughout his State, one of the most 
significant agricultural States in the country, on this issue.
    While you have those who make sure you know about this from 
your dairy farmers, I see Harold Harrigan, who is a dear friend 
of mine from Franklin County, Vermont. Every time I am home, he 
will make sure I hear about it. If not, his brothers will, and 
I appreciate it because it has been very helpful.
    Senator Specter. Mr. Chairman, may I just add that I have 
other commitments, but I will be following the hearings closely 
and expect to be able to return later this morning.
    Chairman Leahy. I appreciate that. The Senator from 
Pennsylvania has spent a great deal of time in preparing for 
this, so I appreciate that, too.
    Now, the Senator from Wisconsin, who probably will not have 
exactly the same position that the Senator from Pennsylvania 
and I have had on this.

 STATEMENT OF HON. HERBERT KOHL, A U.S. SENATOR FROM THE STATE 
                          OF WISCONSIN

    Senator Kohl. Well, I thank you very much, Mr. Chairman, 
for holding this hearing this morning. We also thank our 
witnesses for agreeing to testify today.
    No one can deny that the United States has a great 
772economic system that allows anybody with any product or 
service the unfettered opportunity in all 50 States to market 
that product or service. This is the way it has always been in 
our great country. The success of the American economy depends 
on open markets and open competition, and the beauty of the 
American economy is that it provides a bounty of business 
success stories, fair prices, and consumer choices.
    The American free market did not evolve by accident. For a 
brief period following the American Revolution, our Nation 
operated without a Constitution. Rather, the Articles of 
Confederation set up a loose association of States, each acting 
in economic isolation. It was during that brief and troubled 
time that we witnessed States waging economic warfare on each 
other, using tariffs and other mechanisms to favor home State 
products and to disfavor products from other States.
    Our Forefathers saw how our Nation could unravel under such 
conditions, and James Madison, along with others, called for a 
Constitutional Convention. A central tenet of the new 
Constitution that evolved was a unified national economy, with 
States freely trading with one another.
    The Northeast Dairy Compact runs counter to our 
Forefathers' design of a unified national economy. There is 
nothing American about the dairy cartel in place in the 
Northeast. The Compact sets an artificially high price for milk 
that is marketed in the Northeast and it insulates that price 
through tariff-like mechanisms that prohibit price competition.
    Compact supporters like to argue that there is something 
unique about milk--the fact that it is perishable--that 
justifies the creation of this dairy cartel. They argue they 
need the Compact to ensure that the region has access to fresh 
milk. Well, I can assure you that consumers in the Southeast, a 
region without a compact, have access to fresh milk everyday, 
as do consumers in every one of the 44 States not in a compact 
region.
    Here in Washington, D.C., a grocery store called Fresh 
Fields sells milk that is guaranteed fresh--milk that comes 
from Boulder, Colorado; Austin, Texas; and Franklin, 
Massachusetts. I am sure New England consumers would get 
nothing less from the market. Milk is and always will be sold 
fresh both intrastate and interstate.
    Further, if we have a compact for dairy, then why shouldn't 
we have one for corn or any other perishable good? We all know 
that locally grown fresh corn is the best. I can get in my car 
in Milwaukee and drive out to the suburb of Menomonee Falls and 
stop at a roadside farmer's market, where I can buy corn 
harvested that same day. Those farmers compete for my dollar by 
providing the freshest corn.
    However, there is no restriction on corn from Iowa being 
shipped in to compete with the local product. Competition 
grants me, the consumer, the opportunity to choose the product 
that best suits my needs. That is the beauty of our economy. 
Consumer demand, not government, drives the market. If 
consumers want locally produced fresh milk, the market will 
allow for it to be there. It is when we begin to interfere and 
distort market conditions that we run the risk of harming 
consumers, limiting their choices, and raising their prices. 
That is exactly what the Northeast Dairy Compact has done for 
millions of milk drinkers in the Northeast.
    Since its inception in 1997, the Northeast Compact has cost 
consumers in that region an extra $140 million for milk. Worse 
yet, if the Senate were to approve the legislation introduced 
by Senator Specter which allows for compacts in 35 States, 
consumers in our country would be forced to pay an estimated 
extra $2 billion a year for their milk. The brunt of that price 
increase will fall on those least able to bear it--low-income 
families and children.
    And to what end have we imposed this regressive milk tax on 
the consumers of the Northeast? What end do the sponsors of 
compact expansion hope to achieve by expanding that tax to 
consumers in 35 States? They will argue it is to preserve the 
family dairy farm, and that is an end I certainly do support.
    But the hard evidence from the Northeast Dairy Compact 
shows that it has done nothing--I emphasize nothing--to slow 
the loss of dairy farms in the region. In fact, the Northeast 
is losing dairy farmers at a rate faster today than they were 
prior to the Compact. And if it were not for the emergency 
dairy payments that we worked together on last year, I am sure 
even more dairy producers would have gone out of business by 
now.
    I have also worked over the last year with Senator 
Santorum, of Pennsylvania, on the National Dairy Farmer 
Fairness Act. I am confident that this safety net is a viable 
alternative to regional cartels, and I would hope we could all 
agree to work together on establishing a national program to 
help all dairy producers.
    So I ask again, to what end have we violated the spirit of 
our Constitution, turned our free economy on its head, and 
asked millions of consumers to pay more for their milk? There 
is no good answer, and that is why when the Dairy Compact 
expires at the end of September it should not be renewed.
    As the chairman of the Antitrust Subcommittee, I have 
worked to ensure that open and fair competition in our 
marketplace thrives. Mr. Chairman, you and I have worked on 
issues related to concentration and consolidation in the dairy 
industry throughout our time in the Senate. I very much want to 
continue to investigate the increased consolidation that is 
taking place in the dairy industry at the processing level. But 
I can assure you, Mr. Chairman, if we want to solve that 
problem, dairy compacts are not the answer.
    Finally, I would like to ask this committee to consider the 
dangerous precedent set by this Compact. We have witnessed as a 
result of the creation of the existing Compact how other 
regions now seek to create their own cartel. If we approve an 
expanded compact for dairy, then what is to stop us from 
approving price-fixing cartels anywhere else in our economy?
    I would argue that all of us in this room understand the 
benefits that result from open and free trade. If we want to 
continue to enjoy the best economy in the world, then we should 
stop moving down the path of price-fixing cartels. Only then 
can we work toward a national dairy program that benefits all 
producers, regardless of location, and put to rest once and for 
all this very dangerous policy that takes us back to the days 
of the Articles of Confederation.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you.
    Senator Hatch?

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE 
                            OF UTAH

    Senator Hatch. Well, thank you, Mr. Chairman.
    I want to thank the chairman for calling this hearing to 
discuss the policy issues raised by S. 1157, the Dairy 
Consumers and Producers Protection Act of 2001. This bill would 
extend the Northeast Interstate Dairy Compact. It also would 
authorize three new regional dairy compacts. Although I am 
sympathetic to some of the arguments in favor of regional dairy 
compacts, I am not convinced that such compacts are the optimal 
solution for consumer welfare.
    Many have criticized regional dairy compacts because they 
harm consumers, dairy processors, and dairy farmers located 
outside the region. The facts appear to support these 
criticisms, but I would like to focus my remarks today instead 
on a more fundamental question: Are regional dairy compacts a 
form of economic protectionism which is antithetical to the 
national common market the Framers of the U.S. Constitution 
sought to create?
    To answer this question, it is useful to take a step back 
in history. During the time that our Nation operated under the 
Articles of Confederation, States often formed coalitions with 
the sole purpose of promoting one area of the Nation at the 
expense of another.
    One of the main reasons that the States decided to hold the 
Constitutional Convention was to bring a halt to the 
``commercial warfare between the States.'' The Framers sought 
``to change this state of affairs, and to encourage a free and 
open economy in which states could not halt the national flow 
of goods and trade through economic barriers.''
    The Framers established a national common market through 
the Commerce Clause of the U.S. Constitution. In the words of 
the Supreme Court in the H.P. Hood case, the Framers envisioned 
that ``our system, fostered by the Commerce Clause, is that 
every farmer and every craftsman shall be encouraged to produce 
by the certainty that he will have free access to every market 
in the Nation...Likewise, every consumer may look to free 
competition from every producing area in the Nation to protect 
him from exploitation.''
    To make this vision a reality, the Commerce Clause, as the 
Court more recently noted in the New Energy Co. case, prohibits 
``economic protectionism--that is, regulatory measures designed 
to benefit in-state economic interests by burdening out-of-
state competitors.'' That is in the New Energy Co. v. Limbach 
case, a 1988 case.
    For more than two centuries, our Nation has prospered 
because producers and consumers have received the benefits of 
the free flow of goods and services in a national common 
market, with limited market regulation and with vigorous 
competition. The fundamental question is whether we should give 
our imprimatur under the Compact Clause to regional dairy 
compacts and similar forms of economic protectionism.
    In my opinion, before we do that, a very high threshold 
must be met in light of the effects such compacts will have on 
consumers. The Framers did not intend that the Congress would 
use its power under the Compact Clause to approve agreements 
between States which undermine our national common market. 
History proves the point. Congress has approved nearly 300 
interstate compacts in the more than two centuries since our 
Nation was founded. Interstate compacts have been limited to 
agreements which serve to facilitate important national 
interests, such as improving transportation, allocating water 
rights, establishing boundary lines, and protecting against 
forest fires. Only one interstate compact, the Northeast 
Interstate Dairy Compact, has involved Congress blessing an 
agreement among a group of States to engage in what many 
believe to be economic protectionism.
    We should learn from and follow the wisdom of the past. The 
Compact Clause should not be used to bless agreements which 
undermine competition in our national common market, especially 
given that such agreements may be at cross-purposes with other 
laws, like the antitrust laws, which are designed to promote 
competition.
    Approving the Northeast Dairy Compact has already spawned a 
request that we approve at least three more regional dairy 
compacts, with these compacts together covering about 80 
percent of American consumers. To preserve the national common 
market which the Framers of the Constitution created and which 
has been a source of our great prosperity, very compelling 
reasons would have to be demonstrated before I would be willing 
to support these compacts. But I am going to keep an open mind, 
pay attention to the testimony given here today and other 
authorities, listen to my colleagues, and hopefully make the 
right decision in the end.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you.
    [The prepared statement of Senator Hatch follows:]

Statement of Hon. Orrin G. Hatch, a U.S. Senator from the State of Utah

    I want to thank the Chairman for calling this hearing to discuss 
the policy issued raised by S. 1157, the Dairy Consumers and Producers 
Protection Act of 2001. The bill would extend and expand the Northeast 
Interstate Dairy Compact. It also would authorize three new regional 
dairy compacts. Although I am sympathetic to some of the arguments in 
favor of regional dairy compacts, I am not convinced that they are the 
optimal solution for consumer welfare.
    Many have criticized regional dairy compacts because they harm 
consumers, dairy processors, and dairy farmers located outside the 
region. The facts appear to support these criticisms. But I want to 
focus my remarks today instead on a more fundamental question:

        Are regional dairy compacts a form of economic protectionism 
        which is antithetical to the national common market the Framers 
        of the U.S. Constitution sought to create?

    To answer this question, it is useful to take a step back in 
history. During the time that our nation operated under the Articles of 
Confederation, ``states often formed coalitions, with the sole purpose 
of promoting one area of the Nation at the expense of another.'' [A. 
McLaughlin, A Constitutional History of the United States 137-47 
(1936).] One of the main reasons that the States decided to hold the 
Constitutional Convention was to bring a halt to the ``commercial 
warfare between the states.'' [H.P. Hood v. DuMond, 336 U.S. 525, 533 
(1949).] The Framers sought ``to change this state of affairs, and to 
encourage a free and open economy in which states could not halt the 
national flows of goods and trade through economic barriers.'' 
[Federalist Paper No. 42 at 267-69 (Clinton Rossiter ed. 1961).].
    The Framers established a national common market through the 
Commerce Clause of the U.S. Constitution. In the words of the Supreme 
Court in the H.P. Hood case, the Framers envisioned that:
    our system, fostered by the Commerce Clause, is that every farmer 
and every craftsman shall be encouraged to produce by the certainty 
that he will have free access to every market in the Nation. . 
.Likewise, every consumer may look to free competition from every 
producing area in the Nation to protect him from exploitation.
    To make this vision a reality, the Commerce Clause, as the Court 
more recently noted in the New Energy Co. case, prohibits ``economic 
protectionism--that is, regulatory measures designed to benefit in-
state economic interests by burdening out-of-state competitors.'' [New 
Energy Co. v. Limbach, 486 U.S. 269, 273-74 (1988).] For more than two 
centuries, our nation has prospered because producers and consumers 
have received the benefits of the free flow of goods and services in a 
national common market, with limited market regulation and vigorous 
competition. The fundamental question is whether we should give our 
imprimatur under the Compact Clause to regional dairy compacts and 
similar forms of economic protectionism.
    In my opinion, before we do that, a very high threshold must be met 
in light of the effects of such compacts on consumers. The Framers did 
not intend that the Congress would use its power under the Compact 
Clause to approve agreements between states which undermine our 
national common market. History proves the point. Congress has approved 
nearly 300 interstate compacts in the more than two centuries since our 
nation was founded. Interstate compacts have been limited to agreements 
which serve to facilitate important national interests, such as 
improving transportation, allocating water rights, establishing 
boundary lines, and protecting against forest fires. Only one 
interstate compact--the Northeast Interstate Dairy Compact--has 
involved Congress blessing an agreement among a group of states to 
engage in economic protectionism.
    We should learn from and follow the wisdom of the past--the Compact 
Clause should not be used to bless agreements which undermine 
competition in our national common market, especially given that such 
agreements may be at cross purposes with other laws, like the antitrust 
laws, which are designed to promote competition in our national common 
market. Approving the Northeast Dairy Compact has already spawned a 
request that we approve at least three more regional dairy compacts, 
with these compacts together covering about 80% of American consumers. 
To preserve the national common market which the Framers of the 
Constitution created and which has been a source of our great 
prosperity, very compelling reasons would have to be demonstrated 
before I would be willing to support anti-competitive compacts. But I 
will keep an open mind and listen to all arguments before I make my 
mind up on this matter.

    Chairman Leahy. Senator Feingold.

STATEMENT OF HON. RUSSELL D. FEINGOLD, A U.S. SENATOR FROM THE 
                       STATE OF WISCONSIN

    Senator Feingold. Thank you, Mr. Chairman, and I would like 
to first express my thanks to you for the even-handed style 
that you have used during the scheduling of these hearings. I 
commend you and your able staff, who have been fair in the 
make-up of the panels of witnesses and the structure of the 
hearing, and I thank all the witnesses for being here.
    While the chairman and I fundamentally disagree on this 
issue of the expansion and extension of the Northeast Dairy 
Compact, I have always respected and admired his ability to 
hear both sides of every issue.
    Everyone in this room is concerned about the decline in the 
number of dairy farms in the United States in the past 30 
years. I was astounded when I realized that in 1950 Wisconsin 
had over 143,000 dairy farms. After nearly 50 years of the 
current dairy policy, Wisconsin is left with under 20,000 dairy 
operations. Let me repeat that, less than 20,000 dairy farms, 
after we had 143,000. That is a decline of about 86 percent 
since 1950.
    There are certainly a number of different challenges facing 
dairy farmers across America, and I have worked with many 
members of this committee to enact dairy policies that will 
help all of our Nation's dairy farmers. Unfortunately, those 
who are advocating dairy compacts have chosen to focus much of 
Congress' attention on what can only be called regional price-
fixing schemes rather than a unified national dairy policy that 
can help all of America's dairy farmers fairly compete in the 
modern marketplace.
    Instead of focusing on regional dairy policies, I think 
Congress has to turn its attention to enacting a national dairy 
policy that helps all farmers get a fair price for their milk. 
Congress needs to follow the lead of people like my senior 
Senator and colleague Senator Kohl, who has demonstrated that 
if we work together, we can provide meaningful assistance to 
America's dairy farmers. I believe Congress should enact a 
national dairy policy such as the one envisioned by Senator 
Kohl and Senator Santorum. This legislation brings a national, 
unified approach to a national problem.
    While the Northeast Dairy Compact has been effective, or in 
my view at least partly responsible for raising prices for the 
consumer, compacts have not been able to keep farmers in 
business. According to the American Farm Bureau Federation's 
data, New England has lost more dairy farms in the 3 years 
under the Compact, 465, than in the 3 years prior to the 
Compact.
    So when the chairman talks about one of his myths that 
production has not increased in New England, he might look to 
the fact that that is because a lot of farms aren't making it 
even under the Compact. That might have something to do with 
the production issue.
    I also want to note here that I do share the chairman's 
concern about the increased disparity between what dairy 
farmers receive for their milk and what consumers pay. However, 
I have to take issue with his conclusion that our GAO report 
supported the idea that the Compact helps lower this disparity.
    If we look at what is actually on page 26, we see that, in 
fact, in the Boston and Milwaukee markets dairy farmers receive 
roughly the same share of the retail dollar, between 46 and 47 
cents. But I do want to say that I truly want to work with the 
chairman on this issue. That is why I asked him to work with me 
on this GAO report, but I respectfully disagree with his 
conclusions about what the report means.
    The Northeast Dairy Compact also aggravates the inequities 
of the Federal milk marketing order system by allowing the 
Compact Commission to act as a price-fixing entity that walls 
off the market in a specific region, and it does hurt producers 
outside the region. The Northeast Interstate Dairy Compact 
Commission is empowered to set minimum prices for fluid milk 
higher than those established under Federal milk marketing 
orders. Never mind that farmers in the Northeast already 
receive higher minimum prices for their milk under the 
antiquated milk pricing system.
    The Compact not only allows these six States to set 
artificially high prices for specific regions; it permits them 
to block entry of lower-price milk from producers in competing 
States. So how can this really be defended? This Compact 
amounts to nothing short of government-sponsored price-fixing 
that hurts producers outside the region. It is outrageously 
unfair, and it is also bad policy.
    I am especially pleased to have one of our real experts 
here, Richard Gorder, a Wisconsin dairy farmer who will testify 
before this committee. I have met with Mr. Gorder on many 
occasions, and I cannot think of many Wisconsinites who can 
articulate the perspective of the Wisconsin agriculture 
community on dairy compacts better than Mr. Gorder.
    I hope that Congress will turn its attention away from 
dairy compacts, which ultimately hurt both consumers and 
farmers. It is high time to begin to focus on enacting 
legislation that helps all dairy farmers. America's dairy 
farmers deserve a fair and truly national dairy policy, one 
that puts them all on a level playing field from coast to 
coast.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you, Senator Feingold.
    Senator Grassley?

STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR FROM THE 
                         STATE OF IOWA

    Senator Grassley. I would like to put a longer statement in 
the record and highlight.
    Mr. Chairman, first of all, you are defender of American 
agriculture and farming, and very seldom do I find myself in 
dispute with you. I do in this instance because the Northeast 
Dairy Compact establishes what amounts to domestic trade 
barriers that will detrimentally impact producers in my home 
State of Iowa.
    The Dairy Compact's purpose is to raise the price of milk 
above the Federal milk marketing order price in a specific 
region. This domestic tariff on milk prevents the market from 
reacting to supply and demand.
    If I wasn't an advocate of free trade and increasing profit 
for family farmers by lowering trade barriers, I might be able 
to accept the idea of artificial prices if it didn't impact 
Iowa's dairy producers. But the problem is that compacts will 
hurt Iowa dairy producers. In addition, I am a free trader and 
I do think that my producers are best served by lowering trade 
barriers, foreign as well as domestic.
    Milk production in the Northeast doesn't follow the rules 
of supply and demand; it is just supply and more supply. The 
Northeast exports these subsidized products to other States, 
where the products compete against non-subsidized dairy 
products. If this was an international issue, there would 
probably be a letter circulating in the Senate asking for a 
dumping inquiry within the context of the World Trade 
Organization.
    Studies conducted by economists at the University of 
Massachusetts and Penn State demonstrate that at least a 
substantial portion of the artificially high milk price is 
passed through to consumers in the former of higher retail milk 
prices. It has been estimated that between July 1997 and 
December 2000, New England consumers paid up to $135 million in 
higher milk prices generated by the Compact.
    I want to refer to a Wall Street Journal article: ``It is 
hard to see how anyone justifies dairy compacts with a straight 
face. They are basically a highly regressive tax on milk 
drinkers, starting with school-age children. Creating them is a 
tacit endorsement of the OPEC cartel model. Claims that it 
doesn't gouge consumers are preposterous.'' Is it helping dairy 
farmers in New England? More New England dairy farmers have 
closed down in the 3 years since the Compact began than in the 
3 years prior to the Compact.
    In conclusion, I would say that I understand the desire of 
northeasterners to help their dairy producers, but there ought 
to be some way that we can help dairy producers in the 
Northeast without hurting farmers elsewhere. As a family 
farmer, I know that it is very difficult to make ends meet on 
the farm, but an approach that attempts to prop up some 
producers at the expense of others is not acceptable.
    Thank you.
    [The prepared statement of Senator Grassley follows:]

Statement of Hon. Charles E. Grassley, a U.S. Senator from the State of 
                                  Iowa

    Mr. Chairman, I appreciate this opportunity to discuss the issue of 
dairy compacts. You are a champion of the Northeast Dairy Compact, and 
while I admire your dedication to what you believe in, I am 
disappointed that your agenda establishes what amounts to domestic 
trade barriers that will detrimentally impact producers in my home 
state of Iowa.
    The Northeast Dairy Compact is a coalition of states working 
together to serve one purpose, that purpose is to fix prices. The dairy 
compact's purpose is to raise the price of Class I (Beverage) milk 
above the federal milk marketing order price in a specific region. 
Dairy producers outside the compact region can ship milk into the 
compact, but only at the compact's premium price, not at a competitive 
rate. This domestic tariff on milk prevents the market from reacting to 
supply and demand.
    If I wasn't an advocate of free trade and increasing profit for 
family farmers by lowering trade barriers, I might be able to accept 
the idea of artificial prices, if it didn't impact Iowa's dairy 
producers. But the problem is that compacts will hurt Iowa's dairy 
producers. In addition I am a free trader and I do think that my 
producers are best served by lowering trade barriers, foreign and 
domestic.
    Artificially high compact prices stimulate milk production. It's 
really a simply concept, if the worth of a penny is one cent everywhere 
else in the country, but the northeast decides pennies are worth three 
cents, guess where I'm going to take my pennies.
    Milk production in the Northeast doesn't follow the rules of supply 
and demand, it's just supply and more supply. The surplus is being 
converted into storable dairy products such as butter and cheese. The 
excessive amounts of butter and cheese in the marketplace drive down 
prices and cause the Northeast to export these subsidized products into 
other states where the products compete against non-subsidized dairy 
products.
    If this was an international issue there would probably be a letter 
circulating in the Senate asking for a ``dumping'' inquiry within the 
context of the WTO. But since we don't have a similar enforcement 
mechanism domestically, everyone but the compact suffers.
    Since I brought up suffering, let me be clear, it's not just my 
dairy producers that are going to suffer. Taxpayers, consumers and 
small dairy producers in the northeast are suffering as well due to 
this poorly constructed federal policy.
    Studies conducted by economists at the University of Massachusetts 
and Penn State University demonstrate that at least a substantial 
portion of the artificially high milk price is passed through to 
consumers in the form of higher retail milk prices. It has been 
estimated that between July 1997 and December 2000, new England 
consumers paid up to $135 million in higher milk prices generated by 
the compact.
    A recent editorial in the Wall Street Journal entitled ``The OPEC 
of Milk'' explained, ``It's hard to see how anyone justifies dairy 
compacts with a straight face. They are basically a highly regressive 
tax on milk drinkers, starting with school-age children. Creating them 
is a tacit endorsement of the OPEC cartel model. Claims that it doesn't 
gouge consumers are preposterous.''
    New England's 700,000 food stamp recipients are exposed to the 
artificial price increase, as well as Meals on Wheels and the Child and 
Adult Care Food Program. Shouldn't this fact alone be enough of a 
reason to not renew the compact?
    The compact is also evidently promoting the demise of dairy farms. 
More New England dairy farms have closed down in the three years since 
the compact began than in the three years prior to the Compact. This is 
likely due to the fact small dairy producers receive little income from 
the compact since the allocation is paid based on the amount of milk 
produced. The Compact's artificial price has led to increased land 
prices and placed smaller producers at a competitive disadvantage.
    A 1998 Rutgers University study on the effects of development 
pressures concluded that in Pennsylvania, New York, and New Jersey, the 
``major reason for the loss of dairy. . .is rising land values.'' 
Larger producers have increased their volume to take advantage of the 
artificial price, and family operations which did not have the ability 
to compete in a quantity driven market have closed down.
    The fact that I find amazing though is that states which contain 
consumers who are hurt by the Compact force their citizens to pay tax 
dollars to support the Compact. Vermont and other pro-compact states 
are providing more than $100,000 from each state's treasury to pay 
lobbyists and reimburse expenses related to the advocacy of Compacts to 
Congress.
    Let me conclude by stating that I understand the desire of the 
Northeasterners to help their dairy producers. I'm the only working 
family farmer in the Senate and I know how hard it is to make ends met 
on the farm, but an approach that attempts to prop up some producers at 
the expense of other producers is not acceptable.
    Attempting to maintain this defective compact by expanding the 
authority to create new defective and detrimental compacts is not the 
answer. It would be my hope that we could work together to explore 
other options that would not impede interstate commerce while 
sustaining your producers.
    Thank you for providing us the opportunity to discuss this issue 
Mr. Chairman.

    Chairman Leahy. There are some in the Northeast who would 
say we spend an enormous amount of our tax dollars to help the 
farmers of the Midwest and we really would like some support 
for something that costs the taxpayers nothing in the 
Northeast.
    With that editorial comment, we will have a series of 
witnesses--Daniel Smith, Grover Norquist, Stephen Burrington, 
and Burt Neuborne--all of whom have statements for the record. 
Unlike those on this side of the room, the chairman included, 
who tend to go over their time, I would ask each of you to 
stick within 5 minutes each because we would like to go to the 
questions.
    We will begin with Daniel Smith, the Executive Director of 
the Northeast Interstate Dairy Compact Commission.
    Mr. Smith, we are always glad to have you here and always 
glad to have a fellow Vermonter here.

STATEMENT OF DANIEL SMITH, EXECUTIVE DIRECTOR, NORTHEAST DAIRY 
            COMPACT COMMISSION, MONTPELIER, VERMONT

    Mr. Smith. Thank you, Mr. Chairman. Good morning, Mr. 
Chairman and members of the committee. Thank you for this 
opportunity to speak with regard to Senate bill 1157 relating 
to dairy compacts.
    I have been involved with dairy compacts since the 
inception of the first Northeast Dairy Compact in 1987. My 
travels and work on the Compact have taken me to now over 20 
State houses and two Federal circuit courts of appeals and now 
before Congress.
    Compacts are properly before this committee as an 
interstate initiative, duly authorized by the Interstate 
Compact Clause of the Constitution. Compacts have been passed 
by the State legislatures, as has been indicated, in a number 
of States now, in addition to the New England States. The six 
New England States, distinct from the other States, have both 
adopted their Compact and had it approved by Congress as part 
of the 1996 farm bill.
    My purpose today is to put before the committee as many 
facts and figures as I can glean from operation of the Dairy 
Compact since Congress approved it so that your deliberations 
can be based on as full and complete a record of one compact's 
actual operation as a pilot project approved by Congress as you 
decide whether to authorize the other compacts, as well as 
reauthorize the Northeast Compact.
    I would summarize my extended statement which I will be 
presenting for the record with a number of bullet points.
    No. 1, the Compact, despite the eloquent descriptions by 
the Senators from Wisconsin and Mr. Hatch, has been determined 
by the courts not to be a protectionist device, but in fact to 
be a proper exercise of regulatory authorized by the Interstate 
Commerce Clause and Compact Clause of the Constitution.
    The courts have spent much time assessing the concerns 
raised by the Senators and by Professor Neuborne in his 
testimony. Certainly, all of us who have been to law school 
understand that protectionism is neither favored nor allowed by 
the Interstate Commerce Clause of the Constitution, and the 
courts, working from that essential legal premise, have 
reviewed the Compact and determined that the Compact is not a 
protectionist device.
    I would point you to the attachment to my summary statement 
showing the volume of milk that comes into the Compact region 
from New York State. Approximately 30 percent of the milk 
produced for consumption in the New England market actually 
comes from New York State. That amount, as Senator Leahy 
indicated, has increased over time rather than decreased with 
the operation of the Compact.
    As Senator Leahy indicated, the payment under the Compact 
follows the supply of milk. The money tracking the supply of 
milk from New York goes back to the New York farms, so there is 
no discriminatory policy with regard to operation of the 
Compact. Senator Grassley's farmers, if they supplied the 
market, would receive the benefit of the Compact on equal 
footing with farmers from Vermont, Massachusetts and Rhode 
Island.
    The Compact--again, I would respectfully disagree with the 
Senator's statement--has had a proven and substantial impact on 
farm viability in New England. In this regard, I would point 
you to my third attachment, which is an analysis conducted by 
the Farm Credit Service, which is the Federal lending authority 
for dairy farms, which indicates that for 2000, one studied 
year, the degree of financial stress confronting dairy farms 
was cut almost in half, from 50 percent to just under 30 
percent. By any measure, this is a tangible, positive impact on 
farm viability.
    The net loss of farm numbers will be addressed by 
Commissioner Healy following my presentation in the second 
panel, and perhaps you might inquire of him with regard to your 
statement.
    I will also address the consumer issue. Again, I have to 
take issue with the statements that have been made. The Compact 
has certainly in this regard had a less certain record to 
present to the Congress. I have put together a graph for the 
Senators' consideration which graphs the comparison between the 
procurement cost, which is the Compact price and the Federal 
price, and the retail price. Clearly, the retail price has gone 
up over time. However, for a period of time during the 
Compact's operation, the retail price actually dropped a dime. 
So the record is quite mixed in this regard.
    My testimony would be that here the Compact as a pilot 
project is of most vital concern. Certainly, something is going 
on in the dynamic between farm prices and retail prices which 
needs to be reviewed as a matter of public policy. Congress has 
given the Compact Commission the authority to address this 
issue, to intervene in the dynamic that occurs and see if it 
can be resolved favorably both for farmers and for consumers.
    And I would urge that Congress consider how the Compact 
price regulation has been designed with this in mind. 
Certainly, changes can be made; it can be adjusted, and that is 
the benefit that the public in New England, as well as the 
Federal Government gets through the pilot project of the 
Compact.
    I would close with a statement of similar import with 
regard to the pilot project, which is the Commission has 
adopted a supply management program over the past year to 
address the issue of price and supply, a question that has been 
debated at length in the Congress.
    Chairman Leahy. Excuse me. Somebody has what must be an 
important phone call. Why don't we just wait and let the person 
with the phone call step out and take it? I could have sworn I 
heard a cell phone.
    Mr. Smith. I will take that as the----
    Chairman Leahy. No, no. I just wanted to give the 
opportunity because I know nobody would have a cell phone 
ringing in here unless it was extremely important and I wanted 
them to have the opportunity to get up and leave to take the 
phone call.
    Would the person like to step out and take their phone 
call?
    Apparently, it wasn't as important as the person who was 
receiving it thought it was.
    Go ahead, Mr. Smith.
    Mr. Smith. I will close by suggesting that the Compact has 
been working as a pilot project for the past 5 years. I believe 
its record is very positive. I would urge the committee to 
approve the extension of this Compact and the authorization of 
the other compacts.
    I thank you for your time.
    [The prepared statement of Mr. Smith follows:]

Statement of Daniel Smith, Executive Director, Northeast Dairy Compact 
                               Commission

                          Summary of Testimony
    Mr. Chair, Members of the Senate Judiciary Committee. I am Daniel 
Smith, founding and current Executive Director of the Northeast Dairy 
Compact Commission. I am testifying in favor of S.1157, an act relating 
to reauthorization and expansion of the Northeast Interstate Dairy 
Compact and authorization of the Southern, Northwest and Intermountain 
Dairy Compacts. I have been involved with Dairy Compacts in various 
capacities since inception of the first, Northeast Dairy Compact in 
1987.
    My testimony is intended as a follow-up of Congress' action to 
authorize operation of the Northeast Dairy Compact as pilot project in 
the 1996 Farm Bill. My testimony provides a comprehensive report on the 
Compact's legal, economic and administrative operation since Congress 
approved it in 1996. This report is intended to provide this Committee 
with as many facts and figures as I can assemble, so that the Committee 
may assess the propriety of further congressional authorization of 
Dairy Compacts based upon the actual record of the Northeast's 
operation as a pilot project.
    By way of introduction, as the Committee is aware, the Northeast 
Dairy Compact is a federalist initiative, being the function of both 
state and federal sovereign action. The Compact was established under 
law by the six New England states in the early 1990s. With 
congressional and federal executive authorization, the Compact assumed 
the power of federal law. Consistent with its federalist design, 
though, the Compact still remains the states' prerogative and 
responsibility to administer.
    In summary:

         ``The Compact has proven to be the legal solution to 
        the vexing problem of how best to restore the two-part federal/
        state system of milk market regulation. The Compact has 
        successfully reinvigorated the legal ability of states to 
        exercise regulatory authority in the public interest over a 
        regional dairy market without running afoul of the 
        constitution. The Compact has been tested twice in Court, with 
        two federal circuits of appeal finding resoundingly in its 
        favor. Most specifically, the First Circuit affirmed the 
        Congressional grant of authority to the New England states for 
        the uniform regulation of the interstate New England market.
         ``The Compact has accomplished the states' intended 
        economic and social purpose of stabilizing the New England 
        milkshed. The Compact Commission's price regulation has 
        provided income stability as well as enhancement to producers, 
        with a net positive impact on farm viability and 
        sustainability. As presented in my extended statement, there is 
        strong evidence from a variety of sources that the attrition 
        rate among New England and New York farms subject to the price 
        regulation has been slowed considerably.
         ``The Compact has accomplished the further economic 
        and social purpose of not unduly burdening consumers. The price 
        regulation's precise impact on retail prices remains an open 
        question and the subject of vigorous debate. In absolute terms, 
        the data presented in my report indicates that, however 
        calculated, the impact can only be described as marginal. 
        Moreover, the record indicates that the public interest is 
        served by regulatory intervention into the procurement cost 
        pricing dynamic for beverage milk, in the manner of the Compact 
        price regulation.
         ``Consistent with its design, the Compact has been 
        administered without discrimination among market participants. 
        The price regulation is being successfully administered without 
        discriminatory burden on either farmers or processors located 
        outside the New England region. New York farmers benefit 
        uniformly with their counterpart New England farmers; the 
        regulation is equally competitive-neutral in its effect on 
        processors located outside of New England. The price regulation 
        has been particularly effective in its uniform treatment of 
        packaged milk brought in from outside the region, and in this 
        regard represents a significant advance in milk market 
        regulation.
         ``The Compact has accomplished the objective of 
        effectively incorporating the concerns of all market 
        participants -from farmers to consumers--in the regulatory 
        process. The Compact Commission contains twenty-six members 
        covering the whole spectrum of interested concerns in the 
        marketplace. This diverse, potentially divergent, group has 
        proven most able to work together in the common, public 
        interest.
         ``Consistent with its design and statutory 
        requirement, the Compact Commission has instituted a ground-
        breaking initiative in supply management. As intended, the 
        Commission is ensuring that the causal relationship between pay 
        price and milk production is cemented and made a vital part of 
        its regulatory program. The Commission has taken the first, 
        concrete steps toward real progress in this truly difficult 
        task.

    Mr. Chair and Members of the Committee. I strongly believe that 
your review of the record I am presenting today will convince you that 
the Northeast Dairy Compact has functioned successfully and as intended 
by your authorizing action of 1996. I believe that the record supports 
reauthorization, so that the Commission may continue its work on behalf 
of the New England public interest.

    Mr. Chair, Members of the Senate Judiciary Committee:
     Thank you for this opportunity to testify today about the function 
and operation of the Northeast Dairy Compact Commission.
    I am Daniel Smith, founding Executive Director of the Northeast 
Dairy Compact Commission. I have been involved with the Northeast 
Interstate Dairy Compact, in various capacities, since its inception in 
1987. Looking around these august surroundings, perhaps it is enough to 
say by way of introduction that the Dairy Compact has indeed come a 
long way since that first, informal late night meeting with 
Representative Starr, Chair of the Vermont House Agriculture Committee, 
about the need to restore Vermont's sovereign ability to regulate its 
dairy marketplace. My extended written testimony presents a 
comprehensive legal, administrative and economic impact report on the 
operation of the Dairy Compact since Congress first ratified the 
Compact pilot project as part of the 1996 Farm Bill.\1\ As set forth in 
my summary, I strongly believe the record presented provides a tangible 
basis for the Committee's review and a solid foundation of support for 
Congressional action to reauthorize the Compact.
---------------------------------------------------------------------------
    \1\ As an appendix to my testimony, I am presenting a detailed 
analysis in three parts; 1) A summary legal history, describing the 
state and congressional legislative actions resulting in the 
establishment of the compact, the administrative rulemaking conducted 
by the Compact Commission to adopt and administer the market-wide price 
regulation and the litigation involving the Compact and the price 
regulation; 2) an economic analysis of the price regulation's impact, 
from farm-gate to consumer outlet, for the period of its operation, 
July 1997--present; and 3) a compendium of the record for the meetings 
the Commission has held throughout the New England Compact region, 
during which the Commission has heard from state representatives and 
interested citizens about the Compact's impact in each state.
---------------------------------------------------------------------------
    My presentation today will primarily provide a summary economic 
impact review of the Commission's price regulation since its 
implementation in July, 1997. Presented as attachments to this 
statement are summary data about the price regulation's impact on New 
England and New York dairy farmers and on New England consumers. The 
information includes data on net farm pay prices, farm profitability, 
farm viability and milk production. Also set forth is information about 
the price regulation's impact on the procurement cost of raw milk and 
on retail consumer milk prices. I have also provided data on the net 
relative impact on consumer spending for milk and for all food 
products, based on income.
     Attachment I provides summary data for the price regulation's 
operation from July, 1997 to present, by year and in total. It sets 
forth the $159.2 million total compact over-order obligation imposed on 
the New England Class I or beverage milk market, and the $146.4 million 
total payment made to New England and New York farmers who supply the 
market.
    The annual obligation amounts ranged from $19.9 million to $64.4 
million, with a annual average of The total annual producer payments 
ranged from $16.7 million to $59.7 million, with an annual average 
total payment of--. These producer payment figures begin to describe 
the regulation's combined function of producer price stability and 
enhancement.
    Attachment II identifies an average total of 4217 New England and 
New York farms supplying the market. These producers received total 
annual payments ranging from $3,900 to $14,700 per farm, with an 
average payment of $9812.
    As can be seen from this and subsequent attachments, of the 4217 
total farms, approximately 1300 are located in New York State. New York 
farms in this proportion have historically supplied the New England 
market. The attachments treat New England and New York farms, uniformly 
as milk shedfarms historically supply the New England Market.
    As also indicated, the average annual total pool volume of 6.6 
billion pounds of raw milk produced and processed for all purposes in 
the New England marketplace yielded an average net payment of $0.57 
payment per hundredweight on all raw milk produced.\2\ The average 
annual amounts of the producer payments are also set forth per 
hundredweight, ranging from $0.25 to $0.91. These amounts are also 
shown in combination with the federal minimum producer, or blend, price 
paid for federal Milk Market Order #1.
---------------------------------------------------------------------------
    \2\ The total New England pool volume of 6.6 billion all milk is 
approximately 4.1 percent of the total, approximate 160 billion pounds 
of raw milk produced nationally. (FAPRI data)
---------------------------------------------------------------------------
    These per farm and per hundredweight producer payment figures 
display quite concretely the regulation's combined function of producer 
price enhancement and stability. Attachment I also identifies the net, 
annual over-order obligation of 11.6 cents per gallon imposed under the 
price regulation on Class I milk in the New England market, for the 
period. The Attachment places the over-order obligation in context with 
operation of the federal Milk Market Order Class I price, which 
establishes the underlying regulated minimum procurement price for 
beverage milk in the New England market. The two regulated minimum 
pricing mechanisms in combination establish the net, overall increase 
of 11.6 cents in the regulated procurement cost of the raw, Class I 
milk. The amount is established monthly as the difference for the given 
month between the federally established amount and the compact price 
regulation minimum amount of $1.46 per gallon.\3\
---------------------------------------------------------------------------
    \3\ The average annual pool volume of approximately 3 billion 
pounds of Class I milk regulated under the Compact and consumer in New 
Negland is approximately 5.3 percent of the total, approximately 57 
billion pounds of Class I or beverage milk consumed nationally. (FAPRI 
data)
---------------------------------------------------------------------------
    Attachment I also identifies the price regulation's total exemption 
payments made to the six New England state WIC programs and the total 
reimbursement payments made to the region's school districts for school 
milk purchases. Also itemized are the two payments made to the 
Commodity Credit Corporation, pursuant to the Congressional condition 
of consent. Attachment I accounts also for the funding for the price 
regulation's initial Supply Management Program, which the Commission is 
just now in process of administering.
    Finally, Attachment I accounts for the administrative assessment 
that finances operation of the Commission and the price regulation. As 
can be seen, the Administrative Assessment on average was just under 2 
percent of the total obligation collected for the period to present. It 
can also be seen that the assessment was reduced by a half cent 
beginning in 2001.
    Attachment II provides comprehensive data on farm numbers and 
production for the New England milkshed. Attachment I shows the average 
annual distribution of supplying New England and New York farms by herd 
size and the total, annual average production by herd size. Total 
producer payments by herd size through 2000 are also identified.
    It can be seen that almost three-quarters of the supplying New 
England and New York farms have fewer than 100 cows in their herds. It 
can also be seen that of the remaining 1000 farms, about 20 percent 
have fewer than 200 cows. This means that, of the farms regulated under 
the Compact, 400 farms or have herds in excess of 200 cows, with only 
about 80 farms having herds larger than 400 cows. The farms subject to 
the Compact price regulation remain on balance, overwhelmingly small 
family farm operations.
    It can also be seen that the farms under 100 cows, or about 72 
percent of total farms of the total about provide only 35 percent of 
the total milk supply. On the other end, the farms over 200 cows, or 
about 28 percent of total farms, supply about 35 percent of the milk 
supply. It is thus the middle group of farms, between 50 and 100 cows, 
that is the essential anchor of the milkshed for both production and 
milk supply. (Contrary to common understanding, this grouping rather 
than the larger operations also shows the greatest increase over time 
in New England.)
    Attachment III provides data about the price regulation's impact on 
farm profitability. The data establishes that the producer payments 
stabilized farm cash flow positions, and enhanced net income so as to 
allow many farms to operate in the black instead of the red, for 
extended periods of time. This is apparent over time, and particularly 
for the year 2000.
    The impact for the typical farm in 2000 is particularly striking. 
For 2000, without operation of the price regulation, the typical farm 
showed net farm earnings of $23,000, with fully two-thirds of the 
income derived from the price regulation.
    When family living expenses and taxes are factored in, the picture 
changes quite dramatically, with the farm showing net earnings still in 
the black but in the amount of only $400. Viewed from this perspective, 
therefore, without operation of the price regulation, the typical farm 
would have slipped deeply into the red for 2000 in the amount of 
approximately $15,000.
    The analysis of the typical farm operation for 1997 provided by 
Attachment III indicates a similar, if less substantial impact 
attributable to the price regulation. (The price regulation was only in 
effect for one half of the year, moderating its impact by definition.)
    The final piece of Attachment III, an assessment of the 
regulation's impact on the most credit worthy 200 plus operations in 
New England indicates that, even for the most successful operations, 
the Compact had a substantial, positive impact on farm profitability. 
This data also describes the positive benefit over time of price 
stability, as well as that of price enhancement.
    Attachment IV provides an assessment of the price regulation's 
impact on farm viability. This farm viability assessment considers both 
the relative degree of financial stress confronting a farming operation 
and the absolute degree of financial stress resulting in a farmer's 
decision to cease operating the farm. The latter is of course a 
function of the former--the less financial stress confronting a farm, 
the less likely the farmer will be compelled to cease operation.
    The assessment presented in Attachment IV indicates that the price 
regulation has had a substantial, positive impact on the viability of 
the New England and New York farms comprising the New England milkshed. 
By identifying the regulation's impact on profitability, the data 
presented in Attachment III serves also to describe the price 
regulation's effect on the relative financial stress confronting these 
dairy operations.
    Stabilized cash flow positions, enhanced net income and return on 
assets and equity serve most directly to reduce the financial stress 
experienced by a farming operation. As also indicated, and perhaps most 
importantly, the producer payments allowed farmers to pay a significant 
portion of their living expenses for the period with a much greater 
degree of certainty than they would have been possible without 
operation of the price regulation.
    According to the analysis presented in Attachment IV, this overall 
reduction in financial stress resulted in a significant reduction in 
the likely net loss of dairy operations in the New England milkshed. 
According to the analysis presented, this effect of the price 
regulation may well have cut the attrition rate by more than half of 
what might have occurred without operation of the price regulation.
    According to the first part of Attachment IV, the price regulation 
had two striking impacts on farm viability in 2000: 1) the number of 
the most stable farms, or those experiencing no financial stress was 
increased from thirty to fifty percent; and 2) the most vulnerable 
farms, or those experiencing severe stress, was reduced in half, from 
thirty-four to seventeen percent.
    The second part of Attachment IV, which assesses the likely impact 
on farm attrition, follows from the above analysis. According to this 
assessment, the price regulation may well have reduced the number of 
farm losses by as much as two and one half times. This translates to 
approximately 400 farms remaining on the land, and remaining as vital 
participants of the New England milkshed.
    The analysis presented in Attachment IV probably understates the 
case according to the data presented in the individual assessments of 
the price regulation's impact on farm loss provided by each of the New 
England State commissioners of agriculture. (These assessments were 
prepared in response to a request made by Senator Snowe and Senator 
Collins of Maine. I have attached their letters to my statement). For 
example, Commissioner Steve Taylor of New Hampshire indicates that

        ``Since the Compact's inception in July 1997 the number of 
        farms producing milk for the commercial market in this state 
        has declined from 187 to 176. . .If there had been no Compact I 
        would expect that by now we would be down to 130 or even fewer 
        farms.''

    The remainder of my presentation provides some assessment of the 
impact of the price regulation on consumer retail milk prices and 
consumer spending on milk. This portion of the analysis is much more 
difficult to present in concrete terms. At the least it can be said 
that the literature is extensive with regard to the impact on retail 
milk prices of the price regulation's 11.6 cent increase in the 
regulated minimum procurement cost.
    Yet the literature is most inconclusive. One study finds only a 
marginal impact; another finds somewhat similarly that some but not 
all, though still more than a marginal amount, was passed through; yet 
a third finds a substantial, marked-up impact well in excess of the 
actual amount of the price regulation.
    These studies are presently all the subject of a raging academic 
debate on methodologies. The Commission has yet to make its own 
determination, given the stark disagreement in this still developing 
literature. My purpose today is not to contribute further to the array 
of opinions, but instead to provide some context.\4\
---------------------------------------------------------------------------
    \4\ At the same time, thought speaking only for myself and not on 
behalf of the Commission, I do not find the third study to be at all 
credible for its description of the retail mark-up pattern for milk and 
its resulting conclusion of a substantial retail mark-up attributable 
to the price regulation. For this reason, I have not provided any 
illustration of this study, as presented for the others.
---------------------------------------------------------------------------
     Attachments V and VI identify possible per capita and per family 
cost, annually, of the price regulation. Tracking the first two studies 
cited above, an analysis premised on a pass through of half the 
increase is also presented. For purposes of illustration, a complete 
pass through of the price regulation's increase in the regulated 
minimum procurement cost is also presented.
    According to Attachment V, a pass-through of half of the regulated 
assessment, or 6 cents, would have yielded an annual per capita average 
increase in spending on milk in the amount of about $1.40, with a range 
of $0.75 to $2.35. A pass-through of the entire11.6 cents would have 
yielded twice these totals, or about $2.75 on average. By household, 
assuming a pass-through of half the amount, the annual impact on 
average would have been about $3.50, with a range of $1.90 to $5.80 for 
the period. Again, a pass-through of the entire amount would double 
these impacts.
    Attachment VI provides a further context for assessing the annual 
household net impact of the price regulation. This assessment considers 
milk purchases and total food purchases, by income group. As can be 
seen, assuming a complete pass-through, the impact again ranges on 
average between $5 and $10, with the higher impact occurring for the 
higher income groups. With regard to all food purchases, this increase 
appears as a one to two tenths of one percent increase for all food 
purchases; it does not appear at all statistically with regard to all 
purchases. The attachment also provides some further context with 
regard to all food purchases.
    A final note on consumer impacts with regard to the Women, Infants, 
and Children Nutrition Program (WIC) and School Lunch Programs. The 
price regulation contains provisions exempting the WIC program and 
providing reimbursement to the School Lunch programs. The purpose of 
the first is to ensure the WIC program is held harmless; the attached 
letter from Mary Kelligrew Kassler, Director of the Massachusetts WIC 
Program indicates that this purpose has been served. (A letter from 
Peter Petrone letter, Compact Commission member-designee of the Rhode 
Island WIC Program, describing a similar outcome, is also being 
submitted for the Record.
    The School Lunch reimbursement procedure was intended to ensure the 
same result, while at the same time allowing for the possibility that 
milk processors might choose to compete over the potential impact of 
the over-obligation on the margin for school lunch milk. The total 
amount of the reimbursements provided has been substantially less than 
originally provided for. This indicates at least that the program has 
been held harmless.
    Finally, I have provided data in graph form that illustrates the 
interrelationship between the regulated procurement cost for Class I or 
beverage milk and the retail price for the same milk in the New England 
market (Boston). As noted earlier, the procurement cost for raw milk is 
a combined function of the federally established Class I minimum price 
and the Compact price regulation. In combination, the bottom two lines 
of the graph identify the combined minimum procurement cost.\5\
---------------------------------------------------------------------------
    \5\ As also described earlier, their combination also defines the 
price regulation's net, overall invrease of 11.6 cents in the rgulated 
procurement cost of the raw, Class I milk. This amount is established 
monthly by the combined operation of the federal price regulation and 
the compact price regulation minimum amount of $1.46 per gallon.
---------------------------------------------------------------------------
     Adding the top line for retail prices defines the margin between 
this combined regulated minimum procurement cost and the retail price. 
As can be seen, this graphed illustration is presented in two formats. 
The first is a single, continuous graph for the entire Compact period, 
(Attachment VIIa). The second shows the Compact period divided in two 
parts (Attachment VIIb).
    Attachment 7b indicates that the pattern of the margin between the 
regulated procurement cost and the retail price was dramatically 
different between the first and second of these two defined periods. 
The first shows a period of stable cost and even declining price, while 
the second shows combined stability and fluctuation in cost accompanied 
by a substantial increase in price. For the moment, I can only let the 
graph speak for itself. On behalf of the Commission, I will be 
attempting to reconcile these two periods as our assessment moves 
forward. I can only hope that the analysis in the literature will move 
in that direction, as well.
    This concludes my testimony. I thank the Committee for its 
considerate attention.

    Chairman Leahy. Thank you very much.
    Mr. Norquist, you are no stranger to the Congress and we 
are delighted to have you here, sir. Go ahead.

  STATEMENT OF GROVER NORQUIST, PRESIDENT, AMERICANS FOR TAX 
                    REFORM, WASHINGTON, D.C.

    Mr. Norquist. Thank you. I serve as President of Americans 
for Tax Reform. I am submitting my testimony in writing. I 
speak to support allowing the Northeast Compact to lapse and in 
opposition to any extension of it.
    There was recently a book and a movie called ``The Perfect 
Storm'' and it described the perform storm. The Dairy Compact 
is the perfect bad law. There are lots of laws that have good 
points and bad points, but the Dairy Compact is absolutely 
perfect in its wretchedness and it has nothing to recommend it. 
It is price-fixing by the Government.
    We have somewhere between 4 and 20,000 years of history on 
price-fixing being a bad idea. It creates a cartel. If 
anything, the Government should be trying to move away from 
monopolies and cartels. We know that monopolies and cartels 
give us higher prices and less good quality. The Government 
ought not to be interfering in capitalist acts between 
consenting adults.
    Third, it has hidden costs. I mean, one of the things that 
we would like to have from Government is more transparency, but 
here it is not even sort of an honest tax where you say the 
Government is going to come and take 10 cents from me or 20 
cents from me every time you buy a--at least the sales tax one 
can see, and consumers and taxpayers can say, well, this sales 
tax is too high or it is a reasonable cost. But when you hide 
costs, that is a particular problem.
    It hurts poor people. Obviously, for lower-income people, 
milk of a larger percentage of their income than for other 
people. When we sent people over to the former Soviet empire 
and found things like this, we told them don't do this. This is 
exactly the kind of government program that we told people that 
they should move away from.
    It also has a false promise. It promises to help small 
farmers. Small farmers have continued to go out of business. It 
sends money to large farmers. When you go to college, they 
explain to you how corruption happens in government, that you 
have diffused costs and concentrated benefits and if you just 
sort of nick everybody a little bit, somebody can walk away 
with a lot of money. This is the structure of nicking everybody 
who buys milk.
    Then, seventh, it moves away from where I think the country 
and the world is trying to get to, which is expanding markets. 
We want to trade not just between the 50 States, but with 
Canadians and Mexicans, and hopefully with the entire 
hemisphere and with the entire world. We should be knocking 
down markets and insisting the Europeans move away from their 
subsidies and cartels, and this makes it more difficult to do 
that. The United States can compete successfully in the world, 
but we ought to be competing rather than hiding behind cartels 
and moving in the wrong direction.
    Now, it has been said that no one's life is ever a complete 
waste; some people serve as bad examples. And this law serves 
as a bad example, but we don't need it. There are others. High 
school, the Department of Motor Vehicles and the post office 
have inoculated America against socialism because people decide 
they don't want more of that.
    When I am asked as a taxpayer advocate, what Government 
services would you give up if you had less taxes, the first one 
I always point to is the milk cartel. That is a Government 
service that I would like to give up, and I never get an 
argument from people who then want to tell me that this is a 
useful project.
    That said, I hope this will be allowed to lapse. I 
certainly hope it will not be extended.
    Chairman Leahy. And that would save you how much in taxes 
if you gave up the Dairy Compact, Mr. Norquist? I want to make 
sure I follow your testimony.
    Mr. Norquist. No, no. The interesting conversation, of 
course, is politicians are put in the very difficult position 
of explaining that they are giving lots of money to dairy 
farmers, but somehow it isn't coming from anybody. Obviously, 
it comes in higher consumer costs because the money is not 
printed; it actually comes from somewhere.
    It does not run through the central Government. It is a 
mandated price-fixing by the Government, and therefore it is a 
Government service, these laws, that we would like to pass on. 
But it does not show up on the tax records, which I would argue 
makes it a less honest transfer of wealth from some to others.
    [The prepared statement of Mr. Norquist follows:]

  Statement of Grover Norquist, President, Americans for Tax Reform, 
                            Washington, D.C.

    Americans for Tax Reform (ATR) has steadfastly opposed the 
Northeast Dairy Compact since its inception for reasons based initially 
on principle and further strengthened over the course of years by 
mounting evidence of its disappointing performance. Therefore, we find 
S1157 to be a very troubling proposal, for it would give dairy compacts 
everlasting life, and would take a bad idea from one corner of the 
country and spread it virtually nationwide.
    The Northeast Compact has been an expensive boondoggle not worth 
continuing, and this experience has ably shown that establishing even 
more regional compacts would be a very ill advised choice for Congress 
to make.
    ATR's opposition to the extension of the current dairy compact and 
the creation of new compacts can be categorized into four basic themes. 
First, it's bad economics. Second, the Northeast Dairy Compact has 
completely failed in its mission to rescue the small farmer, as would 
new compacts. Third, the entire approach is so anachronistic it should 
be forever consigned to a museum. Finally, the Northeast Dairy 
Compact's persistence has demonstrated Milton Friedman's cautionary 
adage that ``There is nothing so permanent as a temporary government 
program.''
    Dairy compact advocates have insisted all along that in order to 
prevent the collapse of smaller farms (especially those owned by 
families) and ensure an adequate supply of milk and related dairy 
products, a higher floor on regional dairy prices needs to be set than 
the one imposed by Washington every month.
    The problem with this approach is that it does not correct the 
underlying flaw; it simply relocates it. A pricing decision imposed by 
bureaucrats at the local level is no better than a pricing decision 
imposed by bureaucrats in Washington, DC.
    Whenever any government brusquely interferes with the pricing 
mechanism of the free market, untenable economic distortions inevitable 
follow. These deliberate alterations are intended to confer direct 
benefits to the rest, and the schemes are alleged to somehow come at no 
real expense on the part of the whole.
    As with any attempt at command and control economics, such an 
unrealistic outcome is the rosiest of rosy scenarios. It has certainly 
not been the case with dairy compacts. Indeed, it would appear that no 
one has benefited, and nearly everyone has borne a very real cost for 
keeping the program intact.
    The average price per gallon of milk in the Compact has generally 
increased 10 to 15 cents. This artificially induced price hike is, for 
all intents and purposes a tax on milk, and has worked much like any 
other excise tax in that it serves to reduce the maximized consumption 
of milk. (Think of the excise taxes slapped on alcohol and tobacco. 
Milk has now joined their ranks as guilty pleasures discouraged by 
government.)
    Such a tax, of course, penalizes milk drinkers. But it also hurts 
milk producers. The flattened consumption levels have tended to obviate 
any potential profit gains dairy farmers would have otherwise expected. 
And consequently, many of those farmers find it impossible to continue 
operating and decide to quit the industry, which leads us to the 
aforementioned second bone of contention: The Northeast Dairy Compact 
hasn't prevented the implosion of small farms.
    The Massachusetts Department of Food and Agriculture recently 
reported that while dairy farmers in that state receive an additional 
$7,000 every year on average from participating in the Northeast 
Compact, which is in accordance with the compact boosters' design, the 
rate of annual dairy farm closure defied their wishes and leapt from 6% 
to 10% after the Compact was established.
    Unfortunately, this sorry phenomenon is not exclusive to 
Massachusetts. It applies throughout the Compact zone. And it's largely 
attributable to the ``less you need, more you'll get'' nature of 
agricultural subsidies.
    As a recent GAO report confirmed (GAO-01-606), the bigger and more 
efficient farms have been receiving the lion's share of federal 
agricultural assistance payments for years, and that share has been 
steadily increasing. In 1999, large farms, which constitute only 7 
percent of all farms, received around 45 percent of the payments. 
Medium-sized farms, which constitute 17 percent of all farms, took 41 
percent of the payments. The remaining 14 percent was divided among the 
76 percent of farms that are small--they very same farms the 
agricultural support programs are meant to assist.
    And milk is no exception. Since the total amount of price support 
any one farm can claim is determined by the amount of milk it produces, 
larger farms automatically qualify for far more in subsidies simply 
because they have higher production capacities. And since the program 
doesn't heap its benefits on small farms, as its supporters would 
assert, the program doesn't help to keep small farms in business. 
Instead, it provides huge incentives for farms to grow larger in order 
to soak up more subsidies, which often entails consolidating with the 
smaller farms previously driven out of the industry.
    Allow me to clarify: Large farms are not be feared. They will 
obviously be a major component in the future of farming, which is 
entirely desirable. They produce a greater yield with less space and at 
lower prices. But our regulatory framework does not accurately reflect 
this ongoing development, and scarce resources are getting showered 
upon already efficient and thriving farms. What was designed to prop up 
family farms during the Great Depression is now hopelessly 
anachronistic in this prosperous age, the third point ATR would hasten 
to make.
    The current outdated approach has resulted in millions upon 
millions of taxpayer's dollars going to meet needs that by any 
objective criteria simply do not need to be met by the government for 
the simple reason that the advance of agricultural technology as well 
as agricultural economics has shown that government interference is 
unnecessary and costly.
    Clearly, a new approach is needed. The production, distribution, 
and sale of milk and other dairy products have entered the 21st 
Century. But the laws governing the dairy industry need to follow. 
Dairy compacts will keep us in the past. Congress should keep pace with 
the modernization of farming, not cling tenaciously to a bygone era.
    In that same spirit, Congress should regard the issue of dairy 
compacts as a failed experiment that is destined for the history books. 
Doubtlessly, the entire matter of dairy compacts was meant to be 
jettisoned by now, but that brings us to ATR's fourth concern: the 
permanence of ``temporary'' government programs.
    The Northeast Dairy Compact, in effect since July 1997, was 
supposed to be a short-term measure to help the region adjust to the 
aftermath of years of lower dairy price supports and the sale of 
government-held dairy stocks. Concurrent with the Federal Milk 
Marketing Order reform called for in 1999, the Compact was supposed to 
expire, hence the automatic sunset provision in its original 
legislation. The Marketing System was reformed as promised, but the 
Compact remains. So the Compact is living on borrowed time, and it 
deserves the fate ordained by the Federal Agriculture Improvement and 
Reform Act, i.e. oblivion.
    Much of the Northeast Dairy Compact's surplus milk and dairy 
products have spilled out into non-compact states and applied downward 
pressure on prices in those states, which would explain to a great 
degree why many states want in on this deal. ATR believes it would be 
far better to simply end the entire misadventure before things get out 
of hand.
    Moreover, ATR believes that all attempts to fix food prices are 
misguided and counterproductive. Not only should regional compacts get 
out of the business of fiddling with the price of milk, the USDA should 
get out of it as well. Governments at all levels should allow the 
marketplace to determine the price of all food, as it does so 
effectively and equitable with every good and service.
    In closing, I would like to acknowledge the tireless efforts of 
grassroots organizations like Citizens Against Government Waste and the 
superb research of scholars such as Professor Kevin McNew of Montana 
State University. (Were I to present a more comprehensive list of the 
people exasperated by dairy compacts and doing something about it, this 
testimony would have filled volumes.)

    Chairman Leahy. Mr. Burrington?

STATEMENT OF STEPHEN H. BURRINGTON, VICE PRESIDENT AND GENERAL 
  COUNSEL, CONSERVATION LAW FOUNDATION, BOSTON, MASSACHUSETTS

    Mr. Burrington. Thank you, Mr. Chairman and members of the 
committee. I am Vice President and General Counsel of the 
Conservation Law Foundation. We are widely regarded as New 
England's leading public interest environmental advocacy 
organization. Many people know us as the group that brought the 
lawsuit that led to the cleanup of Boston Harbor. For many 
years, we have tackled pressing environmental challenges in New 
England, in many, many different areas.
    I am here because providing a living wage to our region's 
dairy farmers is as high an environmental priority today as 
cleaning up Boston Harbor was 20 years ago, and it is clear to 
us that the Compact is working and the Compact is the way to 
achieve that goal.
    The list of New England public interest organizations who 
join my organization in supporting the Dairy Compact is long. 
For example, the entire Massachusetts environmental community, 
ranging from small, grass-roots groups to the State's major 
organizations, and Massachusetts' leading consumer and historic 
preservation groups all vigorously support the Dairy Compact 
and its reauthorization.
    On the ground, in New England, to put it simply, 
reauthorization of the Dairy Compact is a no-brainer. Why, from 
an environmental perspective? Because sprawl is our foremost 
environmental challenge and we simply have no hope of winning 
the war against sprawl if farmers can't make ends meet.
    Sprawl is an open-space problem, it is a biodiversity 
problem, and it is a quality of life problem. But it is even 
more than that. Sprawl is the worst threat to air quality and 
to water quality that we face today. For example, Lake 
Champlain has a severe eutrophication problem. Farms produce 
some of the phosphorous pollution that is causing the 
eutrophication in Lake Champlain, but the mere 4 percent of the 
land around Lake Champlain that is developed produces one-fifth 
or more of the phosphorous that is going into Lake Champlain. 
So sprawl pollutes on a per-acre basis much more than farms do 
and farms are an important bulwark against sprawl. The 
environmental and consumer interests here are perfectly 
aligned, we believe.
    Milk is heavy and bulky and expensive to transport over 
long distances. There are freshness issues which have been 
alluded to, but there is no way around the fact that unless you 
reduce it to concentrate, milk costs a lot to transport a long 
distance. The milk that arrives in Washington, D.C., from 
Boulder has a hefty transportation component to its retail 
price.
    Under the Dairy Compact, New England consumers are paying 
regional farmers a few cents per gallon to avoid paying 
literally ten times that amount to get milk from 500 or more 
miles away. Whether it be the very farthest part of western New 
York State or Ohio or Michigan, there is no way around the fact 
that it would cost our consumers more to bring milk such a long 
distance than it costs them to keep our regional dairy farmers 
in business.
    Time doesn't allow me to go into all the issues that have 
been raised up to this point in the hearing, but I would like 
to take on just a couple of them. First, the question of 
whether the Dairy Compact has been effective in protecting our 
dairy farms, and I would make five points in response to that.
    First, the appropriate question is are we doing better than 
we would without the Compact, and I think clearly the answer is 
yes, we are doing better than we would without the Compact.
    Second, the focus should be on farm acreage, not farm 
numbers. Farm acreage has remained stable under the Dairy 
Compact.
    Third, the trends in dairy farming need to be looked at in 
historical context. We are still experiencing the after-effects 
of decades when it was impossible to make ends meet in farming 
in New England and when nobody could see a future in farming. 
The median age of farmers in our region rose to 64. We are 
still suffering that effect.
    It is easy to get out of farming. Many people have been 
looking to get out farming for years prior to the time when you 
could make ends meet under the Compact. It is very difficult to 
get into farming because we have extraordinarily high land 
prices in our region.
    Fourth, the Compact, due to its governance structure, 
provides no dairy farmer a guarantee. The Compact price is 
based on a balancing of public interest considerations. It is 
not a cartel controlled by the dairy farmers; it is governed by 
a commission that consists of representatives of farmers, 
processors, consumers and others. It may be that if we 
absolutely wanted to provide assurance that we would lose no 
dairy farmers, we would set a higher price, but that has not 
been done and should not be done.
    Finally, the anecdotal evidence that there are many farmers 
in business in New England today who would not be without the 
Compact is simply overwhelming to anyone who is on the ground 
in New England.
    In conclusion, I would say giving the States authority to 
protect the economic viability of their dairy farms and keep 
milk supplies local is critical to protecting consumers and the 
environment. We think this is a matter that is handled well by 
the States. It has been handled well in our region and we and 
our many allies in New England's environmental community urge 
you in the strongest possible terms to give the States the 
authority that they have requested.
    Thank you. I would be glad, by the way, to answer questions 
on a wide range of subjects.
    [The prepared statement of Mr. Burrington follows:]

Statement of Stephen H. Burrington, Vice President and General Counsel, 
                      Conservation Law Foundation

    Mr. Chairman and Members of the Committee:
    I appreciate the opportunity to appear today and express the strong 
support of the Conservation Law Foundation (CLF) for the Dairy 
Consumers and Producers Protection Act of 2001. CLF is a non-profit, 
member-supported organization that works to solve the environmental 
problems which, threaten the people, natural resources and communities 
of New England. CLF is widely recognized as New England's leading 
environmental advocacy organization.
    The Dairy Consumers and Producers Protection Act is one of the most 
important pieces of consumer and environmental protection legislation 
Congress will take up in the, near future. The availability of fresh, 
affordable milk, and the future of millions of acres of rural and 
suburban land across the nation, both hang in the balance. New 
England's experience since the Northeast Interstate Dairy Compact 
(Dairy Compact) took effect in 1997 has shown that empowering the 
states to provide dairy farmers a living wage is good for consumers and 
the environment. The Dairy Compact has enabled consumers to avoid the 
high cost of shipping milk over long distances while simultaneously 
protecting; the landscape from sprawl.
    The Dairy Compact enjoys broad support in New Enghand. Many of the 
region's environmental, consumer, land conservation and historic 
preservation groups join the Conservation Law Foundation in strongly 
supporting its reauthorization. A partial list of New England public 
interest organizations supporting reauthorization is attached as 
Exhibit A. In Massachusetts, which accounts for nearly half of New 
England's population and a corresponding share of its milk consumption, 
every major environmental organization and the state's leading consumer 
protection and historic preservation groups, as well as many smaller 
community-based organizations, support reauthorization of the Dairy 
Compact.
    My testimony will explain the importance of the Dairy Compact to 
the environment and to consumers and then briefly address criticisms 
that have been leveled at the Dairy Compact by representatives of the 
national dairy processing industry and their allies.
          Keeping Dairy Farms Viable Protects the Environment
    Farms are important environmental assets. They provide a bulwark 
against sprawl. Throughout New England and many other parts of the 
country, if farmers cannot make a living in agriculture, public and 
private land protection efforts will never be able to save more than a 
fraction of the rural landscape from low-density development. Hundreds 
of millions of dollars in land protection spending could not compensate 
for the effect of public policies that allowed farmers supplying milk 
and other basic commodities to be driven out of business. When farmers 
can earn a living in agriculture, government and private land 
conservation organizations can spend, scarce dollars elsewhere. In the 
coming years, pressure on land will likely be even greater than it has 
been in the past. Development pressure is spreading to more of the 
rural Northeast as more people work at home and the retirement-age 
population grows and becomes free to locate far from employment centers 
and schools.
    In New England alone--a small, densely populated region--there are 
roughly 1.3 million acres of land in dairy farming, most-of which would 
be lost to agriculture if Congress did not reauthorize the Dairy 
Compact. For decades before the Dairy Compact took effect, federal 
price floors failed to reflect the cost of producing milk or to serve 
their intended purpose of keeping dairy farms economically viable in 
this and other regions. In 1995, there were 1,919,535 acres of dairy 
farmland in New England. In 1995, just a decade later, there were only 
1,320,507 acres of dairy farmland. In other words, about 600,000 acres 
of dairy farmland--almost ore-third of the dairy farmland in the 
region--were lost.to other uses during a few short years. According to 
Yankee Farm Credit, a leading regional agricultural lender, as of 1995 
a full 54% of New England dairy farms were under moderate or severe 
financial stress. Only 38% were in healthy financial condition.
    Protecting the working agriculturai landscape from sprawl has 
fiscal as well as environmental value. Farms have positive revenue-cost 
ratios for municipalities. For example, for each dollar of local tax 
revenue a Massachusetts farm produces, the Farm requires an average of 
only 40 in costs for local services. Residential 
development, by contrast, does not pay its way: each $1.00 in tax 
revenue it yieldsis more than offset by $1.09 in costs for local 
services. Protecting farms also helps state government avoid 
infrastructure expansion costs, Massachusetts, New Hampshire, and other 
New England states have been spending hundreds of millions of dollars 
on cuter-suburban highway, expansion projects in recent years. They 
will spend much more in the future if sprawl development eats up farms 
on the suburban fringe and in rural areas.
    From an environmental perspective, more than open space is at 
stake. The water quality and air quality impacts of sprawl are among 
today's most intractable environmental problems. For example, Lake 
Champlain has a severe eutrophication problem due to phosphorus 
pollution, and dairy farms are one significant source of that 
pollution. Yet studies carried out in recent years show that on a per-
acre basis, the four percent of land in the Lake Champlain basin that 
is developed produces one-fifth or more of the phosphorus pollution. 
Similarly, the lion's share of the pollution causing acid precipitation 
acid smog in New England originates with burgeoning motor, vehicle 
traffic volumes resulting from sprawl. On a per-acre basis, sprawl 
development produces far more pollution than dairy farms do.
    CLF would not support the Dairy Compact simplx as a means of 
keeping land open if preserving local milk supplies were not important 
in its own right. But preserving local milk supplies is a critically 
important public objective, and Congress should recognize the enormous 
environmental value of the Dairy Compact when considering the proposed 
legislation
                   Consumers Need Local Milk Supplies
    The dairy Compact has enabled New England consumers to avoid 
becoming dependent on distant sources of milk and paying the high cost 
of shipping milk for hundreds of miles. Milk is heavy and bulky and 
expensive to transport. Even with fuel prices below current levels, 
trucking milk to Rhode Island from Michigan or Wisconsin would cost 50-
70 per gallon. (See Exhibit B.) In Florida, where the dairy 
industry has collapsed, consumers pay nearly that much for shipping and 
get milk from as far away as New Mexico. In contrast, it costs less 
than a dime per gallon to ship milk within New England. While economies 
of scale on massive dairy farms in certain regions yield lower 
wholesale milk prices, they offset only about half the cost of long-
distance transport. Since the Compact took effect, New England 
consumers have paid dairy farmers a few additional cents per gallon. 
Those pennies have enabled regional farmers to stay in business and 
provide milk at a lower overall cost to consumers.Recent unprecedented 
consolidation in dairy processing gives consumers an even greater stake 
in the Dairy Compact. Dallas-based Suiza Foods now controls three-
quarters of fluid milk processing in New England. There is strong 
evidence that Suiza has used its market power to gouge conswners. Suiza 
Foods doesn't need New England dairy farms, but the regional processors 
who represent its remaining competition do. If the Dairy Compact goes, 
they will succumb as well.
    It is important to note that the Dairy Compact has Shielded 
programs benefiting children, particularly low-income children. The 
Dairy Compact legislation exempts milk sold to low-income people under 
the Women, Infants, and Children (WIC) Program. The Dairy Compact 
Commission has approved an exemption for school meals, programs. 
Neither of these programs would be exempt from the higher costs 
associated with long-distance shipping and with the reduced competition 
in dairy processing that would be abetted by the demise of dairy 
farming in New England send other regions. I note that, when the New, 
York Public Interest Group (NYPIRG) testified in opposition to the 
Dairy Compact before the New York legislature several years ago, it 
cited as two of its three reasons anticipated impacts on the two 
programs just mentioned--impacts which, the Compact was subsequently 
crafted and administered to avoid.
    Nationwide consolidation, of milk production in a small handful of 
states would mean not only higher costs but diminished product, 
quality. Consumers would increasingly be presented with milk that had 
been ``ultra-pasteurized,'' a process that enables milk to be stored 
for weeks longer than conventionally processed milk but that also 
leaves it tasting like liquid cardboard. With transportation accounting 
for a large share of costs, processors would have a strong incentive to 
reduce milk to concentrate for shipment Fresh-tasting local milk would 
remain available for consumers in higher income brackets. But the days 
when dairy farms remained in all regions and children of all income 
levels drank the same milk would become a memory.
      Criticisms of the Dairy Compact Have Not Withstood Scrutiny
    The Dairy Compact has been under constant attack by 
representatives.of major national dairy processors. Their multiple 
court challenges have failed. And despite, heavy spending on 
advertising and lobbying in Massachusetts--a populous state with a 
comparatively modest agricultural presence that industry opponents 
hoped would provide fertile ground for their arguments--the opponents 
have won no popular support. Indeed, support for the Dairy Compact in 
Massachusetts is broad, as mentioned above, and popular opposition 
imperceptible or nonexistent. The result of drawing more attention to 
the Dairy Compact has been to draw more legislators and others into the 
ranks of Compact supporters.
    Some of the Compact opponents' recurring criticisms were aired at 
an oversight hearing of the Joint Committee on Natural Resources and 
Agriculture of the Massachusetts legislature on February 10, 1998. At 
that time, the chairs of the committee were Representative Douglas W: 
Petersen and Senator Lois G. Pines. The hearing followed one of the 
opponents' concerted attempts to turn opinion against the Compact. In 
its report on the hearing (Exhibit C), the committee rejected the 
arguments against the Compact.
    An underlying reason for Compact opponents' failure to persuade is 
that the Compact has brought management of an important agricultural, 
resource closer to the people and placed it in the hands of a body 
that, by design and in practice, protects the broad public interest. 
The Dairy Compact legislation has given back to the states authority 
that does not belong in the hands of the federal government. For 
decades prior, to 1997, the federal government presided over the 
decline of New England's dairy farms. Federal price floors failed to 
serve their intended purpose of keeping dairy farms economically viable 
in our region and many others. In contrast, the commission that 
administers the Dairy Compact on behalf of the states has proven to be 
an, effective guardian of the public interest. The Dairy Consumers and 
Producers Protection Act would give other regions the same badly needed 
mechanism for addressing threats to their food supplies.
    Opponents malign the Dairy Compact as a ``cartel,'' but it is 
nothing of the sort. A cartel is a combination of businesses that 
regulates prices to suit itself. In contrast, the Compact has a broadly 
representative and accountable governance structure. The Dairy Compact 
Commission is a publicly appointed body that includes representatives 
of consumers, processors, the general public and others. Dairy farmers 
are in the minority on the commission.
    After years of debate, Compact opponents have failed to explain how 
consumers would be better off paying far more to ship milk from 500-
1,000 miles away than they would be paying a few pennies per gallon to 
enable dairy farmers to stay in business and produce milk within their 
region.
    Compact opponents have also failed to produce evidence in support 
of their claim that the Dairy Compact is promoting consolidation in 
dairy farming in New England. The Dairy Compact took effect after many 
years when dairy farmers could not make ends meet or see a future in 
dairy farming, when very few people went into dairy farming, and when 
the median age of the region's dairy farmers climbed to 64. New England 
has some of the highest agricultural land values in the country--
Massachusetts, for example, ranks fourth among the states in farmland 
value, at $5,597 per acre--making it difficult for new farmers to get 
started. With many dairy farmers reaching retirement age, neighboring 
farmers, who now find, dairy farming to be a viable proposition, 
sometimes buy or rent retiring farmers' assets. At the same time, more 
people have been going into, dairy farming since the Dairy Compact took 
effect. Dairy farms in New England remain modest in size. For example, 
the average dairy herd size in Massachusetts is 70 cows, up from 67 a 
few years ago. A typical New England dairy farm is run by an overworked 
couple with kids and at least one off-farm job, a large farm by two 
overworked couples with kids and off farm jobsFinally, when Compact 
opponent, assert that they embrace the goal of protecting local milk 
supplies but that interstate compacts are not the best means of 
attaining that goal, they disregard the fact that the Dairy Compact 
emerged from years of debate and experimentation with other mechanisms 
that proved less satisfactory. Other witnesses are better qualified 
than I am to discuss that pre-Compact history. What I can attest to is 
that the historical record since 1997 shows that the Compact is a 
response to the dairy farm crisis that, viewed from any perspective, 
does work.
    The Daily Compact has not eliminated all challenges for dairy 
farming in New England. It was not intended to do that. It has, 
however, provided a mechanism through which the people of our region 
can address the challenges and find solutions that benefit consumers, 
farmers, processors, and the environment alike. After four years of 
experience with the Dairy Compact, it is clear that this mechanism 
should be preserved and expanded in the Northeast and made available to 
other regions of the nation as well. 
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    Chairman Leahy. I suspect you are going to get a number of 
them, Mr. Burrington, but I do appreciate in your testimony 
that you mentioned strong evidence that Suiza has used its 
market power to gouge consumers, and we will go into that.
    Mr. Neuborne, it is good to have you here with us, sir.

 STATEMENT OF BURT NEUBORNE, JOHN NORTON POMEROY PROFESSOR OF 
   LAW, NEW YORK UNIVERSITY SCHOOL OF LAW, NEW YORK, NEW YORK

    Mr. Neuborne. Thank you, Senator Leahy. I am a Professor of 
Law at New York University, and thank you for the opportunity 
to appear before you this morning. This is a rare occasion for 
me to disagree with Senator Leahy, whom I admire very much.
    Chairman Leahy. Don't feel badly. I have constituents who 
do it all the time and they still somehow find their way to 
vote for me, so I don't mind a bit, Professor.
    Mr. Neuborne. I appear on behalf of the International Dairy 
Foods Association to express my concern over the effort to use 
the Compact Clause to permit certain States to fix the price of 
milk at artificially high levels in order to shield high-cost 
local milk producers from competition from lower-cost producers 
elsewhere in the Nation.
    I want to make clear I do not oppose aid to local dairy 
farmers. Powerful arguments that have been made this morning, 
sounding in really three Cs, sounding in culture, the desire to 
protect the culture of the family farm, which is a part of the 
American ideology; conservation, the importance of preserving 
farms in the modern era; and compassion, the notion that these 
are people who work very hard and should be protected, argue in 
favor of subsidizing dairy farmers. But regional price-fixing 
compacts are the worst way to subsidize dairy farmers, the 
worst way from fairness and the worst way, I believe, from 
American constitutional law.
    First of all, there is no getting around the fact that a 
regional price-fixing compact is a regressive tax on low-income 
consumers. There is no free lunch and there is no free milk, 
and if the price that goes to dairy farmers is to be increased, 
it has to come from either one of two places. It has to either 
come from recovering some of the gouging that the processors 
and retailers appear to be engaging in, and I would support 
that unreservedly, or it has to come out of the pockets of 
consumers.
    The way the Compact operates, it is going to come out of 
the pockets of consumers. So this is, in fact, a transfer of 
wealth from the poor consumers to the dairy farmers to achieve 
important social goals. It is just unfair to advance those 
social goals by forcing low-income consumers to bear the 
principal economic cost.
    There is a way to do it, and the way to do it would be for 
regional tax legislation aimed at providing subsidies to New 
England's milk farmers, which would enable them to compete, but 
they would be subsidized competitors. The market price would be 
the true market price and the people of the area would pass 
democratically on whether they wished to have tax subsidies 
that go to these farmers.
    But the milk Compact doesn't allow that type of democratic 
judgment to enter into the process. It essentially takes it out 
of politics and allows this subsidy to be imposed without the 
people who bear the cost of the subsidy ever having a chance to 
express themselves democratically about whether the subsidy is 
a good idea.
    But moving to an area that I have some expertise with, and 
that is the Constitution, I think in addition to being an 
unfair regressive tax, the milk Compact places serious tension 
with the Constitution on four levels.
    First, it is unquestionably inconsistent with the ethos of 
the document. As a number of you have said, the ethos of the 
document is an effort to move from the kind of regional price 
wars that characterized the Articles of Confederation to a 
national common market. And that national common market is 
important not just for efficiency. It has allowed us to be the 
most efficient economic engine the world has ever seen, but it 
is also important because it has forged the national 
consciousness which underlies the psychological notion that we 
are the citizens of a single Nation.
    If we begin to divide ourselves into regional economic 
blocks through the use of the Compact Clause, people begin to 
think of themselves as citizens of the region, not citizens of 
the Nation. And we would erode not only our economic 
efficiency, but the psychology that makes us the strongest 
exercise in democratic governance the world has ever seen.
    I think everybody on this panel agrees, everybody who has 
been to law school agrees that if a single State tried to do 
this, it would be unconstitutional. It would be clearly treated 
as a violation of the negative Commerce Clause. So the question 
is can the negative Commerce Clause be lifted by the use of the 
Compact Clause.
    I would argue that the Compact Clause is exactly the wrong 
way to do this. First of all, it has never been done before. In 
the 200 years of the Nation, we have never used the Compact 
Clause to lift the bar of the negative Commerce Clause, and for 
good reason, because it takes the issue out of politics, and 
this is an issue that should be in politics.
    But more importantly, it is inherently unequal. Even if 
Congress had the power to use the Compact Clause to lift the 
negative Commerce Clause, that power would still have to be 
measured by the other substantive provisions of the 
Constitution, by the Equal Protection Clause, the Privileges 
and Immunities Clause, and by the Privileges or Immunity 
Clause. All three of those clauses insist that Congress treat 
everybody equally when it raises the negative Commerce Clause.
    How can one say that you treat everybody equally by 
creating a compact that gives some States the power to set milk 
prices and leaves other States subject to the restrictions of 
the negative Commerce Clause? This is a regime of two separate 
laws governing the economic marketplace. Entirely apart from 
its economic merits and its political merits, it is a classic 
exercise in inequality and, in my opinion, raises the most 
serious questions of constitutionality.
    I would just leave you with a hypothetical. Suppose 26 
States decided they were going to get together and create one 
of these compacts maybe to control energy, maybe to control 
some other very important economic entity. All political 
controls would be stripped away because they would have a 
majority in Congress. They would then be in a position to wage 
economic warfare on one or other of the other States with no 
restrictions. So I am going to suggest to you the Founders 
would never have thought that a Compact Clause was a way to 
deal with economic regulations.
    Thank you, Senator Leahy.
    [The prepared statement of Mr. Neuborne follows:]

Statement of Professor Burt Neuborne, John Norton Pomeroy Professor of 
      Law at New York University School of Law, New York, New York

                         Introductory Statement
    I am the John Norton Pomeroy Professor of Law at New York 
University School of Law, where I have taught Constitutional Law for 
twenty-five years. For the past thirty-five years, I have been an 
active constitutional lawyer, serving as National Legal Director of the 
American Civil Liberties Union from 1982-1986, and as a member of the 
New York City Commission on Human Rights from 1988-1992. In addition to 
my teaching responsibilities, I currently serve as Legal Director of 
the Brennan Center for Justice at NYU, a partnership between and among 
Justice William Brennan, Jr.'s family, many of the law clerks who 
served Justice Brennan during his historic tenure on the Supreme Court, 
and the faculty of NYU Law School, dedicated to honoring the Justice's 
extraordinary contribution to American law.
    I have written widely in the area of constitutional law and policy. 
A partial listing of my publications is annexed as an appendix to this 
statement. In May, 2001, I was elected to the American Academy of Arts 
and Sciences.
    I have prepared this statement at the request of the International 
Dairy Foods Association (IDFA),\1\ an umbrella organization consisting 
of the Milk Industry Foundation, the National Cheese Institute, and the 
International Ice Cream Association, but the opinions I express are my 
own. I make this statement to express my opposition to efforts to 
secure Congressional approval of interstate compacts designed to fix 
regional milk prices at artificially high levels in order to aid high-
cost local producers at the expense of the consuming public and lower 
cost producers elsewhere in the nation.
---------------------------------------------------------------------------
    \1\The several member companies of IDFA represent 80% of the dairy 
products consumed in the United States. Dairy foods are a $70 billion 
industry.
---------------------------------------------------------------------------
    I will leave to better qualified observers a discussion of the 
adverse economic and social consequences of artificially increasing the 
regional price of milk, especially the adverse impact on low-income 
parents who ultimately bear the bulk of the real costs associated with 
artificially inflated milk prices. Suffice it to say that whenever the 
price of a necessity like milk is artificially raised by law, the net 
effect is a substantial wealth transfer from the poorest segment of 
society to the powerful political interests that are able to use 
government power to set an artificially high price for a necessity of 
life.
    I will also leave to others a discussion of the alternative means 
of assisting local dairy farmers to confront vigorous competition from 
lower-cost producers, ranging from government assistance in the 
modernization of facilities, to direct farm subsidies financed from 
general tax revenues. Once again, suffice it to say that a government-
imposed artificially inflated price level is not the only--indeed, it 
is not even the most effective--way to foster the survival of a local 
dairy industry.
                           Executive Summary
    It is a profound mistake, both as a matter of constitutional law 
and constitutional policy, to use the device of the interstate compact 
to create a regime of regional economic protectionism that flies in the 
face of the national free market in goods and services established by 
the Founders. The primary impetus for the Founders' decision to abandon 
the Articles of Confederation in favor of the United States 
Constitution was the desire to foster a national free market in goods 
and services throughout the United States. The Founders understood that 
rampant state and regional protectionism under the Articles of 
Confederation was the single greatest threat to the American 
experiment. See infra, Point I.
    Consistent with the intent of the Founders, efforts by states to 
impose price controls in order to benefit local high-cost producers at 
the expense of lower-cost producers elsewhere, have been uniformly 
condemned as unconstitutional by the Supreme Court as violations of the 
negative Commerce Clause, the Privileges and Immunities clause, and the 
Equal Protection clause. Our sense of community as citizens of a single 
nation has stemmed, in large part, from the Supreme Court's consistent 
enforcement of the Founders' incisive perception that local or regional 
economic protectionism is not only economically inefficient, it is 
politically corrosive of the bonds of unity that bind us together as 
the world's most successful exercise in democratic governance. See 
infra, Point II.
    Whatever Congress's doubtful power to itself authorize and 
implement discriminatory, hard core protectionism at the state or 
regional level, the use of interstate compacts to exercise such power 
is extremely unwise, and in my opinion, potentially unconstitutional. 
Using Article I, section 10 (the Compact Clause) as the vehicle for 
authorizing regional protectionism invites the Nation to divide into 
competing regional economic blocs in flat betrayal of the Founders' 
vision, and virtually assures that regions of the country will organize 
politically in order to secure economic advantage at the expense of one 
another. While efforts by single states (or by all of the states 
equally) to obtain such power from Congress can be dealt with 
effectively because they are subject to inherent political checks, 
groupings of states acting as regional protectionists will inevitably 
erode the normal political checks on parochialism. For example, what 
happens when an interstate compact between and among twenty-six states 
seeks to wage economic warfare on a few low-cost producing states? Such 
a formal political combination of 26 states would evade all political 
checks because it would command a Congressional majority, and would 
plunge the Nation into precisely the type of destructive trade war that 
caused the Founders to abandon the Articles of Confederation in favor 
of the Constitution.
    Moreover, deciding whether to favor high-cost local producers at 
the expense of local consumers is an issue that should be decided at 
the local political level. Unlike the boundary disputes and regional 
resource situations where interstate compacts are routinely used to 
insulate certain types of regional decisionmaking from parochial state 
political interference, the decision whether to impose hard core 
economic protectionism on a necessity of life should never be shielded 
from open political discussion and ultimate political control by the 
people who must, ultimately, bear its economic cost. The decision to 
fix milk prices at an artificially high level is, in effect, a 
regressive tax levied on the poorest populations of the compact clause 
states; a tax that shifts money from the pockets of low income 
consumers to the local dairy industry. Perhaps such a tax is justified. 
But the decision about whether such a wealth transfer is or is not a 
good idea should be made by the voters of each state (or by the voters 
of all the states in the case of national legislation),\2\ not by 
sheltered bureaucrats operating under the cover of a politically-
insulated interstate compact. An interstate compact is designed to 
operate in the political shadows. No official in any state is 
politically accountable for its decisions. In effect, it is a decision 
to take the subject of the interstate compact out of day-to-day 
politics.
---------------------------------------------------------------------------
    \2\ Minimum wage legislation is the converse, a transfer of wealth 
from employers who could hire at a lower wage under unregulated market 
conditions to low-income workers. I believe that minimum wages are an 
important constraint on the unregulated labor market. But I believe 
that the decision about minimum wage must be made by a politically 
accountable body. It would be a terrible idea to shift the decision 
about minimum wages to a politically insulated body acting pursuant to 
an interstate compact.
---------------------------------------------------------------------------
    Taking interstate boundary disputes out of day-to-day politics is 
an excellent idea. Taking the day-to-day regulation of shared natural 
resources out of politics is an excellent idea. That is why interstate 
compacts have worked so well in those areas. But insulating decisions 
about whether the price of milk should be set at an artificially high 
level to protect high-cost dairy farmers against low-cost competition 
from local political scrutiny by the persons who must bear the costs is 
a terrible idea.
    The fact is that the Compact Clause was never intended, and, except 
for the milk price-fixing controversy currently before Congress, has 
never been used, as a vehicle for regional economic protectionism. I 
believe that it would be a serious mistake, and, quite possibly, a 
constitutional violation, to unleash the Compact Clause as a potent 
engine of regional protectionism more than 200 years into our national 
history. See infra, Point III.
    Finally, whatever technique Congress uses, Congress's power to 
trump the presumption of a national free market established by the 
Constitution is subject to significant constitutional limits imposed by 
the Equal Protection Clause, the Privileges and Immunities Clause, and 
the Commerce Clause itself. Since Congress lacks power to enact (or to 
authorize others to enact), legislation that discriminates in violation 
of the 14th Amendment's Equal Protection Clause, or the 
Privileges and Immunities Clause of Article IV, section 2, Congress may 
not impose (or authorize others to impose) domestic protective tariffs 
that discriminate against out-of-state or out-of-region producers. 
Moreover, since regional price fixing mechanisms are constitutionally 
indistinguishable from protective tariffs, Congress may not establish 
(or authorize others to establish) such overtly discriminatory hard 
core protectionist regimes, whether it does so pursuant to legislation, 
or the approval of an interstate compact. See infra, Point IV.
  I. THE PRINCIPAL IMPETUS FOR THE FOUNDERS' DECISION TO ABANDON THE 
 ARTICLES OF CONFEDERATION IN FAVOR OF THE UNITED STATES CONSTITUTION 
WAS THE FOUNDERS' DESIRE TO FOSTER A FREE MARKET IN GOODS AND SERVICES 
                      THROUGHOUT THE UNITED STATES
    At the close of the Revolution, the thirteen original states 
experimented with a loose confederation that delegated power over 
foreign affairs to a national government, but retained power over 
virtually everything else at the state and local level. The lack of a 
national power to regulate interstate Commerce led to the eruption of a 
series of trade wars, pitting states and regions against one another in 
a mutually destructive spiral. Justice Jackson expressed the consensus 
judgment of history best in H. P. Hood and Sons v. DuMond, Inc, 336 
U.S. 525 (1949), when he stated:

        When victory relieved the Colonies from the pressure for 
        solidarity that war had exerted, a drift toward anarchy and 
        commercial warfare between the states began. `[E]ach state 
        would legislate according to its estimate of its own interests, 
        the importance of its own products, and the local advantages or 
        disadvantages of its position in a political or commercial 
        view'. This came `to threaten at once the peace and safety of 
        the Union'. The sole purpose for which Virginia initiated the 
        movement which ultimately produced the Constitution was `to 
        take into consideration the trade of the United States; to 
        examine the relative situations of trade of said States; to 
        consider how far a uniform system in their commercial 
        regulations may be necessary to their common interest and their 
        permanent harmony' and for that purpose the General Assembly of 
        Virginia in January of 1786 named commissioners and proposed 
        their meeting with those from other states. The desire of the 
        Forefathers to federalize regulation of foreign and interstate 
        commerce stands in sharp contrast to their jealous preservation 
        of the state's power over its internal affairs. No other 
        federal power was so universally assumed to be necessary, no 
        other state power was so readily relinquished. [As Madison] 
        indicated, `want of a general power over Commerce led to an 
        exercise of this power separately, by the states, which [sic] 
        not only proved abortive, but engendered rival, conflicting, 
        and angry regulations.' 336 U.S. at 534.
    Indeed, James Madison noted that the single most important 
achievement of the Constitutional Convention was to rescue the nation 
from a continuation of the parochial trade wars that had marred the 
first ten years of its existence and threatened its future ``permanent 
harmony''.
    Before taking steps that might encourage the modern-day recurrence 
of those trade wars (this time through the agency of protectionist 
interstate compacts), Congress should reflect on the fact that 
Madison's understanding of the relationship between economic 
protectionism and the erosion of political unity was brilliantly 
prescient. One of the Founders' enduring insights was that regional 
economic protectionism is ultimately corrosive of national political 
unity. To prevent economic regionalism, the Founders imposed a 
constitutional prohibition on state and regional efforts to 
discriminate against goods and services produced elsewhere in the 
nation. To tamper with that constitutional prohibition is to tamper 
with the mainspring of the nation's political and economic fabric.
  II. EFFORTS BY STATES TO IMPOSE PRICE CONTROLS IN AN EFFORT TO AID 
  HIGH-COST LOCAL PRODUCERS AT THE EXPENSE OF LOWER COST OUT-OF-STATE 
 PRODUCERS HAVE UNIFORMLY BEEN HELD TO VIOLATE THE NATION'S COMMITMENT 
            TO A NATIONAL FREE MARKET IN GOODS AND SERVICES
    Consistent with the Founders' intentions, the Supreme Court has 
repeatedly ruled that the grant of power in Article I, Section 8, to 
Congress to regulate interstate commerce carries with it a negative 
pregnant precluding the states from engaging in economic protectionism 
aimed at favoring local economic interests at the expense of outsiders. 
E.g., Camps Newfound/Owatonna Inc. v. Town of Harrison, 520 U.S. 564 
(1997); Fulton Corp. v. Faulkner, 516 U.S. 325 (1996).
    The paradigm of forbidden economic protectionism is the imposition 
of a protective tariff by one state designed to raise the price of 
goods imported from another state in an effort to shield high-cost 
local producers from national competition. Given the Founders' clear 
commitment to a national ``common market,'' no state has attempted 
openly to establish a system of domestic protective tariffs. Instead, 
they have experimented with devices designed to achieve the identical 
effect of neutralizing the competitive advantage of out-of-state lower 
cost producers. The most obvious hard core protective technique has 
involved the setting of minimum prices designed to prevent out-of-state 
competitors from underselling local producers. In Baldwin v. G.A.F. 
Seelig, Inc., 294 U.S. 511 (1935), New York attempted to set minimum 
prices for milk. New York's scheme was to forbid the sale of milk in 
New York unless a dealer had paid the minimum price to a producer, no 
matter where the transaction took place. The effect of New York's plan 
was to prevent low cost milk from entering the New York market.
    Justice Cardozo, writing for a unanimous Court, held that New 
York's price fixing scheme:

        . . .set a barrier to traffic between one state and another as 
        effective as if customs duties equal to the price differential 
        had been laid upon the [milk]. Nice distinctions have been made 
        at times between direct and indirect burdens. They are 
        irrelevant when the avowed purpose of the obstruction, as well 
        as its necessary tendency, is to suppress or mitigate the 
        consequences of competition between the states. Such an 
        obstruction is direct by the very terms of the hypothesis. We 
        are reminded in the opinion below that a chief occasion of the 
        commerce clause was `the mutual jealousies and aggressions of 
        the States, taking form in customs barriers and other economic 
        retaliation.' [If] New York, in order to promote the economic 
        welfare of her farmers, may guard them against competition with 
        the cheaper prices of Vermont, the door has been opened to 
        rivalries and reprisals that were meant to be averted by 
        subjecting commerce between the states to the power of the 
        nation. 294 U.S. at 521-22.

    More complex efforts to stifle interstate competition by fixing 
milk prices have also been invalidated. For example, in West Lynn 
Creamery v. Healy, Inc., 512 U.S. 186 (1994), the Court invalidated an 
effort to tax milk dealers on the quantity of milk sold in 
Massachusetts, and to rebate the tax to Massachusetts dairy farmers. In 
effect, the plan taxed all milk, but rebated the tax to Massachusetts 
dairy farmers, rendering the tax discriminatory because its burden fell 
solely on out-of-state milk. The West Lynn Court noted that the tax 
plan was a minimum pricing scheme in disguise, and that a minimum price 
regulation has the same unconstitutional effect as a tariff or customs 
duty--``neutralizing the advantage possessed by lower cost out-of-state 
producers''.\3\ Id. at 194.
---------------------------------------------------------------------------
    \3\ The West Lynn Court noted that attempts to protect local dairy 
farmers had provoked numerous Supreme Court challenges. Schollenberger 
v. Pennsylvania, 171 U.S. 1 (1898); Baldwin v. G.A.F. Seelig, Inc., 294 
U.S. 511 (1935); H.P. Hood & Sons. Inc. v. DuMond, 336 U.S. 525 (1949); 
Dean Milk Co. v. Madison 340 U.S. 349 (1951); Polar Ice Cream & 
Creamery Co. v. Andrews, 375 U.S. 361 (1964); Great Atlantic & Pacific 
Tea Co. v. Cottrell, 424 U.S. 366 (1976); West Lynn Creamery, Inc. v. 
Healy, 512 U.S. 186 (1994).
---------------------------------------------------------------------------
    Thus, if any state attempted to set minimum prices for milk in an 
effort to protect its dairy farmers from low cost competition from out-
of-state producers, the plan would be blatantly unconstitutional as a 
violation of the so-called negative Commerce Clause.
  III. CONGRESS SHOULD NOT USE ITS POWER UNDER THE COMPACT CLAUSE TO 
    AUTHORIZE STATES TO FORM HARD CORE REGIONAL PROTECTIONIST BLOCS
    I will suggest in Point IV that Congress lacks power to authorize 
hard core protectionism by the states no matter what techniques are 
used. But, whether or not such substantive power exists, regional price 
fixing compacts are not an appropriate vehicle for the exercise of 
Congress's power. It is, I believe, a profound mistake, both as a 
matter of constitutional law and constitutional policy, to use the 
device of the interstate compact to create a regime of regional 
economic protectionism that flies in the face of the national free 
market in goods and services established by the Founders.
    Congress is, of course, far from powerless if it finds it necessary 
to relax the rigors of an uncontrolled national free market. For 
example, in an effort to prevent the proverbial race to the bottom, 
Congress may enact national minimum standards that avoid destructive 
state and regional competition. The establishment of a national minimum 
wage, maximum hours legislation, and uniform safety standards are 
classic examples of the exercise of Congress's power. Moreover, in 
connection with the enactment of national standards, Congress may 
authorize federal regulatory officials to establish regional variations 
from national standards to reflect local conditions. Indeed, in the 
case of milk, Congress has done precisely that under the Agricultural 
Marketing Agreement Act of 1937, which authorizes the Secretary of 
Agriculture to regulate minimum prices paid to milk producers by 
issuing marketing orders for particular geographical areas. See 7 CFR 
section 1000, et seg. (2000) (setting regional prices for raw milk).
    The use of such federal legislation to regulate interstate 
commerce, precisely because it is the expression of the entire nation, 
contains an important built-in political safeguard against unfair local 
protectionism, since it is unlikely that a national legislature would 
enact legislation that permits one state or region to protect its high-
cost producers unfairly at the expense of the national majority.\4\ As 
an alternative to direct federal legislation, Congress may encourage 
regulation of the national free market by delegating additional 
regulatory authority to the states. Congress's decision to delegate the 
power to regulate the insurance industry to the states pursuant to the 
McCarran Act is the classic example. Prudential Insurance Co. v. 
Benjamin, 328 U.S. 408 (1946). Congressional delegation of uniform 
regulatory authority to each of the states, as in the McCarran Act, 
permits careful tailoring to local conditions, while simultaneously 
retaining important internal political checks against irresponsible 
protectionism.\5\ Since any Congressional delegation of regulatory 
authority to the states must treat each state equally, each state is 
limited in its temptation to engage in irresponsible protectionism by 
the knowledge that sister states are similarly empowered to retaliate. 
Moreover, since any delegation of regulatory authority to the states 
must be approved by Congress, irresponsible behavior by one or, even, 
several states risks a withdrawal of the regulatory authority by the 
rest of the nation.\6\
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    \4\ Despite the internal political safeguard, if Congress agrees to 
such a regime of hard core protectionism, perhaps because of complex 
political trade-offs, the Constitution imposes substantive checks on 
the power to enact protectionist legislation. See Metropolitan Life 
Insurance Co. v. Ward, 470 U.S. 869 (1985); Saenz v. Roe, 526 U.S. 489 
(1999). See infra, Point IV.
    \5\ Once again, the states' power to regulate pursuant to 
Congressional waiver of the negative Commerce Clause is limited by the 
equality provisions of the Constitution. Metropolitan Life Insurance 
Co. v. Ward, 470 U.S. 869 (1985) (invalidating discriminatory tax 
despite waiver of negative Commerce Clause); United Bldg. & Constr. 
Trades v. Camden 465 U.S. 208 (1984) (invalidating residential quota 
for public works jobs); Hicklin v. Orbeck, 437 U.S. 518 (1978) 
(invalidating Alaska hire law requiring employment preferences for 
Alaska residents in certain jobs); Supreme Court of New Hampshire v. 
Piper, 470 U.S. 274 (1985)(invalidating ban on nonresident practice of 
law). See infra, Point IV.
    \6\ Irresponsible behavior by a majority of the states acting 
individually is unlikely, first, because self-interest will rarely 
persuade a majority of the states to act in a protectionist manner when 
the option of national regulation is present; and, second, because the 
equality provisions of the Constitution place limits on state 
protectionism. See infra, Point IV.
---------------------------------------------------------------------------
    Supporters of the regional milk price-fixing compact have eschewed 
the two usual avenues of Congressional action. They are dissatisfied 
with existing Congressional legislation regulating national milk prices 
because federal officials, acting in the national as well as the 
regional interest, have refused to provide them enough protectionism 
for high-cost Northeast regional milk producers. Moreover, they are 
unwilling to seek a delegation of uniform authority to all the states 
to regulate interstate commerce in milk, recognizing that such a 
Balkanization of the milk industry will never be approved in the 
national interest, and would provoke bitter political struggles in the 
various states.
    Instead, for the first time in the nation's history, they seek to 
erode the constitutionally mandated national free market by asking 
Congress to grant authority to several states to form an interstate 
compact pursuant to Article I, section 10 of the Constitution designed 
to carve out an island of regional protectionism from the national free 
market for milk.\7\ Multi-state compacts are, however, wholly unsuited 
to act as vehicles for Congressional regulatory judgments under the 
Commerce Clause. Most importantly, interstate compacts lack the 
internal political safeguards that render direct Congressional 
regulation, or uniform Congressional delegation to the states, 
appropriate vehicles for the exercise of Congressional power under 
Article I, section 8. For one thing, requests for Congressional 
approval of interstate compacts emanate from multiple states acting as 
a pre-established unit, inherently increasing the political power of a 
protectionist faction. Taken to an extreme, if twenty-six states 
formally united as a bloc to establish an interstate compact designed 
to engage in economic warfare against a disfavored state or region, the 
coordinated political power of the twenty six states acting as a formal 
bloc would overwhelm any political checks that would, ordinarily, make 
it difficult to persuade the national majority to acquiesce in local 
protectionism.
---------------------------------------------------------------------------
    \7\ When coordinated state action does not infringe on federal 
sovereignty, states may enact cooperative legislation without 
Congressional consent. See United States Steel Corp. v. Multistate Tax 
Commission 434 U.S. 452 (1978) (reciprocal legislation designed to 
enhance tax administration not an interstate compact); Bode v. Barrett, 
344 U.S. 583 (1953) (reciprocal exemptions on non-resident motorists 
from highway use tax not an interstate compact). Since the hard core 
protectionism contemplated by the Northeast Regional Dairy Compact 
strikes at the core of the constitutionally protected national free 
market, it unquestionably requires formal Congressional approval. As 
with other forms of Congressional action, the authorization of a 
protectionist interstate compact must be measured against the limits on 
Congressional action imposed by the equality and privileges and 
immunities provisions of the Constitution. See Point IV, supra
---------------------------------------------------------------------------
    Of course, the twenty-six states could pursue their protectionist 
aims through ordinary legislation. But the absence of a pre-established 
formal bloc created by the compact would leave the coalition vulnerable 
to the ordinary process of political erosion, as members joined or left 
in accordance with individual judgments of self-interest. The existence 
of a formal compact places barriers to exit that simply do not exist in 
an ordinary political coalition. Moreover, the requirement that 
ordinary legislation grant uniform regulatory power to all the states 
permitting effective retaliation if necessary would pose a significant 
check on irresponsible action by any ordinary political coalition of 
states. Interstate compacts are, however, non uniform by definition. 
Member states would operate under one legal regime freed from the 
constraints of the negative Commerce Clause, while non-member states 
would remain subject to the constraints of the negative Commerce 
Clause. Thus, unlike a delegation of uniform regulatory authority to 
the individual states, an interstate compact vests power in some states 
to ignore the constraints of the negative Commerce Clause, while 
continuing to impose those constraints on the remainder of the states. 
In that sense, an interstate compact designed to permit hard core 
protectionism is the formal antithesis of the Equal Protection of the 
laws and the Privileges and Immunities clause.
    The obvious potential for friction among the states, abuse and 
unequal treatment inherent in using interstate compacts to create 
islands of protectionism explains why the Founders did not intend 
interstate compacts to operate as techniques for regulating interstate 
commerce. Rather, the Founders envisioned interstate compacts as 
mechanisms to permit state governments to form hybrid political 
entities needed to perform traditional police power functions in 
settings where a single state government would lack the capacity to act 
effectively. Cuyler v. Adams, 449 U.S. 433 (1981). Not surprisingly, 
the early use of the interstate compact was almost entirely confined to 
the resolution of boundary disputes between the states. The boundaries 
fixed by the Colonial Charters were notoriously ambiguous, leading to 
sustained conflict. Indeed, at the time of the Revolution, no fewer 
that eleven formal boundary disputes existed between and among the 
thirteen colonies. Once the Constitution came into being, two obvious 
mechanisms for resolving boundary disputes were possible: (1) time 
consuming and bitter litigation in the Supreme Court; and (2) 
negotiated settlements. The litigation route usually resulted in all-
or-nothing decisions that often embittered relations between the 
contesting parties. But negotiated settlements were often impossible 
because they required simultaneous and binding political acceptance in 
both contending states. The interstate compact was the technique 
designed by the Founders to permit the contending states to create a 
hybrid political entity empowered to take the necessary steps to 
resolve a boundary dispute that would bind each state without the 
necessity of assembling political support in each state for a 
particular settlement.
    As the 19th century progressed, states used the interstate compact 
to create hybrid political entities designed to exercise coordinated 
police power over natural resources that could not be effectively 
regulated by a single state, either because geography rendered the 
resource inherently regional in nature (as in compacts governing 
interstate rivers and harbors), or because the effective regulation of 
a natural resource risked being bogged down in parochial state 
political efforts to extract maximum local advantage from a shared 
resource. As with the boundary compact, the police power compacts were 
designed to insulate the judgments of the compact from day-to-day 
political control by the state electorates.
    Prior to the Northeast Regional Dairy Compact, my research has not 
uncovered a single instance of Congress's use of its power under 
Article I, section 10 to license blocs of states to engage in economic 
protectionism. The first interstate compact was approved by Congress in 
1789 to enable Virginia and Kentucky to resolve a boundary dispute.\8\ 
In the ensuing 212 years, Congress has approved approximately 300 
additional interstate compacts. It is no coincidence that, except for 
the Northeast Interstate Dairy Compact, none of these interstate 
compacts have sought to enable a combination of states to engage in 
precisely the protectionist behavior that led the Founders to abandon 
the Articles of Confederation and to embrace a constitutionally 
mandated national free market in goods and services.
---------------------------------------------------------------------------
    \8\ Peaceful resolution of the numerous boundary disputes that 
existed between the original states has been deemed the principal 
reason for the Compact Clause. See Felix Frankfurter & James M. Landis, 
The Compact Clause of the Constitution--A Study in Interstate 
Adjustment, 34 Yale L. J. 685 (1925). Neither the Farr and notes on the 
debates at the Constitutional Convention, nor the Federalist Papers 
discuss the Compact Clause.
---------------------------------------------------------------------------
    In addition to the lack of internal political checks discussed 
above, an obvious reason explains why interstate compacts have never 
been used to impose hard core protectionist regimes on the national 
free market. Unlike the boundary and police power situations where 
interstate compacts are routinely used to insulate certain types of 
decision making from parochial state political interference, the 
decision whether to impose hard core protectionism should never be 
shielded from open political discussion and ultimate political control 
by the people who must, ultimately, bear its economic cost. The 
decision to fix milk prices at an artificially high level is, in 
effect, a regressive tax levied on the poorest populations of the 
compact clause states that shifts money from the pockets of low income 
consumers to the dairy industry. Perhaps such a tax is justified. But 
the decision about whether such a wealth transfer is or is not a good 
idea should be made by the voters of each state (or by the voters of 
all the states in the case of national legislation), not by sheltered 
bureaucrats operating under the cover of a politically insulated 
interstate compact. Indeed, the reason why proponents of the milk price 
fixing scheme are seeking to proceed by compact, rather than by 
national legislation, or Congressional delegation of regulatory 
authority to the states, is that both of those techniques permit the 
affected members of the electorate to pass political judgment on the 
wisdom and fairness of the scheme. An interstate compact, on the other 
hand, operates in the political shadows. No official in any state is 
politically accountable for its decisions. In effect, it is a decision 
to take milk price-fixing out of day-to-day politics.
    Taking interstate boundary disputes out of day-to-day politics is 
an excellent idea. Taking the day-to-day regulation of shared natural 
resources out of politics is an excellent idea. That is why interstate 
compacts have worked so well in those areas. But insulating decisions 
about whether the price of milk should be set at an artificially high 
level to protect high-cost dairy farmers against low-cost competition 
from intense democratic scrutiny is a terrible idea. It is bad enough 
that we must pay taxes. It is particularly sensitive when those taxes 
shift wealth from one segment of the population to another. It would 
compound the problem though, to develop a technique that allows 
powerful local interests to impose massive wealth transfer taxes 
without having to face the democratic judgment of the affected voters. 
But that is exactly what will happen if Congress uses the Compact 
Clause to delegate hard core protectionist power to an interstate 
compact to fix the price of milk.
  IV. CONGRESS'S LIMITED POWER TO ALTER THE CONSTITUTIONALLY MANDATED 
  EXISTENCE OF A NATIONAL FREE MARKET IN GOODS AND SERVICES DOES NOT 
INCLUDE THE POWER TO ENACT OR TO AUTHORIZE DISCRIMINATORY PRICE-FIXING 
 SCHEMES DESIGNED TO PROTECT CERTAIN HIGH-COST LOCAL PRODUCERS AGAINST 
              COMPETITION FROM THE REMAINDER OF THE NATION
    Supporters of the scheme to fix regional milk prices acknowledge 
that,standing alone, the price-fixing scheme would violate the 
Constitution as a blatant interference with the national free market 
mandated by the negative Commerce Clause. They argue, however, that 
Congress has the power to cure the constitutional violation by 
authorizing blocks of states to engage on the discriminatory practice, 
either directly, or through the device of regional price fixing 
compacts. But Congress's power to lift the bar of the so-called 
``negative'' Commerce Clause is not unlimited. Congress, legislating 
pursuant to the Commerce Clause, lacks the power to authorize blatant 
interferences with a national free market motivated by an obvious 
desire to protect local producers from national competition.\9\ More 
importantly, whatever its power to lift the ban of the negative 
Commerce Clause, Congress may neither enact, nor authorize the states 
to enact, discriminatory restrictions that violate the Equal Protection 
Clause of the 14th Amendment, the Privileges or Immunities 
Clause of the 14th Amendment, and/or the Privileges and 
Immunities Clause of Article IV, section 2 by vesting certain favored 
states with authority to ignore the negative Commerce Clause, while 
requiring the remaining states to abide by its strictures.
---------------------------------------------------------------------------
    \9\ Since commitment to a national free market is at the core of 
the Commerce Clause, I believe that Congress would lack power under the 
Commerce Clause to establish a program of state customs duties aimed at 
the produce of sister-states.
---------------------------------------------------------------------------
 a. congress's limited power to lift the bar of the negative commerce 
                                 clause
    Chief Justice Marshall believed that the grant of power to Congress 
under Article I, section 8 to regulate interstate commerce was 
exclusive. According to Chief Justice Marshall, while the states 
retained the ability to act under the police power, states were denied 
the power to regulate interstate commerce. Compare Gibbons v. Ogden, 9 
Wheat. (22 U.S.) 1 (1824) (suggesting that Congress's power over 
interstate commerce is exclusive), with Wilson v. Black Bird Creek 
Marsh Co., 2 Pet. (27 U.S.) 245 (1829) (recognizing state police power 
to regulate, even when the regulation affects interstate commerce). 
Throughout the 19th century, the Supreme Court struggled to 
chart the uncertain line between legitimate exercise of state police 
power, and illegitimate efforts to regulate interstate commerce. See 
Cooley v. Board of Wardens, 12 How. (53 U.S.) 299 (1851); Wabash, St. 
Louis & P. Ry. Co. v. Illinois, 118 U.S. 557 (1886); Smith v. Alabama, 
124 U.S. 465 (1888). It was from these 19th century cases 
that the flat ban on state efforts to engage in interstate milk price-
fixing announced in Baldwin v. G. A. F. Seelig, Inc. emerged. See also 
Dean Milk Co. v. Madison, 340 U.S. 349 (1951) (invalidating milk 
regulation); A & P Tea Co. v. Cottrell, 424 U.S. 366 (1976) 
(invalidating milk regulation).
    Moreover, for much of the 19th century, it was assumed 
that Congress could not validate an otherwise illegitimate state effort 
to regulate interstate commerce. See Cooley v. Board of Wardens, 12 
How. (53 U.S.) 299 (1851). In Leisy v. Hardin, 135 U.S. 100 (1890), 
however, the Supreme Court was confronted with efforts by ``dry'' 
states to enforce prohibitions on the importation of beverages 
containing alcohol. Confronted by a clear state police power issue 
(regulation of alcohol), the Court suggested for the first time that 
Congress could authorize states to engage in certain forms of local 
regulation that might otherwise be in violation of the negative 
Commerce Clause. In response, Congress promptly enacted uniform 
legislation authorizing each of the states to ban the importation of 
beverages containing alcohol, even though they were items of interstate 
commerce. The Court upheld the authorization in In re Rahrer, 140 U.S. 
545 (1891).
    Leisy and Rahrer hold that, under certain limited circumstances, 
Congress may reinforce the police power of the states by uniformly 
lifting the constitutional check on its exercise imposed by the 
negative Commerce Clause. But the core of the state regulation must be 
a genuine effort to exercise the police power, not adisguised exercise 
in local economic protectionism. There is, of course, an almost 
complete overlap between the states' traditional police power to 
preserve the health, safety, and morals of the citizenry, and a 
decision to regulate alcohol. Thus, the enhanced state regulation 
permitted in Leisy v. Hardin and In re Rahrer was an effort to sustain 
a flat ban on alcohol rooted in the police power, not an exercise in 
economic protectionism designed to protect high-cost local producers. 
Indeed, nothing in either case suggests that Congress could approve 
blatantly discriminatory legislation designed to protect in-state 
producers from interstate competition.\10\ Moreover, the decision to 
lift the negative Commerce Clause in connection with the regulation of 
alcohol in Leisy v. Hardin and In re Rahrer took the form of 
legislation vesting uniform authority in each state.
---------------------------------------------------------------------------
    \10\ A similar restriction limits Congress's affirmative power 
under the Commerce Clause. When Congressional legislation ostensibly 
designed to regulate interstate commerce is more accurately described 
as an effort to exercise a forbidden national police power, the Supreme 
Court has invalidated the Congressional statute as violative of the 
10th Amendment. See United States v. Lope 514 U.S. 549 
(1995); Printz v. United States, 117 S.Ct. 2365 (1997).
---------------------------------------------------------------------------
    Congress's power to lift the bar of the negative Commerce Clause 
was expanded in Prudential Insurance Co. v. Benjamin, 328 U.S. 408 
(1946). Two years earlier, in United States v. South-Eastern 
Underwriters Assn, 322 U.S. 533 (1944), the Court had reversed a series 
of cases holding that insurance was not commerce, thereby disturbing 
the historic pattern of ceding insurance regulation to the states. 
Congress responded in 1945 by enacting the McCarran Act, which provided 
that ``silence on the part of the Congress shall not be construed to 
impose any barrier to the regulation or taxation of [insurance] by the 
several States.'' In Benjamin, the Court was confronted by a South 
Carolina tax on out-of-state insurance companies that exempted South 
Carolina companies. In the absence of the McCarran Act, the South 
Carolina tax would almost certainly have been invalid as a 
discriminatory treatment of interstate commerce. See Welton v. 
Missouri, 91 U.S. 275 (1876). In view of the McCarran Act, however, the 
Court sustained the discriminatory tax, reasoning that Congress had 
affirmatively decided to permit states to regulate insurance companies 
free from the constitutional barriers imposed by the negative Commerce 
Clause. See also Western & Southern Life Insurance Company v. State 
Board of Equalization, 451 U.S. 648 (1981).
    Benjamin undoubtedly represents a significant increase in 
Congress's power to lift the constitutional barriers to state economic 
regulation imposed by the negative commerce clause. But nothing in 
Benjamin suggests that Congress can authorize overtly protectionist 
legislation that violates the core understanding of the Founders about 
the importance of a national free market. In one sense, the McCarran 
Act was an attempt to restore a long-time regulatory status quo that 
had been disturbed by the Court's decision to expand the definition of 
interstate commerce to include insurance. Alternatively, the South 
Carolina tax scheme can be viewed a rough effort to tax large out-of-
state insurance companies, while exempting the smaller in-state 
companies. In any event, I do not believe that the case should be read 
as an open invitation to Congress to dismantle the national free market 
structure that was the basis for the Constitution itself. Most 
importantly, the Congressional action at stake was the McCarran Act, 
which delegated uniform regulatory authority to each state.
    I believe that, whatever the ultimate extent of Congress's power to 
lift the bar of the negative Commerce Clause, the state regulation at 
issue must be rooted in a traditional exercise of the state's police 
power, and not a protectionist desire to cut off interstate 
competition. Thus, I believe that Congress lacks power under Article I, 
section 8 to sanction overtly protectionist local legislation.
    b. restrictions on congressional power imposed by the equality 
                     provisions of the constitution
    Whatever power Congress may possess under the Commerce Clause to 
enact uniform legislation granting each state equal power to regulate a 
particular area of interstate commerce, Congress clearly lacks power to 
authorize the states to engage in behavior that violates substantive 
provisions of the Constitution. Mississippi University for Women v. 
Hogan, 458 U.S. 718 (1982). Indeed, the very type of discriminatory tax 
that had been upheld under the Commerce Clause in Benjamin was 
invalidated by the Supreme Court in Metropolitan Life Insurance Co. v. 
Ward, 470 U.S. 869 (1985), as violative of the Equal Protection Clause. 
In Ward, a California tax (enacted pursuant to the authorization of the 
McCarran Act) imposing a higher tax rate on out-of-state insurance 
companies was struck down as a violation of the Equal Protection Clause 
of the 14th Amendment. In words that are directly applicable 
to the regional milk price-fixing scheme currently before Congress, the 
Ward Court noted that ``promotion of domestic business within a State, 
by discriminating against foreign corporations that wish to compete by 
doing business there, is not a legitimate state purpose.'' \11\ Id. at 
880.
---------------------------------------------------------------------------
    \11\ The issue is somewhat complicated by the Court's action in 
Northeast Bancorp, Inc. v. Bd. of Governors, 472 U.S. 159 (1985). In 
Northeast Bancorp, Congress had imposed a general ban on interstate 
bank acquisitions under the Bank Holding Company Act of 1956, subject 
to a state power to waive the federal prohibition. When several New 
England states enacted legislation conditionally waiving the federal 
ban, but only vis a vis states that granted reciprocal waivers, the 
legislation was challenged under the Equal Protection Clause. The Court 
upheld the state statutes, reasoning that they were motivated by a 
legitimate desire to foster local ownership of banks, and did not 
unreasonably discriminate since they were keyed to reciprocity.
---------------------------------------------------------------------------
    Congress's power to authorize economic protectionism is also 
limited by the Privileges and Immunities Clause of Article I, section 2 
of the Constitution.\12\ In Hicklin v. Orbeck, 437 U.S. 518 (1978), the 
Court noted that there is a ``mutually reinforcing relationship between 
the Privileges and Immunities Clause of Article IV, section 2, and the 
Commerce Clause--a relationship that stems [in part from] their shared 
vision of federalism''. Thus, local efforts to reserve employment 
opportunities for residents at the expense of out-of-state residents 
have been deemed violative of the Privileges and Immunities Clause, 
even though they may satisfy the negative Commerce Clause. See United 
Bldg. & Constr. Trades v. Camden, 465 U.S. 208 (1984) (invalidating 
residential quota for public works jobs).
---------------------------------------------------------------------------
    \12\ The clause states: ``The Citizens of each State shall be 
entitled to all Privileges and Immunities of Citizens in the several 
States''.
---------------------------------------------------------------------------
    The functional link between the Commerce Clause and the Privileges 
and Immunities Clause is illustrated by the line of Supreme Court cases 
enforcing a national free market in services as well as goods by 
preventing state-imposed employment discrimination against out-of-state 
residents. See United Bldg. & Constr. Trades v. Camden, 465 U.S. 208 
(1984) (invalidating residential quota for public works jobs); Hicklin 
v. Orbeck, 437 U.S. 518 (1978) (invalidating Alaska hire law requiring 
employment preferences for Alaska residents in certain jobs); Supreme 
Court of New Hampshire v. Piper, 470 U.S. 274 (1985)(invahdating ban on 
non-resident practice of law). Similarly, both the Commerce Clause and 
the Privileges and Immunities Clause are recognized as the source of a 
constitutional right to migrate from one state to another in search of 
a better life, see Crandall v. Nevada, 6 Wall. (73 U.S.) 35 (1867) 
(invalidating tax for leaving state); Edwards v. California, 314 U.S. 
160 (1941) (invalidating restrictions on entering state), a substantive 
constitutional right that Congress may not abrogate. Shapiro v. 
Thompson, 394 U.S. 618 (1969)(Congress may not authorize state 
interference with right to interstate migration); Saenz v. Roe, 526 
U.S. 489 (1999) (Congress may not authorize state interference with 
right to travel).
    Finally, Congress's power to authorize hard core economic 
protectionism is limited by the Privileges or Immunities Clause of the 
14th Amendment.\13\ In Saenz v. Roe, 526 U.S. 489 (1999), 
Congress purported to authorize California to set differential 
standards for welfare payments based on duration of residency. 
Recognizing that interstate migration is a pre-condition for a free 
market in labor, the Supreme Court invalidated the effort to 
discriminate against out-of-state persons wishing to migrate to 
California under both the Privileges and Immunities Clause of Article 
IV, and the Privileges or Immunities Clause of the 14th Amendment. 
Surely, if Congress in Saenz could not authorize California to favor 
in-state persons at the expense of recent migrants from other states, 
Congress cannot authorize a bloc of states to discriminate in favor of 
in-state high-cost regional milk producers at the expense of milk 
producers residing in other states.
---------------------------------------------------------------------------
    \13\ The opening words of the 14th Amendment provide:
    All persons born or naturalized in the United States. . .are 
citizens of the United States and of the State wherein they reside. No 
State shall make or enforce any law which shall abridge the privileges 
or immunities of Citizens of the United States. . . .''
---------------------------------------------------------------------------
    Thus, whether one views the price-fixing scheme from the 
perspective of the Commerce Clause, the Equal Protection Clause, or the 
Privileges and Immunities Clauses, serious doubts exist concerning 
Congress's power to authorize a favored bloc of states to engage in the 
very hard core protectionist activities that the Founders viewed as 
utterly inconsistent with the nations' political unity and economic 
well-being, while leaving the rest of the Nation bound by the 
strictures of the negative Commerce Clause.
                               conclusion
    The decision to tamper with the national common market envisioned 
by the Framers is among the most momentous that Congress can face. The 
Founders understood that a common economic market is critical to a 
common political identity. The pending scheme to fix regional milk 
prices in an effort to shield high-cost regional producers from low-
cost national competition strikes at the heart of the Founders' vision. 
Indeed, given the powerful guaranties of equality contained in the 
Commerce Clause, the Equal Protection Clause, and the Privileges and 
Immunities Clauses, I believe that Congress lacks power to usher in a 
regime of hard core economic protectionism that is as inherently 
discriminatory as the price fixing scheme currently before Congress. 
Finally, whatever Congress's substantive power, I believe that it is a 
terrible mistake (and quite possibly unconstitutional) for Congress to 
use consent to an interstate compact as a vehicle to authorize hard 
core protectionism. Such a device lacks internal political checks 
against irresponsible behavior, is historically unprecedented, and 
shields a crucial political judgment from democratic review.

    Chairman Leahy. Thank you, Professor.
    We will take a 3-minute break and let everybody stretch and 
then we will come back and start questions of the panel.
    [The committee stood in recess from 11:12 a.m. to 11:22 
a.m.]
    Chairman Leahy. Other Senators will be coming in now during 
this hearing. As the witnesses know, we have probably a dozen 
hearings going on at the same time and I do appreciate the 
consideration of the panels and the time they have taken.
    Mr. Smith, if I might start with you, I know that in 
addition to your job as Executive Director of the Compact 
Commission that you are also an attorney. Now, you have heard--
I am just trying to help the people who are getting these cell 
phone calls by being willing to stop immediately so that they 
can take their important call out in the hall.
    You are also an attorney. Now, Professor Neuborne, whom I 
also respect, although I disagree with him on this, says the 
Compact represents rank protectionism which is condemned by the 
constitutional text.
    Would you like to respond to those points?
    Mr. Smith. The Compact's lineage traces directly back to 
the Article of Confederation and the concern with economic 
protectionism. When we designed the Compact, we had that basic 
principle in mind that States cannot be authorized to use 
regulatory authority in a protectionist or discriminatory 
manner, meaning to the benefit of the local citizenry and the 
detriment of citizens outside the State. So it is built right 
into the basic design of the Compact and it is built right into 
the basic design of the Federal order system, which is you 
regulate the market uniformly with regard to all market 
participants.
    As I indicated in my earlier statement, the New England 
marketplace includes New York farmers. The milk sales from 
those farms are regulated on the same footing as the milk sales 
from New England farms. The regulation attaches to the purchase 
by the processor and the funding generated by that regulation 
traces right back to the farm.
    So in marked contrast to the Whisky Rebellion and the other 
concerns that the Articles of Confederation transition to the 
Constitution addressed, the Compact is not a tariff because the 
benefits track back to the producer of the product.
    That is what the court concluded as well, Senator. I would 
just followup with that. As I said before, the argument that 
was presented was argued by the plaintiffs in the lawsuit that 
reached the First Circuit Court of Appeals and the court found 
no merit in the claim for that reason, because the New York 
farmers are receiving the money.
    Chairman Leahy. We have heard some say that Government 
price regulation is somehow un-American or against our market 
principles. Of course, long before I was born, the milk market 
was regulated and still is today, so it is not a new idea. It 
was done because of the perishable nature of milk which could 
give processors some unfair bargaining ability with local 
farmers. We are familiar with the old expression ``smell it or 
sell it.''
    Now, if we deregulated this entirely, who has the upper 
hand at that point, the processors or the individual farmers?
    Mr. Smith. That is the essential policy question at issue 
with the Federal order system, and a lot of the debate, I 
think, over the Compact is really that the Compact is being 
used as a stocking horse for a debate over the Federal order 
system, whether the milk market order system ought to be 
deregulated completely and the market made national for milk.
    Congress has consistently made the policy decision that 
milk should be supplied locally for local consumption, and the 
Compact reinforces that policy decision by the Congress. In 
that sense, we are again dealing with regulatory authority of 
the marketplace. It is not a cartel design. In a cartel design, 
the market participants gain the benefits of the price-fixing, 
true price-fixing with the cartel, as opposed to the regulation 
of the price, whereas with the Compact the regulation is set by 
an administrative action.
    In response to Professor Neuborne's concern about 
democratic participation, there is democratic participation at 
two levels: one, at the legislative level where the compacts 
are authorized, and, two, during the administrative process. 
Anybody who has been to a Compact Commission meeting knows that 
it is local government at work in all its fine and detrimental 
parts, which includes absolutely open all hours of the day, 
like the Congress, and we end up staying up all night while 
people ventilate their concerns. So it is truly a local-level, 
democratic process.
    Chairman Leahy. Sort of like a town meeting.
    Mr. Smith. Very similar to a town meeting, Senator, yes.
    Chairman Leahy. Mr. Burrington, in your written testimony 
you raised the issue of Suiza Foods, and if I can quote from 
the written testimony, you mention that ``There is strong 
evidence that Suiza has used its market power to gouge 
consumers. Suiza doesn't need New England dairy farms, but the 
regional processors who represent its remaining competition 
do.''
    Could you amplify on these points and explain what might 
happen if New England farmers would go out of business?
    Mr. Burrington. Suiza, as indeed a multinational 
corporation, is well positioned to ship milk anywhere and 
everywhere. The remaining milk processors in New England don't 
have that ability, and it is clear from conversations with 
their people, as well as from what you would conclude if you 
just reasoned your way through it, that if our milk supplies in 
the Northeast dry up, Suiza's only remaining competition would 
follow in very short order.
    We are in a very unfortunate situation right now in New 
England. I think you will hear more from Commissioner Healy 
later on about the experience with our school meals program in 
Massachusetts. We have seen the elimination of competition in 
the bids for that, and the recent study from the University of 
Connecticut shows that consumers in the last couple of years 
have been paying a very large amount to middlemen and both the 
farmers and the consumers have fared badly because of the 
consolidation in milk processing.
    Chairman Leahy. Thank you. My time is up, so I will save my 
questions either for the record or later for Mr. Norquist and 
Professor Neuborne.
    Senator Kohl?
    Senator Kohl. Thank you.
    Mr. Smith, several studies, including one ordered by the 
Northeast Compact Commission itself, have confirmed that the 
additional costs of the Compact have been passed on to 
consumers. These studies put the retail impact of the Northeast 
Compact at anywhere from 4.5 to 14 cents a gallon. These are 
studies in which your own Compact Commission participated. This 
increase means that consumers have paid anywhere from between 
$55 to $170 million more for their milk since 1997.
    Also, in the early days of the Compact supporters argued 
that New England needed the Compact to keep dairy farmers in 
business. Well, the American Farm Bureau numbers show that New 
England continues to lose dairy farmers at the pre-Compact 
rate. And if it weren't for those emergency payments last year, 
I am sure that even more producers would have gone out of 
business. With New England continuing to lose farmers, all I 
see left is a policy that hurts consumers.
    So, Mr. Smith, I want to ask you, if the Compact is not 
achieving its goal of keeping prices down for consumers, if it 
is not achieving that goal and if prices are up and fresh milk 
is available in non-Compact States, then how can your Compact 
be justified?
    Again, farmers continue to go out of business in the New 
England States. Prices of the Northeast Dairy Compact have been 
passed on to consumers. So what is the justification for the 
Compact? Is it for some social reason?
    Mr. Smith. No.
    Senator Kohl. Cultural reason? Prices are up to consumers.
    Mr. Smith. The reason I paused is that we have----
    Senator Kohl. Farmers are going out of business. What is 
the point of the Compact?
    Mr. Smith. The point of the Compact is that it is 
functioning very effectively in the complete reverse direction 
to your description of it. It is, in fact, keeping farmers in 
business and it is, in fact, having, I hope will show over 
time, a positive impact on retail prices rather than a negative 
impact.
    I would point you back to the graph that I put on your 
table; hopefully, it is there in front of you. You can see from 
that graph that for the Compact period, essentially, except for 
about 9 months, over a 4-year period the procurement cost was 
flat at $1.46 a gallon.
    For the first period of the Compact program, there was a 
spike-up initially, but then the price drifted back down, 
arguably in reaction to the level of procurement cost. Then 
Federal order prices went into a dramatic fluctuating period 
which kind of threw the dynamic into uncertainty. But at least 
for a period of time, one of the theories of the price 
regulation, which was that if you can stabilize the procurement 
cost for a supermarket they would have an incentive to thin out 
their margin and reduce the price, as opposed to responding 
protectively for their margins by raising price over time to 
fluctuating prices--so I will grant you the record is uncertain 
with regard to the impact on retail prices, but at least for 
one period of time during the Compact price regulation's 
operation prices came down.
    And I would suggest to you, as I did before, that the 
retail market needs some time to sort this out and that the 
Commission has the ability to intervene in the market in the 
public interest.
    With regard to farm loss numbers, I would respectfully 
suggest to you that the numbers are not in the pattern that you 
describe. Commissioner Healy will be speaking with regard to 
the actual numbers of farm losses in New England before and 
after, and I would suggest you direct your question to him with 
regard to actual numbers.
    Senator Kohl. I have to move on, but I just want to make a 
point, and maybe you can respond to this. So then you would 
also suggest that if similar kinds of conditions exist in other 
industries throughout the country, then they too might consider 
the efficacy of price-fixing cartels. Is that theoretically 
true?
    Mr. Smith. No.
    Senator Kohl. Theoretically, is that true?
    Mr. Smith. I think that milk is a unique product.
    Senator Kohl. Why is it different from any other perishable 
commodity?
    Mr. Smith. Because of its bulkiness as well as its 
perishability, so that the cost of transporting milk is unique 
in the sense that it is both bulky and perishable.
    Senator Kohl. But then if there is this cost of 
transporting milk--and I talked to Mr. Burrington about the 
same point--then the consumers aren't going to buy it. If it 
costs a ton to transport milk from other long-distance States--
the facts don't indicate that that is a problem, but if it is 
true, then people will continue to buy locally produced fresh 
milk, among other reasons because it can be brought cheaper to 
the market than milk trucked in from faraway States.
    So I argue to you that this point that you are trying to 
make that milk is different from everything else in the world--
it is unique and there is nothing like it--is specious. It is 
almost breathtaking in the sense that you are making that 
argument and saying there is only one commodity in the world 
that argues for a price-fixing operation, and that is milk. I 
am blown away by that argument.
    Mr. Burrington, would you like to comment?
    Mr. Smith. If I might, Senator, I would like to leave the 
door open at least for States to consider the need to restore 
their regulatory authority over marketplace for other 
commodities. So I don't want to close the door on other 
commodities.
    Milk is a product that has been regulated at the regional 
level as a matter of Federal policy. And I don't mean to take 
time away from Mr. Burrington, but I would suggest to you that 
the issue you have is with the Federal order system and that is 
the policy question that Congress has confronted and resolved 
in favor of maintaining local supplies of milk.
    I would defer to Mr. Burrington.
    Senator Kohl. Any thoughts, Mr. Burrington?
    Mr. Burrington. I don't have a lot to add to what has been 
said, but a family can go through the same amount of milk in 
about a day as it would an amount of grapes in 3 weeks. I mean, 
it has historically been treated as a distinctive commodity.
    I have not puzzled my way through exactly the bounds of 
what you might take a similar approach to, but we haven't seen 
the basis for taking the compact approach to anything other 
than milk so far. It hasn't been, to my knowledge, suggested by 
anyone else. But, again, the facts as the transportation cost 
of milk, I think, are fairly undisputed.
    Something else that I think is hard to dispute is that in 
many parts of the country where land values are very high, it 
is hard to reverse the process of farm loss. So if our farms go 
in New England, we aren't going to get them back. So the 
process could unfold, and I believe would unfold in a way that 
is different from what you might theoretically imagine the 
market might produce.
    So I think that the market is not going to drive land back 
into dairy farm production. If the farms go out of business, 
only for our consumers to discover that maybe the Midwestern 
milk isn't such a great deal coming from 500 miles away, I 
don't see us pulling down $600,000 houses off of land that was 
once dairy farms.
    Senator Kohl. As you know, we have farmland protection 
programs that are funded at both the State and local level. So 
there are other ways to deal with the problem that you raise.
    I see my time is up, unless Mr. Norquist wants to make a 
comment.
    Chairman Leahy. The chairman tried to stick to within his 5 
minutes, and I would ask others to do that and certainly give 
plenty of time for another round, if you would like.
    I understand Senator Feingold, with his usual courtesy, is 
willing to let Senator Schumer make an opening statement.

 STATEMENT OF HON. CHARLES E. SCHUMER, A U.S. SENATOR FROM THE 
                       STATE OF NEW YORK

    Senator Schumer. Thank you, Mr. Chairman. I want to thank 
you and Senator Feingold for his courtesy. I am in the middle 
of a hearing that I am chairing in the Banking Committee, and 
so I will be brief and not ask questions. But I would like to 
make a statement, since this is very important to me.
    First, I want to thank Chairman Leahy for his leadership. 
He has been leading on this issue and helping Northeast dairy 
farmers long before I even got to the House, let alone the 
Senate. I just want to tell you, Mr. Chairman, that the farmers 
in my State, the dairy farmers and others, are extremely 
grateful for the work that you have done.
    I would also ask unanimous consent that a statement from 
the Governor of my State supporting the extension of the 
Compact be put into the record.
    Chairman Leahy. Without objection.
    Senator Schumer. Mr. Chairman, people often forget that 
there are farmers in the northeastern part of the country and 
that these hard-working men and women produce much of the food 
we rely on to stay healthy.
    In my State of New York, there are 2,000 vegetable farmers, 
700 apple orchardists, and 7,200 dairy farmers, a number 
declining. But you meet these people and they are hard-working, 
dedicated people. Last year, we produce 11.9 billion pounds of 
milk, making us the third largest milk-producing State, behind 
California and Wisconsin.
    To argue that New York State in agriculture is any more 
compelling than other areas of the country is impossible, but 
for years New York and many other States in the Northeast have 
been denied the same attention from the Federal Government that 
other parts of the Nation have received.
    While we have started to change that situation under 
Senator Leahy's leadership over the last few years, there is 
still much to do to make up for the Federal Government's long 
neglect of northeastern agriculture. A few provisions in the 
crop insurance bill isn't enough, and so today this committee 
has the opportunity to take a giant step forward, reversing the 
years of Federal neglect, by launching the effort in the Senate 
to pass the Northeast Dairy Compact.
    I know we are going to hear a variety of views about the 
Dairy Compact. Let me just explain why extending and expanding 
it to include New York and other States is so important to the 
Northeast and the country.
    Whenever I visit or meet or hear from the dairy producers 
in New York, I hear the same thing. They tell me the answer is 
simple: extend the Dairy Compact and the dairy industry will 
survive in New York. Don't extend the dairy Compact and we will 
have no dairy industry in New York.
    If New York had been a member of the Compact last year when 
dairy prices were at rock bottom, an individual dairy farmer 
would have received an average payment of $18,200, enough to 
stay afloat, and that would be at no cost to the Government.
    I have talked to thousands of my constituents and many of 
my congressional colleagues in New York City. They say, for the 
good of the State and the good of the economy of our dairy 
farmers, they are willing to pay a little more when milk prices 
are declining--they are not going to pay more when they are 
rising--to help those farmers stay in business for the good of 
our State and our country.
    The price stability and predictability that the Compact 
offers are crucial to the long-term survival of our industry. 
Evening out the monthly highs and lows and the very significant 
swings in Federal price orders allows dairy producers to plan 
ahead.
    Right now, our farmers--and I know Mr. Norquist likes this, 
but the farmers are slaves to the whims of the market. They 
don't know what their resources are going to be from year to 
year. The only way to deal with that would be to make huge 
farms that can cushion this. We are not going to have huge 
farms in New York State.
    Successful businesses are those that can plan ahead for 
good and bad times. From greater certainty flows easier access 
to credit, a more certain bargaining position, and probably 
most important of all, a peace of mind with which the future 
can be imagined. Right now, there is so much price instability 
and uncertainty in dairy that many in the dairy community don't 
see a future.
    For many farms in New York, the Compact is the last chance 
because it prevents waves of consolidation and collapse from 
completely engulfing them. The attrition rate for family 
dairies within the Compact, as I think has been stated ably by 
Mr. Smith and Mr. Burrington, is much less than those who are 
outside of the Compact.
    Let me, in conclusion, Mr. Chairman, key in on the most 
revolutionary and important feature of the Dairy Compact. 
Unlike other dairy pricing out there, the Compact gives 
producers and consumers a direct say in setting the price that 
producers receive. By having representatives on the Compact 
Commission, producers and consumers help determine the price of 
milk, something that has never happened before in the dairy 
world.
    To me, that is democracy at its best, and I hope and pray 
that we will not only renew the New England Dairy Compact, but 
add New York and other northeastern States into the Compact. 
The survival of our dairy industry depends upon it.
    With that, I want to thank the chairman and thank Senator 
Feingold for their courtesy.
    Chairman Leahy. Thank you very much.
    Senator Feingold, who takes a somewhat different position 
than the Senator from New York and the Senator from Vermont, 
unless he has suddenly had an epiphany here, it is over to you.
    Senator Feingold. Thank you. Mr. Chairman, you have heard 
of a New York minute. That was a New York 2 minutes, but I am 
pleased to hear from the Senator from New York.
    Professor Neuborne, I want to thank you for coming here 
today to testify. You are very effective. I also want to thank 
you for all your efforts and input in the Congress in the past, 
and especially your help on campaign finance reform. I know if 
it is that you just pick good issues or you are very good. I 
think it is both, but it was wonderful hearing from you.
    Of course, farmers in my home State of Wisconsin are 
penalized by the Compact Commission's ability to act as a 
price-fixing entity that walls off the market in a specific 
region and then hurts producers outside the region.
    In Federalist No. 42, Madison warned that if authorities 
were allowed to regulate trade between the States, some sort of 
import levy would be introduced by future contrivances. I would 
argue that the dairy compacts are exactly the sort of 
contrivance feared by Madison. Dairy compacts are clearly a 
restriction of commerce, in that they impose what I believe 
amounts to a tariff between the States. The Founding Fathers 
never intended the States to impose levies on imports, such as 
those imposed by one nation on another's goods.
    So what do you think James Madison would say if he knew 
that the Compact Clause was being used to block a shipment of 
milk between States?
    Mr. Neuborne. Well, originalism isn't my strong suit, but I 
think that Madison would be very surprised and very troubled. 
There is one historical fact that speaks the loudest about 
this. The Compact Clause has been in effect for 212 years. 
Congress has authorized approximately 300 compacts during that 
period. The Northeast Regional Milk Compact is the only compact 
that has ever been established that allows for regional price-
fixing. Every other compact that has been established for the 
last 212 years has dealt with essentially three problems.
    In fact, the Compact Clause arose as a device to deal with 
boundary disputes. At the close of the Articles of 
Confederation, there were 11 separate boundary disputes that 
were complicating the relationship between the 13 original 
States. There was no way to resolve those disputes short of 
litigation in the Supreme Court or absolute internecine warfare 
that would have torn the place apart. The interstate compact 
was a brilliant solution for the resolution of those boundary 
disputes.
    In the 19th century, we expanded the interstate compact 
idea as a way of managing shared natural resources--harbors, 
rivers, contiguous forests--to be able to assure that there was 
fire prevention. Those are excellent ways of permitting State 
cooperation and creating ad hoc political entities to deal with 
issues that no State could deal with alone.
    But price-fixing is something that we have never thought 
the interstate compact was designed for, and I believe that is 
really quite inconsistent with the ethos of the Constitution 
itself and, for two reasons, I think, unconstitutional as well, 
although no one can sit before you and give you an absolute 
answer on that. I mean, anyone who tells you they know whether 
this is constitutional or not is either a fool or a charlatan. 
It is so difficult to guess.
    But my personal belief is that this raises very serious 
constitutional questions and might well be unconstitutional, 
for two reasons. One, I don't think Congress has the power to 
lift the negative Commerce Clause in order to establish price-
fixing. They have always lifted the negative Commerce Clause in 
the past to deal with police power problems. They have lifted 
the negative Commerce Clause to allow the States to deal with 
importation of alcohol. They have lifted the negative Commerce 
Clause to restore the States' ability to regulate the insurance 
industry. But they have never, ever lifted the negative 
Commerce Clause to create a regional price-fixing scheme.
    Suppose the statute said the negative Commerce Clause shall 
be lifted for the following States to permit them to regulate 
the price of milk. I think that would be flatly 
unconstitutional, and wrapping it up as a Compact Clause 
instead of a direct legislative act doesn't add one iota to 
Congress' power.
    I know that Mr. Smith said that this issue had been raised 
in earlier litigation. I assure you that it has not. I have 
read those cases. There are two cases dealing with the legality 
of compacts. Neither of those cases dealt with the very 
fundamental question of whether the equality clauses of the 
Constitution forbid Congress from using the Compact Clause as a 
way of permitting one or more States to wage economic warfare 
on other competitors.
    Senator Feingold. Thank you. I am very pleased to have that 
on the record. I think it is going to be helpful.
    I would like to turn to Mr. Norquist. Thank you for being 
here. You discussed how the Northeast Dairy Compact acts as a 
pricing mechanism and hurts the ability of farmers to market 
their milk freely. It is important to note that the Northeast 
Interstate Dairy Compact Commission is just one of the ways 
that Midwestern dairy farmers are disadvantaged under the 
current milk marketing structure, where dairy farmers in the 
Northeast already receive higher minimum prices for their milk 
under the antiquated milk pricing system.
    Do you, sir, see any justification for saying to dairy 
farmers in Wisconsin that they should not be able to market 
their milk freely across the United States?
    Mr. Norquist. No.
    Senator Feingold. Mr. Chairman, thank you.
    Chairman Leahy. Thank you. If there are other questions, we 
will submit them for the record. I think each of us has had a 
chance to ask questions of this panel.
    Mr. Smith, Mr. Norquist, Mr. Burrington and Mr. Neuborne, 
thank you very much for being here.
    Mr. Neuborne. Thank you, Senator.
    Mr. Burrington. Thank you.
    Chairman Leahy. On our next panel, we will have Jonathan 
Healy, who is the Commissioner of Agriculture of the 
Commonwealth of Massachusetts; Harold Brubaker, who is a State 
Representative of the State of North Carolina; Lois Pines, 
former Massachusetts State Senator; Dr. James Beatty, an 
economist from Louisiana State University; and Richard Gorder 
from the Wisconsin Farm Bureau.
    Commissioner Healy, it is always good to see you, and I 
want to also thank you for the amount of time you have spent in 
coming up to the State of Vermont and the amount of time you 
have spent with Vermonters.
    We will begin with you, sir.

STATEMENT OF HON. JONATHAN HEALY, COMMISSIONER OF AGRICULTURE, 
      COMMONWEALTH OF MASSACHUSETTS, BOSTON, MASSACHUSETTS

    Mr. Healy. Thank you very much, Mr. Chairman. I am pleased 
to be here. I have been the Commissioner of Agriculture in 
Massachusetts for 8 years.
    It is very interesting to me in this ongoing debate over 
the Dairy Compact how the landscape changes a bit. I am here to 
tell you that the Compact, in spite of intense, intense 
lobbying on Beacon Hill, enjoys the strong support of our 
Governor and the great majority of the State legislature.
    The first kind of argument that came up about the Compact 
was that it gouged consumers and really was a bad deal for 
them. Our studies in Massachusetts show that the top price the 
Compact could cost is 12 cents a gallon, and what has really 
happened is about 6 cents has been passed on to consumers and 
about 6 cents has been assimilated. So it has cost 6 cents a 
gallon to consumers in our State.
    Ironically, however, since the inception of the Compact, we 
have had anywhere between a 30 to 45 cents a gallon increase in 
those retail costs. So some of us find it very ironic that the 
processors and the retailers would have you think that this 
paltry 6 cents a gallon for farmers represents a cartel.
    The irony from my perspective is that the opponents of the 
Compact have made much more profit in their margins than the 
dairy farmers they decry. Our consumers have seen through this 
smokescreen in terms of this myth. The Massachusetts Public 
Interest Research Group strongly supports it, represents 
hundreds of thousands of consumers in Massachusetts. Groups 
from the Massachusetts Audobon Society, Gun Owner Action 
League, the WIC program, as you have heard from, are strong 
supporters of the Compact.
    It has helped, on balance, the consumers in the State 
because the opponents don't tell you where your milk comes 
from. We are already getting our milk, a lot of it, from New 
York State, and under the Compact, if we lose it, we will have 
to go farther and farther to receive our milk at much greater 
transportation cost per gallon to our consumers than what we 
pay under the Compact.
    The second myth I would like to talk about refers to 
questions about farm loss. I am a little bit interested that 
the American Farm Bureau, based probably in D.C., has some 
figures that have been bandied about here today. But this is 
from the New England Agricultural Statistics Service, which is 
funded by the Federal Government, and I would urge people on 
this august committee to talk with people who get New England 
agricultural statistics, and talk to those of us who are in the 
individual departments of agriculture in New England.
    The farm loss in the Compact region, pre-Compact, was 572, 
versus 408 after the Compact. These are admittedly inexact 
numbers, but using farm loss as an indication of the efficacy 
of the Compact is really apples and oranges. We have so many 
things happening in our businesses.
    For instance, in Massachusetts we have lost 84 farms. That 
is what the statistics will say, but let me tell you really 
what has happened during that time period. Ten farms have 
consolidated, so they look like a loss. They have consolidated. 
Four have moved out of State. We have had 13 new farms not 
reflected in these statistics, but that is about twice a higher 
percentage than before the Compact.
    Even more importantly, we have had 40 farms that have 
transitioned from dairy into other forms of agriculture. So a 
figure that looks like 84 is really 24 in terms of the number 
of farms we have lost since the inception of the Dairy Compact. 
As you know, any of you who run businesses, there are a lot of 
factors that go into effect in terms of why people stay or get 
out of business.
    In Connecticut, from Commissioner Ferris, prior to the 
Compact, 64 farms lost; after the Compact, 47. In New 
Hampshire, from Steve Taylor, the number of farms declined from 
187 to 176. Commissioner Taylor says, ``I would expect by now 
we would be down to 130 or even fewer without the Compact.''
    In Rhode Island, 6.5 farms were lost per year, on average, 
prior to the Compact. Ken Ayer says the rates declines to 2.3 
farms since the inception of the Compact. Commissioner Bob 
Speers in Maine says a loss of 16 percent of the dairy farms 
before the Compact, 9 percent after the Compact.
    It seems to me that there is a clear indication that the 
farm loss has not been as extensive as has been quoted here 
today, and we would be happy to provide more numbers for folks.
    The last point I would like to make is what Senator Leahy 
has alluded to in terms of the monopolies and the cost to 
consumers. I would respectfully submit that the 6 cents a 
gallon that farmers are receiving in Massachusetts and New 
England under the Dairy Compact pales in comparison to the real 
issue. The real story here today as far as I am concerned is 
not the 6-cents-per-gallon cost, but it is the rapid 
consolidation of milk processing in New England and the effect 
of this strong consolidation on milk prices.
    Suiza Corporation, of Dallas, Texas, now controls over 70 
percent of the milk processing industry in Massachusetts. An 
indication of their adverse effect on consumers is illustrated 
by recent bids on the Massachusetts school lunch contract, and 
I would respectfully submit to Senator Kohl and others this is 
what happens sometimes in the free market.
    Before the Suiza consolidation in Massachusetts, we had 
competition on our school bids. In 1998, the Commonwealth 
received six different responses from milk processors and the 
competition resulted in a final contract which was 12 percent 
below the initial original bid. Just two short years later, in 
June of 2000, the Commonwealth was very disturbed to receive 
only one bid from Suiza. This bid was 16 percent higher than 
the 1998 contract.
    At that time, there was nowhere near a 16-percent increase 
to Suiza of their raw milk costs. Suiza, however, used it 
market muscle and steadfastly refused to negotiate any price, 
even though their volume was much higher under the new 
contract.
    Stephen Crosby, a fiscal conservative, who was the chief 
fiscal officer in Massachusetts, was so upset with the price 
cost for the school lunch contract he wrote our attorney 
general, Thomas Reilly, stating ``Suiza's response as to the 
procurement team's request is a clear indication of its ability 
and desire to exercise its monopolistic market power.''
    I would submit to you that this is the real issue, and the 
consumers in Massachusetts are already paying extensively more 
on the school lunch contract because of that market 
consolidation. I respectfully urge you to continue the New 
England Regional Dairy Compact and support Senate bill 1157 
because we need it now more than ever, given the fact that our 
farmers have fewer and fewer options of where they are going to 
sell their milk.
    Now, it looks like it is only going to be one show in town, 
as you have indicated, in terms of where farmers will be able 
to sell their milk. And the implications for consumers are 
very, very troubling, given what has happened to the New 
England milk market, at least in our region.
    Thank you.
    [The prepared statement and attachments of Mr. Healy 
follow:]

  Statement of Commissioner Jay Healy, Commissioner of Agriculture in 
  Massachusetts, in support of the New England Regional Dairy Compact

    Good morning. For the record, my name is,lay flealy. 1 have been 
the Commissioner of Agriculture in the Commonwealth of Massachusetts 
for the past eight years. Since the Compact's inception in July of 
1997, it has been a valuable resource in preserving a fresh, 
nutritious. and continuous supply of local milk to Massachusetts 
consumers.
    The Compact enjoys the steadfast support of Governor Jane Swift and 
the Legislature, even though large amounts of money have been spent by 
opponents of the compact. Here in Massachusetts, the International 
Dairy Foods Association (IDFA), which represents Suiza Corporation, 
spent $238,000 to fight the compact. Only one other company, Phillip 
Morris, spent more on lobbying on Beacon Hill this past year.
    These paid political opponents say that the compact has adversely 
affected our consumers. This is simply not the case. Our Department of 
Food and Agriculture estimates that the compact has, on average, cost 
consumers six cents a gallon. Since the inception of the compact, 
however, the average price per gallon of milk has risen over thirty 
cents per gallon. Processors and retailers would have you think that 
this paltry minimum wage for farmers, an added six cents a gallon, 
represents a ``CARTEL!'' The irony is that the opponents of the Compact 
have made much more profit on their margins than the dairy farmers they 
decry.
    Massachusetts consumers have seen through the smokescreen. They 
know that they will pay much more for the transportation costs for 
milk, up to fifty cents per gallon, if they lose the New England dairy 
farmers and milk shed that supply local milk for Massachusetts. (see 
Costs for Transporting Milk) They know we will lose thousands of jobs 
at the Friendlys, the Breyers, and the Sealtests when some of the 
thirty thousand plus dairy processing jobs in eastern Massachusetts 
follow the milk supply and leave the state.
    Citizens have repeatedly stated that the compact should be 
retained. The compact helps preserve over 100,000 acres of 
Massachusetts open space owned by our dairy community. It has helped 
the Mass WIC and School Lunch and Breakfast Program by setting aside 
funds to insure these populations are not adversely affected.
    Consumer support is indicated from groups as widely divergent as 
the Mass. Public Interest Research Group (MASSPIRG), Mass. Audubon 
Society, Gun Owners' Action League, and the director of the 
Commonwealth's WIC program (see letters enclosed). MASSPIRG alone 
represents a huge amount of consumers. Why, if Massachusetts consumers 
allegedly dislike the Compact, would this well-respected organization 
support the Compact?
    This strong public support was reflected in a recent legislative 
battle on Beacon Hill, where IDFA outspent compact supporters by a wide 
margin. While the urban-oriented state Senate supported IDFA by 
including an outside section of the state budget that deleted the 
Compact, an overwhelming majority of tlic House blocked a possible 
conference committee report by signifying they would not support any 
conference report that would delete the Compact.
    In light of the large amounts of money being circulated in 
legislative opposition to the Compact, I urge you to look very 
carefully at erroneous lobbying alleging no Massachusetts consumer 
support for the Compact. 1 understand that you will hear today from a 
former state senator who opposes the compact. On May 27, 1998, as 
Senate Chair of the Committee on Natural Resources and Agriculture, she 
signed a report that concluded, ``In the absence of data confirming 
opponents objections, the Committee does not find any compelling 
evidence to lead to a recommendation or legislation to alter the 
membership and/or scope of the Compact'' (see attached report). My 
understanding is that this same individual is now paid to work for 
antiCompact efforts in the Massachusetts consumer community.
    The real impact on Massachusetts consumers is not the small six-
cent per gallon cost of the Compact. The real story is the rapid 
consolidation of the milk processing industry in New England and the 
effect of this strong consolidation on milk prices. Suiza Corp. of 
Dallas. Texas now controls over seventy percent of the milk processing 
industry in Massachusetts. An indication of their adverse affect on 
consumers is illustrated by recent bids on the Massachusetts school 
lunch contract. Before the Suiza consolidation, there was competition 
on the bids. In 1998, the Commonwealth received six responses from milk 
processors and competition resulted in a final contract twelve percent 
below the original bid. In June 2000, the Commonwealth was very 
disturbed to receive only one bid, from Suiza GTL. This bid was sixteen 
percent higher than the '98 contract. At that time there was nowhere 
near a sixteen percent increase in Suiza's raw milk costs from prior 
years. Suiza, however, used its market muscle and steadfastly refused 
to negotiate prices, even though volume would be increasing 
dramatically over the course of the two-year contract. Our 
Commonwealth's chief fiscal officer, Stephen Crosby, was so upset he 
wrote a letter to our Attorney General, Thomas Reilly, stating, 
``Suiza's response to the procurement team's request is a clear 
indication of its ability and desire to exercise its monopolistic 
market power. Food and Agriculture's earlier warnings have been 
realized. Suiza possesses the ability to hold the line on milk prices 
to be paid by both state agencies and by local school districts, which 
can least afford such dramatic increases.''
    I respectfully submit that if Suiza can directly hold our 
Commonwealth hostage with huge price increases, one can only imagine 
the long-term adverse affects on consumers. Suiza increases profits 
when it drives down the raw costs of milk (see enclosed DMR article). 
The lack of competition in the school lunch procurement process, 
however, indicates that there is no correlation between raw milk costs 
and consumer savings. In fact, there is a strong probability that the 
reverse is true. Market consolidation and Suiza's market power has 
resulted in our Commonwealth repeatedly asking our Attorney General to 
investigate Suiza (see enclosed letters). These requests have resulted 
in Attorney General Reilly's announcement on June 25, 2001 of a 
settlement with Suiza Foods and Stop and Shop.
    I urge you to support re-authorization of the New England Regional 
Dairy Compact. Given the market dominance of middlemen like Suiza, if 
our New England dairy industry is to be able to continue to provide a 
continuous supply of fresh, local milk, we need the Compact even more 
now than we did in the past.

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    Chairman Leahy. Thank you, Commissioner, and thank you for 
taking the time to be here.
    I understand Senator Edwards wished to introduce the next 
witness. Am I correct?
    Senator Edwards. Yes, Mr. Chairman.
    Chairman Leahy. I yield to you.
    Senator Edwards. And I had a brief statement, if I have 
time for that.
    Chairman Leahy. You can make the statement; that would have 
been on the time you had earlier. I know you were at another 
hearing and couldn't, so I will yield to you for that.

 STATEMENT OF HON. JOHN EDWARDS, A U.S. SENATOR FROM THE STATE 
                       OF NORTH CAROLINA

    Senator Edwards. Thank you very much, Mr. Chairman.
    First, I want to welcome Harold Brubaker, Speaker Brubaker, 
who was the Speaker of our House of Representatives in North 
Carolina.
    Mr. Speaker, we are glad to have you here and glad to have 
your testimony. I know this is an issue that you care deeply 
about and understand in great detail. We appreciate you taking 
time and sharing your expertise with the Senate on this issue.
    Those of us who have represented agriculturally strong 
States lament the current crisis in agriculture. One particular 
concern I have talked about often is the extraordinary problems 
our dairy farmers face. Low prices are forcing our dairy 
farmers out of business.
    North Carolina, which is what I am concerned about, is 
losing its dairy farms at an alarming rate. Ten years ago, 
there were 810 dairy farms in North Carolina. As of January of 
this year, that number has plummeted to 422. Almost half have 
been lost during that time.
    And we are losing more than just a reliable source of milk. 
Last year, North Carolina's dairy industry generated $600 
million in economic activity, but that income will vanish as we 
lose more and more farms. That is an economic base that we in 
North Carolina cannot afford to lose.
    The measure before us today is, in my judgment, the best 
tool to help our dairy farmers. I am sure we will hear the same 
arguments today, and some have already been stated, that we 
have heard for years: compacts raise the price of milk, 
compacts encourage over-production; they are milk cartels and 
they are unconstitutional. Let me just talk about a few of 
those.
    The reality is compacts provide a steady supply and 
reliable price for consumers. This is especially important in 
my State of North Carolina, which is a milk-deficit State. 
Furthermore, compacts do not encourage over-production. Through 
financial incentives, the Northeast Dairy Compact encourages 
farmers to maintain current production levels.
    Compacts are not cartels. Consumer representatives on the 
Northeast Dairy Compact Commission have just as much to say 
about the price paid to farmers as the farmers do. And as I am 
sure the chairman knows very well, the courts have consistently 
affirmed the constitutionality of dairy compacts.
    Another argument I am sure we will hear today is compacts 
are harmful to our milk processors. Lobbyists for the dairy 
industry would have you believe milk processors are united 
against the Dairy Compact. That is not the case. In fact, in 
North Carolina two major milk processing plants are endorsing 
the Southern Dairy Compact.
    Recently, Jim Green, the vice president of Meola Milk and 
Ice Cream Company, in New Bern, North Carolina, told the House 
Judiciary Committee that the decline of North Carolina's dairy 
industry has forced his company to look elsewhere for milk. In 
fact, since 1996, Meola has paid more than $1.4 million in 
import charges for raw milk. That is more than $1 million in 
freight and hauling charges that this locally owned company has 
to pay to bring in milk from another State.
    Meola is the only remaining independent milk processing 
plant in my State. It can't continue to absorb these high 
import charges. Those import charges do nothing but drive up 
the price consumers pay for their gallons of milk.
    Milkco is another North Carolina processing plant that 
supports this measure. Charles Gaither, president of Milkco, 
initially opposed the Southern Dairy Compact. However, after he 
has seen the success that has been created by the Northeast 
Compact, Mr. Gaither said that he now believes that the 
Southern Dairy Compact is the only answer to the volatile 
pricing conditions for raw milk.
    Last week, I met with a group of dairy farmers. Jeff 
Bender, of Norlina, North Carolina, was a member of that group. 
Jeff knows that without a Southern Dairy Compact the volatility 
of milk prices will drive him and others out of business, as 
they have been continuously over the course of the last 10 
years. He will be forced to lay off those who work for him, and 
the small rural town of Norlina--towns like that exist all over 
our State, as the Speaker well knows--will lose a huge part of 
its economic base.
    Jeff should not have to give up his business or his way of 
life. Meola shouldn't have to depend on out-of-state farmers 
for its raw milk. North Carolinians shouldn't have to deal with 
an unsure supply and volatile milk prices, and my State 
shouldn't be forced to lose millions of dollars in economic 
activity that these farms generate for us. We have the tool to 
help these very hard-working men and women. We have answered 
the questions and laid to rest the concerns. It is time to pass 
this measure.
    Thank you, Mr. Chairman.
    Chairman Leahy. Thank you very much, Senator Edwards.
    Just because of scheduling conflicts, what we will do is we 
will have Mr. Brubaker's testimony and then we will recess 
until two o'clock this afternoon and come back to the hearing 
at that time. I mention this so that everybody can adjust 
schedules accordingly.
    Mr. Brubaker?

STATEMENT OF HON. HAROLD BRUBAKER, STATE REPRESENTATIVE, STATE 
          OF NORTH CAROLINA, ASHEBORO, NORTH CAROLINA

    Mr. Brubaker. Thank you, Mr. Chairman. Senators, it is 
great to be with you today.
    My name is Harold Brubaker, a member of the North Carolina 
House of Representatives for 26 years. I am pleased and honored 
to be here today before this committee and its many 
distinguished members to speak in favor of proposed legislation 
reauthorizing and extending the Northeast Interstate Dairy 
Compact and granting consent to the formation of a Southern 
Dairy Compact.
    For the Southern States which are trying to form a compact, 
much is at stake. Family farmers in the South are threatened 
with the distinct possibility of extinction. In 1974, there 
were 1,646 dairy farms operating in North Carolina, and as the 
Senator from North Carolina said, today there are 427.
    North Carolina and much of the South has experienced a 
drastic decrease in milk production since the 1990's. While the 
Nation's milk production increased 13 percent from 1990 to the 
year 2000, with 2000 marking the fourth consecutive year of 
record-breaking milk production, 7 of the top 10 largest 
production decreases in the United States since 1990 occurred 
in Southern States. These Southern States lost between 25 and 
35 percent of their milk production in the last decade alone. 
Establishing regional compacts will benefit both farmers and 
consumers, and protect the fragile rural ecology that dairy 
farms provide.
    Opponents of dairy compacts forget that the milk market has 
been regulated by the Federal Government since the 1930's. They 
forget that in the era of mega corporations, consolidating 
agribusinesses, and allegations of price gouging and widening 
retail and processor profit margins, regional and State milk 
commissions comprised of consumer representatives and 
government officials offer the public recourse and scrutiny 
into milk prices that are fair to consumers and farmers.
    This is the framework of the Compact Commission, and 
perhaps some forget that our country was founded on Federalist 
principles, that States and regions have sovereign rights, as 
do their citizens and elected officials who are concerned about 
the long-term viability of a distinctly regional product.
    Yes, milk is a regional commodity, bulky, perishable, and 
expensive to transport. In order to protect this regional 
commodity which forms the backbone of many rural communities, 
it is altogether fitting and proper that regional compacts be 
used to regulate in the public interest.
    There are currently 35 States interested in compact 
legislation. No less than 25 States, their legislatures, my 
legislature and myself have voted to ratify language 
authorizing our participation in a dairy compact. I ask that 
Congress give due deliberation to our collective voices.
    This legislation also calls to stake a fundamental issue, 
the ability of States to craft regional and State-based 
initiatives to solve problems inadequately addressed, in some 
cases, at the Federal level. Since 1990 alone, Arkansas has 
lost 36 percent of its milk production. In light of these 
numbers, would any member say that State leaders do not have a 
responsibility to their citizens to use their State governing 
body to formulate solutions?
    The principles of federalism are the guiding touchstone 
behind the value of our political system, and it is in these 
principles that dairy compact legislation lies. Local 
experimentation by States are in the finest tradition of a 
Constitution that embraces federalism. Through State program 
experimentation, new ideas can be tested and redefined. 
Programs and initiatives can percolate up to the Federal level 
where, if successful, their innovative techniques can be 
applied. Congress should be hesitant to choke such an 
experiment before it has had a chance to fail or succeed on its 
own merits.
    Since the original six New England States passed compact 
legislation in 1996, well over half the country has moved 
toward embracing the idea of regional compacts for control of 
regional commodities. The Compact Clause of our Constitution 
anticipates the use of State instrumentalities, like compact 
commissions, through which matters of regional concern may be 
addressed through policies shaped by regional values and 
expertise.
    We must keep in mind that there are limits to what can be 
achieved through uniform national regulation, especially when 
dealing with a regional commodity such as milk and milk 
production that by its very nature impacts each region of the 
country differently. Regional initiatives under the Compact 
Clause allow States to furnish a unique yet viable mechanism to 
respond to regional concerns and values. Congress should not 
forget this when discussing the dairy compact legislation.
    As a colleague in the State Senate told me 1 day, Senator, 
Madison had a cow behind his house.
    Thank you for your time and attention.
    [The prepared statement of Mr. Brubaker follows:]

     Statement of Harold Brubaker, State Legislator, North Carolina

     My name is Harold Brubaker. I am a state legislator from North 
Carolina. I am pleased and honored to be here today, before this 
committee and its many distinguished members, and to speak in favor of 
proposed legislation reauthorizing and extending the Northeast 
Interstate Dairy Compact and granting consent to the formation of a 
southern dairy compact.
     For the southern states which are trying to form into a compact--
much is at stake. Family farmers in the south are threatened with the 
distinct possibility of extinction. In 1974, there were 1,646 dairies 
operating in the state of North Carolina. Today, low milk prices and 
volatile markets have reduced these numbers to a total of 427. During 
the 1990's, milk price volatility resulted in the accelerated loss of 
over 400 dairy farms in that decade alone. And these trends are not 
isolated to North Carolina--much of the south has experienced dramatic 
decreases in milk production since the 1990s. While the nation's milk 
production increased 13% from 1990 to 2000--with 2000 marking the 
fourth consecutive year of record-breaking milk production, seven of 
the top 10 largest production decreases in the United States since 1990 
occurred in southern states. These southern states lost between 25 and 
35% of their milk production in the last decade alone.\1\
---------------------------------------------------------------------------
    \1\ Those states in descending order of highest production loss 
are: Tennessee, Arkansas, Alabama, Mississippi, Missouri, Kentucky and 
Louisiana (data and USDA Milk Marketing Administrator--Central Order)
---------------------------------------------------------------------------
    Establishing regional compacts will benefit both farmers and 
consumers. Compacts also benefit the public interest by assuring a 
stable supply of fresh, regional milk and help to support the now 
fragile rural ecology that dairy farms provide. It is time to dispel 
the myth that compacts are government sponsored price fixing cartels--
nothing could be farther from the truth. Opponents of dairy compacts 
forget that the milk market has been regulated by the government since 
the 1930's. They forget that in the era of mega-corporations 
consolidating agri-businesses and allegations of price gouging and 
widening retail and processor profit margins, regional and state milk 
commissions comprised of consumer representatives and government 
officials offer the public recourse and scrutiny into milk prices that 
are fair to consumers and farmers. That is the framework of the compact 
commission. And perhaps they forget that our country was founded on 
federalist principles--that states and regions have sovereign rights, 
as do their state citizens and elected officials, who are concerned 
about the long-term viability of a distinctly regional product. Even 
though the Mid-West would no doubt love to supply the entire country 
with fluid milk--milk is a regional commodity: bulky, perishable, and 
expensive to transport. In order to protect this regional commodity, 
which forms the backbone of many rural communities, it is altogether 
fitting and proper that regional compacts be used to regulate in the 
public interest. There are currently 35 states interested in compact 
legislation. No less than twenty-five states, their legislatures, my 
legislature, and myself have voted to ratify language authorizing our 
participation in a dairy compact. I ask that Congress give due 
deliberation to our collective voices.
    This legislation also calls to stake a fundamental issue: the 
ability of states to craft regional and state-based initiatives to 
problems inadequately addressed at the federal level. Since 1990 alone, 
Arkansas has lost 36% of its milk production. In light of these 
numbers, would any member say that state leaders do not have a 
responsibility to their citizens to use their state governing body to 
formulate solutions? The principles of federalism are the guiding 
touchstone behind the value of our political system and it is in these 
principles that dairy compact legislation lies.
    Local experiments by states are in the finest tradition of a 
Constitution that embraces federalism. Through state program 
experimentation, new ideas can be tested and refined, programs and 
initiatives can percolate up to the federal level, where if successful, 
their innovative techniques can be applied. Congress should be hesitant 
to choke such an experiment before it has had a chance to fail or 
succeed on its own merits. And, the results for dairy compacts are 
quite clear. Since the original six New England states passed compact 
legislation in 1996, well over half the country has moved toward 
embracing the idea of regional compacts for control of regional 
commodities. The compact clause of our constitution anticipates the use 
of state instrumentalities, like compact commissions, through which 
matters of regional concern may be addressed through policies shaped by 
regional values and expertise. We must keep in mind that there are 
limits to what can be achieved through uniform national regulation, 
especially when dealing with a regional commodity (such as milk and 
milk production) that by its very nature impacts each region of the 
country differently. Regional initiatives under the Compact Clause 
allow states to furnish a unique yet viable mechanism to respond to 
regional concerns and values. Congress should not forget this when 
discussing dairy compact legislation.
    Thank you for your time and attention.

    Chairman Leahy. Thank you. I can't add to that.
    We will stand in recess until two o'clock. Thank you.
    [Whereupon, at 12:10 p.m., a luncheon recess was taken.]
    [The committee reconvened in afternoon session at 2:17 
p.m., Hon. Charles Schumer presiding.]
    Senator Schumer [presiding]. The hearing will resume, and 
we want to apologize to the witnesses. Because of all sorts of 
scheduling and other problems, you have had to wait, and we 
appreciate it.
    Let me introduce each of the witnesses. We have the 
Honorable Jonathan Healy, who is the Commissioner of 
Agriculture of the Commonwealth of Massachusetts; the Honorable 
Harold Brubaker, a State Representative from the State of North 
Carolina, from Asheboro; Lois Pines, a former Massachusetts 
State Senator and Polly Trotenburg's former boss. Polly is my 
legislative director. Welcome.
    We have Dr. James Beatty, who is an economist from LSU, in 
Franklinton, and we have Richard Gorder, of the Wisconsin Farm 
Bureau.
    With unanimous consent, each witness' entire statement can 
be read into the record, and we will ask each witness to try to 
keep their remarks to 5 minutes. We are up to Ms. Pines. Thank 
you very much. I didn't realize that the first two had spoken.

STATEMENT OF LOIS G. PINES, FORMER MASSACHUSETTS STATE SENATOR, 
                     NEWTON, MASSACHUSETTS

    Ms. Pines. Thank you very much, Senator Schumer. I am here 
today to tell the story of my experience when I was a 
Massachusetts State Senator with regard to the Northeast Dairy 
Compact.
    Although I speak in opposition today to Senate 1157, I was 
once a supporter of the Compact. When opponents tried to obtain 
repeal of Massachusetts' membership in the Compact, I played a 
role in preserving it. Yet, since that time the evidence has 
convinced me that the Compact has not helped prevent the loss 
of family farms and it has hurt Massachusetts and New England 
consumers, despite the Compact supporters' claims to the 
contrary.
    In my opinion, these failures of the Compact are more than 
enough reason to replace it with more effective programs to 
help preserve the family farm and preserve open space that do 
not have so many negative impacts on the general public.
    In February 1998, together with my House Chair of the 
committee that I chaired on the Senate side, we convened an 
oversight hearing in the Massachusetts Legislature about the 
Compact, which had been in effect for only 7 months. Over and 
over again, Compact proponents assured us that consumers would 
not be hurt and that the Compact would save family farms.
    After weighing the limited evidence that was available at 
that time, I decided to give the Compact the benefit of the 
doubt, but I insisted that the Compact be revisited after more 
evidence was available. The committee report that I signed 
supporting the retention of the Compact at that time stated, in 
addition, ``If the Compact does not ameliorate the current 
trend of farm foreclosures and farmers leaving the dairy 
business, then the long-term proposed benefits of the Compact 
will have failed.''
    My reluctant decision in 1998 to not oppose the Compact has 
disturbed me in view of what we now know about the impacts of 
the Compact. Looking back, I can see that the claims made by 
Dairy Compact supporters have had two debilitating impacts on 
State and Federal policy processes.
    One, they misled many, many lawmakers in Congress as well 
as in State legislatures, including myself, and persuaded them 
to mistakenly give their support to dairy compacts. Two, they 
have diverted lawmakers' attention from developing and 
implementing policies that could really keep small dairy 
farmers on the land, generally protect consumers, and 
effectively preserve open space in rural New England.
    When Compact supporters came to me as a State Senator for 
help in advancing their agenda, they said ``The Compact is the 
only way to stop the loss of dairy farms and protect 
irreplaceable open space.'' Now, however, we know that the 
Compact has not even reduced the loss of dairy farms. The 
American Farm Bureau Federation surveys have shown that more 
dairy farms were lost in New England since the Northeast Dairy 
Compact began in July 1997 than in the 3 years prior to the 
Compact.
    I would note that Commissioner Healy's chart and numbers, 
although they are misleading, basically say the same thing. The 
number of farms have reduced since we instituted the Compact. 
This has grave implications for open space preservation, since 
it is difficult, if not impossible, to reduce the rate of loss 
of dairy farmland without first reducing the loss of dairy 
farms.
    In response to the obvious question of how can one raise 
dairy farmers' milk prices without hurting consumers, I was 
even told by Compact supporters that the Compact would somehow 
stabilize consumer prices and even keep them lower than they 
would have been in the absence of the Compact. In hindsight, I 
believe I was naive to believe their economic hocus-pocus that 
essentially says that more is less.
    There is substantial evidence available to prove that 
increases in farm milk prices will lead to increases, not 
decreases, in retail milk prices. No amount of smoke and 
mirrors can hide the fact that the Compact price increases have 
been shouldered by consumers. That is why national consumer 
groups such as the Consumer Federation of America, headed by 
your former colleague Senator Metzenbaum, absolutely oppose 
Senate 1157.
    Another myth that you have heard this morning is that the 
Federal feeding programs are exempted from harm by Compact milk 
price increases. In reality, nutrition programs that have no 
exemption from the Compact represent more than three times the 
milk consumption of WIC, the only program that is fully and 
effectively protected. New England's food stamp recipients, who 
can least afford it, have lost $14 million in purchasing power 
due to the Compact. Child and elderly feeding programs such as 
Meals on Wheels are not protected and have absorbed more than 
$1.5 million. This measure will exacerbate this kind of problem 
across the country.
    In conclusion, Mr. Chairman, time is running out and each 
year that we continue the failed Northeast Dairy Compact 
experiment in New England, despite good intentions, 
policymakers are being distracted from the task of creating and 
funding programs that will really work for dairy farmers, 
consumers, and the environment.
    For the past 4 years, the high costs and false hopes 
associated with the Compact have placed an unnecessary burden 
on the people of New England. By opposing Dairy Compact 
extension and expansion legislation, members of this committee 
can help prevent similar damage from being inflicted on 
consumers in other parts of the country.
    Thank you.
    [The prepared statement of Ms. Pines follows:]

 Statement of Lois G. Pines, Esq., Former Massachusetts State Senator, 
                         Newton, Massachusetts

                              Introduction
    My name is Lois G. Pines. I live in Newton, Massachusetts, and have 
been a member of the Massachusetts Bar since 1964. I currently practice 
law and have been teaching public policy and advocacy at the John F. 
Kennedy School of Government at Harvard University, in Cambridge, 
Massachusetts. I want to thank you for giving me the opportunity to 
provide testimony pertaining to S.1157, a bill to reauthorize and 
expand the Northeast Interstate Dairy Compact and create new dairy 
compacts in southern, plains, mountain and western states.
    I am here today primarily to tell the story of my personal 
experience with the Northeast Interstate Dairy Compact. Although I 
speak in strong opposition today to S.1157, I was once a supporter of 
the Northeast Dairy Compact and helped protect it from attacks by 
ardent opponents in Massachusetts, when heated debate and negative 
publicity brought the issue before the state legislature in 1998.
    At that time, I was the Senate Chair of the Joint Committee on 
Natural Resources and Agriculture of the Massachusetts Legislature, 
which had jurisdiction over the dairy compact. Since that time, 
however, I have become convinced that the Northeast Dairy Compact has 
not helped prevent the loss of small dairy farms and has hurt New 
England consumers despite claims by dairy compact supporters that it 
would not. In my opinion, the Compact's failure to achieve its goals 
and the harm it has done to consumers and low-income families is more 
than enough reason to replace it with more effective programs that do 
not have negative impacts on the general public.
    Mr. Chairman, for most of my more than twenty-five years of public 
service, I have fought for the interests of ``the little guy'', the 
underdog, and for consumers, who are at the mercy of the marketplace 
and government regulations like the Compact. For six of those years, I 
have fought not just for consumers and small businesses in 
Massachusetts, but for consumers and small businesses throughout all of 
New England. During the Carter Administration, I served as the Regional 
Director of the New England Office of the Federal Trade Commission with 
a mission to protect consumers and small businesses from fraud, 
misrepresentation and noncompetitive practices. More recently, since 
1999, I have served as a Public Interest Director of the Federal Home 
Loan Bank of Boston, serving all six New England states. As a member of 
the Massachusetts House of Representatives and Massachusetts Senate for 
eighteen years, I fought for measures that would protect the state's 
consumers, small businesses and protect the environment.
 Why, as a MA State Senator I Supported the Northeast Dairy Compact in 
                                  1998
    In 1998, my longtime commitment to small business, consumers and 
the environment led me, as co-chair of the Joint Natural Resources 
Committee, to sympathize with the plight of the small dairy farms in 
Massachusetts and the rest of New England. I can recall the events of a 
Joint Committee on Natural Resources and Agriculture Oversight hearing 
in February of 1998 quite vividly. The room was filled with farmers and 
other supporters of dairy compacts, including the Governor of Vermont. 
Over and over again, compact proponents assured the Committee that 
consumers would not be hurt by continuation of the Compact and that the 
Compact would ``save family farms!''
    Although well-informed advocates and experts also presented 
testimony opposing the Compact, they had difficulty convincing 
committee members not to accept Compact supporters' claims about the 
cost and benefits to consumers, farmers and the environment. In 
hindsight, the overwhelming hurdle faced by the Compact's opponents at 
the Hearing was the fact that the Compact had been in existence for 
only seven months. Consequently, evidence about its actual impacts was 
limited or nonexistent. Given conflicting claims by Compact supporters 
and opponents, I was inclined to give the benefit of the doubt to New 
England's small dairy farmers, especially since my House of 
Representatives committee co-chair was in favor of the Compact.
    Even then, however, I had reservations given the testimony I heard 
from opponents of the Compact especially regarding the harm to working-
class consumers, low-income families, and federal nutrition assistance 
programs. Their arguments convinced me that the legislature had a 
responsibility to the people of the Commonwealth to insist that the 
Compact be revisited by the legislature as soon as sufficient evidence 
was available about its actual impacts.
    Although I cared a great deal about the fate of small dairy farms 
throughout the region, I was also deeply concerned about impacts of the 
Compact on consumers in Massachusetts and the rest of New England, 
whose interests I had championed for much of my time in public service. 
I was particularly concerned about Massachusetts consumers since more 
than 45% of the revenues generated by Dairy Compact price increases 
would come from higher milk prices paid by them. As a result, I 
insisted that the Committee Report on the Compact that emerged from the 
Oversight Hearing process include language requiring reconsideration of 
the evidence at a later date. The Report stated, ``If the Compact does 
not ameliorate the current trend of farm foreclosures and farmers 
leaving the dairy business, then the long term proposed benefits of the 
Compact will have failed. A review of trends six months and one year 
from now should be instructive.''
The Evidence from New England Compels Me Now to Vigorously Oppose Dairy 
                                Compacts
    My reluctant decision in 1998 not to oppose the Northeast Dairy 
Compact has haunted me, particularly as more and more information about 
the impacts of the Compact has become available. When the May 1998 
report was prepared, we had barely nine months of data with which to 
work. Moreover, we had no data on changes in the number of New England 
dairy farms since the Compact began. This month, on the other hand, the 
Northeast Dairy Compact celebrated its fourth anniversary. That means 
we now have a great deal of evidence with which to assess the real 
impacts of the Compact.
    Unfortunately, when I look at the evidence, I find that my worst 
fears have been justified. The evidence clearly shows that Compact 
supporters were wrong about how the Compact would save small family 
farms and protect the region's consumers. In an effort to do something 
to rectify my 1998 decision, I joined forces with the International 
Dairy Foods Association, which was working to replace the Compact in 
Massachusetts with an alternative. The State Senate proposed a state-
funded dairy farm income support program, which I strongly supported, 
that would (1) provide extra state money for purchasing dairy farmland 
development rights; (2) establish a state fund to be used to fully 
replace the Dairy Compact payments that were being given to 
Massachusetts dairy farmers; and (3) establish a state Commission to 
consider what other initiatives might be taken by Massachusetts to 
truly assist the dairy farmers, with particular emphasis on the needs 
of the small dairy farmer.
    In hindsight, I believe that the Compact has been a public policy 
failure. The claims made by dairy compact supporters have had two 
debilitating impacts on state and federal policy processes: 1) they 
have grossly misled hundreds of lawmakers in Congress and state 
legislatures, including myself, and persuaded them to mistakenly give 
their support to dairy compacts; and 2) they have diverted lawmakers' 
attention from developing and implementing policies that could really 
help keep small dairy farmers on the land, genuinely protect consumers, 
and effectively preserve open space in rural New England.
   1. the compact has not slowed the loss of new england dairy farms
    No one can deny that the Compact has increased New England dairy 
farmers' incomes. However, when Compact supporters came to State 
Senator Lois Pines for help in advancing their agenda, they never said, 
``please give dairy farmers a subsidy or a handout.'' They knew that I 
would never support a blanket subsidy to the dairy farm sector. 
Instead, they said, ``the Compact is the only way to stop the loss of 
dairy farms and protect irreplaceable open space.'' Now, however, we 
know that the Compact has not come close to stopping the loss of dairy 
farms. Moreover, the evidence suggests that the Compact has not even 
reduced the loss of dairy farms.
    The annual surveys of commercial dairy farms conducted by the 
American Farm Bureau Federation tell the story. Since the fall of 1998, 
those surveys have consistently shown that more dairy farms were lost 
in New England since the Northeast Dairy Compact began in July 1997 
than in the three years prior to the Compact's starting date. All told, 
465 of New England's dairy farms, out of the 3,237 that existed in July 
1997, left the business by June 2000. That's a loss of nearly 15% of 
the region's dairies in just three years. The statistics for 
Massachusetts are even more compelling. Between July 1997 and June 
2000, 64 of the state's dairy farms were lost. Compared to a loss of 57 
farms in the three years prior to the Compact. In other words, with the 
Compact in force, Massachusetts lost about 20% of its dairy farms. The 
next Farm Bureau survey will undoubtedly show that the losses have 
climbed to 25% in 2001. Something is clearly not working!
    The high rate of loss in the face of the Compact really should not 
come as a great surprise to policy makers. Opponents of the Compact 
have pointed out for the last couple of years that, according to the 
latest (1997) Census of Agriculture, three-fourths of all New England 
farms leaving the business in the 1980s and 1990s had less than 50 
cows. Since the Compact pays each farmer the same premium for every 
gallon of milk they produce, it is the larger farms, which produce the 
bulk of the region's milk, that benefit most from the Compact. Since 
these farms are most likely to stay in business anyway, why is anyone 
surprised that the Compact has not reduced the loss of dairy farms?
    Some Compact supporters, in the face of the depressing Farm Bureau 
data, may claim that without the Compact, even more New England dairy 
farms would have left the business. I have been down that road of 
listening to unsubstantiated claims made by Compact supporters before. 
Based on my experience, I encourage you to take a hard look at the 
evidence before you embrace that viewpoint.
    Even if such evidence did exist--and I certainly haven't seen any 
--the fact that so many dairy farms still went out of business in the 
presence of the Compact should give us all reason to question whether 
the Compact is an effective mechanism for stopping the hemorrhage of 
dairy farms. It's little consolation to policy makers and their 
constituents that more dairy farms did not go out of business in view 
of the large number of dairy farms that did. If that's the best the 
Compact can do, then it is truly an inadequate policy instrument.
2. if the compact did not slow the loss of farms, it could not slow the 
                           loss of open space
    It goes without saying that the failure of the Compact to slow the 
loss of dairy farms undermines the claims by Compact supporters that 
the Compact will reduce the loss of open space throughout New England. 
To reduce the rate of loss of open space, the Compact has to first 
reduce the loss of dairy farms.
    It has puzzled me the last couple of years to see a number of 
environmental groups from Massachusetts and New England argue, over and 
over again, that the Compact is the answer to the rapid conversion of 
New England dairy farmland to suburban and urban uses. They certainly 
have reason to be concerned about the loss of New England dairy 
farmland to nonfarm uses in the last couple of decades. I also share 
their concern for the plight of New England dairy farms.
    However, I cannot understand how they can continue to support the 
Compact in the face of such rapid loss of dairy farms over the past 
three years. After all, every year of continued support for the 
Compact, in the absence of truly effective, well-funded programs to 
reduce dairy farm losses or purchase dairy farmers' development rights, 
means another 5% of the region's dairy farms lost.
    Since July 1997, participating dairy farmers have received about 
$140 million as a result of the Compact. The payoff has been no 
reduction in the loss of New England dairy farms. If we really wanted 
to reduce the loss of dairy farmland to urban or suburban development, 
just think about how much farmland could have been preserved by using 
that money to buy dairy farmers' development rights. Given the 
statistics on recent dairy farm losses, it is difficult not to conclude 
that, from an open space perspective, the $140 million in Compact 
premiums has largely been wasted.
3. consumers have shouldered the burden of paying for the compact–
    In response to the obvious question of how one can raise dairy 
farmers' milk prices without hurting consumers, I was always told by 
Compact supporters that the Compact would somehow stabilize consumer 
prices and keep them lower than they would have been in the absence of 
the Compact. In other words, we could have it both ways: higher milk 
prices for farmers; and lower milk prices for consumers.
    In hindsight, I recognize that it was ridiculous to believe that 
the higher milk prices imposed by the Compact would not be passed on to 
consumers. There is plenty of evidence available to convince anyone 
with an open mind that most, if not all, of the Compact price increases 
have been shouldered by consumers. The fancy economic studies that have 
been done on this question are not much help. From what I understand, 
they each provide dramatically different results depending on the 
methods they employed and the assumptions they made. A better, 
commonsense approach is simply to look at the relationship between farm 
prices and retail prices in New England to see what happened when farm 
prices increased. In every graph of those prices that I have seen for 
the Boston area since the Compact began, whenever farm milk prices 
increased, retail milk prices increased by as much or more. In fact, in 
recognition of this pass-through of Compact premiums to consumers, the 
Consumer Federation of America said in a recent letter to Congress that 
``Several economic studies, including one ordered by the Northeast 
Compact Commission, have confirmed this pass-through of additional 
costs to consumers. The Consumer Federation of America estimates that 
the Northeast Compact has cost consumers more than $165 million over 
3\1/2\ years. . .Dairy Compacts are especially costly to low income 
consumers, who spend a greater percentage of their income on dairy 
products than other families.''
    Compact supporters have often misled policymakers into believing 
that federal nutrition programs are protected from harm from Compact 
price increases. The truth of the matter is, the feeding programs that 
have NO exemption from the Compact represent more than 3 times the milk 
consumption of WIC, the one program that is fully and effectively 
exempted. New England's food stamp recipients, who can least afford to 
pay more for a basic staple such as milk, lost $14 million in 
purchasing power thanks to the Compact. Child and elderly feeding 
programs, such as ``Meals on Wheels'', which are NOT protected from 
harm by the Compact, have been forced to absorb more than $1.5 million 
in higher costs.
    S.1157 would only exacerbate this lamentable situation. If compacts 
had expanded to include states in the mid-Atlantic, Southern and Plains 
regions, studies that I have seen indicate that the costs to consumers 
last year alone would have been between $600 and $700 million dollars. 
Food stamp recipients would have seen their purchasing power drop by 
roughly $100 million. In addition, S.1157 fails to protect important 
child and elder care feeding programs from higher milk prices caused by 
the Compact. Those programs would have paid about $20 million more in 
higher milk costs if S.1157 were enacted.
    Compact proponents have often argued that the extra cost to 
consumers is worth it to ensure an inexpensive, local supply of fresh 
milk. They claim that without the Compact, milk would have to be 
shipped in from long distances at great cost to the consumer. The facts 
suggest otherwise. Without the Compact, there would be a more-than-
adequate supply of fresh, locally supplied milk in New England. 
Moreover, it would be less expensive than it currently costs with the 
Compact in place.
    Prior to the Compact's inception, New England milk production was 
stable. As a matter of fact, New England produces twice as much milk as 
it consumes as a beverage. Almost all of that is Grade A milk suitable 
for use as a beverage. Milk production in nearby New York state was 
also quite stable in the 1990s prior to the Compact. New York dairy 
farms produce one-and-a-half times the amount of fresh milk the state 
consumes. That means there is plenty of fresh milk available from 
nearby dairy farms to add to the New England supply. New England 
already relies on New York for 25% to 30% of its fresh milk needs.
    Should more milk be needed to satisfy increased needs of New 
England consumers, plenty of milk will be available to be shifted from 
lower cost uses such as cheese, to higher priced beverage use.
    Despite these factors, Compact supporters still claim that without 
the Compact, New England milk production would drop to such low levels 
that processors would relocate outside the region and ship milk from 
long distances--at great expense--to New England. In view of the 
abundance of milk available in New England and nearby states, this 
claim appears to be highly suspect.
                         Summary and Conclusion
    Like many members of Congress, I too have had to make a difficult 
decision about supporting dairy compacts. Faced with a desire to help 
my region's dairy farmers, woefully limited evidence, and 
unsubstantiated claims about the benefits of the Northeast Dairy 
Compact to consumers and farmers, I gave my tentative support to the 
Compact three years ago.
    Now, however, after four years of the Compact, we have sufficient 
evidence with which to make a truly informed judgement. In my opinion, 
in light of the overwhelming evidence, the Compact, as public policy, 
has failed miserably in achieving its stated goals.
    No doubt the Compact has put extra money into the pockets of dairy 
farmers. Unfortunately, that is about the only positive thing that can 
be said about the impacts of the Compact. It has failed to slow the 
loss of dairy farms. As a result, it has been unable to reduce the loss 
of rural open space. It has forced consumers to pay more for milk in 
the name of a fictitious local supply shortage. It has imposed higher 
costs on cash-starved nutrition assistance programs and food stamp 
recipients.
    Mr. Chairman, time is running out. Each year that we continue the 
failed Northeast Dairy Compact experiment in New England, despite our 
good intentions, policymakers are distracted from the task of creating 
and funding programs that will really work for farmers, consumers and 
the environment.
    Each year another five percent of the region's dairy farms leave 
the business.
    Each year that much open space is dangerously exposed to urban or 
suburban development.
    Each year another $35 million or more is wastefully taken from New 
England's consumers.
    In closing, I urge the members of the Judiciary Committee not to 
support S.1157. For the past four years, the cost and the false hopes 
of the Northeast Dairy Compact have placed an unnecessary burden on 
people of New England. By opposing Dairy Compact extension and 
expansion legislation, you can help prevent similar damage from being 
inflicted on more than 200 million others throughout the mid-Atlantic, 
southern, plains, mountain and western regions of the country.
    Thank you.

    Senator Schumer. Thank you, Ms. Pines, and now we are up to 
Mr. Beatty.

   STATEMENT OF JAMES F. BEATTY, ECONOMIST, LOUISIANA STATE 
               UNIVERSITY, FRANKLINTON, LOUISIANA

    Mr. Beatty. Thank you, Senator Schumer, Senator Kohl, for 
inviting me. I will try to touch briefly on the five points in 
my written testimony and then maybe concentrate as much as I 
can on particularly the last one.
    The Compact Commission includes consumers, and that is a 
very key point. I am a public employee. I have to consider the 
will of consumers in Louisiana in what I do. I don't think the 
Louisiana Legislature would have passed the legislation if 
consumers were not part of the Commission, and we have 
experience with the State in the past.
    Dairy does make a substantial contribution to many rural 
areas in the Southeast, although we are a relatively small 
State in terms of milk production. We only produce a fourth of 
our milk needs in Louisiana, but it is an important 
contribution in some areas. And the States that are petitioning 
for a compact see it as a tool that might help us maintain that 
production.
    Dairy compacts regulate fluid milk prices only. We need to 
keep that in mind. We are speaking specifically of fluid, which 
is a different animal, because again perishability has been 
mentioned, lack of inventory, those kinds of things.
    The Southeast of the U.S.--and you can see the red area on 
that map; those States in red do not produce enough milk even 
for our fluid needs, just fluid. We have to import milk, no 
cheese, no powder, no nothing. We see a compact as a way to 
entice more milk into that region when we need it, without 
putting that cost on the farmers.
    At the present time, our local producers, in order to 
maintain their market, subsidize the freight on milk that comes 
into that area. We can hopefully get the price in the area 
closer to either whatever it takes to produce it locally or get 
it moved.
    Another point: A compact does not prevent the flow of milk 
in and out of a compact region. It does regulate the price. 
Federal milk market orders have regulated milk prices for 60 
years. It has worked relatively well in terms of supplying 
fluid markets. That is why we have differentials.
    I do agree with Senator Kohl. It is not working as well as 
it should, as we would like it, and I am sure as well as this 
gentleman from Wisconsin would like, the Federal orders are 
not. But this is another tool that we can use in specific 
regional cases to add to the signals that the Federal orders 
send. But, again, we have set minimum prices for years and we 
have done a good job of supplying a wholesome product at a 
reasonable price to consumers.
    The fifth point, and I think that is the key point, is how 
much milk do we want to move and how far do we want to move it, 
you know, for fluid purposes. Now, keep in mind any comments I 
make relate basically to fluid. We are a fluid market.
    But, again, if you look at the map, those States in red 
produce less milk than they need for fluid use. The States in 
that other color, and I am not sure what they call it, but the 
States that are not green produce less than their needs for 
their total milk consumption. They produce more than they need 
for fluid, but not enough for their total milk product needs. 
Of course, the States in green produce enough to supply their 
own needs, plus to help supply other areas.
    You can see the big blob of red in the Southeast, and you 
can see it goes up the East Coast. The thing is, the Southeast 
is bleeding for fluid milk, and we are hemorrhaging now and 
that red area is spreading north and east as we continue to go 
in the direction we are going.
    In fact, recent figures, according to the Federal market 
administrator who put the basic figures for this map--this map 
comes out, of course, here--Texas, Tennessee and Virginia 
should be added to the red area, and also Nevada. Now, you see 
what that does to the Gulf Coast, for instance. Texas puts 100 
million pounds of milk a month into Louisiana. They are losing 
production.
    We are not sending a strong enough signal to that red area 
in terms of fluid milk, and that is what the Federal orders are 
designed to do, send a strong enough signal to do one of two 
things, and I think we always focus on one of the two. Send a 
signal that says produce it in Georgia, or send a signal that 
says to the guy in the green area, you can haul it to Georgia, 
take the freight off your cost, you know, pay the freight and 
still make as much money as you will at home.
    I think that is the problem with the market the way it is 
operating. New Mexico has got a lot of milk, but it gets more 
money at home than the New Mexico price, plus the $4 it costs 
to haul it to New Orleans. Again, part of that is the way the 
Federal market orders are working, you know, utilization, and I 
don't want to say predatory pooling. I didn't say that; 
opportunistic pooling.
    But we need to send a stronger signal out of the Southeast 
to either get it produced locally or get it moved, because as 
of now our local producers are subsidizing our consumers. The 
processors in our area between August and October spend about 
$2 to $3.60 a hundredweight to go out in a region, get milk and 
bring it in. They take a net loss. That is spread across our 
local producers. The less local milk we have and the more we 
have to haul in, the higher that cost gets per hundredweight, 
and it is going to continue to drive our producers out of 
business.
    So to me, the key question is neither farmer on either end 
is getting enough money. We don't have enough milk in the red 
area. We can't get the milk moved from the green area because 
we can't get the freight. So the question in my mind concerning 
the Compact is are we going to pay the money to farmers or are 
we going to pay the money to trucks. I have got nothing against 
trucks, but we are starving farmers on both ends.
    Again, that says to me that we have got to have a stronger 
signal or a higher price in that red area and areas surrounding 
it.
    [The prepared statement of Mr. Beatty follows:]

 Statement of James F. Beatty, Economist, Louisiana State University, 
                         Franklinton, Louisiana

    Thank you Chairman Leahy, Ranking Member Hatch and members of the 
Committee for inviting me here today to discuss Dairy Compacts.
    These are 5 points that should be considered when evaluating the 
effects of dairy compacts.

        1. The proposed legislation includes consumers on dairy compact 
        commissions. Therefore, any dispute over the level of price 
        between producers and processors will be settled by consumers.
        2. Milk production contributes a substantial economic impact 
        and tax base in many rural areas in the states petitioning for 
        formation/extension of dairy compacts. These states would like 
        to use compacts as a tool for maintaining these contributions.
        3. Dairy compacts regulate fluid milk prices at the farm only. 
        Therefore, the ability to generate dairy farmer income is 
        determined by the volume of fluid sales in the compact area and 
        the level of compact price determined with input from 
        consumers. A compact should help encourage milk produced in 
        other parts of the country to come into the Southeast region 
        when it is needed to supply the market.
        4. The proposed legislation does not prevent the flow of milk, 
        raw or packaged, into the compact region nor does it restrict 
        the flow of money out of that region. The farmer who produced 
        any milk sold as fluid milk in the compact region receives the 
        revenue generated, regardless of his location.
        5. The key question in the debate over fluid milk compacts is: 
        should a substantial portion of the milk consumed as fluid be 
        produced relatively close to the site of consumption? Twenty-
        five states have decided, through their state legislatures, the 
        answer to that question is yes. That is the reason those states 
        are petitioning this congress for permission to use a dairy 
        compact as a tool in achieving that goal. Ten additional states 
        are concerned enough that they are considering their need for 
        compacts.

    The U.S. dairy industry is constantly transporting ever increasing 
amounts of milk over increasing numbers of miles to supply fluid 
markets. At present, dairy farmers in the Southeast share in the cost 
of procuring and transporting supplemental milk. The dairy farmers 
contribution will cease if local production ceases.
    Production capacity in the Southeast United States, Table 1, has 
deteriorated to the point that further decreases will push production 
below the point of no return. The loss of the critical mass necessary 
to maintain efficient support industries (milk hauling, feed, milking 
equipment, custom forage production) would lead to unbearably increased 
costs of production and marketing.
    Production in the states of Louisiana, Mississippi, Alabama, 
Georgia, Florida, North Carolina and South Carolina was 5.7 billion 
lbs. less than required to supply the fluid markets in 1996. Regional 
production continues to decrease while consumption increases and 
supplemental supplies are farther and farther away. Texas, Missouri, 
Kentucky and Tennessee, who have traditionally provided supplemental 
supplies, have lost 16-26% of their production since 1995 (Table 1). 
The loss of production in Texas has been primarily in east Texas, and 
more recently in central Texas, leaving remaining supplies farther 
west. For Louisiana, Mississippi and Alabama this means the reserve 
supply is farther away and is more likely to be needed to supply 
consumers where it is produced.
    Production trends in the Southeast U.S. prove prices have not been 
high enough to maintain supply (Table I). This down trend in production 
has continued even as farm milk prices reached record levels in 1996, 
set new records in 1998, and approached 1998 levels in 1999. These 
events occurred in spite of grain prices, the major factor affecting 
the cost of milk production, which have been extremely low since 1997. 
This is the case in most of the states east of the Rockies. (Table I, 
II and III).
    Prudent consideration of recent and current milk production trends 
strongly suggests that the downward trend in production east of the 
Rocky Mountains should be slowed before it becomes irreversible. Are we 
are willing to commit to producing all or a very substantial portion of 
the milk needed for fluid consumption in a few states in the very 
northern and western regions of the country.
    Is a decision to produce all milk in those areas where on-farm 
costs are lowest and routinely transport very large volumes of fluid 
milk very long distances a sound economic decision?
    Will that decision remain economically sound in the future?
    Are we giving proper consideration to current and future 
transportation costs?
    Four lbs. of concentrate feed will produce 10 lbs. of fluid milk. 
Should the feed be transported rather than the milk? Transporting the 
feed is a lot cheaper.
    Again, the key question in the debate over Fluid Milk Compacts is; 
will a reasonable amount of the milk consumed as fluid be produced 
relatively close to the site of consumption in the future? Doing so has 
served U.S. consumers very well for over 60 years.
    If the milk production capacity in large areas of the country is 
destroyed, the cost of regenerating it in the future will be 
astronomical.
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    Senator Schumer. Thank you, Mr. Beatty. We appreciate it. I 
am sorry to move things along, but we have a vote in now about 
7 minutes.
    Mr. Gorder?

   STATEMENT OF RICHARD GORDER, MEMBER, BOARD OF DIRECTORS, 
   WISCONSIN FARM BUREAU FEDERATION, MINERAL POINT, WISCONSIN

    Mr. Gorder. Well, thank you, Senator Schumer and Senator 
Kohl. I would like to thank Senator Feingold for his very nice 
comments this morning, and thank Senator Kohl for allowing me 
to participate and speak on behalf of the farmers of the State 
of Wisconsin.
    I am a dairy farmer from Mineral Point, Wisconsin. I am 
also a member of the board of directors of the Wisconsin Farm 
Bureau Federation. I am considered by most to be a relatively 
small dairy, milking today just around 50 cows. However, in the 
last 18 months I reinvested in my dairy operation in excess of 
over $200,000 and will be increasing my herd size in an attempt 
to remain economically viable.
    When I started farming in 1979, there were over 46,000 
dairy farmers in the State of Wisconsin, and today there are 
less than 19,000. Senator Feingold made the statement that 
there were less than 20,000. For the record, I would submit 
that just this last week the Wisconsin Department of Ag Trade 
and Consumer Protection released the fact that there are 
18,245, a loss of over 1,600 dairy farms from July of 2000.
    Wisconsin, like most States, has lost their dairy farmers 
for a variety of reasons--economics of profitability, urban 
pressures, normal retirement, and an adverse Federal dairy 
policy. Today, the subject of these hearings is dairy compacts, 
or as we refer to them in the upper Midwest, the dairy cartel.
    Even one of your Southern colleagues, Senator Zell Miller, 
while Governor of Georgia, referred to the cartels as 
counterproductive and akin to a price-fixing scheme.
    Will this hearing shed any new insight or documentation 
that has not already been discussed? For most, the issues and 
positions are established--those who have and want to preserve 
the Compact, those who want to expand the compacts, and those 
of us who look at the compacts as just bad dairy policy that 
promote regional division.
    The Northeast Dairy Compact was never intended to be a 
permanent pricing structure, but a stop-gap measure to slow the 
decline of the number of dairies in the Northeast until 
Congress could address a national dairy policy as a whole. 
Today, we in this country still wait for a comprehensive, 
inclusive dairy policy that knows no regional barriers.
    One of the remarks often touted for justification by 
Compact proponents is we are just trying to save our family 
farms. Yet, statistics do not support this. In the first 2 
years of the Compact, the Northeast lost more dairy farms than 
in the previous 2 years. Yet, there was an increase in 
production more than twice the national average.
    The debate is not just about the continuation of the 
Northeast Dairy Compact, but the adverse economic impact from 
the expansion of compacts into the South and even into some of 
the Western, Mountain and Pacific Northwestern States that have 
a high Class I utilization.
    Regional dairy compacts place a floor under the price of 
milk used for fluid purposes in the compact region. This 
artificial price increase creates an incentive for more milk 
production in the region, yet represses consumption of fluid 
milk in that area. That surplus finds its way into manufactured 
milk products such as cheese, butter and milk powder.
    While dairy compacts insulate the market from competition 
by placing restrictions on milk entering the compact region, 
they impose no restrictions on the surplus milk and milk 
products that must leave the region in search of a market. As a 
result, the market distortions of dairy compacts have a 
negative effect on the prices of producers in the non-compact 
areas.
    You have heard a lot of numbers here today, Mr. Chairman. A 
1999 University of Missouri study shows that with the expansion 
of compacts into the Southern States, Wisconsin dairy farmers 
would lose over $64 million per year. Another report, The 
Interregional Analysis of Interstate Dairy Compacts, conducted 
by three noted economists from the University of Wisconsin, 
demonstrates that with the expansion of the compacts into 9 
northeastern and 16 southern States, the economic impact on 
farmers in non-compact States to be at $326 million per year. 
Whichever number is used, the long-range consequences would be 
even greater if you were to calculate the economic impact to 
our rural communities' infrastructure.
    As we in this country attempt to gain access to foreign 
markets, we continue to battle countries that place tariffs on 
our goods that restrict our ability to compete in their market. 
While we decry those who place protectionist policies or 
tariffs on our goods, we in kind have allowed the same type of 
policy within our own borders. All milk that runs into a 
compact area must be priced at the established compact price, 
in essence a tariff.
    Mr. Chairman and members of the committee, I urge you not 
to exacerbate an inferior policy, a defective policy that will 
come back and haunt us time and time again, not only from 
within our own borders but from those countries who wish to 
impose their own protective agenda.
    You have the ability to right this wrong. There are two 
bills that are currently before you that attempt to address 
national dairy policy for the 21st century.
    Senator Schumer. Mr. Gorder, I am going to have to ask that 
you begin to conclude.
    Mr. Gorder. I have just one paragraph, if I could finish 
up, Mr. Chairman.
    Senator Schumer. Please.
    Mr. Gorder. Mr. Chairman, while my organization has not 
taken a specific stand on either of these bills, we believe 
that they could be a catalyst for a national dairy policy that 
attempts to unify a divided dairy industry. We also believe 
that these bills are consistent with our vision to be leaders 
in unfettered trade.
    I thank you, Mr. Chairman and members of the committee, for 
the opportunity to address you today.
    [The prepared statement of Mr. Gorder follows:]

Statement of Richard Gorder, Member, Board of Directors, Wisconsin Farm 
              Bureau Federation, Mineral Point, Wisconsin

    Thank you, Mr. Chairman and Members of the Committee for the 
opportunity to appear and testify before you today.
    I am a dairy farmer from Mineral Point, Wisconsin. I am also a 
member of the Board of Directors of the Wisconsin Farm Bureau 
Federation.
    I am considered by most to be a relatively small dairy, milking 
just 50 cows. In the last 18 months I have reinvested in my dairy 
operation in excess of over $200,000 and will be increasing my herd 
size in an attempt to remain economically viable.
    When I started farming in 1979 there were over 46,000 dairy farms 
in the state of Wisconsin. Today there are less than 19,000. Wisconsin 
like most states has lost dairy farms for a variety of reasons; 
economics/profitability, urban pressures, normal retirement, and an 
adverse federal dairy policy.
    Today the subject of this hearing is dairy compacts, or as we refer 
to them in the upper Midwest, the dairy cartel. Even one of your 
southern colleagues Senator Zell Miller while Governor of Georgia 
referred to the cartels as ``counterproductive'' and akin to a ``price 
fixing scheme''.
    Will this hearing shed any new insight or documentation that has 
not already been discussed? For most, the issues and positions are 
established. Those that have and want to preserve the compacts, those 
that want an expansion of the compacts, and those of us that view the 
compacts as just bad policy that promotes regional division.
    The Northeast Dairy Compact was never intended to be a permanent 
pricing structure but a stop-gap measure to slow the decline of the 
number of dairies in the Northeast until Congress could address 
national dairy policy as a whole. Today, we in this country still wait 
for a comprehensive/inclusive federal dairy policy that knows no 
regional barriers.
    One of the remarks often touted for justification by compact 
proponents is that the compact is a mechanism for saving our family 
farms. Yet statistics do not support this. In the first two years of 
the compact the Northeast lost more dairy farms than in the previous 
two years, yet there was an increase in production more than twice the 
national average. In the first two years of existence the compact cost 
Massachusetts milk consumers an estimated $25 million. At that time the 
state had only 350 dairy farms, which equates to $72,000/farm. Yet the 
average payment to each Massachusetts dairy was $3000. Consumers in 
Massachusetts are basically subsidizing Vermont.
    This debate is not just about the continuation of the Northeast 
Dairy Compact, but the adverse economic impact resulting from expansion 
of compacts into the south and even into some of the Western mountain 
and Pacific Northwestern states that have a high class 1 utilization.
    Regional dairy compacts place a floor under the price of milk used 
for fluid purposes in the compact region. This artificial price 
increase creates an incentive for more milk production in the region, 
yet represses the consumption of fluid milk in that area. The surplus 
that results finds its way into manufactured milk products such as 
cheese, butter, and milk powder.
    While dairy compacts insulate that market from competition by 
placing restrictions on milk entering the compact region, they impose 
no restrictions on the surplus milk and milk products that must leave 
the region in search of a market. As a result, the market distortions 
of dairy compacts have a negative effect on the prices of producers in 
non-compact states.
    A 1999 University of Missouri study shows that with the expansion 
compacts to the southern states, Wisconsin dairy farms would lose over 
$64 million per year. Another report ``The Interregional Analysis of 
Interstate Dairy Compacts'' conducted by three economists from the 
University of Wisconsin-Madison demonstrates that with the expansion of 
compacts into nine Northeastern and 16 Southern states, the economic 
impact on farmers in non-compact states would be about $326 million per 
year. Whichever number is used, the long range consequence would be 
even greater if you were to calculate the economic impact to our rural 
community infrastructure.
    As we in this country attempt to gain access into foreign markets, 
we continue to battle countries that place tariffs on our goods that 
restrict our ability to compete in their market. While we decry those 
who place protectionist policies or tariffs on our goods, we in kind 
have allowed the same type of policy within our own borders. All fluid 
milk that moves into a compact area must be priced at the established 
compact price, in essence a tariff.
    Regional compacts foster interstate trading barriers thus 
challenging the intent of the framers of the Constitution, who warned 
strongly against economic warfare between states. A number Commerce 
Clause cases arose out of attempts to protect local dairy farmers in 
the 1930's and later in the early 1990's. All were struck down by the 
Supreme Court stating that states cannot establish a policy for the 
purpose of creating a protective economic barrier against competition 
from another state. See Baldwin v. G.A.F. Seelig, 294 U.S. 511,523, 527 
(1935)
    Mr. Chairman and Members of the Committee I urge you not to 
exacerbate a inferior policy. Regional dairy compacts are a defective 
policy that will come back to haunt us time and time again, not only 
from within our own borders but from those countries who wish to impose 
their own protective trade agenda.
    You have the ability to right this wrong. There are a couple of 
bills that attempt to address national dairy policy for the 21 st 
century. The National Dairy Farmers Fairness Act of 2001 (S.294) 
introduced by Senators Kohl and Santorum, and National Family Farm 
Dairy Equity Act (H.R.1878) introduced Congressman Kind. These bills 
attempt a counter-cyclical approach to the pricing of all milk. 
Simplified, when prices are good there wouldn't be a payment and when 
prices fall below a designated level a support mechanism is activated.
    My organization has not taken a formal position on either of these 
bills. We believe, however, that they can be the catalysts for 
establishing a national dairy policy that attempts to unify a divided 
dairy industry. We also believe that these bills are consistent with 
our vision to be leaders in unfettered trade.
    Thank you Mr. Chairman and Members of the Committee for the 
opportunity to come before you today. I urge your support for a 
sensible national dairy policy that can benefit farmers in all regions, 
without pitting farmers in one region against farmer in another.

    Senator Schumer. I thank you, Mr. Gorder, and I want to 
thank all the witnesses. We are not going to have questions 
because we have about a minute-and-a-half left to vote.
    Senator Feingold. Mr. Chairman, I would like to ask a 
couple of questions, if I could.
    Senator Schumer. Well, then would you mind chairing the 
hearing and then asking questions?
    Senator Feingold. I would be delighted.
    Senator Schumer. You have a fine Chair, someone I don't 
agree with on this issue, but respect tremendously. Senator 
Feingold will Chair and then ask some questions.
    Thank you, and I thank the witnesses.
    Senator Feingold [presiding]. Thank you very much, Mr. 
Chairman. I just have a couple of questions.
    First, again, Mr. Gorder, I am so glad you are here. You 
talked about your support for a national dairy policy, one that 
helps all farmers. I strongly agree with you that Congress 
should focus on a unified national dairy policy that can help 
all of America's dairy farmers fairly compete in the modern 
marketplace.
    I would like you, as the only dairy farmer who is speaking 
at this entire hearing, to please talk a little bit about the 
merits of a national dairy policy versus a fractionalized dairy 
structure.
    Mr. Gorder. Thank you, Senator Feingold. As you know, 
Wisconsin has a strong infrastructure in its dairy and we are 
dependent on the Nation as a whole and even an export market 
into the world, for all practical purposes. There is no way 
that we in Wisconsin are going to be able to consume all of our 
dairy products, and so we are dependent on an expansive export 
program.
    What happens when you get the regional compacts that we 
have today--and there has been much discussion as to the fact 
that there is no barrier for our milk going into, let's say, 
the Northeast. The fact is that any time you have an 
established price, and take whatever price that raw product is 
coming in, and you add the transportation cost, that 
transportation cost has to be added on top of that established 
price. That in itself is restrictive for us to move into that 
market.
    So what we certainly propose is a national policy that 
knows no regional barriers. We understand that there are areas 
in the country that can't produce milk as efficiently as 
Wisconsin. I will tell you that we even have sometimes 
competition with California, but that is the way the system 
works, and we are certainly willing to work within the system. 
We would just like the bridle taken off and allow us to go 
where the market leads us.
    Senator Feingold. Thanks so much.
    I just have one other question for Senator Pines. I am 
sorry I missed your testimony, but I certainly know some of 
your background on this and where you come down on this issue. 
I am very encouraged by the comments in your written testimony 
supporting alternatives to the Northeast Dairy Compact. Again, 
I believe that Congress should be focusing its attention on 
legislation that helps all dairy farmers instead of just 
specific regions.
    I wonder if you could tell us a little bit about your 
experience in advocating for alternative proposals to help 
dairy farmers in Massachusetts and why you pushed for these 
programs as an alternative to the Compact. Did you, for 
example, feel these were simply better alternatives or did you 
feel that the Compact had failed?
    Ms. Pines. Senator, I had indicated earlier, and so stated 
in my written testimony that I was very ambivalent in terms of 
initially being supportive of the Dairy Compact. We had only 
information for a 7-month period and I was concerned that I was 
proposing to eliminate the Compact before we had an opportunity 
to see it work. As a result, I supported it back in 1978.
    I left the Senate in December 1998, and I felt insecure as 
I found out more and more about the Compact because I had been 
so ambivalent in my efforts as Chair of the committee. As the 
years passed and I became a little bit more alert to what had 
transpired, I was more disturbed because I had hoped that my 
instincts were wrong.
    I have spent my career, over 25 years, working on behalf of 
consumers and small business people, and I am very proud of my 
record. I ran the Federal Trade Commission under President 
Carter, protecting consumers and working to enforce laws in the 
areas of antitrust.
    In my entire career, I had fought for consumers and it 
disturbed me to find that people who were poor were being 
forced to pay a disproportionate amount in purchasing milk. I 
am very proud of an initiative that we established in 
Massachusetts on behalf of osteoporosis. We were the first 
State in the country to try to educate the public about the 
need to have young people drink milk and use other calcium 
products. I spent a long time on that issue and we have a 
wonderful program in our State trying to encourage the elderly 
to exercise and to take calcium with vitamin D.
    And here I was in a position where I had proposed 
legislation, or allowed the continuation of a program and not 
aggressively opposed it which charged these individuals, the 
elderly as well as poor people and people on food stamps, more 
for the price of milk. It seemed so counterintuitive to where I 
had been for my career.
    So I guess about a year-and-a-half ago I learned that some 
of my colleagues in the legislature were contemplating 
revisiting the issue, and I had hoped that they would. I no 
longer was there and no longer chaired the Committee on Natural 
Resources and Agriculture, but others took my place and there 
was an effort in the Massachusetts Senate to provide an 
alternative.
    Forty-five percent of the fund in the Northeast Dairy 
Compact comes from Massachusetts consumers. Yet, only 7 percent 
of our farmers contribute. The money goes to New York and to 
Vermont. I had understood that that would be the case, but I 
thought it would be offset by helping to preserve farms, but it 
wasn't.
    So my colleagues in the Senate proposed a measure which 
passed the Senate but was defeated in conference committee 
which would have increased the program that we have in place to 
provide for development rights to farmers. It would have 
provided funding to replace all the funds that our farmers in 
Massachusetts had received under the Compact.
    We would have established a commission which would have 
aggressively looked at other alternatives that the State of 
Massachusetts might take to help preserve the family farm and 
to preserve open space, which is very important. I felt that 
these other alternatives really were more appropriate as 
someone who has been concerned with public policy.
    I had been teaching public policy and advocacy at the 
Kennedy School of Government at Harvard, and looked at this 
particular issue specifically because of all of the policy 
issues and the problems that occurred. I thought that it might 
be an interesting issue for my students to consider and to 
evaluate.
    As it turned out, I didn't use the case study, but I had 
the opportunity to really think through the issue again and I 
truly believe that the Compact in and of itself is not doing 
what we all hoped it would do. It is not saving the family farm 
and preserving open space. Dairy farmers need to be helped and 
this is not, in my opinion, the best way to do that.
    Senator Feingold. Well, Senator, that is very effective 
testimony coming out of the heart of New England, and I think 
we will find your comments being repeated as the debate goes 
on. I appreciate your being here. I want to thank all of the 
witnesses on both panels. It has been a long day, but we are 
grateful.
    I would ask unanimous consent to keep the record open for 3 
weeks for questions and further submissions.
    With that, the hearing is concluded. Thank you very much.
    [Whereupon, at 2:46 p.m., the committee was adjourned.]
    [Submissions for the record follow:]

                       SUBMISSIONS FOR THE RECORD

   Allied Federated CO-OPS Incorporated, Canton, New York, 
                                                      13617
                                                      July 27, 2001

Senator Charles Schumer
313 Hart Senate Office Building
Washington, DC 20510

    Dear Senator Schumer,

    On behalf of the members of Allied Federated Milk Cooperatives, I 
wish to share several comments on the Dairy Compact versus other 
proposals to assist dairy farmers. First, I will share a bit of 
background of our organization. Allied Cooperatives has a total of 36 
milk cooperatives as members of our organization. The total number of 
member is an average of 1850. Our members are principally in New York 
and Pennsylvania, with a few in Massachusetts and Maryland.
    At a recent Allied Board of Directors meeting, I handed out copies 
of the Kohl-Santorum bill S.294--Many have given me feed back. All 
favor the Compact over the bill. As one producer put it--the compact 
paid him an average of 94 cents per hundredweight last year on all of 
his milk not a portion. He originally ``sacrifices'' seven cents more 
to the commission but because he did not increase production, he gets 
an additional seven and one half cents back. So his average price was 
$1.01/cwt higher than mine.
    Now the proposed bill would only raise prices 50 cents during low 
milk prices like last year. They all expressed similar sentiments that:

        a) the Compact had all the players sitting at the table to set 
        the price
        b) it is the first time that farmers have been able to directly 
        influence a portion of their pay price
        c) it is a no cost program to the government
        d) it maintains supply for the area
        e) it does not limit expansion by those who would like to move 
        their business to a higher level (understand that even though 
        many do not like the seven cent supply management portion they 
        know that this is not a deterrent to their expanding if they 
        chose, where quotas or other ways usually are)
        f) they all expressed the concern that programs such as Kohl's 
        only last as long as the economy is good, taxes are not 
        increasing and the program does not become a target of some 
        group determined to change it,
        g) in contrast, the compact has the ability to revise the price 
        as needed by the commission's agreement.

    Additionally,, the compact puts a value on fluid milk which 
typically varies very marginally in supermarket price year round. 
Cheese prices or class III prices fluctuate widely based on many 
factors such as world pricing, import levels and a limited number of 
players buying and selling on the Chicago Mercantile Exchange. No one 
including the members from Lanco (600 members), our coop in 
Pennsylvania, wish to see the Compact end. All however agree the 
compact must be expanded and allow others to set up other compact 
areas. All are unanimous in saying that the Compact can not remain a 
New England thing. Everyone expresses the desire for dairy farmers to 
have the right to negotiate prices with the other parties in the 
industry to reflect their input costs among other things.
    I think that other areas should be able to set their compact 
pricing off whichever portion of the pay price they want in their area. 
For example, California and the Mid-west might chose to set a class III 
price under a compact. Obviously, the class utilization rate has a 
great deal of impact on the final price an area receives. The reason 
why the class I price in the Compact works for our area is our higher 
utilization rate. I also think Compacts will be more responsive to 
maintaining supply to match demand than the government has shown itself 
to be. I believe Compacts have a better chance of responding to world 
market as well as local market prices with their commission. I think it 
encourages the processors, handlers, supermarkets and consumers to work 
with the farmer to ensure all industries remain healthy. It allows 
leadership and communication to develop that in the end benefits 
everybody and again at no cost to the government.
    So the question comes, do dairy producers deserve the right (the 
equal right, I might add) to negotiate their price as all other 
commodities do or not? Is the government serious in it's desire to 
empower the farmer to be competitive and earn a living wage? Is the 
government committed to preserving a land base for agriculture to 
provide food for America if not for the world? Are they interested in a 
safe secure supply of food for the United States? Or do they want to 
pat one another on the back and say they gave us something? Farmers are 
not asking to be given anything! They are willing to work very hard. 
They do want to see a profit that allows them to support their families 
and business. Whatever the farm bill looks like it must be able to 
respond to the conditions that develop not only stateside but 
worldwide. Most people also believe that anything the government does 
will be challenged by the WTO. But most people believe the compact is 
not able to be challenged by the WTO successfully since it is not 
initiated as a government program and it does have producer 
involvement.
    On behalf of our organization, I ask you to submit our comments to 
others and that you speak in favor of the extension and expansion of 
the Dairy Compact on our behalf. If anyone has questions on these 
comments, they may direct them to me. I can be contacted at Allied 
Federated Cooperatives at 315-386-8116 during normal business hours, 8 
Am to 5 PM. M-F. Or they may email their questions to me at 
[email protected]
    Finally, I would like to reiterate our thanks to you for your 
representation of all facets of agriculture. Your willingness to listen 
and act on our concerns is very important to us. Thank you!
            Sincerely,

                                             Judith Aldrich
                                            Director of Information

                                

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