[Congressional Record Volume 144, Number 151 (Wednesday, October 21, 1998)]
[Senate]
[Pages S12886-S12890]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




USDA'S INSPECTOR GENERAL REPORT DOCUMENTING MISMANAGEMENT PRACTICES IN 
                    THE FLUID MILK PROMOTION PROGRAM

 Mr. LEAHY. Mr. President, a report issued by the Inspector 
General of the U.S. Department of Agriculture raises very serious 
concerns about the International Dairy Foods Association (IDFA), the 
Milk Industry Foundation (MIF) and the National Fluid Milk Processor 
Promotion Board (Board) in terms of the fluid milk promotion program.
  The Inspector General (IG) report identifies: unapproved expenditures 
in violation of law, potential conflicts of interest, possible cover-up 
activities, inaccurate financial statements, sole-source contracting, 
inadequate controls over contracting, excessive payments, failure to 
enforce contracts, property disputes over ownership of copyrights, and 
other serious violations by the Board or its agents IDFA and MIF.
  The fluid milk promotion law contains penalties for violations 
including, on conviction, a fine of not more than $1,000 or 
imprisonment for not more than 1 year, or both. The law also provides 
that ``nothing . . . shall authorize the Secretary to withhold 
information from a duly authorized committee or subcommittee of 
Congress.'' I serve on three committees and I have a keen interest in 
this matter.
  It is also a violation for funds collected under the law ``to be used 
in any manner for the purpose of influencing legislation or government 
action or policy.''
  I will omit details, but as background note that the law allows the 
appointment of a Board which may enter into contracts, with the 
approval of the Secretary, to carry out milk promotion and research 
programs. Funds are generated by a 20-cent per hundredweight assessment 
on certain processors of milk. This assessment is imposed through an 
order which is binding on processors.
  The Board is to ``keep minutes . . . and promptly report minutes of 
each Board meeting to the Secretary.'' The Board may pay for the 
advertising of fluid milk if authorized by the Secretary. Programs or 
projects can not become effective except ``on the approval of the 
Secretary.'' Also, the law provides that the Board is to ``administer 
the order.''
  The law does not provide for the involvement of IDFA or MIF 
specifically. However, the Board is authorized, with approval of the 
Secretary, to enter into contracts or agreements and is authorized to 
employ such persons as the Board considers necessary.
  As background for those not familiar with these organizations, note 
that IDFA's website says that ``IDFA serves as an umbrella organization 
for three constituent groups: the Milk Industry Foundation, the 
National Cheese Institute, and the International Ice Cream Association. 
. . .'' IDFA is an association for ``processors, manufacturers, 
marketers, distributors and suppliers of dairy foods, including milk, 
cheese, and ice cream and frozen desserts.'' More than 800 companies 
are in IDFA. MIF has 185 member companies, the National Cheese 
Institute has 95 member companies, and 150 companies are

[[Page S12887]]

members of the International Ice Cream Association.
  Given the seriousness of the charges, I believe the Secretary of 
Agriculture should immediately terminate its support for the fluid milk 
promotion arrangement between the Board and MIF and IDFA, and 
immediately begin searching for a replacement for those two 
associations to continue fluid milk promotion efforts. I am sending a 
letter to the Secretary that contains this request and restates some of 
the points that I am mentioning in this floor statement.
  I believe that a lot of the violations identified by the IG could 
have been eliminated if the Board had contracted directly with an 
advertising agency to do the milk promotion campaign. This would have 
avoided middlemen such as IDFA being able to skim money off the top in 
a manner that does not efficiently implement the law.
  I will highlight just some of the concerns raised by the Inspector 
General's report. For example, it was not until three months after the 
Board's first contract with MIF had expired, and after the IG audit was 
begun, that the Agricultural Marketing Service of USDA approved that 
contract. MIF and the Board even agreed that the contract would not be 
effective until approved by USDA. However, by the time it had been 
approved ``the Board had paid MIF over $3 million and MIF, in turn, had 
contracted with an advertising firm which had spent over $123 
million.''
  The IG report continues:

       Even though it did not have the authority to do so, MIF 
     entered into an agreement with a major advertising agency to 
     provide most of the Board's advertising, public relations, 
     and research.

  Payments were made regarding 37 contracts which neither MIF, IDFA, 
the Board, or AMS could find so as to provide copies to the IG.
  Also, the IG's report says that ``the financial statement as of March 
31, 1995, and as of April 30, 1996, contained material omissions and 
questionable statements that, in the aggregate, were significant enough 
to affect the decisions of its users, including the Secretary, members 
of the U.S. Congress, and milk processors.''
  I want to send a clear message to the Board, to IDFA, or anyone else, 
that Members of Congress do not like being misled. The IG report also 
notes that the processor Board has ``allowed the payment of over $127 
million in expenses that were not supported by AMS-approved 
contracts,'' in violation of law.
  $127 million is a lot of money but the situation is much worse. These 
funds are being raised by a mandatory assessment of processors of 20 
cents/cwt. Yet, IDFA has charged in letters to the Secretary that 
increased assessments of processors will be passed through to 
consumers. So, if IDFA is correct, these assessments were paid by 
consumers but used to implement contracts that had not been approved.
  I wish it were not the case that IDFA and its affiliated group, MIF, 
strongly contend that these types of assessments on processors are 
borne by consumers.
  The IG also called into question the ``independence of some of the 
key contractor employees who have been assigned responsibility for 
Board activities.'' Who are some of these key contractors? The Milk 
Industry Foundation, the International Dairy Foods Association, 
``outside legal counsel'' and an unnamed ``Worldwide Advertising and 
Public Relations Firm'' are key contractors.

  On top of all the wrongdoing described in the Report, three key 
contractors have in their employment persons who are registered with 
the Congress as lobbyists. I am stunned that processor lobbyists who 
often work against the interests of dairy farmers, or support 
litigation against the Secretary and against the interests of dairy 
farmers, have some say over who gets this money.
  I admit that it is natural that representatives of processors, 
whether they are milk, peanut, sugar, or corn processors, want to buy 
inputs cheaply. However, low farm prices are not in the best interests 
of the farmers who produce those products. With just a few exceptions 
most farm-state Senators support stronger prices for their farmers 
instead of lower prices for their farmers.
  Indeed, it would make most hardworking dairy farmers sick to hear the 
salaries paid by the Board. An unnamed Board administrator had a 
``contract increased in February 1998 to $180,000 for 23 hours of work 
per week.'' That is pretty good work if you can get it, especially 
considering what the average dairy farmer nets in a year and how hard 
our farmers work.
  I understand that MIF and IDFA are not registered as nonprofit 
entities. They may actually be for-profit organizations. Certainly 
their employees believe in big profits for themselves when you look at 
their salaries.
  In a very bizarre and suspicious twist, the processor Board 
contracted with MIF to appoint one of MIF's employees as Executive 
Director of the Milk Processor Education Program. But the processor 
Board was ``fully aware that MIF had no employees.'' MIF had to rely on 
IDFA for staff.
  One of IDFA's senior employees was none other than the former head of 
the dairy division at USDA, Charlie Shaw. One of IDFA's hired lobbyists 
was a former high-level official at USDA, William Wasserman, now with M 
& R Associates. Another of IDFA's hired lobbyists is a former Senior 
Vice President of Public Voice for Food and Health Policy, Alan 
Rosenfeld. IDFA has also contributed lots of dough to Public Voice and 
Public Voice events, as have huge food processors.
  This is a very cozy arrangement. MIF, which is run by IDFA, sued to 
end a program that generates a lot of additional income to dairy 
farmers in New England--the Northeast Dairy Compact. It generates this 
income for farmers by making processors pay a stable and fair price for 
milk. That was too much for MIF, so they sued the Secretary. This is an 
irony: MIF and IDFA oppose the Dairy Compact because of the small 
premiums assessed on dairy processors to help keep farmers in business 
and yet they support an assessment imposed on dairy processors when it 
benefits processors.
  To be consistent regarding assessments, MIF and IDFA would have to 
oppose this program that they support. Also, Public Voice would have 
bite the IDFA hand that feeds it. But that will not happen since so 
much inside the beltway is based on ``show me the money.''
  The IG found other interesting items. MIF is supposed to submit 
monthly progress reports to the Department of Agriculture. ``MIF has 
never submitted these reports,'' according to the IG's report. I would 
like to know why these violations continued?
  The IG report notes that:

       It is clear that there was no meaningful competition for 
     the development and maintenance of the Board's WEB site. The 
     advertising agency assured that its subsidiary would be 
     selected as the contractor by providing insider information 
     to its subsidiary and accepting the bid proposal after the 
     due date.

  I hope USDA can explain to me what this statement about ``providing 
insider information'' means? I will ask USDA if they approved this 
payment for the WEB site. Any payments identified by the IG and in 
violation of provisions of the law should be returned.
  In yet another odd development, both IDFA and the Agricultural 
Marketing Service (AMS) provided the Inspector General with minutes of 
the processors' Board meetings. However, ``there were material 
differences in the two sets of minutes provided.'' Here is the kicker. 
The Board's administrator said he would reconstruct the minutes. But 
the IG asks: ``We question how the Board's Administrator can 
`reconstruct' official minutes of Board meetings held since 1994, as he 
was only appointed to the position in 1996.''
  The next sentence in the IG's report is telling: ``Neither AMS nor 
the Board ensured compliance with the [Fluid Milk Promotion] Act or the 
Order.'' Why does Congress bother passing laws if they are just 
ignored?
  My biggest potential concern is this. IDFA officers and registered 
lobbyists get control over huge amounts of money from the assessments 
of processors under the milk order. How do they compartmentalize their 
time? Do they work against dairy farmers' interests in terms of milk 
marketing order reform, for example, only when those minutes are paid 
for through dues and not assessments? When they implement or create 
strategies to lobby against the dairy compact or Option 1A do they 
punch out on a time sheet and

[[Page S12888]]

stop getting paid by assessments under the order? How will we know if 
the law was followed if the same people both lobby the Congress and 
USDA and implement the promotion law which prohibits lobbying?
  The law does not permit the use of any funds collected by the Board 
``in any manner for the purpose of influencing legislation or 
government action or policy.''
  Yet, IDFA is well-known for its continuing efforts to influence USDA 
action and policy. It is imperative that all IDFA contacts and phone 
conversations with USDA regarding legislation affecting the Northeast 
Interstate Dairy Compact, dairy compacts in other states, other dairy 
policy, forward contracting, appropriations bills, and the decision of 
the Secretary regarding Option 1B be identified.
  IDFA's close work with Alan Rosenfeld of Public Voice, later a 
lobbyist for IDFA, on dairy issues is well known. Did any of the 
strategy discussions with Public Voice take place while IDFA's time was 
being payed for by funds collected under the order? What about the 
salary negotiations between M & R Associates and Alan Rosenfeld while 
he was with Public Voice but trying to negotiate a job with IDFA and M 
& R Associates?
  I will never understand how USDA could approve a contract with IDFA 
or MIF when the law specifically provides that no funds can be used to 
influence legislation or government action or policy.
  Indeed, these industry associations are well known to Members of 
Congress and Hill staff because they give away truckloads of ice cream 
at the ice cream socials.
  In light of the IG's Report, I am very concerned that money from the 
assessments under an order, used to benefit processors, may have 
subsidized efforts to oppose over-order premiums benefiting dairy 
producers under the dairy compact. In this event the only winners are 
the middlemen, IDFA and MIF, and the firms making the ads. There is a 
simple solution to this--get rid of these middlemen unless the 
Secretary can prevent all their activities trying to influence 
government policy and legislation.
  All these improper activities and violations are fully explained in 
the IG Report. Let me present a few more of the highlights. The Report 
notes that ``AMS allowed the Board to commit and/or expend Program 
funds for 108 contracts, even though it had approved only 3 of these 
contracts prior to the contracts' effective dates.'' Yet section 
1999H(c)(8) of the Fluid Milk Promotion Act requires the prior approval 
by AMS of all contracts prior to the ``expenditure of Program funds.''
  I do not think IDFA and MIF should be above the law. Another 
interesting point is that the ``Worldwide Advertising and Public 
Relations Agency'' that I cited earlier had spent $123 million before 
AMS approved the contract with MIF. Page 23 of the Report noted that 
``None of the $123 million paid to the advertising agency should have 
been paid until AMS approved the contracts.''
  The IG says that MIF was aware that ``according to the Act and the 
Order, no payments were permitted until AMS had approved the 
contract.'' Did the advertising firm get lucrative contracts from IDFA, 
MIF, or their agents or members, to generate press and ads against the 
Northeast Compact which has greatly increased the income of dairy 
farmers in New England? Was any of the money raised by the promotion 
assessments on processors included in donations to Public Voice?
  This matter is especially troubling because the advertising campaign 
ultimately developed, and the wonderful photos that were used to 
promote milk consumption, represent a great idea. This situation 
uncovered by the IG may be the classic example of unnecessary middlemen 
spoiling an otherwise good situation.
  I support, as do I would think most of my colleagues, the advertising 
campaign to promote milk sales. Indeed, I have supported legislation to 
require assessments to promote other agricultural products. I would 
like the advertising campaign to continue but without the middlemen 
getting their take. I did not understand why the Board can not just 
contract with the advertising agency directly.
  The IG report also notes that:

       MIF did not fulfill its contractual responsibilities to the 
     Board by taking the steps necessary to protect the Board's 
     interest in the copyrights to the photographs. We also 
     question why the Board's legal counsel is not pursuing legal 
     action against MIF because of its failure to properly protect 
     the Board's interest in the copyrights.

  On a larger front, I have been concerned with activities of IDFA, MIF 
and Public Voice for some time. MIF filed litigation in federal court 
to challenge the decision of the Secretary of Agriculture to implement 
the Northeast Dairy Compact. In a detailed letter dated April 10, 1996, 
IDFA strongly urged USDA not to approve the Compact. At the same time, 
Public Voice used almost the same language and expressed concerns 
identical to those of IDFA.
  I have previously discussed that extremely close working relationship 
between Alan Rosenfeld of Public Voice, now with M & R Associates who 
represents IDFA, and IDFA during this time period. Just a couple of 
months later, Mr. Rosenfeld was officially listed as a lobbyist with M 
& R Associates in a lobbyist registration form signed by William 
Wasserman, formerly the consumer affairs advisor to the Secretary of 
Agriculture, but by then a hired lobbyist for IDFA.
  For example, in a letter to Secretary Glickman dated April 26, 1996, 
Alan Rosenfeld used almost identical language as was used in a document 
called ``Talking Points in Opposition to the Northeast Interstate Dairy 
Compact'' produced by the Campaign for Fair Milk Prices. That Campaign 
is run by none other than William Wasserman, the registered IDFA 
lobbyist who hired Alan.
  Fortunately, the Secretary disagreed with the IDFA-Public Voice 
views. He decided that the Northeast Interstate Dairy Compact was in 
the compelling public interest of the compact region.
  There is no question that the giant processors are against the 
Compact, which gives farmers a little more income and keeps them 
farming. Most large processors are also for Option 1B, which could 
reduce the income of dairy farmers by about $1 million per day, 
according to economists with AgriMark--that is $365 million a year.
  The IG also concluded that the ``Board had not followed good business 
practices by competitively negotiating for contractual services.'' $123 
million was given to an advertising agency ``without competition.''
  I recognize that Kraft, IDFA, and other representatives of 
manufacturers of milk, or their parent tobacco companies such as 
Phillip Morris, and those who receive donations from them, want farmers 
to get a low price for milk. Kraft buys milk to manufacture into 
products, so of course it wants a low price so it can increase its 
profits. But at some point if a lot of farmers go out of business, 
Kraft, IDFA and others might regret the harm they have caused.
  As I said last week, I invite the public and the press to search 
Federal Election Commission records on this point and to ask groups 
such as Public Voice for Food and Health Policy how much money they 
receive from tobacco companies, food processors and milk manufacturers. 
Members of Congress have expressed a great deal of concern about the 
false information and misleading studies generated by the Tobacco 
Institute.
  The International Dairy Foods Association has pumped out a sea of 
misinformation about the Compact and has tried to influence a lot of 
lawmakers. They have hired others to disguise the fact that their 
misinformation campaign was funded with money from these huge 
milk manufacturers.

  Last week I provided details on these matters and listed a few of the 
groups and the people they hired to spin the press about the Northeast 
Dairy Compact in a negative way. I described some of the Lobbying 
Reports that showed the money interconnection. There is no question in 
Washington that the best way to get to the truth is to follow the 
money. The problem is that following the money takes a lot of work.
  Public Voice, which is funded by the International Dairy Foods 
Association, other food processors and IDFA members, is a good example 
of how this works.
  Even if they all--tobacco, Kraft and Public Voice lobbyists--used the 
same

[[Page S12889]]

line, the public is more likely to listen to Public Voice even if 
someone else wrote the script. The public might not suspect special 
interest spinning if Public Voice made the point. Of course, if they 
are all working together the key would be to make sure no one finds 
out.
  The best way for the public to check this out is to ask Public Voice 
for the list of who funds them and who sponsors their events. Ask for 
the list of food processors and tobacco companies who sponsor these 
events and donate money. Ask Public Voice if they oppose the 20-cent 
assessments of processors that benefit IDFA and MIF? Or do they just 
oppose premiums that give dairy farmers more income?
  But, as I recently discussed, some of the truth is found in the Lobby 
Reports that show who IDFA hired to represent the views of IDFA 
members. Yes, Public Voice got money, and one employee of Public Voice 
led the charge against the Compact and then took a job with M & R 
Associates, one of the groups hired by IDFA to kill the Compact. Public 
Voice took money from IDFA during this time period.
  Some officials at USDA have views similar to Alan Rosenfeld and 
William Wasserman, especially those closest to the revolving door. 
There are many firms in Washington that are used to disguise who they 
work for so that the public can be easily misled. I would like to know 
the names of the other clients of M & R Associates.
  I am very concerned about these lobbying efforts to discredit the 
Compact with misinformation. The address of IDFA listed in Washington 
Representatives, 1997, is 1250 H. Street, Suite 900, in Washington, 
D.C. The address of the Milk Industry Foundation is the same. So is the 
address of the National Cheese Institute. The International Ice Cream 
Association is also there.
  The Agricultural Marketing Service of USDA has made a big mistake in 
giving the Milk Industry Foundation control over millions of dollars 
raised by a mandatory 20-cents-per-hundredweight assessment on many 
fluid milk products.
  Suppose IDFA or MIF contracted with lobbyists to handle these 
operations? IDFA or MIF could funnel lucrative contracts using these 
mandatory assessments to friends who work with them in opposing the 
Compact, even though the Compact greatly benefits dairy farmers 
according to the federal Office of Management and Budget.
  Even worse, when IDFA awards contracts on a basis other than 
competitive bidding, they could funnel money into the hands of their 
friends who would lobby the Congress against dairy farmers. I want to 
know the names and salaries of every lobbyist who works for or gets 
funding from IDFA, MIF, the Cheese Institute, the Tobacco Institute, 
Phillip Morris, Kraft and the Ice Cream Association. I also want to 
know the corporate funders of those groups--IDFA and MIF--who control 
the funds generated by mandatory assessments. For example, Alan 
Rosenfeld was hired from Public Voice to work as a lobbyist with M & R 
Strategic Services. He recently prepared a report for IDFA which was 
issued on IDFA letterhead. Since MIF and thus IDFA gets tons of money 
from mandatory assessments, does that free up some additional money to 
pay Alan Rosenfeld to write reports attacking the Compact or additional 
money to pay William Wasserman to lobby against the Compact?
  A list of the corporations that provide money to IDFA, MIF, and 
Public Voice would probably stun most dairy farmers who are trying to 
make a living through hard work.
  I am going to call for an investigation of these cozy arrangements 
with dairy lobbyists, USDA and industry front groups. These front 
groups who oppose the interests of dairy farmers should not control 
funds generated by mandatory assessments.
  A few days ago in the Record I addressed issues surrounding the 
intended extension of the Northeast Interstate Compact in the omnibus 
spending bill. I am gratified that this omnibus bill contains, as did 
the bill we already sent to the White House, such an extension in the 
provision extending the time to finalize milk marketing order reform.
  I am pleased that the Congress is not just going to provide 
additional income to corn, wheat, soybean and other farmers. Those 
farmers should be kept in business, but so should dairy farmers and the 
Compact does just that. Keeping the Compact in business until at least 
October 1, 1999, will greatly help dairy farmers in New England.
  The Dairy Compact has worked as we said it would. It keeps dairy 
farmers in business in bad times by giving them additional income. It 
also helps stabilize farm and consumer prices for milk. I only wish 
that all dairy farmers could get the additional income that the Compact 
brings, but Congress so far has only consented to the Northeast 
Compact. Under the first six months of the Compact, OMB reported that 
``New England dairy farm income rose by an estimated $22-27 million. . 
. .''
  The Interstate Dairy Compact Commission, with 26 delegates appointed 
by the six governors, is authorized to determine a ``target price''--
$16.94/cwt in this case. Under the Compact language, which is approved 
by the six states, any state can opt-out temporarily--until a later 
date that the state determines--or opt-in and receive that additional 
income for producers. The Compact is voluntary; it is up to each state 
whether to participate in any particular price regulation.
  As I just pointed out in this respect, when prices are low the effect 
of the Compact is similar to the loan deficiency payments made under 
marketing loan programs in that, roughly speaking, producers get the 
difference between a ``capped'' target amount and the current price. 
When farm prices are high, no cash payments are made to producers under 
the Compact.

  The reason the rate of loss of dairy farms in New England is now 
under control is that this additional income keeps their families on 
the farm. Dairy farmers are no less deserving than corn, wheat, 
soybean, or sorghum farmers. All farmers deserve to earn a decent 
income for their families.
  I mentioned that news articles have focused on how in Connecticut and 
Vermont the rate of farm loss is much less than before the Compact went 
into effect. Before the Compact, OMB reports that New England suffered 
a ``20-percent decline'' in the number of farms with milk cows from 
1990 to 1996. Now this horrible rate of attrition has slowed. I have 
supported reasonable efforts to keep family farmers in business 
throughout our country.
  In addition, as I pointed out last week, the rate of milk consumption 
in New England is strong compared to the rest of the nation. Dairy 
farmers are making a decent living in New England and neighboring 
farmers are selling milk into the region to take advantage of the 
Compact.
  There is indeed a touch of hypocrisy in this farm crisis. Some, 
including some at the U.S. Department of Agriculture, see the loan 
deficiency payments as a great solution. If prices drop below a target 
price, the farmers get the difference between their market price and 
this target price. If prices increase above a certain level, then the 
farmers cannot receive this cash payment.
  As I said last week, the Northeast Interstate Dairy Compact is an 
example of this. The major benefit of the Compact is to provide income 
to farmers when milk prices are low--income is not provided to farmers 
when prices rise past a certain point. The amount of the payment a 
farmer gets depends on how far milk prices are below the target price. 
You could simply repeat those two sentences but substitute the word 
``corn,'' ``soybeans'' or ``wheat,'' or whichever commodity, for 
``milk'' and you have described how the loan deficiency payment system 
works.
  But try to apply this system to milk prices and many Members of 
Congress and some in the Administration see dairy farmers as 
undeserving. Dairy is a major issue for ermont since more than 70 
percent of all farm income is from dairy. This is why the Compact is 
crucial to us.
  I am pleased that OMB reported that after an initial increase in 
prices at stores just as the Compact was implemented that: ``New 
England retail milk prices by December [the sixth month after 
implementation] returned to the historical relationship to national 
levels, being about $0.05 per gallon lower.'' According to recent A.C. 
Neilson Corporation marketing research data, U.S. gallon sales of fluid 
milk are down 1.8 percent compared to one year ago. New

[[Page S12890]]

England gallon sales of fluid milk, however, have decreased by only 0.7 
percent. National sales of fluid milk have declined 1.1 percent more 
than New England sales of fluid milk.
  The Connecticut Agriculture Commissioner Shirley Ferris reports, ``In 
June of 1997, the month before the Compact took effect, the average 
retail price for a gallon of whole milk was $2.72. This June, almost a 
year after the Compact took effect, the price for a gallon of whole 
milk is only $2.73. And the price of a gallon of 1% milk is even less 
expensive now than before the Compact--$.03 less per gallon than last 
June.''
  In order to keep farmers in business, I think most consumers would be 
willing to pay a little more for milk. In order to keep fresh, local 
supplies of milk I think most consumers would be willing to pay a 
little more to keep their local producers in business.
  Consumers know that if enough producers are forced out of farming, 
eventually milk prices could skyrocket. Countries around the world with 
inadequate numbers of dairy farmers pay huge prices for milk.
  I am pleased that under the Compact, and as confirmed by the OMB 
study, it is the producers of milk, the farmers, who get the increase 
in income under the Compact. If anyone doubts that the dairy farmers in 
New England did not get increased pay checks, someone should randomly 
call them on the phone and see if they really got the checks. I 
certainly have not heard complaints that the paychecks were lost in the 
mail. Even farmers in New York, which has not yet joined the Compact, 
are even getting higher paychecks.
  They are selling milk into the region to take advantage of the 
Compact. If Wisconsin or Minnesota switched places with New York State, 
farmers in Wisconsin and Minnesota would do the same--sell into the 
Compact region to make more income.
  While I do not know for sure, I suspect that dairy producers in 
Wisconsin and Minnesota would like more income for all their hard 
labor. Vermont dairy farmers and neighboring New York dairy farmers 
sure do.
  Except for this benefit for neighboring farmers living just outside 
the Compact region, OMB reported that ``New England has little effect 
on dairy markets outside its region, or on national prices or trends. . 
. . Its shipments outside the region in the form of cheese or milk are 
small.'' To provide some perspective, I also wanted to mention that OMB 
reports that in 1996, ``New England accounted for 2.93 percent of the 
Nation's milk production and 2.9 percent of its milk cows.''
  Corporate opponents of the Compact have tried to argue that this was 
a fight between consumers and farmers. The OMB study proves that 
consumer prices are lower in New England than the average for the rest 
of the country. So that is a false argument.
  The fight is actually between large manufacturers of milk products--
large multinational corporations--and farmers. Manufacturers of any 
product, not just manufacturers of cheese or ice cream, want to buy 
their inputs as cheaply as possible.
  So why was there ever a concern about consumer prices increasing in 
the Compact region? Prices should have never increased.
  The Wall Street Journal and the New York Times discussed this in news 
articles about retail store price gouging. GAO raised the issue in 1991 
and is looking at it now.
  We do know that retail prices for milk are often more than double 
what farmers get for their milk--nationwide. Think about that.

  Let's look at the time period just before the compact took effect--
and pick Vermont as the sample state. As the Wall Street Journal 
pointed out, in ``Are Grocers Getting Fat by Overcharging for Milk?'' 
beginning in November 1996, the price that farmers got for their milk 
dropped by almost 25 percent--35 cents or so per gallon. Store prices 
stayed high, which locked in a huge benefit to stores selling to 
consumers. Thirty-five cents a gallon is a significant increase in 
benefits to retail stores.
  Comparing November 1996 to June 1997, the price farmers received for 
their milk dropped 35 cents a gallon, and stayed low, but the prices 
that stores charged for milk stayed about the same.
  I have always pointed out that dairy compacts can help reduce this 
retail store price inflation by stabilizing the price that farmers get 
for milk, thus reducing the need for stores to build in a safety 
cushion to protect themselves in case it costs more for them to 
purchase milk.
  Without a compact, the price farmers get for their milk can vary 
significantly. These variations in price are passed through to stores 
by co-ops and other handlers. Yet stores prefer not to constantly 
change prices for customers so they build in a cushion. But this huge 
profit margin can be reduced by compacts which means that dairy 
compacts can both save consumers money and provide more income to 
farmers.
  Unfortunately, the OMB study is based on very limited information 
from USDA. USDA only gave OMB price information from six stores in New 
England--and only in two cities where it was announced in press 
accounts, in advance, that retail prices would go up even though store 
and wholesaler costs had dropped 35 cents per gallon.
  Even in light of this, OMB concluded that after six months, retail 
store prices in the compact region of New England were five cents lower 
than in the rest of the nation.
  New England newspaper accounts of the implementation of the Compact 
were very interesting. For example, the July 1, 1997, edition of the 
Portland Press Herald from Portland, Maine points out that ``Cumberland 
Farms increased the price of whole milk by four cents but dropped the 
price of skim by a penny'' when the Compact was implemented.
  Also, they note that ``At Hannaford's Augusta store, Hood milk--a 
brand-name product--was selling for $2.63 a gallon, while the Hannaford 
store brand was selling for $2.32.''
  Also, ``Shaw's increased its price by about 20 cents a gallon in 
[parts of] the five other New England states but kept the price the 
same here [in Maine].''
  The June 26, 1997, Boston Globe and the June 27, Providence Journal 
pointed out before the Compact was implemented that one of the chains 
signaled a price increase. A spokesman for Shaw's Supermarkets, Bernard 
Rogan, is quoted as saying that milk prices will go up next week.
  The June 30, Boston Globe reported that, ``The region's major 
supermarkets are raising their milk prices 20 cents a gallon, ignoring 
arguments that their profit margins are big enough to absorb a new 
price subsidy for New England dairy farmers that takes effect this 
week.''
  As OMB discovered after six months, this initial signaled increase 
was subjected to competitive pressures and that consumer prices in New 
England came down.
  However, even if it took a slight increase in supermarket prices to 
keep farmers in business, I think that is worth it. If a lot of dairy 
farmers cannot make a living then eventually dairy prices will go way 
up, just as in a number of foreign countries.
  Also, as I pointed out recently in the Record, studies of prices 
charged in stores in Vermont, for example, show that the most important 
factor in the price of milk is the brand and the store. In cities and 
towns in Vermont, the variation in price among stores was in the 50 
cents to one dollar range. In other words, in the same town the price 
of a gallon of milk varied greatly and still does. These store 
variations, and variations through the use of store coupons, dwarf any 
possible impact of the Compact.
  All other food expenditures dwarf how much income consumers spend on 
fluid milk. The savings consumers can achieve through buying ``on 
sale'' or house-brand items, or through using discount coupons, far 
exceed typical changes in the price of fluid milk. Only 3 percent of 
the average household's total expenditures on food go for fluid milk. 
This information is from an article titled ``Food Cost Review,'' 1995, 
from the Economic Research Service of U.S.D.A.
  Farmers, consumers and processors all need fair prices. Processors 
should not have received huge profits at the expense of the other two. 
I will continue to monitor these abuses by MIF and IDFA detailed by the 
IG. I greatly appreciate the work of the Roger Viadero, the Inspector 
General, on this issue and on other issues he has handled. He is doing 
an outstanding job along with his staff at USDA.




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