[Congressional Record Volume 153, Number 24 (Thursday, February 8, 2007)]
[Senate]
[Pages S1784-S1785]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. FEINGOLD:
  S. 528. A bill to amend the Agricultural Adjustment Act to prohibit 
the Secretary of Agriculture from basing minimum prices for Class I 
milk on the distance or transportation costs from any location that is 
not within a marketing area, except under certain circumstances, and 
for other purposes; to the Committee on Agriculture, Nutrition, and 
Forestry.
  Mr. FEINGOLD. Mr. President, today I am offering a measure which 
could serve as a first step towards eliminating the inequities borne by 
the dairy farmers of Wisconsin and the upper Midwest under the Federal 
Milk Marketing Order system.
  The Federal Milk Marketing Order system, created nearly 60 years ago, 
establishes minimum prices for milk paid to producers throughout 
various marketing areas in the U.S. For 60 years, this system has 
discriminated against producers in the Upper Midwest by awarding a 
higher price to dairy farmers in proportion to the distance of their 
farms from areas of high milk production, which historically have been 
the region around Eau Claire, WI.
  My legislation is very simple. It identifies the single most harmful 
and unjust feature of the current system, and corrects it. Under the 
current archaic law, the price farmers receive for fluid milk is higher 
the further they are from the Eau Claire region of the Upper Midwest. 
This provision originally was intended to guarantee the supply of fresh 
milk from the high production areas to distant markets in an age of 
difficult transportation and limited refrigeration. But the situation 
has long since changed and the provision persists to the detriment of 
the Wisconsin farmers even though most local milk markets do not 
receive any milk from Wisconsin.
  The bill I introduce today would prohibit the Secretary of 
Agriculture from using distance or transportation costs from any 
location as the basis for pricing milk, unless significant quantities 
of milk are actually transported from that location into the recipient 
market. The Secretary will have to comply with the statutory 
requirement that supply and demand factors be considered as specified 
in the Agricultural Marketing Agreement Act when setting milk prices in 
marketing orders. The fact remains that single-basing-point pricing 
simply cannot be justified based on supply and demand for milk both in 
local and national markets and the changing pattern of U.S. milk 
production.
  This bill also requires the Secretary to report to Congress on 
specifically which criteria are used to set milk prices. Finally, the 
Secretary will have to certify to Congress that the criteria used by 
the Department do not in any way attempt to circumvent the prohibition 
on using distance or transportation cost as basis for pricing milk.
  This one change is vitally important to Upper Midwest producers, 
because the current system has penalized them for many years. The 
current system is a double whammy to Upper Midwest dairy farmers--it 
both provides disparate profits for producers in other parts of the 
country and creates artificial economic incentives for milk production. 
As a result, Wisconsin producers have seen national surpluses rise, and 
milk prices fall. Rather than providing adequate supplies of fluid 
milk, the prices often lead to excess production.
  The prices have provided production incentives beyond those needed to 
ensure a local supply of fluid milk in some regions, leading to an 
increase in manufactured products in those marketing orders. Those 
manufactured products directly compete with Wisconsin's processed 
products, eroding our markets and driving national prices down.
  The perverse nature of this system is further illustrated by the fact 
that since 1995, some regions of the U.S., notably the central States 
and the Southwest, are producing so much milk that they are actually 
shipping fluid milk north to the Upper Midwest. The high fluid milk 
prices have generated so much excess production that these markets 
distant from Eau Claire are now encroaching upon not only our 
manufactured markets, but also our markets for fluid milk, further 
eroding prices in Wisconsin.
  The market-distorting effects of the fluid price differentials in 
Federal orders are shown by a previous Congressional Budget Office 
analysis that estimated that the elimination of orders would save $669 
million over five years. Government outlays would fall, CBO concluded, 
because production would fall in response to lower milk prices and 
there would be fewer government purchases of surplus milk. The regions 
that would gain and lose in this scenario illustrate the discrimination 
inherent to the current system. Economic analyses showed that farm 
revenues in a market undisturbed by Federal orders would actually 
increase in the Upper Midwest and fall in most other milk-producing 
regions.
  While this system has been around since 1937, the practice of basing 
fluid milk price differentials on the distance from Eau Claire was 
formalized in the 1960's, when the Upper Midwest arguably was the 
primary reserve for additional supplies of milk. The idea was to 
encourage local supplies of fluid milk in areas of the country that did 
not traditionally produce enough fluid milk to meet their own needs.
  That is no longer the case. The Upper Midwest is no longer the 
primary source of reserve supplies of milk. Unfortunately, the prices 
didn't adjust with changing economic conditions, most notably the shift 
of the dairy industry away from the Upper Midwest and towards the 
Southwest, and specifically California, which now leads the Nation in 
milk production.
  The result of this antiquated system has been a decline in the Upper 
Midwest dairy industry, not because it can't produce a product that can 
compete in the marketplace, but because the system discriminates 
against it. Over the past few years Wisconsin has lost dairy farmers at 
a rate of more than 5 per day. The Upper Midwest, with the lowest fluid 
milk prices, is shrinking as a dairy region despite the dairy-friendly 
climate of the region. Some other regions with higher fluid milk prices 
are growing rapidly.
  While the distance provision is a longstanding inequity, a recent 
proposal threatens to heap additional inequities on top of the current 
distance provision. A new proposal has been made asking the USDA to 
change the pricing formulas by decoupling fluid milk, Class I and II, 
price and the price for milk used in dairy products, Class III and IV, 
along with increasing the support for fluid milk. This would advantage 
areas with high fluid milk utilization by providing them a relatively 
higher price and disadvantage areas like Wisconsin where cheese-making 
is also a major use for milk. This price signal would likely then cause 
over-production in these regions, eventually driving down the price for 
milk used in dairy products and the price received by Wisconsin's dairy 
farmers.
  On top of this double-threat is a third negative impact. Decoupling 
the fluid milk price will undercut the Milk Income Loss Contract (MILC) 
safety net in Wisconsin because the trigger price for counter-cyclical 
support is based on Class I price in Boston. A higher fluid milk price 
will mean the MILC safety net is less effective, especially for regions 
that depend on the now decoupled class II and IV price like Wisconsin. 
It is very conceivable that this new proposal would allow the Class III 
and IV price to plummet while the Class I price remains above the 
trigger, eliminating the MILC safety net's usefulness for Wisconsin 
family dairy farmers.
  I joined with Senator Kohl and Representative Obey in sending a 
letter expressing these concerns to Secretary Johanns last month. In 
this letter we urge the USDA to reject this proposal which would amount 
to further unfair treatment in the federal regulations for Wisconsin's 
hard-working dairy farmers.
  In a free market with a level playing field, these shifts in 
production might be acceptable. But in a market where the government is 
setting the prices and providing that artificial advantage to regions 
outside the Upper Midwest, the current system is unconscionable.
  I urge my colleagues to do the right thing and bring reform to this 
outdated

[[Page S1785]]

system, eliminate the inequities in the current milk marketing order 
pricing system and reject proposals to add further inequity into the 
system.
  I ask unanimous consent that the text of my bill be printed in the 
Record.
  There being no objection, the text of the bill was ordered to be 
printed in the Record, as follows:

                                 S. 528

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Federal Milk Marketing 
     Reform Act of 2007''.

     SEC. 2. LOCATION ADJUSTMENTS FOR MINIMUM PRICES FOR CLASS I 
                   MILK.

       Section 8c(5) of the Agricultural Adjustment Act (7 U.S.C. 
     608c(5)), reenacted with amendments by the Agricultural 
     Marketing Agreement Act of 1937, is amended--
       (1) in paragraph (A)--
       (A) in clause (3) of the second sentence, by inserting 
     after ``the locations'' the following: ``within a marketing 
     area subject to the order''; and
       (B) by striking the last 2 sentences and inserting the 
     following: ``Notwithstanding subsection (18) or any other 
     provision of law, when fixing minimum prices for milk of the 
     highest use classification in a marketing area subject to an 
     order under this subsection, the Secretary may not, directly 
     or indirectly, base the prices on the distance from, or all 
     or part of the costs incurred to transport milk to or from, 
     any location that is not within the marketing area subject to 
     the order, unless milk from the location constitutes at least 
     50 percent of the total supply of milk of the highest use 
     classification in the marketing area. The Secretary shall 
     report to the Committee on Agriculture of the House of 
     Representatives and the Committee on Agriculture, Nutrition, 
     and Forestry of the Senate on the criteria that are used as 
     the basis for the minimum prices referred to in the preceding 
     sentence, including a certification that the minimum prices 
     are made in accordance with the preceding sentence.''; and
       (2) in paragraph (B)(ii)(c), by inserting after ``the 
     locations'' the following: ``within a marketing area subject 
     to the order''.
                                 ______