A quirky, Depression-era system that sets milk prices according to how far the cows live from Eau Claire, Wis., may finally be put out to pasture. That could be good news for consumers.
U.S. District Judge David Doty of Minneapolis has barred the Agriculture Department from enforcing most of the 32 so-called fluid milk marketing orders, saying the system has "no rational connection" to supply and demand in most of the country.
Under that system, a farmer's distance from Eau Claire is a major factor in determining the price paid for milk: It is far higher in Florida than it is in Minnesota.
"This is a major milestone in the battle for a more equitable milk pricing system," said Sen. Russell Feingold, D-Wis.
The Agriculture Department planned to seek an immediate block on the ruling to "avoid chaos" in the nation's milk markets, where some handlers were already refusing to pay government-set prices, agency spokesman Tom Amontree said Thursday.
But he said the request to block the ruling would not challenge the merits of Doty's decision. Amontree added that the decision is likely to have far-reaching impact because, by law, the USDA must adopt a new pricing system by January 1999.
"We believe the court's ruling could have a profound effect on how USDA responds to the congressional mandate to reform milk marketing orders," Amontree said.
Doty's decision came in a lawsuit filed in 1990 by the Minnesota Milk Producers Association challenging a system created 60 years ago to ensure steady supplies of fresh milk nationwide and stable prices for farmers and consumers.
The main component bases the price paid to farmers east of the Rocky Mountains on their distance from Eau Claire. As the nation's top-producing dairy region, the Upper Midwest once shipped its surplus milk to areas that could not produce enough. The so-called distance differential was meant to cover transportation costs.
Over the decades, however, most regions have developed sufficient dairy capacity to produce their own milk. Some places even have surpluses. In practice, this means higher milk prices for farmers and consumers far from Wisconsin and lower for those in the Upper Midwest.
Tom Cox, a University of Wisconsin agricultural economist, said that without milk marketing orders, the wholesale price would fall in many parts of the country: the Southeast, Southwest, Appalachia and parts of the Northeast.
In Florida the wholesale price of milk would likely drop by $3 per 100 pounds and in Appalachia by 85 cents, Cox said. But as wholesale prices dropped in some places, the price paid to farmers in Wisconsin and Minnesota would likely rise by 50 cents per 100 pounds.
Possible changes in retail milk prices are difficult to project because of other factors such as local competition between grocery stores, he said. But the lower wholesale prices could give consumers a break in some regions.
Farmers closest to Eau Claire have traditionally been the loudest advocates of a more market-based approach. They point out the old system was put in place when transportation was slow, refrigeration less sophisticated.
"We've got new technology. We can move milk anywhere in the country in 24 hours," said Gary Anderson, who ran a dairy operation for 17 years in Cecil, Wis. "Somehow we have to allow the prices to reflect the true demand for milk in the area."
In addition, they contend higher prices paid elsewhere give local dairy industries extra cash for investing in plants that process and market cheese and butter - the major way for farmers of the Upper Midwest to sell their surplus milk.
"That money goes into manufacturing, and it undercuts us," Anderson said.
Dairy interests in other parts of the country have fought to continue the distance differential in some form. Earlier this year, 40 senators from areas where prices are high urged Agriculture Secretary Dan Glickman to retain it.
Sen. Patrick Leahy, D-Vt., called the decision a "runaway ruling" that could jeopardize the income of dairy farmers outside the Upper Midwest by effectively creating a single milk price nationwide.
"A flat pricing system, which this decision would impose, is flat-out wrong," Leahy said.
Glickman is scheduled to release his new dairy pricing proposal this year. Feingold said the judge's ruling likely will scrap several options that were under strong consideration but retained a distance component.