NEW YORK MAY JOIN COMPACT TO REGULATE MILK PRICES

NANCY GRIFFIN

ALBANY, N.Y. -- If it passes the state legislature here, Governor George E. Pataki says he'll sign a bill allowing New York to join with other Northeastern states in a compact with regulatory powers over fluid milk prices.

Although some milk buyers fear compact membership means milk prices in this state will skyrocket immediately, members of the governor's task force and other industry observers say it isn't so.

"If New York joins the compact today, it is unlikely consumers would see a significant impact on milk prices," said Michael Rosen of the New York State Food Merchants Association here, which represents 800 retailers and manufacturers.

"However, we must be mindful that the price of milk can be impacted by the actions of the U.S. Secretary of Agriculture regardless of whether New York decides to join," added Rosen, a member of Pataki's 15-member task force.

The issue flares up in this region as controversy over milk pricing continues elsewhere in the country, and at the national level.

"From a legal standpoint, what the compact does is restore the states' regulatory power over prices" otherwise set by the federal government, said Dan Smith, executive director of the Northeast Interstate Dairy Compact Commission, Montpelier, Vt., the board of gubernatorial appointees from the six New England states that carries out the law's mandate.

"Federal prices fluctuate from month to month. The commission can set a flat price and processors pay it," Smith said. The panel sets a price above the federal minimum price, "so the floor is raised and stabilized" for a state's dairy farmers.

Others oppose the Northeastern compact and similar agreements, believing they "severely upset interstate commerce."

Susan Ruland, spokeswoman for the International Dairy Food Association in Washington, said "We're very much opposed to regional or state compacts that set prices over the federal pricing system. The federal system is in reform right now, and we think that's where the focus should be."

The compact went into effect last July after five years of planning by the federal government to encourage regional control of some prices in the volatile milk market and to help protect local dairy industries.

A rise in price, if it occurred, would not necessarily affect the price to consumers, some experts say. Farmers operating under federal pricing now often see their prices fluctuate wildly each month, sometimes below their operating costs.

"We tried to figure out what to do to even it out," said Carl Anderson, president of the dairy group, Agri-Mark Cooperative, Methuen, Mass., task force member and a dairy farmer from Albany County, N.Y. "When our prices dropped, the price to consumers didn't drop much, if at all, so someone was making some money in the middle."

Pataki sees the compact as a means to protect the 8,700 New York dairy farms that remain in operation after years of attrition. The state lost 500 dairy farms in 1997 alone.

"Once you get below a critical level of farms in an area, you can't sustain it," said Anderson. "You can no longer support the people who provide services and you lose the whole community. That's the big thing for New York."

Milk pricing is a complex issue since regulation and pricing revolve around the markets to which milk is sold, not where it originates. Some New York farms sell to the Boston market, others to the New York City area, under different pricing regimes. The New England market buys 30% of New York's milk.

Maine belongs to the compact, but the state has avoided the federal pricing system for 35 years through a state milk commission which sets a minimum retail price.

"The farther from Boston you get, the less farmers get for milk," said Cynthia Conner, executive director of the Maine Milk Commission, Augusta, Maine. "The commission allows us to have a viable Maine dairy industry."

When the compact went into effect in July, prices in Maine increased only 4 cents a gallon. "Retailers can't sell below the minimum, but they can sell above it," said Conner. Competition between vendors keeps prices to consumers stable.

Each state sends six members to the Northeast Interstate Dairy Compact commission, but they share their state's one vote on issues before the panel's monthly meeting.

The commission set its procurement price for milk at $1.46 per gallon. In February, the federal price was set at $1.42, only a four-cent difference, explained Smith.

"The fluctuations in the federal price can cause problems in the market for everyone," Smith added. "The commission takes the fluctuations out. It's a benefit to processors and retailers because they can project their pricing."

Only the price of fluid milk sold to consumers for drinking is determined by the compact. Milk sold condensed or dried for use in ice cream, cheese or other products is easier and cheaper to transport and store, so prices remain stable through competition.

Dairy farmer Bob Jacquier of Connecticut explained that keeping regional dairy industries viable is cost-effective in the long run. "When the public finds out what it would cost if all their milk had to be transported from Wisconsin, they'd find it's a lot more than any price increase resulting from the compact."

New Jersey approved a similar bill, already signed into law by the governor, but the state must wait for New York to join because compact states must be contiguous. Pennsylvania also has legislation pending.