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Farmers OK Milk Pricing Overhaul

September 1, 1999

WAUSAU, Wis. (AP) _ Dairy farmers have overwhelmingly approved a plan to overhaul the way milk is priced around the country, a move that could lead to lower prices at the supermarket.

Since the Depression, the federal government has set a minimum price that dairy farmers must receive for their milk. But it was based on how far a farmer is from Eau Claire, Wis. _ the further away from Eau Claire, the more money could be charged.

At the time, the system was an incentive to establish milk producers outside of Wisconsin, when the state was the main supplier for the country’s milk. The aim was to ensure all regions had sufficient supplies of drinking milk, but today the system is considered by many to be an anachronism.

In a referendum held between Aug. 2 and Aug. 6, dairy producers gave near-unanimous approval to a reform developed by the U.S. Agriculture Department to smooth regional disparities in prices that farmers receive for milk.

``It was a matter of accepting something they didn’t like or accepting something that could be worse ...,″ said Ed Jesse, an economist at the University of Wisconisn.

In 1996, Congress scheduled the current system for elimination and ordered USDA to come up with a new plan.

The approved reform scraps Eau Claire as a factor and consolidates the 31 regions for setting milk prices into 11.

Jerry Kozak, chief executive officer for the National Milk Producers Federation, said the referendum was not an endorsement for the change and it passed with ``great reluctance.″

His group estimates farmers would lose $200 million a year.

But Bob Prahl, who milks 50 cows in his 250-acre farm near Wausau, said he figured the change might boost the price for his raw milk by 2 cents per 100 pounds, earning him about $200 extra a year.

``That’s pretty much insignificant,″ he said. ``But it is a positive move. The dollars are not the issue. It is the fact we have shrunk down the market orders and created a little bit more of a uniform pricing system. It is a step in the right direction.″

If Congress allows the reform to take effect Oct. 1, the change would save consumers somewhere between $50 million and $130 million a year, economist Tom Cox said Tuesday.

Breaking that down for consumers means that a family that drinks three to four gallons of milk a week would save almost a dime, said Cox, a professor of agriculture and economics at the University of Wisconsin in Madison.

``Are you really going go feel nine cents a week?″ he said.

In contrast, completely deregulating the system so that the market sets the price for raw milk, as some farmers want, would lower the price of a store-bought gallon of milk between 15 to 20 cents a gallon, saving consumers about $1 billion a year, Cox said.

The thinking behind deregulation is that while some farmers would go out of business, those that remain would be able to make a profit without government intervention. Deregulation has not been formally proposed.

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