U.S. Payments Program Trims Dairy Production

More than $1 billion in federal payments to farmers aimed at reducing milk surpluses did cause a temporary leveling off of production, the General Accounting Office reported Wednesday.

“While the program contracted to remove almost 9% from annual milk production, non-participating dairy farmers continued to increase their production,” the congressional investigative agency said in its report. In 1986, the first year of the dairy termination program, or whole-herd buyout, production actually increased by 234 pounds or a fraction of 1% of the 1985 level, the GAO said.

This leveling off came at a time of increasing demand for dairy products and thus decreased the costly surplus milk products stored by the U.S. government, which was a primary goal of the buyout program.

Under the program, farmers agreed to slaughter or export their entire herds and get out of dairying for at least five years in return for payments from the Agriculture Department. The plan was incorporated into the 1985 legislation approved in response to painful stagnation that afflicted the farm economy at that time.

California’s dairy industry, the nation’s second largest in value of production after Wisconsin, was the leading participant in the program. In all, 325 of the state’s dairy farmers participated in the buyout, pocketing a total of $277.1 million--more than $100 million more than any other state received. The average payment in California was about $850,000, but a San Joaquin Valley farmer pocketed an $8-million check.

National dairy production dropped below the 1985 level by about 0.5% in 1987, the GAO said in its report, which was produced at the request of two Republican members of the Senate Agriculture Committee, Pete Wilson of California and Jesse Helms of North Carolina. Federal purchases of surplus dairy products decreased to 10.6 billion pounds in 1986 from 13.2 billion pounds in 1985. They dropped to 6.7 billion pounds last year.

While the government paid out $1.8 billion for the program, farmers contributed one-third of the cost through assessments on their milk production.

The program was inspired by increasing pressure to cut spiraling federal purchases of surplus dairy products. The taxpayers’ bill rose from $247 million in 1979 to peak at $2.7 billion just four years later, the GAO said.

In preparing its report, the GAO sent questionnaires to 650 dairy farmers whose competitive bids to participate in the program were unsuccessful and to 545 farmers chosen to sell off their herds. About half said they were greatly attracted to the program as being more profitable than continuing dairy operations, the GAO said.