For Immediate Release, September 3, 1998

Contact: Tina Wisell, (802) 229-1941

Compact Commission Approves Payment to Commodities Credit Corporation -- Over $400,000 to be Returned to Farmers who did not Over-Produce

The Northeast Dairy Compact Commission on Wednesday voted to approve payment of $1,762,000 to the Commodities Credit Corporation (CCC) for reimbursement of CCC surplus purchases. The decision will leave a remaining balance of just over $400,000 in the reserve fund set aside for possible CCC obligations, which will be returned to those farmers in the Compact region who did not increase milk production during the 1998 fiscal year.

The Commission is required by the Compact enabling legislation to reimburse the federal government for the cost of CCC purchases of any such surplus production during the fiscal year that might occur should the rate of increased production in the Compact region exceed the national rate. When it appeared that increased production in the region could exceed the national rate, the Commission in March, began escrowing for a reserve fund for possible CCC obligations. To date, the Commission has escrowed $2,166,666 for the CCC reserve, which includes accumulated interest.

At the monthly Commission meeting on Wednesday, Commission Executive Director Ken Becker reported that the CCC had reduced its previous estimate by over $1 million dollars. The revision was due to the fact that the actual rate of increased milk production in the region in June was less than an amount projected by the National Agriculture Statistic Service (NASS) which the CCC had used to calculate its earlier estimate. While NASS had estimated a 4.9 percent increase in milk production for the state of Vermont in June, the actual increase was only 1.8 percent -- which resulted in a savings of $1,106,000 to the Commission.

Upon agreeing to pay the $1,762,000 obligation to the CCC the Commission did note, however, that the formula developed by the CCC fails to fully account for a number of essential factors which affect the supply of milk from the Compact region and from throughout the rest of the country. Mr. Becker stated, "Milder winter weather coupled with notably improved feed quality caused milk production to increase far in excess of any measurable response to the Compact payment by farmers. At the same time, El Niño brought flooding to California, drought to the Southeast and Texas and disrupted milk production in large regions of the country that represent a high portion of total milk production. These effects caused the national average rate of increase to be slower than would be expected and overwhelmed all other effects on the difference between milk production in the Compact region compared to the national rate of increase, including the Compact price in 1998."

Mr. Becker also noted that cow numbers in the Compact region are lower now than a year ago, indicating that farmers have not tried to take advantage of the Compact over-order price by purchasing more cows to produce more milk. He added that export problems to Asia and increasing imports due to lowered trade barriers following GATT (the General Agreement on Tariffs and Trade) have also affected CCC purchases wholly separate from the Compact's affects on CCC purchases. "If it becomes necessary to go through this process again in FY99," Mr. Becker stated, "it is the hope of the Commission that the CCC will carefully consider how to best address these concerns."

As to the $400,000 balance of the CCC reserve fund, Mr. Becker said that the Compact regulation states that if compensation has been made to the CCC and proceeds of the price regulation still remain, the Commission will provide refunds to those producers who can document that they did not over-produce during the time the regulation was in effect above what they produced prior to the regulation.


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