What is the Northeast Dairy Compact?
Which States are Included in the Compact?
What is the Purpose of the Compact?
Why is the Compact Needed?
How Does the Compact Work?
How Does the Compact Pricing Work?
How Was the Compact Created?
Who Makes Up the Compact Commission?
Is There Any Cost to the Government as a Result of the Compact?
 
 

What is the Northeast Dairy Compact?

A formal agreement between the six New England States, enacted through state and federal legislation, which allowed for the establishment of a regional pricing mechanism for fluid milk sold in the New England states.

Which states are included in the Compact?

The New England states -- Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island and Vermont -- are all currently included in the Northeast Dairy Compact.

Delaware, New Jersey, New York, Pennsylvania, Maryland and Virginia are the only additional states that may join the Northeast Dairy Compact, if upon entry the State is contiguous to a participating State and if Congress consents to the entry of the State into the Compact.

What is the purpose of the Compact?

The Northeast Dairy Compact was established to restore the regulatory authority of the six New England states over the New England dairy marketplace. Its purpose is to recognize the interstate character of the northeast dairy industry and to form an interstate commission for the region.

The mission of the Compact Commission is to take such steps as necessary to assure the continued viability of dairy farming in the northeast and to assure consumers of an adequate, local supply of pure and wholesome milk.

The Compact recognizes the cultural and economic benefits of a viable dairy industry to the region -- that dairy farms are an integral component of the region's economy and preserve open spaces used for a diversity of recreational pursuits.

Why is the Compact needed?

The current federal milk pricing system does not fully account for regional differences in the costs of producing milk and the unduly low federally-established minimum prices have imposed a great financial stress on New England farmers.

By design, the federal program relies on state regulation for an adjustment in regulated milk prices, as needed. Individual states in New England have repeatedly attempted to complement the federal minimum level. However, since milk almost always now crosses state lines to get to market, the courts have ruled that this activity is an intrusion on Congressional authority under the Interstate Commerce Clause of the U.S. Constitution. Congress may, however, delegate its regulatory authority over interstate commerce to regional groupings of states, through the mechanism of an interstate compact.

The Northeast Dairy Compact, therefore, offers a regionally-tailored solution to the milk pricing problem in the northeast by allowing New England states to collectively regulate the farm price of fluid milk. By entering into the Compact, the New England states have recognized that they must work together, rather than individually, if they are to maintain family dairy farms.

How does the Compact work?

The Compact creates a Commission comprised of 26 delegates from each of the six New England states, appointed by the governors. Each delegation has between 3 and 5 members, including at least one farmer and consumer representative.

This Commission has the authority to regulate the farm price of Class 1 (fluid) milk. It establishes price regulation by way of a formal rulemaking process. The Commission takes formal testimony to determine both the price necessary to yield a reasonable return to the producer and the distributor, as well as the purchasing power of the public. Any price regulation proposed by the Commission is subject to a two-thirds vote by the state delegations as well as a producer referendum.

All milk consumed in the Compact-affected area is uniformly regulated. This provision ensures an equal benefit to New York farmers who supply the New England market.

How does the Compact pricing work?

The Compact Commission's price regulation works in conjunction with the federal government's pricing program, which establishes minimum prices paid by processors and received by dairy farmers for raw milk produced on farms. The Compact regulation raises these minimum prices as they relate to the market for fluid, or bottled milk processed for sale in the six Compact states. Processors purchasing milk to produce other dairy products such as cheese or ice cream are not subject to the Compact's pricing regulations, although all farmers producing milk in the region, for any purpose, share equally in the regulation's benefits.

Here's how it works.The Commission established $16.94 per hundredweight as the Compact over-order price for Class 1 milk. All milk processors having sales of fluid milk in New England are required to pay a monthly over-order obligation. This obligation is the difference between $16.94 and the price established monthly by federal regulation for the same milk. For instance, if the federal price for Class 1 milk was $13.94 for a particular month, the processors' over-order obligation for that month would be $16.94 minus $13.94 -- or $3.00. Processors multiply their total fluid milk sales by this amount and that is what they pay into the Compact Commission.

Three percent of the pooled price regulation proceeds are then set aside to hold harmless the impact on New England WIC programs. At least 4 cents but no more than 5 cents is deducted from the pooled proceeds each month and placed in a reserve fund established in the event of late payments by handlers. Approximately half of the unobligated balance of this fund is added back into the pool for redistribution in the following month in order to prevent the reserve fund from growing too large. Farmers receive the balance of the proceeds in accordance with the Class 1 utilization rate -- the percentage of milk produced that actually goes towards drinking milk, not cheese or other manufactured products. Therefore, the producer price is derived by dividing the balance of the pool proceeds by the total number of pounds of all producer milk in the region.

The Compact Commission makes disbursements to farmer cooperatives and milk handlers, who then make the individual payments to farmers based on their production.

Here's an example: When the Compact regulation first took effect in July of 1997, the Compact over-order obligation was $3.00. During that month, 245,001,960 pounds of milk, or 46.14% of the total milk in the region was sold as Class 1 milk. This resulted in a pool paid into the Commission of $7,350,058.80. After the WIC and reserve fund adjustments were made, the balance of the pool proceeds was $6,903,009.44. When this number was divided by the total number of pounds of all producer milk, in this case 531,000,726 pounds, the resulting producer price was $1.30.

How was the Compact created?

The legislatures in each of the six New England states demonstrated with their votes in support of the Compact that they recognized the important role that farms and farmers play in New England. Between 1989 and 1993 each of the member states passed uniform legislation joining the Compact and the governors of each state signed the legislation into law.

Under the Compact Clause (Article 1, section 10, clause 3) of the United States Constitution, Congress must approve interstate compacts. The Compact language was included in the 1996 Farm Bill (Federal Agricultural Improvement and Reform Act) and was passed by Congress on March 28, 1996. This required support from Congressional members outside of New England.

The President signed the legislation into law on April 4, 1996.

Included within the Farm Bill Conference Report were a number of conditions of consent. Among these was a requirement that, before the Compact could be implemented, the U.S. Secretary of Agriculture must review the legislation to determine if there was a "compelling public interest" for the Compact's implementation in the Compact region. After a public comment period, on August 9, 1996, Secretary Glickman found that the Compact was in the compelling public interest and authorized its implementation.

Who makes up the Compact Commission?

The Commission includes producers, processors, retailers and consumer representatives. This broad participation allows the Commission to address the broad public interest in milk price regulation. The Commission consists of three members from Maine and New Hampshire and five members from Connecticut, Massachusetts, Rhode Island and Vermont -- for a total of 26 members. Commissioners are appointed by the governors of their respective states and are not paid for their work on the Commission. The Commission sits as a formal hearing panel and has formal rule-making authority.

Is there be any cost to the government as a result of the Compact?

No. The Compact legislation requires the Commission to reimburse the federal government for the cost of Commodity Credit Corporation purchases of any surplus production that might occur should the rate of regional increased milk production exceed the national rate.