For Immediate Release Contact: Dan Smith

March 6, 1998 802-229-1941

Compact Commission Acts Quickly to Address Indicated Increase in Production:

Will Escrow a Portion of March Farmer Payment Funds

The Northeast Dairy Compact Commission Wednesday afternoon acted to escrow a portion of March farmer payment funds to cover possible Commodity Credit Corporation (CCC) purchases which could result from indicated increased milk production in the Compact region during fiscal year 1998.

As required by the Compactís enabling legislation and the price regulation, the Compact Commission has been monitoring relative production levels regionally and nationally, since the regulationís inception. The Commission is required to conduct this monitoring both to address the potential incentive for increased, surplus production created by increased farmer pay prices and because the Commission must reimburse the federal government for the cost of CCC purchases of any such surplus production during fiscal year 1998 that might occur should the rate of the regional increased production rate exceed the national rate.

While early yet in the fiscal year, the Commissionís recent monitoring indicated that the increased rate of production for the region could exceed the national rate. Based on this determination, the Commission voted Wednesday to escrow 80 percent of its upcoming March pool payment to be used as a reserve for contingent liabilities to the CCC.

In acting, the Commission emphasized that it was acting preliminarily and only to ensure coverage of a contingent liability to the CCC. Should there prove to be no liability for CCC purchases, or only partial liability, the escrowed funds will be returned in whole or in part to producers.

"Concern with increased production has been a central issue of the Compact pricing mechanism since the beginning," said Commissioner Robert A. Starr, Chair of the Vermont House Agriculture Committee and original sponsor of Compact legislation in New England. "The Commission must assess whether the recent indications of increased production in New England reflect a national market response or are the result of the higher Compact pay price and which will result in CCC surplus purchases. In either case, the Commission had no choice but to intervene as it did on Wednesday."

Compact Commission Chair Michael A. Wiers emphasized the parallel pricing and production monitoring provisions of the regulation. "When the price regulation was put into effect, it clearly stated that indications of increased production in the region above the national average could force the Commission to withdraw payments from the producer pool. The Commissionís recent action is consistent with the stated letter and policy of the price regulation."

Massachusetts Agriculture Commissioner Jay Healy stated, "The Commission is proving itself capable of responding quickly to the issues that have come before it, and able to make the hard decisions required. We may not like this outcome and hope that it will prove short-lived and even unnecessary, but the Commission acted as it must under the regulation and the law."

Executive Director Dan Smith stated that "the Commission further directed that the determination of the Commissionís payment liability and availability of reimbursement funds for fiscal year 1998 be made as quickly as possible. We will continue to monitor production levels and work with CCC officials to make the findings required by the law."

Under the regulation, if it is found that no compensation has to be made to the CCC for surplus purchases, the Commission will provide pro rata refunds to all pooled producers from the proceeds retained in escrow. 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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