No vote yet on 'dairy cliff' fix

There is bipartisan support in Congress to prevent milk prices from doubling in 2013. But lawmakers are still far from any long-term resolution to the problem.

House and Senate leaders are trying to extend the 2008 farm bill for a year, which would avoid the spike in milk prices that has been dubbed the "dairy cliff." But it isn't clear if this extension will come to a vote, since House Republicans haven't signed off on the compromise. This is another example of how partisan gridlock has caused Washington to grind to a halt, making it difficult to enact legislation that enjoys broad bipartisan support.

The Atlantic's Jordan Weissmann has described the so-called dairy cliff as "astonishingly, breathtakingly dumb." Here's why. One of the many failures of the current Congress is its inability to pass a farm bill, a mammoth bit of legislation that covers a host of issues ranging from food stamps to commodity price supports. The bill is usually passed for five-year increments because it is so complex, and members of Congress would prefer not to deal with this headache more than was necessary. 

Unfortunately, the current farm bill lapsed Sept. 30 and the Associated Press is reporting that leaders in both parties on the House and Senate Agriculture committees have only agreed to a one-year extension. But House Republicans have not signed off on this compromise and haven't said whether they will allow a vote on it, which is bad news since the consequences of inaction are serious.

Without any action, Politico reports, a 1949 farm law will return and require the Agriculture Department to start buying dairy products at more than twice their current prices -- or about $38.54 per hundredweight.

"And therein lies the problem," Weissmann wrote. "Federal law puts a giant safety net under the dairy industry by promising that if the price of milk collapses, the government will swoop in and push it back up by buying mass quantities of dairy product."

As a result, the government would be forced to buy milk based on outdated formulas based on how the dairy industry worked decades ago when it was far less efficient. Like the fiscal cliff,  politicians say they are working diligently to avoid the "dairy cliff." This would be dreadful news for a plethora of companies ranging from Kraft (KRFT) to Domino's (DPZ) to Hershey (HSY).

What the "dairy cliff' debate shows is that Congress doesn't just kick the can on the fiscal cliff, a noxious $600 billion brew of tax cuts and government spending cuts, it avoids accepting responsibility on lots of things. This is no way to run the world's largest economy.

--Jonathan Berr does not own shares of the listed stocks.  Follow him on Twitter @jdberr.
 

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