Currently, about 70 percent of the milk produced in the United States is regulated under the federal milk marketing order program created in 1937 and administered by USDA. These prices vary by the type of dairy product for which the milk is used; the minimum price for raw milk used for fluid drinking purposes also varies by location. Similarly, Nevada’s dairy commission, established in 1955, sets minimum prices for raw milk sold to processing facilities located within that state. Dairy Compacts

In addition to the federal and state milk marketing order programs that set minimum milk prices, in 1996, the Congress authorized the Northeast Interstate Dairy Compact for the six New England states. The Compact supplements the federal milk marketing order and state programs by setting the monthly minimum price to be paid for raw milk used for fluid milk marketed in the six-state area. Retail milk prices increased by as much as 20 cents per gallon immediately following the NEDC’s establishment—which is an amount comparable to the immediate increase in the minimum farm-level price for raw milk to be used for and sold as fluid milk in the six New England states when the NEDC’s price regulations became effective. Another GAO contact and key contributors to this report are listed in appendix IX. Specifically, because legislation authorizing the Compact is to expire on September 30, 2001, and the Congress is considering legislative alternatives for reauthorizing the NEDC and authorizing other states to enter into such compact arrangements, Senator Kohl asked us to provide information on the intraregional impacts of the NEDC (that is, within the six NEDC states of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont) on dairy sector indicators such as (1) retail milk prices, (2) milk producer income, (3) dairy farm structure, (4) milk production, and (5) milk consumption; the impact of the NEDC on the costs to the federal government of its milk price support and nutrition assistance programs; and the interregional impacts of the NEDC, an expanded NEDC, and an expanded NEDC in conjunction with a southern compact (that is, on noncompact milk-producing regions) on selected indicators such as farm- level and wholesale-level indicators such as prices, production, and revenue. 7.
What GAO Found

U.S. dairy farmers produced 167.7 billion pounds of unprocessed, raw milk in 2000. Federal and state dairy programs influence the minimum prices paid to farmers for raw milk. These prices are based on how the raw milk is to be used. Minimum prices set for raw milk to be used for making drinking milk (fluid milk) are higher than those for milk used for manufacturing cheese, butter, and other dairy products. About 70 percent of the raw milk produced in the United States is regulated under the U.S. Department of Agriculture's (USDA) federal milk marketing order program. The 1996 farm bill established another pricing program -- the Northeast Interstate Dairy Compact (NEDC) -- which is run by a commission that sets a minimum price for raw milk sold as fluid milk in six New England states. The NEDC works in conjunction with federal and state dairy programs to establish an alternative minimum price for raw milk in the Compact states. When the monthly NEDC minimum price exceeds the federal marketing order or state minimum price, the NEDC price becomes the minimum price. Congress is now considering legislation that would reauthorize and expand the NEDC and establish additional interstate dairy compacts. This report reviews the potential economic impacts of different compact alternatives.