A dairy compact is a legally binding agreement among states to set the minimum price for milk paid by milk processors to dairy farmers in the compact’s member states. The 1996 Farm Bill authorized once such compact, the Northeast Interstate Dairy Compact (NIDC), for Connecticut, Massachusetts, Maine, New Hampshire, Rhode Island, and Vermont. The NIDC operated from 1997 to 2001, when its congressional authorization expired. Congress failed to reauthorize the NIDC, and it also failed to authorize a competing compact, the Southern Dairy Compact. Although state laws governing both compacts remain on the books, neither compact is in operation. The dairy compact was constitutionally significant because Congress granted the power to regulate aspects of interstate trade to a state organization rather than a federal agency. In Article I, Section 10, the U.S. Constitution permits states to enter into an “agreement or compact” with other states, subject to Congress’s review or approval.
Proponents of the NIDC argued that existing Federal Milk Marketing Orders (FMMOs), the federal milk-pricing system since the Agricultural Marketing Agreement Act of 1937, ill-served northeastern dairy farmers by undervaluing production costs. They also argued that FMMOs did not incorporate the environmental or land-use benefits that smaller dairy farms in the Northeast might provide. Likewise, supporters argued that raising the milk price would maintain the number, or at least slow the loss, of dairy farms. Later research suggested that the effect on small farms was negligible.
Opponents of the NIDC, largely from the upper Midwest and from dairy product processors, argued that the compact erected unconstitutional trade barriers between states. They argued that if the price that milk processors paid to farmers were higher inside the compact—which was true for thirty-six of the fifty months the NIDC was in operation—farmers would sell milk only to processors inside the region. They also argued that increased milk prices would raise the cost of federal low-income food programs like the school-lunch program and Women, Infants, and Children. While the NIDC was drafted to offset any increase in price for these programs, state policy was dictating federal spending, critics said. The First Circuit Court of Appeals rejected the constitutional argument in 1999 and the U.S. Supreme Court refused to take the case.
A controversial aspect of the NIDC was its influence on consumer milk prices and on the prices for dairy farmers outside compact states. Economic analyses of both have been mixed. Estimates on the increase in the milk price to consumers in the NIDC ranged from 2 cents to 27 cents per gallon. Estimates on the change in price paid to farmers by processors in the NIDC ranged from 53 cents more per hundredweight (100 pounds) of milk to 5 cents less. Outside the compact, research suggested that prices to farmers fell between 3 cents and 14 cents per hundredweight.
The price for milk is heavily regulated because milk is highly perishable and must be taken from the farm to a processor at least every other day, or the milk will spoil. As a result, in the short term, milk production is not sensitive to supply and demand, nor can dairy farmers wait for better prices.
Joseph V. Balagtas and Daniel A. Sumner, “The Effect of the Northeast Dairy Compact on Producers and Consumers, with Implications for Contagion,” Review of Agricultural Economics 25, no. 1 (2003): 123–144; Daniel A. Lass, Mawunyo Adanu, and P. Geoffrey Allen, “Impacts of the Northeast Dairy Compact on New England Retail Prices,” Agricultural and Resource Economics Review 30, no. 1 (2001): 83–92; Alden C. Manchester and Don P. Blayney, “Milk Pricing in the United States,” Agriculture Information Bulletin, no. 761 (Washington, DC: U.S. Department of Agriculture, 2001); New York State Dairy Foods Inc. v. Northeast Dairy Compact Commission, 198 F.3d 1 (1999); Office of Management and Budget, “The Economic Effects of the Northeast Interstate Dairy Compact” (Washington, DC: U.S. Office of Management and Budget, 1998).
Last updated: December 2017