Bill would skip May milk subsidy payouts

Posted March 09, 2009, at 8:48 p.m.

AUGUSTA, Maine — The state would withhold subsidy payments to dairy farmers for one month later this year under a proposal aimed at helping close a budget gap in a program that provides a safety net to milk producers.

The prices paid for raw milk have collapsed in recent months, meaning many dairy farmers are operating significantly in the red. Normally, a state-run dairy price stabilization fund would help close that gap until prices paid to producers rebounded.

But faced with having to trim an additional $2.7 million from the stabilization program’s budget, a legislative committee is recommending skipping the subsidy payment for milk produced this May.

Forgoing the subsidy for May milk would save an estimated $1.7 million, according to the Agriculture, Conservation and Forestry Committee. The remaining $1 million shortfall will have to be addressed later.

Sen. John Nutting, the committee’s co-chairman and a dairy cattle breeder, said lawmakers tried to time the forfeiture so that dairy farmers still would receive payments during the busy spring season. But Nutting, D-Leeds, acknowledged that withholding payments for even one month might be too much for some farms.

“This is a very, very difficult situation,” Nutting told a legislative budget committee Monday. “We are fearful that we are going to lose some farms with this. But it does keep the tier payment going through the spring planting season.”

Maine’s Dairy Stabilization Tier Program helps dairy farmers cover the gap between production costs and milk prices when the federally set price for milk drops below $17 per 100 pounds. The program also takes into account federal subsidies.

The system is tiered so that smaller farms receive a higher subsidy than larger ones because of economies of scale. About 280 of Maine’s roughly 330 dairy operations are considered small farms under the three-tiered program.

Dairy farmers across the country are struggling to stay in business as milk prices plummet to near all-time lows. While the crunch has affected all dairy operations in Maine, organic milk producers have been hit especially hard lately as supply outstrips demand.

Industry giant HP Hood recently canceled contracts with eight Maine organic dairy farms and told most of the remaining producers to scale back production.

Julie Marie Bickford of the Maine Dairy Industry Association said Monday that producers are facing a “worst-case scenario” but understand the state’s need to cut spending.

Bickford said the dairy farming community appreciates lawmakers’ attempts to push back the withheld payment as late as possible in hopes that prices will have rebounded somewhat by then.

“If we can keep the cut to one month, we think we can manage that,” Bickford said.

Even so, the current budget situation may pale in comparison to next year if current projections hold true. Nutting told the Appropriations and Financial Affairs Committee that the stabilization fund could be looking at a $13 million shortfall next fiscal year.

“We’ve got to think outside of the box here,” Rep. John Martin, D-Eagle Lake, said during Monday’s briefing. “I don’t know where we are going, but we can’t afford” so large a shortfall.

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