Statement of Administration Policy: H.R. 2837 - Milk Inventory Management Act of 1991

(House)
(Stenholm (D) Texas)

The Administration strongly objects to enactment of H.R. 2837 because it would introduce inefficiencies and inequities in the dairy industry, reverse the path toward market orientation of the milk program, undermine the U.S. position in GATT negotiations, and adversely affect consumers, particularly low-income consumers. It would raise the dairy price support level, then create a convoluted structure to deal with the budgetary and inventory problems that arise from the price increase. If H.R. 2837 were presented to the President, his senior advisers would recommend a veto.

H.R. 2837 is not necessary. Milk market conditions are improving- Product markets are reacting favorably to a number of actions recently taken by the Administration. As a result, milk prices have begun to rise as producers respond to market signals.

H.R. 2837 would create an inefficient, inequitable and expensive dairy, program.

—   Two-tier pricing, combined with essentially mandatory supply controls, would penalize efficient and innovative producers, reduce economic activity, cost jobs, and geographically dislocate the dairy industry.

—   The two-tier price support system would eliminate potential exports by pricing products further above the world market.

—   The high price support and Southeast exemption would artificially stimulate production in the Southeast at the expense of other regions — and the Southeast is the country's highest cost production region.

—   The dairy program would become similar to the peanut and tobacco programs — programs that subsidize those with quotas at the expense of those without quotas.

H.R. 2837 would abandon market orientation — the hallmark of the 1985 and 1990 Farm bills.

—   Government regulations would greatly increase, replacing market signals as the decision criteria for investment and production.

—   The legislation would freeze the current production and processing patterns, leading to a calcified industry.

—   Young, typically under-capitalized, farmers would be forced to lose money for twelve months simply to gain the right to produce legally. Efficient farmers would be inhibited from expanding.

—   Farmers traditionally have sometimes said that to get started in farming, you either inherit it or marry it. This bill would make that old saying the law.

—   Program participation would become effectively compulsory, not voluntary as with most other farm subsidy programs.

H.R. 2837 would undermine the U.S. position in GATT negotiations.

—   The bill would establish a dairy program modeled after the European system — the very system that the U.S. has strongly argued must be dismantled as part of any agreement reached in the Uruguay Round of GATT negotiations.

—   The legislation would force the U.S. to dump surplus production abroad in direct contradiction of the trade negotiating position fashioned with the strong cooperation of Congress.

H.R. 2837 would adversely affect consumers, particularly Americans with low incomes.

—   Higher prices for dairy products would cost Americans an average of more than $3.5 billion annually.

—   Higher dairy prices would increase by almost $500 million the Federal costs of providing the country's most vulnerable citizens with food assistance benefits.

—   To cover part of the higher costs for WIC, Food Stamps, and Child Nutrition programs, dairy farmers would be assessed an average of $.10 per cwt. per year over the next five years. However, this compensation, even when combined with higher Federal government expenditures for food programs triggered by COLA rules, would be insufficient under current formulas to cover the full costs incurred by Child Nutrition program providers and recipients.

H.R. 2837 would arbitrarily determine the definition of milk.

—   The bill would be inconsistent with the statutory process established under the Federal Food, Drug, and Cosmetic Act and would supersede the Food and Drug Administration's existing authority to set and enforce standards for milk.

—   The bill would "redefine" milk to include higher non-fat content (at higher prices), directly contradicting consumer preference and could contradict expert health advice.

—   Under this legislation, milk, as it comes fresh from some cows, could no longer be sold as milk.

Scoring for the Purpose of PAYGO and Discretionary Caps

H.R. 2837 would increase direct spending; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990 (OBRA). Sufficient offsets to the direct spending increases are not provided in the bill. A budget point of order applies in both the House and Senate against any bill that is not fully offset under CBO scoring. If, contrary to the Administration's recommendation, the House waives any such point of order that applies against H.R. 2837, the effects of enactment of this legislation would be included in the look back pay-as-you-go sequester report at the end of the Congressional session.

OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 2837 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA. The cumulative effects of all enacted legislation on direct spending will be issued in monthly reports transmitted to Congress.

Estimates for Pay-As-You-Go
(outlays in millions)