Mopping up the US milk glut: farmers, bureaucrats seek solution

The March sun has burned a platinum disk in the thin overcast and mantled the rolling dairy country of southern Vermont in gray. Inside Carl Fuller's barn, the mood is as somber as the day is dreary.

The winter wind seeks out the cracks between weathered barn boards and rushes through, whistling a baleful tune. The dairyman stomps the muck off his boots and hooks his thumbs into his mud-splattered vest.

''All we need is a minimum of government involvement in (the dairy industry), '' he says. ''Trouble is, the government can't edge a toe into things; it's got to jump in with both feet.''

Gripes about politicians are as common as complaints about the weather in dairy country. But lately the good-natured bantering about politics-as-usual has been replaced by deep-seated concern over farm policies being formulated in Washington.

Dairy farming is at a crossroads. Seldom in the history of an industry older than the Union itself have the decisions affecting its future health had so little to do with what's going on down on the farm. Instead, it's discretionary assessment plans, federal court injunctions, and the current support levels being discussed in Washington that appear crucial.

The problem is overproduction. Dairymen, like Midwest grain farmers, are being overwhelmed by their own agricultural success. For three years running, milk production in the United States has increased 2 percent a year. Credit - or blame - for the increase is attributed to a combination of price supports that farmers say were too high, grain prices that were too low, and better farm management practices that have helped dairymen get more milk from their herds.

In most businesses such productivity gains would be hailed like a long-lost brother. But in dairy farming, where Uncle Sam is a farmer's best customer, it is cause for concern.

Here's why: since the beginning of the federal price support program in 1949 the federal government has been obligated by law to buy up all excess cheese, butter, and dried milk produced in the US under a program known as price supports. Price supports are designed to assure a constant flow of milk to consumers, keep prices steady, and assure fair competition between milk producers.

For years that policy was a relatively minor budgetary consideration. In 1979 , for instance, the cost to the government of buying and storing excess dairy production was $250 million. But by 1982, overproduction had caused the goverment's purchase and storage bill to leap to $2.1 billion, and it is expected to reach or exceed that figure again this year.

For the budget-conscious Reagan administration, such figures were, and are, intolerable. The battle with the powerful dairy lobby in Washington was joined in 1981 when the administration sought a reduction in dairy price supports. The administration won a skirmish over switching from twice-a-year price support increases to an annual reassessment.

In 1982, Congress looked the politically explosive question of price supports reductions right in the eye - and blinked. Instead of lowering supports, Congress opted for a plan whereby dairy farmers would pay a special assessment of 50 cents for every 100 pounds of milk they produce. This was designed to hold down production and cut the government's price-support bill. The plan was scheduled to go into effect Oct. 1, but was delayed two months, then tied up by court action.

On March 16, Secretary of Agriculture John Block announced that the legal roadblocks delaying implementation of the plan had been removed, and the 50-cent assessment would go into effect April 16 - possibly to be followed by another 50 -cent assessment at a later date.

An assessment of $1 per 100 pounds of milk produced would have a devastating effect on farm income, according to Alvin Lawrence. The Shaftsbury, Vt., dairyman says that a $1 tax on the 1,150,000 pounds of milk he produces a year would erase the $11,000 to $12,000 he nets from his operation yearly.

Despite the dramatic effect some see on farm income, the proposal will scarcely put a dent in the cost to the federal goverment of buying and storing the milk products. The special assessment is expected to shave approximately $ 300 million off the goverment's purchase and storage bill for the year. But the year's total withoutm the assessment.

Dairy farmers naturally oppose new taxes, but most realize something must be done. Many would prefer a program that gives them an incentive not to produce rather than one that taxes them on what they do produce. Dairymen say the special assessment fee will promote what it is trying to prevent - it will cause them to produce more to make up for the money they will be losing to the special assessment.

Several solutions have been proposed that would use a reward and penalty system to keep production down. The National Milk Producers Federation has suggested a plan whereby farmers who continue to expand their operations would be severely penalized for their excess production. Instead of receiving the current support price of $13.10 per hundred pounds of milk, they would be paid as little as a dollar per hundredweight over current production levels. On the other hand, farmers who cut back on production would receive $10 for every hundred pounds of milk they didn'tm produce.

Whatever system is chosen, virtually no one sees a painless solution to overproduction. ''Well-managed and well-financed operations will survive,'' says Mr. Lawrence. ''But the young fellows who are in heavy debt will go. Maybe a lot of them.''

Industry analysts estimate that 2,000 to 3,000 out of 10,000 dairy farms in New England could go under if price supports were eliminated, something few see happening.

Others are less pessimistic about the current troubles. John Mengel, director of the economic division of the National Milk Producers Federation, sees a combination of factors helping to bring supply and demand back into balance. He believes, for instance, that the federal government's payment-in-kind program to grain farmers will mean a lowering of grain production, and therefore an increase in the price of grain. That in turn will mean that more farmers who are in a position to drop part of their dairy operations in order to plant grain will do so. The net result: lower dairy production because of smaller herds and higher grain prices.