Consumer picks up the bill for too much milk, too little action

Last month, President Reagan stepped into the middle of America's dairy glut by approving a new program. Some critics called it inadequate. Others said it sent the wrong signal to milk producers. Still others said it provided no long-term solution.

Nevertheless, it is an attempt to eliminate a distressing fact in consumer America:

Last fiscal year, the average family of four spent roughly $36 for a dairy program that pushed milk prices higher. In fact, the 1983 price-support program forced consumers to spend about 9 cents more for every gallon of milk than if there were no support program at all.

This situation is not unique to the dairy industry, but it is perhaps more acute here than in any other agricultural program. Few advocate eliminating milk price supports altogether. But the immediate question for many is whether the new, federal milk-diversion program can begin to readjust the balance of production and demand.

''The milk-diversion program is sort of a necessary evil,'' says Donald Ault, a vice-president with Land O'Lakes Inc., a dairy-based products company in Minnesota. ''Obviously, no one - at least, not many - like the program. But it's a program the individual (dairy farmer) must make work to bring surpluses back into line.''

Last year, government outlays reached a record $2.5 billion for the dairy program, which added to already burgeoning government stockpiles by buying a record amount of dairy products. The government is required to buy these excess supplies at a federally mandated price when dairy farmers can't sell it on the open market.

Unfortunately, that minimum price has been too high in recent years, observers say. This has encouraged dairy farmers to boost production. In fiscal 1983, the price was $13.10 for every 100 pounds of milk (about 12 gallons) whereas independent observers say the price should be about $11. (The government does not buy fluid milk, but does buy nonfat dry milk, butter, and cheese and measures its purchases by the equivalent amount of fluid milk it took to produce those products.)

On paper, at least, the latest program looks like a good way around the problem:

The government reduces the support price 50 cents, but it avoids widespread dislocation of dairy farmers by paying them not to produce milk over the 15 -month life of the program. They would get $10 per hundredweight for not selling from 5 to 30 percent of their normal production.

Farmers have until Jan. 31 to sign up, but the US Department of Agriculture (USDA) is not making any interim survey of how many are signing up.

If enough do participate to reduce production by 10 percent, USDA economists predict the surplus would be reduced to 3.8 billion pounds this fiscal year. The cost would only be about half of 1983 outlays.

A stroke of genius, critics say, except that both costs and surpluses will start climbing in 1985, even by USDA estimates. And the whole idea of paying dairy farmers sets a bad precedent, they add.

''This was simply some way for everybody to get past the elections in 1984,'' says Ross Korves, research economist with the American Farm Bureau Federation. ''We can do all sorts of programs in the short run.'' But eventually, he says, you have to bring the supported price more in line with what dairyers get for their product on the open market.

The cut from $13.10 to $12.60 is a start, Mr. Korves says, but doesn't send farmers a strong enough price signal that they are producing too much. So long as the support price is high, farmers will produce lots of milk.

The agriculture secretary does have the option of reducing the price support level by up to $1 next year, but Farm Bureau and others have urged giving the secretary more flexibility in setting the price.

''Historically, the dairy program gets into trouble when the secretary's hands are tied,'' Korves says.

Another thing the diversion program doesn't do is provide a limit on how much milk is covered by the support price, says Robert A. Brown, president of Food Animal Concerns Trust, a Chicago-based public-interest group. He would set such a limit, perhaps based on each state's average production per farm. Anything produced above that limit would have to compete on the open market.