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'Dairy cliff'? Milk prices poised to spike unless Congress acts.

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Without legislative action by year-end, US farm policy would revert on Jan. 1 to the provisions of the last permanent farm bill, the Agricultural Act of 1949.

Under that law the government would be bound to offer so-called "parity pricing" for fluid milk, under a scheme originally designed to ensure that farmers would be adequately compensated relative to the changing cost of living.

But "parity" was based on price relationships among various goods dating back to the period of 1910 to 1914. Agriculture experts say the original basket of prices used in the calculations included the price of a mule as a useful benchmark.

The result of reimposing the 1949 formula today would roughly double the wholesale price that dairy farmers currently receive for their milk.

But that doesn't mean retail prices would double.

"Such a headline is a little reckless," Mark Stephenson, a dairy policy analyst at the University of Wisconsin in Madison, writes in an analysis on the university website. He notes that costs for processing, distribution, and retail marketing "are about half of the total cost of today’s gallon of milk," and these costs would not change.

Still, if the "dairy cliff" isn't addressed by Congress, the resulting price hike could be a hefty $1.75 per gallon, he writes.

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