Attack on US dairy supports may end `good hayride' for farmers

Levi Van Tuyle's cows are spread about the concrete barnyard. On one side, a large black-and-white holstein bangs her head against an automatic feeder to coax out more food. It is almost milking time.

``The dairy industry has had a real good hayride here the last five years,'' says Mr. Van Tuyle, a short, bright-eyed farmer from Dowagiac, in southwest Michigan. Now, however, that outlook is changing.

``I don't [see] anything real rosy in dairy for three or even five years,'' Van Tuyle says.

Economists agree. The dairy industry these days is facing uncertain times. In Washington, dairy price supports are under attack. Across the country, dairymen are beginning to feel the squeeze that already has hurt other farmers.

``We're in tough shape. And we're the best of what's left,'' says Jay Goold, vice-president of programs for Western United Dairymen, a trade association representing 60 percent of the milk marketed in California. The average dairy operation has lost more than half its purchasing power since 1981, says the US Department of Agriculture (USDA).

What's the problem? As with other commodities these days, dairy farmers produce much more milk than they can sell. That's good news for consumers. Dairy product prices have risen more slowly than other foods in recent years. In 1985, USDA forecasts a maximum rise of 2 percent.

But for dairymen, a surplus is especially controversial, because government regulation is greater in the dairy industry than in most other agricultural industries. And the Reagan administration is very unhappy about having to buy off the large excess. Last year, the federal government bought the equivalent of some 8.6 billion pounds of milk in the form of cheese, butter, and nonfat dry milk.

Most observers -- even dairymen -- agree the industry needs to cut production. The question is how to make the transition -- and how quickly.

A diversion program -- in which farmers were paid not to produce milk -- has helped. The 1984 surplus, though large, was nearly half the record federal purchases in 1983 and actually saved taxpayers money. But the program ended April 1 and farmers appear to be gearing up for higher production once again.

``I'm sure that they will go up in production some,'' says Van Tuyle, who plans to boost his own production to the level he had before diversion. Nationwide totals showed increases in February and March over levels a year ago, according to USDA. The department forecasts a 1-to-3 percent rise in milk production for 1985.

``We're finding out that the short-term fix didn't solve a long-term problem,'' says Al Ortego, senior vice-president of marketing and planning for Dairymen Inc., a regional cooperative in Louisville, Ky. ``Everybody knows we're not in balance.''

Economists say that Agriculture Secretary John Block is likely to exercise his option to cut the support price of milk in July by 50 cents -- to $11.60 per 100 pounds (about 11.6 gallons) -- since government surplus purchases will likely remain high. Even then, these economists add, there will probably be surpluses for some time to come.

Solutions are getting a lot of attention this year because the 1981 legislation that covers dairy and other farm price supports expires in a few months. Two very different approaches, the supply-management and the market-oriented program, have come to the fore, says Jerry Hammond, an agricultural economics professor at the University of Minnesota.

Following the supply-management approach, the National Milk Producers Federation hopes to get legislation introduced that would tie dairy support prices to production costs, subject to change if government purchases got out of line with historical trends.

The Reagan administration, however, is leery of that plan. It prefers letting market forces dictate farmers' production. Many economists agree. ``My general feeling is that a lot of these government programs . . . are like sandbags along the river,'' says Andrew Novakovic, an assistant professor of agricultural economics at Cornell University. Programs can alter the flow and the speed of change a little bit. ``But the government can't repeal basic economic laws.''

The speed of change is an important issue, experts say.

``It took us years to get into the surplus,'' says Cliff Carman, an economist with USDA's economic research service. ``It would take us years to get out of it, unless you want to do it overnight.'' A recent USDA study showed that dropping the support price to $10 per hundredweight by Oct. 1 would bring government surplus purchases down to about 3 billion pounds by 1987 -- about the level needed historically to supply school-lunch and other government programs, he says. But the effect on the industry could be disastrous.

``Honest to gosh, you can't produce milk for $10 a hundred[weight],'' says Van Tuyle, who produces much of the feed for his herd and says he is not hardpressed financially.

``When I started out, [I thought] if we ever got $4 for milk, we'd have the world by the tail.'' In 1981, the wholesale average price peaked at $13.76 ``and we didn't get any richer,'' Van Tuyle says. ``But we're still here.'' --3{et