Make lots, and lots, and lots of Gulabjumons

Gauracandra · June 30, 2002

Government Stuck With $1 Billion Worth of Surplus Milk Powder

WASHINGTON — Want milk? The government is trying to figure out what to do with $1 billion worth of nonfat milk powder that it bought over the past three years to prop up the prices paid to dairy farmers.

That is the equivalent of about 1.3 billion gallons of skim milk, enough to supply the nation's entire consumption for 16 months. It would take 635,000 cows an entire year to make all that milk.

The bags of powder are kept in a series of privately owned, manmade caves near Kansas City, Mo., and other warehouses around the country. An additional 20 million to 25 million pounds arrive every week.

"They keep making it and we keep buying it," said Steve Gill, an Agriculture Department official.

Under a Depression-era system, the department is required to control supplies of butter, cheese and nonfat dry milk powder to keep milk prices above a certain level and support dairy farmers' revenue.

The 1996 Freedom to Farm law, which was supposed to wean farmers from government support, ended the milk program in 1999. But Congress extended it temporarily, and then made it permanent again in the farm bill that President Bush signed into law in May.

Nonfat dry milk is what is left over after food makers remove the fat from milk to make butter, ice cream and products for which demand has been booming.

Milk processors do not have to sell the milk powder to the government. They could break it down into protein products, such as casein, that food manufacturers need for a variety of products from energy bars to infant formulas.

Processors sell to the government for one simple reason: The government pays more for nonfat dry milk, about 90 cents a pound, than food makers pay for milk protein.

"The dairy producers, if they ever get something money-wise from the government, they don't want to let it go. It has kept our industry from producing products and ingredients that the market demands," said Connie Tipton, a vice president of the International Dairy Foods Association.

Art Jaeger, assistant director of the Consumer Federation of America, said the "milk support price is high and it's bringing out this excess production. That suggests to me that consumers are paying too much for milk or more than they should."

The Agriculture Department is trying to get rid of the powder. Storage costs are approaching $20 million a year, and the powder keeps coming; about 386 million pounds has been purchased since October.

Some of the powder is donated to domestic programs and overseas. Powder that is getting old — the government has been storing some of this milk for up to three years — is sold for use in animal feed.

Now, the department has decided to sell some of its powder stockpile back to processors to manufacture casein and caseinate, products that food makers are now buying from overseas.

"It behooves the U.S. government find out what to do with its inventories," said Gill, who oversees the commodity storage for the Agriculture Department.

Into the 1980s, the department stockpiled all sorts of crops and products. Most farm programs, however, are designed to discourage producers or processors from dumping their surplus on the government. One exception besides milk is sugar, of which the department now has about 250,000 tons.

The department could stop the stockpile of milk powder from growing by lowering the price that it pays for nonfat dry milk, said Tipton. But critics say the department would then have to raise the price it pays for butter, and risk acquiring a surplus of that, or else the prices paid to farmers could drop below the level set by law — $9.90 per hundred pounds.

"The casein program is a good use" of the surplus powder, said Chris Galen, a spokesman for the National Milk Producers Federation. "Obviously, something ought to be done with it."

Even as the government tries to figure out what to do with his mountain of milk powder, Congress is considering legislation that would boost tariffs on imported milk protein, raising its cost to U.S. manufacturers. Food industry officials say the tariff would further discourage U.S. producers from making casein and other protein products instead of selling nonfat powder to the government.