June 17, 1999

Washington, DC

Mr. Chairman and Distinguished Members of the Subcommittee:

I am Scott Charlton, Vice President for Manufacturing for Publix Super Markets. I am extremely honored to have the opportunity to testify before this panel today. I am here today on behalf of Publix Super Markets and the Food Marketing Institute.

Publix Super Markets, headquartered in Lakeland, Florida, operates in four states-Florida, Georgia, South Carolina and Alabama and we have an average of 10.8 million shoppers in our stores each week.

The Food Marketing Institute (FMI) is a nonprofit association conducting programs in research, education, industry relations and public affairs on behalf of its 1,500 members including their subsidiaries - food retailers and wholesalers and their customers in the United States and around the world.

FMI's domestic member companies operate approximately 21,000 retail food stores with a combined annual sales volume of $225 billion - more than half of all grocery store sales in the United States. FMI's retail membership is composed of large multi-store chains, small regional firms and independent supermarkets. Its international membership includes 200 members from 60 countries.

At Publix we take our role as the purchasing agent for the consumer very seriously. And that is why I am here before you today. The dairy compact legislation (H.R. 1604) before your subcommittee today will raise milk prices, drive down milk consumption, and create a regional price-fixing scheme that is a radical departure from other federal farm programs.

Milk Prices Will Increase

Dairy compacts are expensive. I would like to give you a specific example of what happened in the six New England states when the Northeast Interstate Dairy Compact was created in July 1997. The Compact Commission set a floor price of $1.46 per gallon.

This means that the minimum price for fluid milk in the six states for the dairy farmers was set at $1.46 per gallon. Milk processors and retailers purchase the milk at a minimum of $1.46 per gallon. There are several functions that milk processors and retailers do that add more costs (i.e. process, bottle, and transport) before the fluid milk appears on the grocery shelf for store shoppers.

In New England, when the compact commission increased the milk price for farmers to $1.46 per gallon, the retail price rose about $0.20 per gallon. There were some claims that retailers and milk processors should absorb all cost increases and not pass along price hikes to milk consumers. However, increased costs do ultimately get passed along to consumers. Milk is not exception to this economic rule. It is a noble public policy goal to save small dairy farmers.

However, in the Northeast, small dairy farms barely benefited from the compact. In fact, the Northeast Dairy Compact is not slowing the rate of dairy farm loss in New England. It seems that location and demographic factors have a stronger impact than milk prices on the decline of dairy farms. Furthermore, the size of the dairy compact subsidy per farm is based on how much milk each farm produces. Not only do the poor get hit with a milk tax but small dairy farmers are overlooked because the largest, wealthiest farms-many with a net worth well over $2 million-benefit the most from the Compact.

Since the Compact began, price hikes for milk have wiped out more than $4.7 million of the purchasing power of New England food stamp recipients. Participants in the Child and Adult Care Food Program and the Nutrition Program for the Elderly in the Northeast have had to absorb $342,000 and $410,000 in higher milk prices, respectively, since the Compact went into effect.

Food stamp recipients in dairy compact states could lose hundreds of millions of dollars in food purchasing power. Milk is a staple in the U. S. Department of Agriculture's "thrifty food plan" for food stamp recipients. For a family of five living according to the plan, the Compact could add about $120 a year to their food budget or force them to substitute cheaper, less nutritious beverages. The timing could not be worse as many low-income families are trying to move from welfare to self-sufficiency.

The Northeast Dairy Compact Commission has granted two exemptions to two federal child nutrition programs: the supplemental feeding program for Women, Infants and Children (WIC) and the National School Lunch and Breakfast Programs. School meals programs, however, were not exempted until the Compact had cost them $1.75 million in higher milk prices. Moreover, the exemption lasts only until the end of the 1998-1999 school year. The current exemptions do not cover food stamp recipients and other essential child and elderly nutrition programs.

Compacts Will Drive Down Milk Consumption

Milk consumption in this country has been declining since 1975. Artificially higher milk prices will only encourage milk consumers to purchase other beverage alternatives.

According to economists', a 10% increase in the retail price of milk can lead to as much as an 8% decline in milk consumption.

Unprecedented Regional Price Fixing

The creation of dairy compacts by Congress is unprecedented. Dairy compacts are regional price-fixing schemes that denying consumers the benefits of lower-cost milk from outside the region by protecting high-cost producers.

Prior to the Northeast Compact, New England and Mid-Atlantic retail milk prices were virtually identical. Once the Compact started, New England retail milk prices shot up and stayed up, while Mid-Atlantic retail milk prices stayed much lower. I have attached a chart so you can see the impact.

The Northeast Interstate Dairy Compact is the only regional compact that has ever allowed a group of states to band together to fix product prices. This was never the intent of our founders who wrote the Constitution. Previous regional compacts have permitted states to work together in cooperative ventures such as transportation, forest fire protection and fisheries projects.

Mr. Chairman and members of the subcommittee, I urge you to oppose H.R. 1604 or any other efforts to create dairy cartels. Consumers of milk deserve better than that. So do small dairy farmers that the cartels are intended to help.

Thank you again for the opportunity to testify. I would be happy to answer any questions you may have.