A Regional Economic Analysis of Dairy Compacts:
Implications for Missouri Dairy Producers

The decline in Missouri milk production overshadows a more rapid decline in the number of dairy farms in the state. During the period 1992-97, there was a 26.9 percent drop in the number of farms with Grade A permits and a 32.3 percent drop in farms with Grade C permits (see Table 2.3). These numbers are collected and reported each year by the American Farm Bureau Federation and are based on data provided by Missouri’s State Milk Board.

Missouri imports and exports dairy products to and from other states. The question is, on average, is Missouri a net exporter or importer of dairy products? The data in Table 2.4 shows Missouri milk production on a per capita basis. In this study, the amount of raw milk produced in Missouri was divided by the number of Missouri consumers. That figure was then compared with the per capita consumption of all dairy products. The final figure was derived by adding up the per capita consumption of all dairy products and converting that figure to pounds of milk needed to produce those products.

On average, each person in the United States consumes 522-588 pounds of milk (on a liquid basis) each year. It was assume in this study that Missourians consume the same amount. Table 2.4 shows per capita consumption estimates on a year-by-year basis.

If production per capita exceeds consumption per capita, than Missouri is a net exporter of milk and dairy products. If the opposite is true, than Missouri is a net importer. During the period 1980-1992, Missouri farmers produced more milk than was consumed in the state. Missouri was a net exporter of dairy products. However, starting in 1993, Missourians consumed more milk and dairy products than was produced in the state. Therefore, Missouri became a net importer of milk and dairy products.

Table 2.4 Missouri Milk Production vs. Consumption and U.S. Consumption

What is the Missouri dairy industry worth to the state? How much economic activity does it generate? The answers to these questions are surprising to many.

Milk is a value-added product that is produced and often manufactured in rural areas of Missouri. From the cow's udder to the consumer's lips, milk is produced, transported, processed, packaged and merchandised in retail stores, creating economic activity every step of the way. That economic activity begins in the local communities where milk is produced. Farmers purchase supplies, capital items, banking services, feed supplies, hauling services, veterinary services and other needs mostly from local businesses. Milk is then transported to rural processing facilities where further value is added.

An economic study was conducted regarding the state-wide economic impact that the dairy industry has on the state of Missouri (Dairy Focus 2000 Task Force). The IMPLAN model was used and 1993 chosen as the base year. That year Missouri farmers sold 2.9 billion pounds of milk. Given typical cull rates, Missouri farmers sold $405 million in milk and cull cows. The total statewide economic impact of the Missouri dairy industry, however, was greater than $405 million. There are multiplier effects that take place when farmers receive income and then turn around and spend it on needed supplies and services. Those individuals in turn buy other supplies and services. Dollars are turned over throughout the local and state economy.

In addition, milk is processed in fluid and manufacturing plants. Those plants in turn purchase needed supplies and services and create employment.

Taking all of these factors into consideration, the total state-wide economic impact of the Missouri dairy industry was $4.1 billion in 1993.

Since then, however, milk production has declined from 2.9 billion pounds to 2.4 billion pounds by 1997. Missouri lost 475 million pounds of milk a year. Using simple averages, that adds up to an annual loss of about $672 million per year in total state-wide economic activity.

Three federal milk marketing orders overlap Missouri’s borders. Most counties in Missouri are regulated. The exception is the central portion of Missouri where milk sales are not regulated by a federal order.

The three current federal orders operating in Missouri are the S. Illinois-E. Missouri order, the Greater Kansas City order, and the Southwest Plains order located in Southwest Missouri.

But, not all Missouri-produced milk is marketed in these three federal orders. Federal orders reflect where milk is marketed, not produced. Some milk is exported out of state into other orders.

Table 2.5 shows how milk produced in Missouri was marketed in 1996. The top five federal orders that marketed Missouri milk were Southwest Plains (57.7 percent), Southeast (16.1 percent), S. Illinois-E. Missouri (15.7 percent), Kansas City (5.5 percent), and Nebraska-W. Iowa (3.1 percent).

Table 2.5 Sources and Deliveries of Federal Order Milk in Missouri, 1996

The data in Table 2.5 reveals a unique characteristic of Missouri milk marketing. Missouri as a milk producing state is marketing more and more of its milk into the southeast. She is already a major market to the Southwest Plains order. Thus with regard to milk marketings, Missouri can be considered a southern state. Marketing developments in the southeast are therefore of vital interest to Missouri dairy farmers.

Interest has been growing in creating a Southern Dairy Compact. This effort is currently being led by Bob Odom, Commissioner of Agriculture and Forestry in Louisiana. He has issued a memorandum outlining a potential Southern Dairy Compact. The objective of the Southern Dairy Compact is as follows (Louisiana Department of Agriculture & Forestry):

At present, the Southern Dairy Compact was written to include the following 15 states: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia and West Virginia.

Under the Compact Clause (Article 1, Section 10) of the United States Constitution, an interstate compact must first be adopted as uniform legislation by the compact states and then approved by Congress. The Odom memorandum as circulated contains a potential bill that each of the 15 statehouses must pass as a precursor to congressional approval. This legislation must be identical in each compact state. To date, 10 states have passed this legislation: Alabama, Arkansas, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina, Tennessee, Virginia and West Virginia. The Southern Dairy Compact requires a minimum of three states to begin.

Missouri was not included as a potential compact state in the bill passed in these 10 states. A prerequisite for forming a compact is to pass identical implementing legislation in all of the compact states. Is Missouri left out?

Missouri can join the Southern Dairy Compact by following these steps:

Why does Missouri have to become a member of a Southern Dairy Compact? Can't Missouri form her own Missouri Dairy Compact? The simple answer is NO.

Under the Compact Clause of the United States Constitution, a minimum of two states is required to form a compact. And, there is a practical consideration that is required before forming a compact. Since congressional approval is required, a political consensus between states must be formed if a compact is to have a chance of passing in Congress.

Thus, Missouri cannot have her own dairy compact.