Proposed milk tax raises hackles

MAT-SU -- A hike in the price of milk could have catastrophic effects both on dairy farmers in the Valley and milk sales around the state. Local politicians and citizens alike are rallying against the increased tax, saying it will bankrupt already struggling farmers and drive up already high prices.

The tax might more accurately be called an extension of an existing tax, since it's been in effect outside Alaska for more than 20 years. A federal tax on milk was put on the books in 1983, levying a 15 cent per hundredweight increase on the price of milk in all of the Lower 48 states. A hundredweight is a unit of measurement equal to a hundred pounds.

"That 15 cents per hundredweight sounds pretty innocent," said Jlona Richey, a freelance photographer with Tracks of Alaska who has spoken out against the tax, "but when you work in the middleman costs, it could raise the cost of a gallon of milk by as much as 20 to 25 cents."

Alaska and Hawaii, however, were exempted from the tax, since neither state had a milk surplus -- both of these states have to import milk. Now, however, due to a proposal out of Washington, D.C., the tax might be passed on to Alaska anyway.

Why the proposal arose at all is a subject of some speculation.

"Apparently someone in the House or the Senate just stood up and said, 'hey, let's make these states pay, too,'" said Rep. Carl Gatto, R-Palmer, who has, along with many other Alaska politicians, publicly voiced his disapproval for the milk tax.

The Dairy and Tobacco Adjustment Act of 1983 replaced the previous system of generic self-advertising for dairy products in favor of a national program. Designed to promote dairy products, research and nutrition education, the program today is administered by a board of dairy farmers appointed by the secretary of agriculture. Promotion is accomplished by pairing Dairy Management Inc., the program created by the act, with popular retail outlets and providers. Recent projects run by the program include a partnership with WebMD to promote milk's role in weight loss, the institution of milk as a choice in McDonalds' Happy Meals, and the 3-A-Day Dairy Servings program. According to figures from the USDA quoted on the program's Web site, dairy promotions increase nationwide demand for dairy products by 1.5 billion pounds annually.

Expanding the tax to encompass Alaska would likewise expand the program, and also drive up the cost of milk.

"The milk tax would increase the already high cost of milk, cheese, ice cream, butter, yogurt and other dairy foods for all consumers in Alaska," Richey said. "The milk tax will be felt throughout our entire state economy."

However, local residents seem more concerned with the rise in price that the new tax would create than any promotional benefit. In fact, Gatto said, the promotion can't possibly do Alaska any good, since the state already consumes all the milk it produces.

"We already only produce [a fraction] of what we consume," he said. "We would basically be paying tax to let them sell milk to us."

Gatto added that he and his colleagues had been working with senators Lisa Murkowski and Ted Stevens as well as Rep. Don Young to stop the tax when Congress next convenes.

"Maybe we can make it disappear at the start of the next session," Gatto said.

Gatto said he believes Alaskans, especially those in rural communities, already suffer from high milk prices, and he's trying to convey that message to those in charge.

"Our whole goal is to say, 'dog-gone it, we already pay enough for milk,'" he said.

Richey said the proposed tax is only the first step in what could turn into a disaster for Alaska consumers.

"This tax will snowball once the middleman gets ahold of it," she said. "It needs to be stopped in its tracks."

Tracks of Alaska, along with the Blue Moon Dairy in Wasilla, Carousel Day Care, the Sourdough Mining Company, Alaska Wild Berry Farm, Wolverine Lodge in Glennallen, Sheep Mountain Lodge, Gingerbread House Day Care, the Mt. Sanford Tribal Consortium in Gakona and the Metlakatla Indian Community have all publicly come out in opposition of the milk tax.

Gingerbread House and Carousel Day Care alone use a total of 6,000 gallons of milk per day.

However, there's more at stake here than a simple hike in the per unit cost of dairy products. The milk tax would prove doubly damaging for Alaska producers, who already experience higher dairy prices than their Lower 48 counterparts. Specifically, the tax threatens dairy farmers in the Valley, farmers who already have a razor-thin profit margin.

Many Valley dairy farmers are in dire financial straits, Paul Huppert, former chairman of the Matanuska Maid Creamery Corporation, wrote in a letter to the Frontiersman. With only limited loans and other state and federal assistance available, and the closure of the Canadian border due to mad cow disease scares, little recourse is available from the proposed tax increase.

Raising the price of milk in order to pass more profits on to the farmers is not a feasible solution. Such increases in price, Huppert stated, must always be passed on to the customer. Mat Maid is already at the high end of consumer acceptance as far as price is concerned.

"As far back as 2001, 43 percent of surveyed consumers said their reason for not buying Mat Maid was 'Price/Too Expensive,'" Huppert wrote. "The situation is grave in that most dairy farms have not been able to achieve a profitable operating margin these past years." Since raising prices isn't feasible even to aid struggling farmers, a milk tax, the money from which those farmers would never see, is an extremely sticky proposition.

Action in Alaska is being taken to address the proposed tax. On July 1, a group of children at Carousel Day Care Center in Anchorage, together with Gatto and Rep. Bill Stoltze, R-Butte/Chugiak, as well as representatives Bob Lynn and Ethan Berkowitz of Anchorage, held a milk-and-cookie protest to show their disapproval for the price hike. "Think About It -- Do You Really Want to Tax Milk?" read a banner held by the children, who quaffed paper cups full of the white beverage and munched on cookies to emphasize how important milk is for developing youngsters.

Gatto reinforced the sentiment that taxing milk could harm childrens' health.

"These are growing children, and some of them drink 12 cans of pop a day," he said. "If anything, we should be subsidizing milk."

Also a concern is the cost and difficulty of delivering milk to remote areas of the state. Richey added that the new tax could hamper the accessibility of milk in rural Alaska.

"Milk prices are high enough here, and already over the $10 mark per gallon in [the Bush], where most villages do not even get milk as it is," Richey said.

One of the obstacles to local action against the tax, however, is that the decision on whether to pass it or not will be made in Washington, not Juneau. Richey said that being all the way across the United States from the center of government was an inconvenience, but it shouldn't prevent Alaskans from speaking out against the tax.

"Alaskans don't need to have the wool pulled over their eyes all the time," she said. "We may be a long way from Washington, D.C., but we also have big ears."

Contact Daniel Spoth at daniel.spoth@frontiersman.com.