(Photo credit: cafemama)

By Tamara Keith

The leaders of the House and Senate agriculture committees are meeting Wednesday as they continue to try and work out the differences between their respective farm bills. If they fail, the country faces whats being called the “dairy cliff” — with milk prices potentially shooting up to about $7 a gallon sometime after the first of the year.

Heres why: The nations farm policy would be legally required to revert back to whats called permanent law. In the case of dairy, that would be the 1949 farm bill.

And if House and Senate negotiators fail to reconcile their farm bills, U.S. Agriculture Secretary Tom Vilsack warns, “Im going to be put in a position where I have to invoke and implement permanent law. And I will do my job because thats what I swore an oath to do.”

The problem is that back in 1949, the dairy industry was much smaller and less efficient than the one that exists today, so it received bigger price supports from the federal government. And if U.S. policy reverted to the old law, the government would be forced to go into the marketplace and buy milk, butter and cheese at about double the going rate.

Vilsack says this would distort the market: “So you, as a [milk] producer, would have a choice of selling it to your normal purchaser at $18 or $19 a hundred weight or to USDA at $38 a hundred weight. What do you think producers will do?”

Of course the producers would sell to the government. And that, says Jim Dunn, a professor of agricultural economics at Penn State University, “would be terrible.”

Read More  Why $7-Per-Gallon Milk Looms Once Again : The Salt : NPR.