'Add in the middle man', says Ag Dept

Back to milking the New Deal in Kent Washington:

Nearly 18,000 people wrote the government over the summer and fall to protest arcane new rules that may kill off the iconic Smith Brothers Dairy, as well as two other family-owned Northwest milk farms. More than 26,000 people signed save-the-farm petitions.

But that eye-popping opposition from the public had no effect on the U.S. Department of Agriculture. Urged on mostly by large agribusinesses, the agency last month decided to approve the rules anyway.

Now 2006 is shaping up to be a year of turmoil at the 86-year-old Smith Brothers, famed because it still delivers milk directly from its own cows to 42,000 Seattle-area doorsteps.

....It all began when the feds rewrote milk-price controls that have governed the dairy industry since the New Deal. For decades most dairy farms have been required to sell their milk into a regional pool, and milk processors must buy from that pool at a set price.

But Smith Brothers was always exempt because it's a do-it-yourself dairy. It's one of the few dairies left that both raises and milks its own cows and also pasteurizes and delivers its own milk. Almost all other farms specialized away from this antiquated "moo-to-you" model decades ago.

The new rules, expected to take effect this summer, force Smith Brothers to join the pool. That means it would have to sell its raw milk into the pool and then, absurdly, buy it back in order to bottle it.

That could bankrupt Smith Brothers, but it won't much help anyone else, says an economist who analyzed the plan.

"I couldn't believe, when I did the arithmetic, how pointless this all is," said Professor Andy Novakovic, director of Cornell University's program on dairy markets. "It won't affect the broader milk market at all, but it's huge for those few dairies."

Smith Brothers might also be forced to sell off its cows or bottling plant, so it no longer does "moo to you."

All this came about when some titans of the milk business, such as $14 billion Kroger, which owns QFC, complained to the feds that indie dairies were undercutting them in the marketplace.

Smith Brothers' President Highland says Big Dairy wanted to make sure the do-it-yourself dairies never got stronger.

"We're collateral damage in a larger fight for control of the industry," he said.

Paul Krugman could not be reached for comment.