Dairy price supports: farmers trade fast gains for new farm bill leverage

The Reagan administration proclaimed a major victory last week when Congress agreed to cancel a scheduled 7 percent hike in dairy price supports. President Reagan is expected to add his signature to the measure this week with a flourish of triumph.

The White House version is that the Senate and House votes prove that even most Democrats will honor Mr. Reagan's "mandate" to cut federal programs sharply.

Yet the importance of the well-publicized victory instead may lie in showing how much the new administration is willing to compromise.

Dairy farmers over the next six months will lose an estimated $147 million they were entitled to under an automatic price support increase to offset inflation. The quid pro quom will emerge bit by bit as the new four-year farm bill is hammered out in Congress. In return, the milk industry expects that its pack age of new protections for dairy farmers will be adopted by the Reagan administration.

Congressional observers explain that the dairy price support cutback is not a sign of the milk lobby's sudden weakness but of its political savvy.

Administration spokesmen and congressmen spent a month publicizing their "battle" against the powerful milk lobby, preparing for last week's victory proclamation. Yet despite that publicitu campaign, leading milk industry organizations such as the National Milk Producers Federal (NMPF) in fact chose not to testify against the cutback. Instead they explained privately that price supports needed trimming.

Many dairy farmers are angry about the cutback, claiming that they have been singled out as the first to make sacrifices. They maintain that it was another group of farmers who suffered unfairly last year when President Carter responded to Soviet aggression in Afghanistan by embargoing grain exports.

But NMPF spokesman John Mengel is convinced that the federation's position on dairy price supports will benefit the milk industry.

He feels Reagan now will listen sympathetically to the NMPF case for:

* A flexible system of price supports keyed to surplus levels.

* Import restrictions on casein, a protein used in milk substitutes.

* Rejection of consumer groups' demands to permit sale of reconstituted milk.

* RAising the sell-back price of government-owned surplus dairy products to shift benefits toward farmers rather than processors.

Dairy industry spokesmen accept that it is bad for their industry that a huge surplus of powdered milk, butter, and cheese has built up in government warehouses. They wince when they drive past the colorful highway billboards showing a mountain range of huge scoops of ice cream. Reagan administration budget cutters have publicized the problem, pointing out that taxpayers may spend $1.7 billion to buy and store dairy surpluses this year.

The NMPF estimates that implementing its proposals would reduce surpluses dramatically and cut program costs down to $750 million. Casein imports in particular, it argues, have added greatly to price support costs because casein displacces domestic milk sales.

Milk industry organizations and individual farmers are doing their party by trying to trim the size of the US cow herd -- now up to 10.8 million cows producing record yields. Key to the success of this nationwide culling effort, farmers say, is whether they can trust the Reagan administration.

Continued uncertainty about price levels and broken promises would force farmers to continue producing surpluses and demanding costly support programs. However, the picture could be very different is dairymen decide that the new farm bill next October honors the pledges they feel they won in return for the April 1 cutback in dairy price supports.