AUGUSTA – Recommendations aimed at making Maine’s dairy farms profitable are being completed as the 20-member Governor’s Task Force on the Sustainability of the Dairy Industry winds up its six-month study.

Suggestions discussed at a committee meeting Wednesday ranged from exempting all farm equipment and buildings from personal and property taxes to establishing Pine Tree Farm Zones, to creating a vendors fee on milk that would prevent milk prices paid to farmers from dropping below the cost of production.

The panel has been meeting – sometimes weekly – since May after more than 12 months of plummeting dairy prices resulted in a crisis in the industry, reducing the number of dairy farms in Maine to less than 400. Members of the panel include farmers, processors and economists split into four subcommittees, all with one goal: save Maine dairy farms and farmland.

The Milk Handling Tax Committee, led by University of Maine Professor of Economics Tim Dalton, has been wrestling with creating a program that is fair for all farms, regardless of size. Two options have been researched: a tiered-payment plan based on production size and a flat-rate program.

Both are based on installing an eight-cents-per-gallon fee on milk that would be paid by consumers into the state’s general fund. The Department of Agriculture would request an appropriation equal to the amount paid to the general fund by consumers. Payments to farmers from the department would kick in when the prices they receive for milk fall below $16 per hundredweight. This plan was tabled by the Legislature’s Taxation Committee last spring pending the task force report.

The committee appeared to favor the tiered system in discussions Wednesday.

“I have always been concerned about a tiered system,” said John Piotti, a state representative and member of the Legislature’s Agriculture Committee. “But when you look at the numbers and realities, the tiered system is fairly compelling.”

Dalton had projected possible payment figures based on historical payments to farms of all sizes. Depending on a farm’s production, average milk prices would remain between $15.36 to $16.94 and would never dip below the cost of production.

Under the flat payment system, the program could cost up to $7.7 million annually, while a tiered system is estimated at $5.2 million. “It is a much more efficient use of taxpayer funds,” Dalton said of the tiered system.

In addition, mathematical calculations based on dropping milk prices indicate that the tiered program will not fluctuate with market changes.

Dalton said the flat rate also discriminates against small farmers because it is based on an overall average. The maximum farmers would get for their milk is not based on the program but on the market.

The program is not expected to tilt the Maine milk market or put Maine out of line with other New England states.

Dale Cole, president of the Maine Dairy Industry Association, agreed with the tiered system. “It seems like a program that we can support, given the restraints on the Legislature this session,” he said.

He noted that the current milk subsidy program initiated by Gov. John Baldacci last spring is costing taxpayers $500,000 to $700,000 a month. “This plan is in the same ballpark,” he said. “We were looking for a $17 [per hundredweight] floor, but this is okay. Maybe we’re just not going to get there this year.”

The eight cents per gallon in the marketplace translates to about $1 more per hundredweight for each farmer. But it is the stabilization of the market that farmers are seeking. “The price per hundredweight will never drop below the cost of production,” said Dalton, “because that is what the entire formula is based on.”

The Taxation Committee, headed by Evan Richert, made an innovative suggestion that was quickly accepted by the task force.

“We need to regard farms as distressed economic zones,” said Richert. He said the task force could borrow an idea from Gov. Baldacci and establish Pine Tree Farm Zones, which will allow qualifying full-time farms to obtain tax benefits.

Richert’s committee also proposed an amendment to the state Constitution that would have farmland and a farmer’s residence taxed at current value, while equipment and farm buildings would be exempt from taxes. Farm vehicles also would be exempt from excise tax.

The task force expects to have a completed first draft in two weeks and will meet on Oct. 22 to refine the report further. The completed document and recommendations will be presented to Baldacci by Nov. 15.