AUGUSTA – The preliminary report of a six-month study of the state’s dairy industry recommends several options to save Maine’s farms, including tax breaks and a price support system.

The Governor’s Task Force on the Sustainability of the Dairy Industry, which presented the draft report this week, suggests a three-tiered support system that would provide immediate relief to farmers when the price of milk is low.

Described by dairy expert Timothy Dalton, an economics professor at the University of Maine, as “a safety net,” the $5 million proposal would provide subsidies based on the production size of each farm.

Suggestions in the draft report 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, down from 450 two years ago. Members of the panel include farmers, processors and economists split into four subcommittees.

Dalton has been leading the Milk Handling Tax Committee, which 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 8-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.

According to the task force’s computations, average milk prices would remain between $15.36 and $16.94 under the tiered system, depending on a farm’s production, and never would 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.

Some large farmers, however, are balking at the tiered system because it pays more to small farmers, which make up 65 percent of all farms.

The 8 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 public is invited to comment on the report from 1 to 4 p.m. Wednesday, Oct. 29, at the St. Paul Center, 136 State St., Augusta. The completed document and recommendations will be presented to Gov. John E. Baldacci by Nov. 15.