WASHINGTON – A taxpayer-funded program to help dairy farmers cope with slumping milk prices will likely cost billions of dollars more than expected, from an original cost of $1.3 billion to a new estimate of as much as $4 billion, a federal official said Tuesday.

The Milk Income Loss Contract program, or MILC, was launched late last year to help milk producers cope with dips in the market price. Milk prices have been in a long slump that saw them drop to the lowest levels in more than 20 years.

As a result, MILC has already spent more than the $1.3 billion originally projected less than a year ago by the Congressional Budget Office. Prices have begun moving up in recent months.

The new cost estimate is $3 billion to $4 billion before MILC expires in 2005, said Milt Madison, an agricultural economist with the Farm Service Agency of the U.S. Department of Agriculture.

“It’s turned out to be a fairly costly program because of the increases in milk production … and a bit of a downturn in demand,” said Madison. “We think the demand is probably starting to rebound at this point.”

The average price of milk reached a low of about $10.90 per hundredweight – about 11 and a half gallons – in May before recovering, and stood at $11.80 in July. Milk is commonly measured by hundredweight in the industry.

While the current uptick in milk prices will reduce the strain on the MILC program, the cost could still reach three times the original estimate, Madison said.

The cost overruns will likely become part of the political effort to replace the program when it expires in 2005. A number of House Republicans from New York, the number-three milk producer in the country, are crafting legislation designed to replace MILC with a new nationwide price program.

The effort is being led by Reps. Thomas Reynolds and John McHugh, who are expected to introduce legislation when Congress reconvenes in September.

New York dairy farmers have complained since MILC’s inception that it favors Midwestern farms over theirs by capping aid to mid- to large-size dairy producers.

The New York Farm Bureau, which lobbies on behalf of the state’s farmers, wants MILC replaced with a support program paid by milk processors, a practice that ended when MILC was created.

“The government underestimated the cost it would take to compensate farmers,” said Farm Bureau spokesman Chris LaRoe. “If farmers do need assistance, they’d rather it come from the marketplace instead of the government and taxpayers.”

Wisconsin Sen. Herb Kohl, a Democrat, defended the MILC program, saying the extended period of slumping milk prices threatens the livelihood of all dairy farmers.

“The MILC program has effectively served its original purpose: to provide a safety net for dairy farmers until prices stabilize,” Kohl said in a statement. “I will continue to strongly support this program.”

The National Milk Producers Federation does not support changing or shortening the duration of the program, said spokesman Chris Galen.

“We always felt that the $1.3 billion figure was way too low,” said Galen. “I don’t think anyone could have expected that prices would be so low so long.”