U.S. donates dairy surplus to schools, food programs

By Christopher Doering

WASHINGTON (Reuters) - The U.S. government will shift $160 million worth of surplus dry milk into school lunches and food donations to help poor people, said Agriculture Secretary Tom Vilsack on Thursday.

More than half of the dry milk will be bartered for cheese, ready-to-eat soup and milk processed so it does not need refrigeration.

The "ultra-high temperature milk" and the cheese and creamy tomato soups will be given to food banks. The cheese will go to school lunches and food banks.

With unemployment on the rise, a record 31.8 million Americans receive food stamps, which help them buy groceries. Vicki Escarra, head of the charity Feeding America, said food pantries are seeing a surge in requests for aid.

During a telephone news conference with Vilsack, Escarra said the Agriculture Department donations "could not come at a better time for families struggling to put food on the table."

Vilsack said the donations will bring two benefits -- more food for hungry Americans and removal of dairy surpluses. Jerry Kozak, head of the National Milk Producers Federation, said there should be "some price enhancement" for dairy farmers.

USDA will announce action next week under the Milk Income Loss Contract subsidy, which is keyed to the price of "fresh" milk bound for grocery stores. The dry milk donations come from a program that sets a minimum price for "manufacturing" grade milk used in products like butter and cheese.

Federal agencies were in discussions whether to revive the U.S. dairy export subsidy program, idle for years, said Vilsack, a step supported by some dairy groups..

U.S. dairy prices are down by 50 percent from 2008 as milk output rises. The all-milk price received by farmers is forecast for $11.55 per 100 lbs of milk, compared to $18.32 last year.

The donation announced on Thursday would consume half of USDA's forecast purchases of 415 million lbs of surplus dry milk. By sending the dry milk to consumers and schools, Vilsack said, USDA removes a burden on milk prices.

Under the 2008 farm law, USDA buys surplus dry milk for at least 80 cents per lb and is allowed to sell it for 88 cents. The dairy support program also allows purchase of surplus cheese and butter. In 2008, 111 million lbs of dry milk were purchased.

USDA public nutrition programs will cost about $73 billion in fiscal 2009 and reach an estimated 61 million people. They range from school milk to food stamps and the Women, Infants and Children food program.

(Reporting by Christopher Doering; Additional reporting by Charles Abbott; Editing by Marguerita Choy)