Why is the Government Setting Your Milk Price?


Posted by Kelly William Cobb on Thursday, March 29th, 2012, 12:06 PM PERMALINK


Soon, Congress will begin debating the direction of farm subsidies, taxes, price controls, supply management programs, and tariffs. The Farm Bill, which dictates American agriculture programs, is notoriously anti-free market. Yet, this year presents an opportunity to scale back, reform, and even eliminate various farm programs. 

Yesterday, Americans for Tax Reform joined Citizens Against Government Waste and National Taxpayers Union in a letter slamming the controversial new Dairy Management Supply Program that could be included in the next Farm Bill. The letter came on the heels of comments by House Speaker John Boehner (R-Ohio) who also panned the program. The Dairy Management Supply Program (DMSP) would effectively tax dairy farmers when prices drop, then use the revenue to buy products off the market. By dramatically controlling supply, consumers are stuck paying higher prices while government bureaucracy grows. An excerpt of the joint letter is below, but if you really want to slam your head against the wall, here's a handy chart from the International Dairy Foods Association explaining how the government sets milk prices today.

Our organizations believe that DMSP is contrary to the goals of limited government and economic growth. A new federal program that will directly intervene in markets and increase milk prices for everyone is unnecessary.

The Chairwoman’s mark would reportedly create an extensive new federal apparatus to both limit milk supply and increase demand for dairy products when farmers’ profits are declining. Similar “supply management” programs have been tried and have failed here and abroad, because they repudiate free markets and harm consumers. At a time when countries around the world are moving beyond these mistakes and embracing market- and trade-based solutions, DMSP is an anachronism that will soon be regretted if it becomes law.

This new program would periodically penalize farmers who have been increasing dairy production by having a portion of their milk proceeds withheld – thus creating a disincentive to maximize efficiency. This has the same economic effect as a tax on dairy farmers. Resulting revenues would be forwarded to the USDA and used, under the direction of a board dominated by dairy cooperatives, to purchase dairy products for the sole purpose of getting them off the market and keeping prices high. Chances are good that this program will repeat the problem created by existing price supports, under which our government has an unfortunate history of purchasing what it deems “surplus” dairy products. As you know, attempts to dispose of such surplus products have resulted in embarrassing, high-profile boondoggles.

For a copy of the entire ATR, NTU, and CAGW letter, click here.

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