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The Steep Cost of US Dairy Programs


Posted by Laurel Kays on Tuesday, August 14th, 2012, 3:03 PM PERMALINK


As the all but certain September fight over the 2012 Farm Bill looms, Americans would do well to remember that despite the happy, “Got Milk” images we associate with dairy products, in every purchase of milk, cheese, yogurt, and other such products is an extra cost incurred by the government’s irresponsible dairy programs. These outdated programs inflate prices and put taxpayers on the hook for expensive subsidies while largely benefitting large-scale, high income farm operations.

US dairy policy is made up of a complicated set of programs which work both to create steady demand and to raise prices for dairy producers. 

Federal Milk Marketing Order establishes four sets of products: liquid milk, ice cream and yogurt, cheese, butter and dry milk. Every month, the USDA sets a separate price for liquid milk in each of 10 established regions, with processors paying according to how it will be used.  Each of the other product categories is given a nationwide price. This cartel system ensures limited competition and means that entrepreneurs are forbidden from selling below government mandated prices.

Milk Price Support Program guarantees that the government will purchase any amount of cheese, butter, or nonfat dry milk from processors at a minimum price. This creates a steady demand and higher prices for dairy products.

Milk Income Loss Contract Program distributes cash subsidies to milk producers when market prices fall below a set limit.  This program is the newest of the dairy programs, enacted for the first time in 2002.

Tariff Rate Quotas impose a higher tariff rate on imports above a set volume limit. That limit is set at approximately 5% of US consumption, ensuring that US dairy producers are not threatened by overseas production.

Dairy Export Incentive Program distributes cash subsidies to dairy producers who sell in foreign markets. This ensures that domestic producers have an incentive to sell abroad despite lower world prices. 

Defenders of dairy programs will undoubtedly claim that they are necessary to support farmers and maintain a constant dairy supply. Yet an examination of the cost of these programs proves that any supposed “benefits” are enormously outweighed by their costs. The export program alone has cost up to $140 million in a single year, with all the dairy programs costing a whopping $222 million in 2012 alone. In addition to these outright costs which are shouldered by taxpayers, US consumers pay higher prices for dairy goods affected by government programs. Estimates found that US prices for butter are twice that of world market prices, while cheese prices were 50% higher, and nonfat dry milk prices were 30% than world averages. To add insult to injury, the subsidies which cost taxpayers and consumers so dearly only aided 158,730 farms from 1995-2011

Despite these figures, the 2012 Farm Bill shows no sign of stopping expensive government intervention in the dairy industry. Representative Bob Goodlatte’s amendment, which would have ended the supply management aspect of the program, never escaped committee. The Senate version of the Farm Bill proposes to repeal price control and subsidy programs, only to replace them with another expensive bureaucracy. The proposed Dairy Market Stabilization Program would limit milk supply in order to increase demand for dairy products when market prices fall. It would also punish farmers at certain times for increasing production by funneling portions of their milk proceeds to the USDA to purchase dairy products in order to keep prices high. New regulations associated with the DMSP would also add anywhere from hundreds of thousands to millions of dollars in additional costs of dairy producers 

Spending millions  in taxpayer dollars and higher consumer costs to benefit a relatively few farmers is neither fair nor sensible. While the dairy industry is certainly important, the government’s current anti-free market, cartel control is simply a poor solution. While a better solution does not seem likely in the 2012 Farm Bill, Congress would do well to look for free-market friendly techniques that benefit both industry and everyman.

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