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Through the Looking Glass
A CAGW Special Report
Milk Marketing Order Reform:
Watered Down or Real?
By John Frydenlund and David Williams
January 20, 1998
Click here for pdf version Introduction
Americans have always cherished an image of farming that is both romantic and nostalgic. The American farmer is, to many, an icon, often depicted as a rugged individualist toiling in the fields from sun up to sun down to deliver America's agricultural abundance to our kitchen tables. Dairy farmers are the quintessential representations of agricultural America, flannel-shirted early risers who spend many hours squeezing as much milk out of Bessie as possible. As comforting as this image is, it is no longer accurate. The industry today is vastly different, characterized by laptop computers, sophisticated milking equipment and modern production technologies to maximize output and efficiency.
Whether it's dunking a chocolate-chip cookie into a glass of cold milk or giving infant formula to a baby, milk and dairy products are a staple in millions of American households. Though milk is a vital agricultural commodity and an integral part of our daily lives, most consumers don't realize the extent to which the federal government artificially props up dairy prices for a privileged clique of dairy farmers at the expense of taxpayers, consumers, dairy manufacturers, and even a significant number of other, less politically-connected, dairy farmers.
Supporters of continued government tampering in the dairy industry regularly trot out a series of alarmist arguments to stave off any attempts to wean the industry from government support. The federal government must step in, they say, to ensure a fresh, wholesome supply of milk for the entire country. Any hint of a federal retreat is met with hysteria and the prediction of apocalyptic consequences for both the nation's milk supply, its 150,000 dairy farmers, and, perhaps most significantly, the farming lifestyle. Advocates for a more market-oriented approach are routinely depicted as anti-agriculture and anti-farmer.
Citizens Against Government Waste's (CAGW) Through the Looking Glass report disregards the empty rhetoric, debunks the myths of the price support system and the milk marketing orders, and reveals the USDA's recent show of reforming the program for the charade it is.
Milking the Taxpayers: The Cost of Intervention
Federal dairy regulations strike taxpayers both directly and indirectly. They provide a textbook example of how regulations inevitably evolve into a subterranean tax on products and services. Recent claims that the dairy program is experiencing real reform, though totally false, also illustrate how regulations, once promulgated, are next to impossible to eradicate.
Until recently, the costs of this federal meddling have been most blatantly demonstrated by the excesses of the dairy price support program, which laid out huge sums of federal money to subsidize dairy farmers. Now, however, the most obtrusive federal meddling in milk pricing is accomplished through the federal milk marketing orders.
Each and every product which contains milk, from a Snickers Bar to sour cream, costs consumers more as a result of the federal government's meddling. Not only do consumers pay for the program in the checkout line, they also bear the costs in other, more insidious, ways. For example, the U.S. Department of Agriculture (USDA) uses tax dollars, at a cost inflated by the government involvement, to purchase subsidized milk and dairy products for both the Women, Infants, and Children (WIC) and the federal school lunch programs.
A 1993 General Accounting Office (GAO) study concluded that a reduction in the price support system would have netted consumers savings of $10.4 billion from 1986 to 2001. Taxpayers would also have saved an additional $3 billion in government purchases.1 The federal dairy program's negative impact can also be discerned further downstream, in the USDA's food stamp program, for example. Recipients who buy dairy products with food stamps pay unnecessarily high prices for them, thereby diminishing the purchasing power of the stamps.
The bedrock principles of supply and demand haven't truly existed in the dairy industry for more than 60 years. Most consumers have no idea that delivering dairy products to the breakfast table isn't simply a matter of milking a cow, processing the fluid milk, and shipping it off to the grocery store in the form of cheese, butter, or yogurt. The federal dairy program is a tangled web of mind-numbing pricing schemes which have metastasized into a more layered, incomprehensible, intrusive labyrinth increasingly divorced from economic realities.
Real dairy reform will never occur until consumers and taxpayers grasp the degree to which dairy prices are controlled by behind-the-scenes maneuvering in Washington, bureaucratic log-rolling, and regional political favoritism. See Appendix I for a chart which illustrates the maze of regulations which must be negotiated in order to get milk from the cow to the refrigerator.
A Fluid Industry
In many respects, changes in the dairy industry mirror changes in other American industries. Dramatic transformations have unfolded over time as a result of a multiplicity of factors, including: advancements in technology; scientific progress; improved transportation, refrigeration, and delivery systems; shifts in consumer demands and tastes; and the inevitable march toward a global marketplace. In fact, perhaps the only thing that has remained constant is the federal government's stranglehold on milk's pricing structure.
Where other, less regulated, industries have taken risks to compete in a swiftly-changing marketplace and reaped the rewards, the dairy industry has been allowed to have it both ways. It takes absolutely no risks and is guaranteed both federal protection and monetary rewards. The market, which is viewed with suspicion and confusion by supporters of the status quo, could allow milk producers and dairy manufacturers to grow and profit. However, unlike other industries, which have allowed its dead wood, or less efficient producers, to fall naturally from the tree, the dairy industry has turned to the federal government to try to keep everybody in business, regardless of quality, efficiency, or economic reality. The industry has chosen time and again to cling to a system which stifles any future ability to compete.
Facing the Reality of Change
Anyone familiar with statistics and raw numbers knows how deceptive they can be. A cursory overview of the history of milk production and the nationwide shift in farming is an excellent example of how numbers are manipulated to evoke emotion.
Just as in every other industry, technological innovations have allowed some dairy farmers to become more cost-efficient. It should come as no surprise, then, that this country has experienced significant reductions in both the number of dairy farms and milk cows.
Alarmists often point to the fact that the number of dairy cows has dwindled from 23.6 million in 1940 to 9.4 million in 1996. Likewise, total farms with dairy cows underwent a dramatic downward shift from 4.7 million in 1940 to 155,300 in 1992. Before one writes the dairy industry's epitaph, additional statistics and analyses must also be taken into consideration. Between 1940 and 1996, the amount of fluid milk produced per cow increased from 4,622 pounds to 16,498 pounds. As a result, the total amount of milk produced in the United States has increased from 109 billion pounds in 1940 to a projected 162 billion pounds in 2000, despite a sixty percent reduction in the number of dairy cows.
These changes should not be interpreted as indication of a dying industry, but rather as a reflection of an evolving industry. Indeed, from an ability to produce standpoint, the rumors of the American dairy industry's death have been greatly exaggerated. Though production is up, the dairy industry has seriously lagged behind in the areas of marketing and consumer preferences. Between 1974 and 1996, fluid milk sales only increased from 52.5 billion pounds to 55.4 billion pounds, a pace far behind the population growth rate. Sales of cream and specialty dairy items, such as egg nog and yogurt, have done better, increasing from 1.4 billion pounds in 1974 to 3.6 billion pounds in 1996, and natural cheese consumption has increased from 17 pounds per capita in 1980 to 27 pounds per capita in 1995.
Consumer preference is a crucial factor to consider when analyzing the industry. From specialty juices to countless soft drink options, there are countless beverage alternatives to choose from. Perversely, supporters of the current command-and-control program have pointed to these fast-paced, dynamic trends as a rationale for continued protection, instead of viewing competition as an opportunity to concentrate its efforts on honing marketing strategy.
There are some recent indications, however, that the pull of the market is making itself felt even in the recesses of the subsidized and insulated dairy industry. The most visible, and successful, advertising blitzes to promote milk and other dairy products have been the quirky "Got Milk?" commercials and the hip print advertisements featuring celebrities sporting milk mustaches. However, the industry can never hope to reap the full benefits of these clever marketing tools unless it relinquishes the protection of the federal government. After all, the USDA may dominate every aspect of the dairy industry, but it still hasn't figured out how to adequately anticipate, let alone dictate, people's tastes.
Dairy products will always be a dynamic and fluid market. The challenge for the dairy industry, as for any bona fide industry, is to anticipate and, ideally, manage change to its advantage.
A Permanent "Emergency?"
Historically, the federal government's entanglement in milk pricing has been two-fold, a dairy price support system and milk marketing orders. Both of these mechanisms distort the marketplace and protect a shrinking population of dairy farmers. In fact, the sheer complexity of the system, along with well-organized pressure from powerful, entrenched political forces, are the reasons reform has been successfully sabotaged over the years, regardless of which party controls Congress or the executive branch.
As with many other government programs gone haywire, intervention in the dairy industry was designed to be temporary. The preamble of the Agricultural Act of 1933, the first legislative foray into the industry, stated that the act was only meant "To relieve the existing national economic emergency by increasing agricultural purchasing power..."2 At the time, Congress reasoned that the dairy industry merited protection because of depression-induced instability in domestic markets and low milk prices. The emergency is clearly over, yet the legislation lives on.
The Folly of Price Supports
The dairy price support system had, until recently, been the cornerstone of the dairy program. Congress passed the Agricultural Act of 1949 in the hopes it would preserve higher milk prices and farm purchasing power that existed during World War II. The Act stated that "The price of whole milk, butterfat, and the products of such commodities, respectively, shall be supported at such level...as the Secretary determines necessary in order to assure an adequate supply. Such price support shall be provided through loans on, or purchases of, the products of milk and butterfat."3
The government achieves this largely by purchasing excess quantities of powdered milk, butter, and cheese, all of which have relatively long shelf lives. Using a complicated formula, which has its origins in pricing guidelines that hearken back to the early 1900s, USDA, year after year, comes up with the support price. (See Appendix II)
Making the federal government the nation's customer of last resort for powdered milk, butter, and cheese has impelled dairy manufacturers to churn out excess amounts of the dairy products the government is willing to buy, rather than producing products to meet the needs of real consumers. Knowing that the government is standing by to sop up excess production at higher-than-market rates severs the industry's ties to real market forces. And, the government has found itself in the strange position of having to cart away and store, at additional taxpayer expense, mountains of cheese, butter and powdered milk, sometimes with ridiculous results.
In the late 1970s and early 80's, for example, price supports were driven to unprecedented heights as a result of regional politics and election-year pay-offs to the farm lobby. Dairy producers, naturally, cranked up production to cash in on the windfall. In a vicious cycle, purchases by the Commodity Credit Corporation (the agency within the USDA charged with procuring and storing the surpluses) skyrocketed to absorb the additional production, with the government ultimately buying up $2.7 billion worth of dairy products in 1982-1983 alone.4 Inevitably, the mountains of surplus dairy products stretched federal storage space beyond capacity. To remedy the problem, the federal government decided to dump the cheese, giving much of it away for free. This move immediately depressed cheese prices nationwide and sent economic shock waves through the entire dairy industry.
In order to mitigate the disruptive impact its policies were having, the government took a number of actions aimed at bringing surplus production under control. It tried almost everything, except allowing the industry to operate under the principles of the free market.
First, Congress passed a voluntary diversion program which paid farmers to reduce production. When that program failed, it turned to a "whole herd buyout" program under which farmers were paid to slaughter or export their herds and leave the dairy business for a period of five years.5 An earlier GAO report on the dairy termination program concluded that a more market-oriented federal dairy policy would have provided a more permanent solution to such periodic surpluses and resultant federal government purchases.6
The 1970s and 80s saw a gradual deterioration in Congress' enthusiasm for the price support system and, by explicitly calling for its gradual elimination in the 1996 Farm Bill, Congress formalized in legislation that downward spiral. As the price support system loses its relevance, the focus shifts to the milk marketing orders, which have become the most important bulwark of federal involvement and the vehicle through which meddlesome proponents of the status quo intend to keep a dominant federal hand in the dairy industry.
Federal Milk Marketing Orders
Milk marketing orders came into existence as a result of the Agricultural Marketing Agreement Act of 1937, which gave the Agriculture Secretary open-ended powers to manipulate dairy prices. The rationale for the legislation was to reduce disorderly marketing conditions, improve price stability in fluid milk markets, and ensure a "sufficient quantity of pure and wholesome milk."7
The milk marketing orders operate as a federation of regional units. Rather than allowing commerce between dairy farmers and dairy manufacturers to flow freely, the orders devise and administer a raft of intricate regulations to govern the overall price to be paid for milk in that region. The orders are regulations approved by dairy farmers in individual fluid milk markets that require manufacturers to pay minimum monthly prices for milk purchases. Fluid milk produced within each order is pooled. Then, using the government's price as a benchmark, USDA's marketing order administrators come up with a basic formula price (BFP)8 that manufacturers and processors are required to pay to purchase the milk for cheese, butter, yogurt, etc. within that region. There are currently 31 milk marketing orders operating across the country and those orders account for more than 75 percent of the milk produced in the country. Much of the remaining milk is subject to state marketing orders that impose inflated premium prices within their individual states.
Under the federal order system, every ounce of fluid milk must be accounted for. "Milk czars" actually verify receipts in every milk transaction, certify accurate weights and measures for the milk, disseminate extensive market information to all parties, and police the system to assure manufacturers that their raw product costs will be equal to those of their competitors. Dairy processors and manufacturers have virtually no input into one of the most basic building blocks of the capitalist system: controlling the costs of their basic raw materials.
The milk marketing orders undermine the most basic free market concept of negotiating contractual agreements between buyers and sellers. The marketing orders dictate the terms of dairy commerce, from the milk prices to how and when farmers will be paid, effectively making the milk market administrators the milk price police.
Price Differentials
Within the milk marketing order's logic-free zone, the most illogical of all provisions is the "differential" pricing. These additional premiums are charged to the manufacturers of fluid milk based, in part, on how far the manufacturing plants are from Eau Claire, Wisconsin. At the time this scheme was devised, the rationale used to justify it was an alleged concern that conditions such as poor refrigeration and the nation's sluggish and unreliable transportation system would prevent localities far from milk-producing states from receiving a fresh and wholesome product.
Today, advancements in milk production, preservation, and transportation obviate the need for differentials. The reason they continue to exist is because dairy farmers, particularly in certain regions of the country, have become dependent upon the largesse of the federal government, rather than their ability to compete, for much of their income. Thus, they have come to view the differentials as entitlements and politicians are loath to tamper with an entitlement program, especially one with such a vocal and well-connected army of lobbyists. According to the December, 1997 issue of Money magazine, the dairy lobby donated more than $2 million to Congress in the 1995-1996 election cycle.
Of course, this means that consumers in the higher differential regions pay higher prices for milk and dairy products than those consumers in Wisconsin and Minnesota. For instance, due primarily to the differentials, consumers in New York and Texas pay almost thirty cents more per gallon of milk and most Floridians pay almost thirty-five cents more.
Perversely, the differential system also penalizes dairy farmers in the regions best-suited to dairy farming and rewards dairy farmers operating in high-cost, inefficient areas far from Eau Claire. This makes about as much sense as the federal government requiring computers manufactured in Maine to be sold at higher prices than those manufactured in the Silicon Valley.
The milk marketing orders are expensive to administer. The 31 orders employ about 500 people at an estimated annual cost of $40 million. It takes a medium-size company between 75 to 100 man-hours per month to comply with the paperwork and inspection requirements of the milk marketing order administrators. In addition to these labor and administrative headaches, dairy manufacturers also bear the costs of underwriting the marketing orders. In the end, these costs also get passed on to consumers.
The 1996 Farm Bill
The reauthorization of the 1996 Farm Bill appeared to present an excellent opportunity to get the government out of the dairy business. At first, some avid free-market proponents in Congress were proposing Freedom to Farm legislation that would have completely phased out price support programs for many commodities, including dairy. However, while a substantial number of grain farmers, particularly corn and soybean producers, recognized the benefits of being freed from government command-and-control regulations, this was much less true of dairy farmers on a national basis. Producers in high-cost production areas, particularly the Southeast and New England, wanted continued protection from competitors in lower-cost production areas, such as the upper Midwest.
When the dust settled, the final bill provided a phase-out of the dairy price support program, but left the milk marketing order system wholly intact. That partial victory for reform was further dampened by some last-minute maneuvers by several key senators, including Tom Daschle (D-S.D.) and Patrick Leahy (D-Vt.). An earlier version of the bill would have repealed permanent law, the 1949 Act, and ended government control over the production and pricing of most major agricultural commodities by 2002.
Instead, the overall legislation was changed in a back-room deal, ensuring that, unless Congress takes action to repeal or revise basic authority in 2002, the nation's farm policies will revert back to their 1938 and 1949 authorizing laws. In addition, in order to satisfy Sen. Leahy, who was prepared to sink the whole bill to protect his dairy interests, language was inserted to create a Northeast Interstate Dairy Compact, the ultimate in milk cartels.
The final bill also directed the Secretary of Agriculture to consolidate the 31 federal milk marketing orders into between 10 to 14 orders. Although he is not required to do anything else, the Farm Bill also stipulated that the Secretary may address pricing issues related to the milk marketing orders.
Playing Games with Reform
Official pronouncements and maneuvers since the passage of the 1996 Farm Bill have made it increasingly clear that the USDA intends to implement as little reform as possible. The Farm Bill called for an informal rule-making process, and during most of 1997, the agency was engaged in the "deliberative" stage of the proceedings. Issuance of the proposed rule is expected early in 1998, to be followed by a relatively abbreviated (for such a significant rule) 60-day comment period, with the final rule scheduled to come out by late summer of 1998.
The agency tested the waters throughout 1997 by trotting out a series of five preliminary proposals under consideration. Each was the product of a different committee, but each committee was comprised exclusively of USDA officials. It does not appear that any of the committees ever gave consideration to how any of the separate options would be integrated with any of the others, nor were representatives of the dairy manufacturing industry or consumer groups invited to contribute to the deliberations. (See Appendix III)
USDA has proposed consolidating the 31 milk marketing orders into 11. However, history has shown that bureaucratic consolidation alone will not necessarily provide efficiencies or savings, nor will it make the dairy industry more competitive. At no time was serious consideration given to elimination of the milk marketing orders altogether.
In fact, reconfiguring the country into 11 larger marketing orders could generate more waste and inefficiency. Eleven orders, operating under the same vapid regulations, will only be more powerful, and harder to eradicate. Such a consolidation could make it even more difficult for milk producers in the few remaining free areas of the country to survive.
Since Congress tied its hands, USDA does not bear all of the blame for this ludicrous consolidation proposal. While USDA's discretion regarding the number of milk marketing orders they could propose was limited, Congress gave department officials greater leeway to enact significant reforms in milk pricing. In fact, a serious and aggressive push to reform the milk pricing system could render regional milk marketing orders irrelevant ? whether it created one single national order, ten orders, or one hundred.
Following the Bouncing Ball
USDA has floated three separate reports with regard to milk pricing options, including alternatives to the current BFP, revisions to the milk classification system,9 and alternatives to the present Class I pricing differentials. The BFP report proposed four different alternatives to the current formula, the Class I Price Structure report proposed six different approaches to establishing Class I differentials, and the Classification report provided a number of disjointed and meaningless recommendations. (See Appendix III)
Each of these alternatives is as impenetrable as the next. Nowhere, however, does USDA include a simple and straightforward scenario for eliminating the BFP, which would at least deregulate the pricing of fluid milk used exclusively for manufacturing purposes.
There is no reason for the government to establish a minimum price for milk. The government does not establish minimum prices for cars, computers, steaks, apples, or soft drinks -- and each of these industries continues to enjoy excellent economic health.
None of USDA's preliminary proposals would actually revamp the milk classification structures. Once again, USDA does not include an option for their elimination. Instead, it tinkers with the classes, moving eggnog and fluid beverages with less than 6.5% nonfat milk solids from Class II to Class I, cream cheese from Class III to Class II, and changing the classification of non-fat powdered milk from Class III-A to Class III, thus eliminating one class of milk.
The only noteworthy trend contained in this blizzard of paper is that, not surprisingly, all the reclassifications would promote particular dairy products to higher classes, which would inflate milk prices, make the products less competitive, and result in even more government regulation, not less. (See Appendix III)
The first clue that USDA wasn't intent on real reform came when it turned a deaf ear to even modest proposals to winnow the system down to two classes, fluid milk and all others.
In fact, there is no rational justification for classifying milk. Elimination of the system would result in milk marketing being more responsive to consumer demands. Freed from these senseless constraints, processors and manufacturers would pay greater attention to the marketplace and adjust their product ratios accordingly.
This pattern of papering over the status quo repeats itself with fluid milk pricing differentials. Although the department claims that its bevy of proposals represents a wide spectrum of views, not one of the six options proposed would actually eliminate differentials. The closest it comes to doing so is an option that would set a "flat differential" to be uniformly applied across all orders to generate an identical minimum fluid milk price. Even here, however, the federal government still has a heavy hand in establishing prices, rather than letting the market play the determinant role.
A November, 1997 court ruling in Minnesota, which declared the Class I differentials illegal, provides a ray of hope. The Secretary may now feel compelled to propose something approaching meaningful reform, at least for the price differentials.
However, the withdrawal of the federal government from milk pricing will not come without a fight. The establishment of the Northeast Interstate Dairy Compact could be a harbinger of things to come and a proliferation of regional cartels, in addition to state milk marketing orders, could supplant the federal government, while carrying on its intrusive policies. The irony is that the price-distorting features of the federal milk marketing orders might potentially be minimized only to see such progress undermined by an expansion of the cartel-like compacts.
Elimination of minimum prices, milk classing, and differentials would ultimately result in milk being produced where it can be done most efficiently and competitively and would more likely be manufactured into the products that are most in demand.
All of USDA's tortured machinations are designed to obscure one crucial, common-sense truth: the federal government should have no role in the production, dissemination, or manufacture of milk or dairy products in this country. The government's presence is only relevant because it makes itself relevant. Not only is federal enmeshment in the industry extraneous, it is detrimental. Persistent government regulation is preventing a more than $50 billion industry from adapting to changes in the economy, the environment, regional costs of production, or any other factors that might make one region of the country more or less competitive than another in milk production.
According to CAGW estimates, the federal milk marketing orders increase the price of milk to consumers by at least $1.5 billion annually. This estimate is based on the overly generous assumption that the present BFP reflects a market-driven price (which is not necessarily the case). But, if the BFP itself inflates the price of milk (which is most certainly the case), then the savings to consumers would be even greater by eliminating the milk marketing order system. In addition, this estimate does not attempt to quantify any savings that would result from the elimination of the other market-distorting features of the milk orders, such as the government's role in classifying milk based on its end usage.
The costs of the federal milk marketing orders amount to nothing more than a milk tax on consumers and a very unfairly applied tax at that. Those who can least afford the added costs -- low-income families with young children -- are hit the hardest. The federal milk marketing orders add another $40 million annually to the costs of the school lunch program and drive up the costs of other government purchases, such as dairy products for the military.
Conclusion
Regardless of which options the USDA ultimately chooses, an onerous federal presence will still artificially prop up the price of milk in high-cost regions, encouraging greater milk production there, rather than permitting fluid milk to move freely around the country to meet demand.
Ironically, a number of the options included in the USDA's flurry of reports were actually defeated during congressional consideration of the 1996 Farm Bill. Now, however, the agency is preparing to implement through the cloistered rule-making process what it failed to achieve legislatively. If anything, the USDA's paper shuffling will leave the government with an even more intrusive role in the dairy industry.
Indeed, if USDA had ever intended this rule-making process to lead to meaningful reform, it would have narrowed the options to just a few comprehensive proposals which could have ranged from basically retaining the status quo, as most of them do, to something that would have either eliminated or at least phased out the milk marketing orders.
By providing so many disconnected options, USDA has succeeded in silencing any meaningful debate or open evaluation of the proposals. Although the department presented its multitude of proposals as if each could stand on its own, whatever is done with regard to the BFP, the classification system, or the price differentials, any change will have an impact upon how the other components operate.
The result is that this rule-making process is virtually meaningless. The pretense of going through all sorts of meetings and discussions only to end up with a proposal which changes nothing is perfectly emblematic in a city where appearance is often more important than substance.
It is not too late for the agency to end the charade. The 1996 Farm Bill set April 4, 1999 as the deadline for implementing reforms of the milk marketing orders. This leaves well over a year to force the USDA to offer substantial, waste-cutting, market-oriented reforms. The Secretary has the power to pull the plug on the current ruse, send his analysts and economists back to the South Building with orders to craft options that would lead to deregulation of the dairy industry or elimination of the federal milk marketing order system. If USDA officials are unable, or, as is more likely, unwilling to comply, taxpayers would be right to conclude that another entrenched bureaucracy is predisposed against any changes that would dilute its power.
Members of Congress should be on notice that if the federal milk marketing order system is ever going to be reformed, it will be their responsibility to accomplish it through the legislative process. They can neither count on nor hide behind the USDA bureaucracy.
CAGW is leading a sustained effort to ensure that all Americans understand what is at stake in reforming the federal milk marketing orders. Although the marketing orders impact everyone, most people are reluctant to weigh in on such a complex issue. When taxpayers and consumers realize that the marketing orders increase the price of milk, but accomplish nothing else, it will be much more difficult for the defenders of the status quo to get away with continuing this scam.
Our Founding Fathers were passionately driven by a collective vision of a confederation of states retaining their sovereignty while still being part of the unified nation. The federal dairy program heedlessly pits region against region, fracturing the country, and forcing taxpayers and consumers to pay unacceptably high prices for milk and dairy products. Milk cartels, whether federally or state-sponsored, have no place in a free market. It is time, after sixty years of government price manipulation, to get the government out of the milk business.
APPENDICIES
ENDNOTES
1. General Accounting Office (GAO), Dairy Programs: Effects of the Dairy Termination Program and Support Price Reductions, (GAO/OCE-93-1), June 1993, p. 7.
2. Congressional Record, United States House of Representatives, May 12, 1933, p. 31
3. Congressional Record, United States House of Representatives, October 31, 1949, p. 1053.
4. United States Department of Agriculture, Economic Research Service, Farm Bill Issues: Background Facts No. 11, How Milk Prices are Supported, May 1990.
5. GAO, Dairy Programs: Effects of the Dairy Termination Program and Support Price Reductions, (GAO/OCE-93-1), June, 1993, p. 3.
6. GAO, Dairy Termination Program: An Estimate of Its Impacts and Cost-Effectiveness, (GAO/RCED-89-96), July, 1989.
7. Congressional Record, United States House of Representatives, June 3, 1937, p. 247.
8. The Basic Formula Price (BFP), which is usually the basis for the Class III price, establishes the minimum price for milk regulated by the federal milk market orders. Class I and Class II milk is paid a premium above the Class III price.
9. Under current regulations, USDA classifies milk based upon what it is used for. Products packaged for fluid consumption, such as whole milk, skim milk, buttermilk and flavored milk drinks are classified as Class I products. Class II products include ice cream, yogurt, cottage cheese and cream, while Class III and Class III-A products include cheese, butter and nonfat dry milk.
10. The parity index, defined as the ratio of purchasing power of the net income per person on farms during the August 1909 to July 1914 period, was first introduced in 1936 and has been used historically to measure farm prices relative to what those prices were in that earlier period. Although farm policy debates since then have often centered around discussions of establishing farm program payments at a certain level or percent of parity, present farm programs are not actually pegged to such a percentage.
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