Tuesday, July 21, 2009

Despite Years of Price Supports, Dairy Farmers Feeling Pinch

As the PBS NewsHour video (below) illustrates, recent dramatic drops in the price of milk have left many of the nation's farmers hurting--so much so that their cows are becoming more valuable as beef than as part of their dairy stock. So dairy farmers are struggling, and selling off much of their herds for slaughter. And some are getting out of the business altogether.

As a result, many dairy farmers are seeking government relief. Yet America's dairy farmers have been the beneficiaries of the Dairy Price Support Program since 1949. The USDA-administered program has maintained a guaranteed minimum price for milk for dairy farmers by buying up surplus butter, nonfat dry milk, and cheese.

But like any other price floor, dairy price supports have social costs to all of us--in the form of (1) higher prices for milk and milk-related goods, and (2) higher tax bills required to generate the tax revenues required to buy up the surpluses from farmers--that are most likely greater than the benefits that dairy farmers reap as a result. Even the president's own Office of Management & Budget has rated the program as "Not Performing."

In addition, in an effort to help with fluctuations in the market price of milk, the USDA supports the Milk Income Loss Contract (MILC) program. The program makes payments to dairy farmers in times such as these; that is, the programs makes payments to dairy farmers in order to insulate them from fluctuations in the market price of milk. Low milk prices means more money gets paid to farmers.

The two programs are expensive ones. According to the Herkimer Telegram, "The USDA is expected to spend nearly $1 billion in fiscal year 2009 on purchases of dairy products (Dairy Product Price Support Program) and payments to producers (MILC)." And that doesn't even include the higher prices you and I pay as a result of the program.

Nevertheless, facing some of the lowest market prices in three decades, dairy farmers are seeking extended price support benefits. And it should come as no surprise that the lawmakers spearheading the effort hail from key dairy states: In a recent letter to the U.S. Secretary of Agriculture, Wisconsin senators Herb Kohl and Russ Feingold, as well as Patrick Leahy of Vermont, among others, urged temporary increases in the dairy price support program. You can read the full text of the letter here.

Yet according to a spokesman for the International Dairy Foods Association (IDFA), a trade group representing Dean Foods and other producers, the support programs hurt dairy companies over the long term since they reduce incentives for producers to expand and innovate. Paul Kruse, head of Texas-based Blue Bell Creameries and spokesman for IDFA, gave testimony last week before a congressional committee, arguing that such programs distort markets, leaving consumers paying more than they need to for milk and other dairy products.

Here's the NewsHour segment:

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