NCPA - National Center for Policy Analysis

Reform For The Government's Milk Marketing Program?

April 1, 1999

The Department of Agriculture has announced a simpler plan for milk pricing that would lower prices paid to dairy farmers. But there's a catch. It must be approved by two-thirds of the dairy producers in each of the government's 31 milk marketing areas, or by those producers who supply two-thirds of the milk.

Not surprisingly, the nation's major dairy processors have denounced the plan.

  • Under the current milk-pricing system -- which goes back to the Depression and now takes 500 people to administer -- the government sets a minimum price for milk based in part on a farmer's distance from Eau Claire, Wis.
  • Dairy farmers in Texas, for example, get a higher minimum price than Wisconsin producers.
  • The "Eau Claire bonus" was designed to encourage Midwest producers to truck refrigerated milk to regions with few dairy farms.
  • Instead, it spurred dairy production in those areas -- often with "megafarms" profiting handsomely from the higher minimum price.

The Agriculture Department's "reforms" consist of consolidating the present 31 regions into 11 large marketing areas. Prices would be calculated monthly on what critics find to be a confusing formula based on classes of milk and milk products, distribution costs, distances between production and consumption areas and differentials.

A spokeswoman for the International Dairy Foods Association says the scheme "doesn't go far enough in reforming this intrusive, antiquated milk-pricing system." She added that the association wants more simplification and "a dairy policy that would allow milk to be more competitive with other beverages."

Price distortions caused by federal milk-pricing rules cost consumers as much as $1.7 billion a year, government studies show.

Source: Bruce Ingersoll, "Agriculture Department Announces a Simplified System for Milk Pricing," Wall Street Journal, April 1, 1999.


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