Cato Institute: U.S. Dairy Policies are 'Milk Madness'

Anti-Farm Bill lobbyist rails against reauthorizing dairy programs.

Published on: Jul 16, 2007

As we've reported in recent weeks, Congress is being squeezed from all sides as it attempts to write the 2007 Farm Bill. Some commodity groups want the Farm Bill reauthorized with few safety net changes. Others want a major shift to revenue protection rather price supports. Still others want a major shift to environmental and conservation incentives.

Sustainable ag, small-scale ag and specialty crop advocates have pushed their agenda. Northeast congressional representatives have proposed their own agenda. Northeast dairy leaders have teamed up with others to push for major dairy program changes. And there are those who want to completely do away with federal dairy programs.

Last week, the Cato Institute, a public policy research group advocating less government and free markets, spread the word in Washington, D.C., that dairy programs will cost taxpayers $600 million over the next decade. The programs are ripe for repeal – not fine-tuning, claims Chris Edwards, director of tax policy studies.

In his July Tax & Budget Bulletin, Edwards hammered dairy programs, noting that billions are spent reducing food costs through programs such as food stamps. "Yet, dairy programs increase milk prices"

Major cartons of contention

Marketing order cartels. Federal orders, he suggests, create cartels that limit competition, and limits milk producers' ability to ship from lower-cost regions to higher cost regions.

Artificial price supports. Government purchases at set minimum prices keep market prices high and encourage overproduction.

Import tariff barriers. Imported cheese, butter and dried milk are limited to about 5% or less of U.S. consumption, according to Edwards. Without the tariff rate quotas, U.S. consumers (and processors could purchase lower-priced foreign dairy products.

The net effect of these (and related) policies is that consumers end up paying more for dairy products than they would in a free market. Edwards charges that milk products carry a 26% implicit tax because of these interventions.

Furthermore, Edwards argues that innovators who try to operate outside the system and sell milk for a lower price are quickly stymied by federal lawmakers. "U.S. dairy programs are Byzantine in their complexity and create the most rigidly controlled of all agricultural markets," he notes.

"In this year's Farm Bill, the Democrats have a chance to repeal the special interest giveaways of prior Republican farm bills, including the regressive 'milk tax'," concludes the non-partisan public policy researcher. For a closer look at Edward's 'Milk Madness' commentary, go to www.cato.org/pubs/tbb/tbb_0707_47.pdf