‘An Airtight Case’
USDA report underscores need for dairy policy reform.
The International Dairy
Foods Association (IDFA) is hailing the release of a long-awaited report to
Congress from the U.S. Department of Agriculture (USDA) that reviews the
effects of government dairy programs.
“Any way you look at this report, it presents an
airtight case for fundamental dairy policy reform,” says Chip Kunde,
IDFA senior vice president. “The report concludes that the current,
complex web of government dairy programs does little to help dairy farmers
— in fact, the many programs conflict with each other.
“USDA’s report repeatedly notes that other
forces like technology, consumer demand and underlying economic
efficiencies are the real drivers of change in the dairy industry, and that
current policies sometimes work against those positive forces.”
USDA reports that “federal dairy programs raise
the all-milk price [to dairy farmers] by only about 1 percent ... on
average, over 5 years.” This comes at a cost because “these
programs do raise consumer costs and increase government
USDA is especially critical in the report of there
being both a direct-payment program and a price-support program for dairy.
The Milk Income Loss Contract (MILC) program established in the 2002 Farm
Bill is designed to help dairy farmers in times of low market prices. But
this encourages more milk production than would be the case without the
program and keeps farm prices lower for a longer period of time, the report
states. At the same time, the Dairy Price Support Program, which creates a
price floor for farmers, has been used by USDA in recent years to buy up
the extra milk production caused by the MILC payments.
“In essence, the government (and taxpayers) have
been paying twice for the same milk,” argues Kunde. “Instead of
continuing to add new government dairy programs one at a time, the report
clearly underscores the need for dairy polices to be reformed all at once.
We need a policy that promotes innovation and efficiency for future
The USDA report continues: “Attempts to shelter
dairy farmers from a set of diverse, powerful forces with a complex web of
policies, including price supports, import protection, regulated minimum
pricing and direct payments have done little to prevent structural change
…” In fact, the report states, many current milk programs may
actually accelerate structural change.
The report also is critical of state efforts to
replace federal dairy programs with interstate compacts. There currently
are no active interstate dairy compacts, since the expiration of the
Northeast Dairy Compact in 2001. But there are ongoing efforts to put new
compacts in place.
USDA concludes that compacts are not beneficial to
consumers. “In aggregate, consumers lose due to higher expenditure on
Class I milk.,” the report says. Such losses are not borne uniformly
across the industry, the USDA states, noting that “the costs of the
compact are borne by consumers within the compact region, by dairy farmers
outside the compact areas and, in the event direct payments are continued,
Overall, Kunde says, this comprehensive study concludes existing
programs do little to help dairy farmers, and actually make milk and dairy products
less competitive in the marketplace. “With the approaching Farm Bill reauthorization
in 2007,” he says, “the time for reform is now.”
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