'An Airtight Case'

November 1, 2004
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‘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 expenditures.”
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 success.”
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, by taxpayers.”
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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