Stop Milking Consumers
Congress should abolish the Northeast Dairy Compact Commission and end all price controls and subsidies on milk. New England consumers and taxpayers are being milked of wealth by higher prices. There is no public need for this commission.
by Fred E. Foldvary, Senior Editor
According to the web site of the NDCC, the Northeast Interstate Dairy Compact controls the New England dairy industry. Its stated functions are "assuring the region of an adequate supply of milk, recognizing the cultural and economic benefits of a viable dairy industry to the region, and recognizing [that] the ability of the states to regulate milk prices collectively, rather than individually, is in the public interest."
A university economic analysis of such compacts states, "Compacts work by forming a commission that fixes a price that exceeds the minimum federal order price for fluid milk in the compact region. The difference between the compact price and the minimum federal order price for fluid milk--called the compact over-order premium--is then collected by the compact commission and is disbursed to farmers." The impact of the price supports includes both higher prices paid by the consumers and lower revenues obtained by the retail sellers of milk.
Why do we need a government agency to assure an adequate supply of milk? The free market would provide as much milk as demanded by consumers. There would be as much supply as is profitable. If the government forces a greater supply than what the market would provide, this creates a waste of resources. If it is less expensive to produce milk in States such as Wisconsin than in Vermont, then it not only wastes resources to subsidize the production in Vermont, but it also hurts the dairy industry in Wisconsin.
The dairy industry provides economic benefits, but so do other industries. So long as a firm can at least make a normal profit, it will provide goods that benefit society. If more "benefits" are forced by the government, then this shifts resources from where they are most wanted. There is a double excess burden created when government subsidizes an industry. First, the extra costs paid by consumers and taxpayers are wasted resources, and secondly, excessive production is wasteful because those resources would serve the public better for other products.
In the "cultural" benefits of the dairy industry, we are getting closer to the real reason for the subsidies. Why single out the dairy culture for privileges? And why should the Vermont dairy culture be subsidized at the expense of the Wisconsin dairy culture? The real reason is that the dairy industry is a concentrated interest, with incentives to finance political campaigns and lobby for privileges. The cost is spread out thinly over many consumers who are too ignorant and too busy to oppose the costs. It is the culture of privilege that is being protected.
A regional regulatory commission is indeed more effective than separate State commissions in milking the public, but who ends up with the bulk of the subsidy? It is not the farm worker. It is not the maker of farm equipment or buildings. It is the owner of the farmland. The subsidies end up raising the rental income and land values of the dairy land.
This dairy compact was established by Senate Joint Resolution 28 in 1995. Senator Jeffords of Vermont introduced the resolution. This is the Senator who recently switched from Republican to independent, shifting control of the Senate to the Democratic Party. The Commission's address is in Vermont.
The International Dairy Foods Association has called on Congress to reject further extensions or expansions of these price compacts. The Northeast Interstate Dairy Compact was supposed to end when federal milk pricing reforms took place. Congress granted it an extension in 1999, which runs until September 2001. The association states, "The evidence is clear: the Northeast Dairy Compact is a failed experiment. It imposes an expensive, regressive milk tax; doesn't save family farms and hurts consumption."
"The Compact has cost New England consumers $140 million thus far, disproportionately hurting those who can least afford it to benefit large dairy farmers who do not need additional income subsidies."
The publication On The Plate in its issue of June 26, 1998, says it well:
"For six decades U.S. consumers have paid artificially inflated milk prices due to a support program for dairy farmers signed into law by President Franklin D. Roosevelt in 1933. This program was meant to be a temporary relief program in times of serious economic depression in the U.S. and around the world.
"Sixty years later, with a thriving and growing economy, the U.S. consumer still has to pay higher prices because of government intervention, even though U.S. dairy farmers are probably the most efficient milk producers in the world.
"While the U.S. Department of Agriculture and others are struggling to bring real reform to the archaic way milk prices are determined in this country, the introduction of dairy compacts can only be counterproductive to these efforts. The process of reforming the existing Milk Marketing Order reform should not be undermined by dairy compacts that repeat the old mistakes of agricultural policies."
-- Fred Foldvary
Copyright 2001 by Fred E. Foldvary. All rights reserved. No part of this material may be reproduced or transmitted in any form or by any means, electronic or mechanical, which includes but is not limited to facsimile transmission, photocopying, recording, rekeying, or using any information storage or retrieval system, without giving full credit to Fred Foldvary and The Progress Report.
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