Trillion-Dollar Farm Bill Would Drive Up Milk Prices

Published October 4, 2012

To many Americans the term “Dairy Market Stabilization Program” (DMSP) may sound like just another obscure effort launched from Washington that will have little impact on everyday lives. However, a growing chorus of opposition from both sides of the political aisle is charging this scheme, buried in the gargantuan farm bill Congress could consider in its post-election “lame duck” session, would do serious harm to consumers, taxpayers, and the economy.

Supporters call DMSP a “reform” because it would replace part of the dairy-policy web of direct payments with a new approach that aims to reduce milk production and provide for government purchases of dairy products.

Higher Prices Expected

Opponents say this amounts to federal manipulation of supply and demand for a key commodity. The outcomes could be dire, especially on prices of milk, cheese, yogurt, and other dairy-based goods. Prices likely would rise, and with families struggling, critics believe DMSP would hammer them on basic necessities at the worst possible time.

Previous U.S. price and supply management policies have included taxing dairy farmers and even paying them to slaughter part of their herds. Our neighbors in Canada imposed milk quotas that have resulted in predictable effects – lower production and higher prices.

DMSP’s proponents say their approach, unlike Canada’s, doesn’t involve quotas and is voluntary. Yet the policy uses what opponents call a “carrot-and-stick” method that makes the best subsidized insurance option available to farmers who abide by the “supply management” rules.

And in the end, DMSP’s “success” would be defined by artificial cost-inflation. The Congressional Research Service seems to confirm this concern, stating in a recent report, “The concept behind the DMSP program is that payment reductions are intended to have one or both of two basic effects, either of which is expected to result in a higher future farm price for milk.” Interestingly, the pro-DMSP lobby has used the report to argue in its favor.

Consumer Groups Object

DMSP has even alarmed philosophically left-of-center advocacy groups like the Consumer Federation of America and Consumers Union. In a July 19 letter to the House Agriculture Committee they joined with two other consumer organizations to voice “strong opposition” to “dairy programs that are designed to restrict milk production.”

“At a time when so many U.S. consumers are having difficulty making ends meet, the last thing they need are unnecessary, artificial increases in the price of staple food products,” the signatories contended.

Those voices are added to staunch opposition from fiscally conservative organizations like the Council for Citizens Against Government Waste (CCAGW) and National Taxpayers Union (NTU). In addition, groups ranging from Competitive Enterprise Institute to FreedomWorks sent a joint letter this summer to House Speaker John Boehner opposing the entire Farm Bill.

‘Imposes More Top-Down Controls’

“This new supply management regime adds more layers and imposes more top-down controls over our milk supply and is, by definition, aimed at tamping down production and keeping prices high for consumers. It cannot by any measure be called real reform, since it just takes our current byzantine dairy policy to a whole new level of manipulation. Consumers lose, taxpayers lose,” said Leslie Paige, CCAGW’s vice president of policy and communications.

Paige explained because DMSP would affect some food prices, taxpayer-backed federal nutrition programs that help pay for groceries would also experience cost pressure.

NTU Executive Vice President Pete Sepp noted, “Downstream effects on the dairy industry would harm Americans in other ways. Smaller supplies and higher prices for the raw material many food manufacturers depend on – milk – could mean deferred expansion plans, reduced job opportunities, and foregone exports that could have contributed to the robust economic recovery our country needs.”

The Web site was recently launched by NTU and CCAGW to spearhead a campaign against the dairy provision specifically.

While the Farm Bill’s near-$1 trillion price tag consists mostly of food stamp-related spending, the legislation continues to be a lightning rod on farm subsidy issues. Consumers and taxpayers can expect the political storm to strengthen when lawmakers return to Washington after November 6.

Doug Kellogg ([email protected]) is communications manager for the National Taxpayers Union in Alexandria, Virginia.