CAGW Issues Spending Cut Alert: Dairy Subsidies
US - Today, Citizens Against Government Waste (CAGW) issued its weekly spending cut alert aimed at eliminating the Department of Agriculture’s (USDA) labyrinthine system of subsidies, price floors, import barriers, and regulations that distort dairy markets, raise prices at grocery stores, and cost taxpayers dearly.
13 May 2011
2 minute read
Switching to a free market system for the dairy industry, which is among the spending reductions advocated in CAGW’s Prime Cuts database, would save taxpayers $1.2 billion in one year and $5.8 billion over five years.
Through a series of federal Milk Marketing Orders, which are based historically on the milk producers’ distance from Eau Claire, Wisconsin, the government sets minimum prices that processors must pay for Grade A milk, and milk producers are forbidden to sell their product outside their designated region. The mandated prices vary from region to region and require that purchasers pay more for milk that will be sold as fluid milk than for milk destined to be used in other products, such as yogurt or cheese.
The government also has a Dairy Product Price Support program, under which the government buys certain processed dairy products, like butter and cheese, to keep the market price above a certain level; and a system of tariff rate quotas, which makes imports of dairy products artificially expensive. In addition, there is a Milk Income Loss Compensation (MILC) program, which compensates dairy producers when domestic milk prices fall below a certain level.
These programs cause significant market distortions, cost taxpayers billions, and are ineffective at saving small farms. According to a December 2004 report by the Government Accountability Office, the federal government’s manipulation of dairy markets forces consumers to pay 50 per cent higher prices for butter and 30 per cent higher prices for dry milk. To make matters worse, MILC payments to farmers are highest when the price of milk is lowest, preventing consumers from reaping the full benefit of cheaper groceries when they are available.
“The federal government’s tortuous method of micromanaging dairy markets is outdated and counterproductive,” said CAGW President Tom Schatz. “Markets should favor consumers over producers, but the dairy program does the opposite. Eliminating the government’s role in determining dairy prices would be a boon for taxpayers and would invite price competition and innovation into a market that desperately needs more of both.”
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