How the ‘Dairy Cliff’ Will Cream Consumers
Got milk? Enjoy the price you paid, because federal policy, reaching its sell-by date, will have dire results.
By JAMES BOVARD
No grocery store would hire a clerk who insisted on adding up a customer’s purchases with an ancient abacus. Yet a similarly archaic standard is about to be inflicted on the nation’s taxpayers and consumers.
Current farm programs—which consist of massive subsides, price supports and various marketing restrictions—were enacted in 2008 and expire on Dec. 31. That should be cause for rejoicing, except that the system is rigged against consumers and taxpayers.
Instead of Americans enjoying a bounty after the clock runs out, federal farm policy will automatically revert to a farm bill drawn up in 1949. That will compel the Department of Agriculture to roughly double the price supports for dairy and other farm products thanks to a mystical doctrine called “parity.”
The doctrine was concocted by Department of Agriculture economists in the 1920s to “prove” that farmers were entitled to higher prices than the market provided. The official parity calculation was based on the ratio of farm prices to nonfarm prices between 1910 and 1914, the most prosperous non-wartime years for farmers in American history.
If the market price of milk, for example, fell below parity, the Department of Agriculture intervened in markets in various ways to provide a price floor to benefit dairy producers. This mechanism has been in place for generations, gouging taxpayers and consumers, long after full-time farmers became far wealthier than average Americans.
In recent decades parity was disregarded as the primary gauge for most subsidy programs, as even farm-state congressmen conceded it was a nonsensical standard, given the profound changes in the economy since 1914. Yet parity remains on the statute books. And so, if Congress fails to act, the price of milk and other dairy products will soar. Consumers and much of the food industry will get creamed.
Milk now sells for an average $3.53 per gallon nationwide, according to the Bureau of Labor Statistics consumer price data. Once parity kicks in the price could quickly soar to $7 a gallon, according to Secretary of Agriculture Tom Vilsack. The USDA could burn through billions of tax dollars buying up dairy products that are unwanted at exorbitant prices.
Farmers will enjoy a brief windfall until consumer demand plummets for their product. Any resulting chaos in the marketplace will almost certainly produce demands for new bailouts of farmers.
The dairy lobby has long been one of Washington’s most tenacious. By the 1980s, federal dairy policy cost the average American family enough to buy its own cow. The fact that in the 1980s high dairy prices reportedly contributed to calcium shortages among low-income Americans never registered on Capitol Hill.
The ultimate absurdity of the “dairy cliff” is that there is no need for federal intervention in dairy markets. The supply and demand for the vast majority of food products made in America function just fine without government price controls. The worst disruptions have perennially occurred for a handful of items such as sugar and corn, as well as dairy products, which are under political protection. Politicians have long exploited these disruptions to help drum up donations to their re-election campaigns.
There is no chance that farm-state congressmen will draw the lesson from the “dairy cliff” that they are unfit to rule American farmers, retailers and consumers. This looming debacle is further proof that the only way to reform farm programs is to abolish them.
Mr. Bovard is the author of several books including a new e-book memoir, “Public Policy Hooligan.”