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Open Letter to the Senate Agriculture, Nutrition, & Forestry Committee: Do Not Extend Milk Income Loss Contract (MILC) Payments Program

February 14, 2005

Dear Chairman Chambliss, Ranking Member Harkin, and Members of the Committee:

On behalf of the 350,000 members of the National Taxpayers Union (NTU), I write to offer our views on legislation recently introduced in the Senate that would amend the Farm Security and Rural Investment Act of 2002 to extend and expand the Milk Income Loss Contract (MILC) Payments program (S. 273). Specifically, we urge you to vote NO on S. 273 should it come to a Committee vote.

The MILC payments program was established by the 2002 farm bill and is scheduled for statutory termination at the end of the current fiscal year. This program gives eligible dairy farmers a taxpayer financed handout "whenever the minimum monthly market price for farm milk used for fluid consumption in Boston falls below $16.94 per hundredweight (cwt.)." Farmers can receive a check from the Treasury "equal to 45% of the difference between the $16.94 per cwt. target price and the market price, in any month that the Boston market price falls below $16.94 " capped at an "annual production limit of 2.4 million pounds per dairy operation."

Replacing "Boston" with "Stalingrad" creates an example of central planning that could have easily come from an old Politburo economic playbook. In either case the result is economic distortions, inefficient markets, taxpayer abuse, and ultimately government failure.

As is the case with the other federal dairy programs, MILC is not only unsound from an economic and moral standpoint; it doesn't even achieve the objective that is used to justify its existence. While the intended purpose of MILC is to provide dairy farmers with income support when market prices drop below a certain point, the program itself perpetuates lower prices!

A comprehensive USDA report on federal dairy programs from 2004 explains why: "The Milk Income Loss Contract (MILC) program, by increasing producer returns through production-linked payments, expands production, and reduces the milk price." The report then concludes: "Without the MILC program, the remaining dairy programs raise the all-milk price by a greater amount--4 percent as opposed to about 1 percent--on average over 5 years."

The biggest loser in all of this is undoubtedly the taxpayer. When the clock hopefully runs out on MILC at the end of this fiscal year, taxpayers will have been tapped for well over $2 billion in just three years. However, if S. 273 becomes law, the program

will be extended for another two years. Worse, S. 273 would double the annual production cap to 4.8 million pounds per dairy operation. Although cost estimates are not currently available, the President's new budget assumes that a two-year extension of MILC would gouge taxpayers for another $1.2 billion--and that assumption doesn't factor in a doubling of the production cap.

After 70+ years of quasi-socialist meddling in the U.S. dairy market, the time is ripe for Congress to seek a phase-out of our convoluted system of antiquated dairy supports. A good start would be to simply allow MILC to fade into the sunset on September 31, 2005. Taxpayers have been "milked" long enough.


Tad DeHaven
Economic Policy Analyst


The White House
Senate Appropriations Committee
Remaining Members of the United States Senate