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Letter


Support Freer Markets, Not More Government Mandates, in Dairy Policy Reform
An Open Letter to the United States Congress:

October 5, 2011

Dear Member of Congress:

On behalf of the 362,000 members of the National Taxpayers Union (NTU), I urge you to sign on to a letter written by Rep. Pitts (R-PA) and Rep. Fitzpatrick (R-PA) to express concerns to the Joint Select Committee on Deficit Reduction about the current trajectory of dairy policy reform. Although America’s dairy farmers have faced a number of challenges in the past several years, many of the discussed proposals would only serve to exacerbate market risks or pass costs along to taxpayers.

Since the New Deal, the federal government has attempted many mechanisms to raise dairy farm incomes. These price supports, marketing orders, deficiency payments, and other subsidies have created market distortions that cost taxpayers billions while failing to achieve their intended results. Meanwhile, other nations have been moving in the opposite direction and reaping the dividends for their economies.

Rather than promote vibrant free markets that encourage dairy farmers to embrace risk management tools such as forward contracting, current dairy policy reform discussions are centered on proposals that seek to further manipulate milk prices. One such plan would create a federal dairy market control program that would set milk prices by artificially depressing production. The U.S. Department of Agriculture (USDA) would accomplish this by assigning individual farms a quota based on historical production and then, under certain conditions, taxing any production above the prescribed level.

Using government planning, rather than free-market forces, to determine prices is likely to have a number of negative consequences. Because milk is a core commodity in a number of products, Americans will pay higher food prices up and down the grocery aisle. Furthermore, heavy-handed supply management policies could actually magnify producers’ inability to accommodate risk by discouraging economies of scale and penalizing well-managed farms that use long-term contracts to maintain their business models in times of reduced margins.

NTU has long contended that such governmental attempts to micromanage markets are precisely the wrong way to approach much-needed dairy reform. Rather than continue down the path of price manipulation, the federal government should take steps to promote forward contracting, greater price transparency, farm savings accounts, and a private insurance market as means to reduce volatility while allowing for adequate risk management. Forward contracting is an especially promising tool that deserves close inclusion in any reform proposal. In fact, recent studies of a forward pricing pilot program found that it reduced month-to-month price variation by as much as 30 percent.

Rep. Pitts and Rep. Fitzpatrick have clearly identified the failed history of federal attempts to moderate price volatility and the need to seek free-market alternatives. NTU encourages you to support in their effort to protect consumers as well as taxpayers.

Sincerely,

Brandon Greife
Federal Government Affairs Manager