Dear Member of Congress:
On behalf of the362,000 members of the National Taxpayers Union (NTU), I urge you to sign on toa letter written by Rep. Pitts (R-PA) and Rep. Fitzpatrick (R-PA) to expressconcerns to the Joint Select Committee on Deficit Reduction about the currenttrajectory of dairy policy reform. Although America’s dairy farmers have faceda number of challenges in the past several years, many of the discussed proposalswould only serve to exacerbate market risks or pass costs along to taxpayers.
Since the NewDeal, the federal government has attempted many mechanisms to raise dairy farmincomes. These price supports, marketing orders, deficiency payments, and othersubsidies have created market distortions that cost taxpayers billions whilefailing to achieve their intended results. Meanwhile, other nations have beenmoving in the opposite direction and reaping the dividends for their economies.
Rather thanpromote vibrant free markets that encourage dairy farmers to embrace riskmanagement tools such as forward contracting, current dairy policy reformdiscussions are centered on proposals that seek to further manipulate milkprices. One such plan would create a federal dairy market control program thatwould set milk prices by artificially depressing production. The U.S.Department of Agriculture (USDA) would accomplish this by assigning individual farmsa quota based on historical production and then, under certain conditions, taxingany production above the prescribed level.
Using governmentplanning, rather than free-market forces, to determine prices is likely to havea number of negative consequences. Because milk is a core commodity in a numberof products, Americans will pay higher food prices up and down the groceryaisle. Furthermore, heavy-handed supply management policies could actuallymagnify producers’ inability to accommodate risk by discouraging economies ofscale and penalizing well-managed farms that use long-term contracts to maintaintheir business models in times of reduced margins.
NTUhas long contended that such governmental attempts to micromanage markets areprecisely the wrong way to approach much-needed dairy reform. Rather thancontinue down the path of price manipulation, the federal government shouldtake steps to promote forward contracting, greater price transparency, farmsavings accounts, and a private insurance market as means to reduce volatilitywhile allowing for adequate risk management. Forward contracting is anespecially promising tool that deserves close inclusion in any reform proposal.In fact, recent studies of a forward pricing pilot program found that itreduced month-to-month price variation by as much as 30 percent.
Rep.Pitts and Rep. Fitzpatrick have clearly identified the failed history offederal attempts to moderate price volatility and the need to seek free-marketalternatives. NTU encourages you to support in their effort to protectconsumers as well as taxpayers.
Sincerely,
Brandon GreifeFederalGovernment Affairs Manager