Free Markets Best for America’s Moo Cows

In August, the U.S. Department of Agriculture (USDA) announced that it would spend $20 million to buy 11 million pounds of cheese in an effort to alleviate a national “cheese glut.” Yet, even with evidence that producer interest in the first round of cheese purchases was underwhelming, just this week USDA doubled down and offered another $20 million buyout.

To anyone unfamiliar with the inner-workings of the U.S. dairy industry, “cheese glut” sounds like more of a happy accident than an expensive economic predicament – and one that millions of Americans would have cheerfully considered their patriotic duty to help resolve.

Sadly, this wasn’t a call to arms to hike our national pizza consumption. The recent cheese bubble is an indication of just how far removed domestic dairy production is from the everyday market signals of supply and demand that guide the actions of other enterprises.

The dairy sector is subject to an arcane web of central planning at the hands of the Federal Milk Marketing Orders (FMMO), a USDA program created in 1937 that controls the milk market through regional pricing compacts.  Defenders of the status quo argue that dairy faces unique challenges, such as the lead time for a cow to come online as a milk producer or the perishable nature of the product, which require federal oversight in order to maintain a steady supply.  But today’s modern dairy industry is a far cry from the Depression-era conditions that launched the FMMO program.

Widespread refrigeration, new shelf-stable packaging, and increased milk production per cow thanks to science and technology-driven farming techniques, have taken a lot of the guesswork out of the dairy industry and resulted in record yields. While there are, of course, still variables and uncertainty, such as the price of feed, these aren’t much different from those faced by many large and small businesses across the economy. They too have to deal with fluctuations brought on by prices of inputs, weather, and worldwide market conditions. What is different is that most businesses outside of the agriculture world don’t have taxpayer-funded backstops for insurance premiums, or federal price-setting schemes.

Despite record dairy consumption, as well as recent dairy program revisions that began inching away from outmoded practices like “supply management,” problems like the “cheese glut” are a clear sign that there’s still real work to do in federal policy, beyond what a federal buyout can fix. History has demonstrated again and again that even the best government planners can’t anticipate changing markets and industries. Stepping into an evolving field with taxpayer dollars sets (or in the case of dairy, perpetuates) a dangerous precedent and moves in the wrong direction. Some dairy producers are waking up to the fact that the milk business can’t escape market realities and are choosing to go outside the top-down dictates of Washington. American Public Media’s Marketplace reports that going organic has helped them to do so:

But Maureen Knapp said organic has a huge advantage: The price is determined by what consumers will pay.

“With organic, there’s a stable pay price. You know what you’re going to get,” she said. [emphasis added]

For other farmers – and taxpayers – the 2018 Farm Bill offers a critical opportunity for reform. Legislators should encourage farmers to use the non-taxpayer subsidized risk mitigation tools already available, such as futures, options, and forward price contracts. In the same vein, new free trade agreements with less dairy-rich countries could also be boon for the industry. Removing trade and regulatory barriers to our products is a proven way to allow dairy to reach its full potential here at home, without burdening taxpayers. Opening markets, not government tinkering, remains the best way to secure the future for dairy farmers and put consumers back in charge of the American menu.