Free Markets for Milk?

When the US Congress enacted the Federal Agriculture Improvement and Reform Act of 1996, the Competitive Enterprise Institute was cautiously optimistic that the federal government would actually be moving toward a more market-oriented dairy policy. Greater freedom in milk pricing and production would benefit consumers by expanding choice and competition, in turn fostering innovation and lowering retail prices.

By the time the US Department of Agriculture published its final rule revising federal milk-marketing orders on April 2nd of this year, however, it had become clear that the USDA would be making only minor changes in federal milk-marketing regulations. USDA’s final rule merely consolidates the current 31 federal milk marketing orders into 11 orders, and reduces the disparity in regional pricing differentials. Now, opponents of reform are threatening to repeal even these modest reforms, and to expand even further the regional dairy compact system.

In our view, any attempts to roll back the USDA’s current reforms or expand the dairy compact scheme would hurt consumers by maintaining the artificially-high prices that result when government allows producers to collude in setting the price of their goods. CEI supports efforts to expand the freedom of producers and consumers to negotiate prices more freely.

Federal dairy policy serves one, and only one purpose: to inflate the price of milk by preventing competition. Dairy price supports and regional compact arrangements prop up the $75 billion dairy industry, ironically providing the biggest benefits to the biggest producers. A free market for milk would ensure that dairy products are produced where and in a manner that is most efficient, resulting in greater competition and ultimately lowering the retail price that American consumers must pay. The USDA estimates that its revised milk marketing rules will lower the amount Americans must spend on fluid milk by more than $100 million annually. By some estimates, eliminating the milk marketing orders and regional compact system altogether could result in an additional reduction of as much as $1 billion annually.

Just last week, health experts from American universities, government agencies, and professional societies, including American Academy of Pediatrics and the American College of Nutrition, met in Washington to discuss the problem of calcium deficiency in the diet of many Americans. They concluded that dietary calcium should be increased for many “at risk” groups, including young girls and boys, and older women. Milk can be an important part of a high-calcium diet, but federal dairy policy raises the price that consumers must pay. Consumers would only benefit if milk markets were freed and milk cartels were ended.