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The dairy industry milks Congress for yet another bailout.

Friday, October 9, 2009

AT $2.87 a gallon, the average price of milk is down 27 percent from a year ago. That means cheaper groceries for recession-weary consumers and more bang for the taxpayer's buck in food stamps and other federal nutrition programs. What's not to like? Well, dairy farmers hate it: They are facing a $12 billion decline in sales this year, according to the National Milk Producers Federation. Many could shut down; some farmers are slaughtering their cows for beef. Rushing to their rescue, Congress has approved a $350 million dairy bailout -- on top of more than $1 billion in regular price-support and direct-payment programs.

If you find this hard to understand, we agree with you. Just two years ago, the price of milk was approaching $5 a gallon, thanks to strong U.S. and foreign demand; dairy farmers were making money hand over fist. But no one passed a law telling them to share the windfall with grocery shoppers. Yes, this recession has been unusually harsh, for the dairy industry and everyone else; but U.S. dairy farming has been shrinking for decades, with large-scale producers replacing smaller ones. Between 1970 and 2006, the number of farms fell from 648,000 to 75,000; the average herd size rose from 19 to 120, according to the Agriculture Department. Some farms threatened with bankruptcy today would have gone out of business within a few years anyway.

Federal dairy policy was born in the Great Depression, when small, family-run farms produced milk for local markets. Today, the dairy market is national, and an increasing portion of milk is processed into cheese rather than drunk. Yet New Deal-era government programs remain, and even work at cross-purposes: price supports, confusingly known as Federal Milk Marketing Orders, push prices up; Milk Income Loss Contracts (MILC, get it?) encourage production in certain regions, thus pushing prices down. Large feedlot operations in the far West have very different economic interests from mid-size Midwestern farms; both are at odds with the Northeast, where farms are smaller and more pastoral. These interests regularly squabble in Congress.

Congress has left it up to President Obama's agriculture secretary, Tom Vilsack, to distribute most of the $350 million bailout. On a recent visit to South Dakota, Mr. Vilsack told an assembly of farmers that it was time for "a longer-term discussion about . . . structural changes in the way the dairy industry is currently operated so we no longer have these rather stark contrasts between boom and bust." Yes, it is. There are already relevant proposals on the table: Reps. Ron Kind (D-Wis.) and Jeff Flake (R-Ariz.) proposed a bill last year to encourage tax-free savings accounts that farmers could build up in good years and draw down in bad ones. It didn't pass. If Mr. Vilsack is serious about avoiding a repeat of this year's fiasco, he'll encourage a truly radical policy rethinking. Dairy farmers should be able to compete in the marketplace -- they have milked taxpayers and consumers long enough.

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