COWS MAY not be more or less content depending on the price of milk, but their owners are. The higher the price, the more milk is produced. The trick in setting dairy price supports is to keep the price high enough to meet demand without eliciting a surplus.
Until last year, the government had a remarkably simple and pretty accurate device for doing so. The agriculture secretary would estimate production for the year ahead. If the likely flow to market seemed about right, he would leave supports alone; if it seemed a little low, he would raise them a notch; and if production seemed about to exceed a certain range, he would lower them.
The self-correcting mechanism may have worked too well. It helped reduce the government's support costs from well over $1 billion a year to much more modest and sustainable levels. But perhaps because the system wasn't broke, in last year's farm bill Congress fixed it. Supports will still be free to rise when likely milk supplies are too low; that half of the scale was left alone. But a floor was placed beneath supports to limit how far they can be reduced when production is too high. To please the farmers, Congress gave up a provision that protected the taxpayers.
Last year it didn't matter; market prices were unusually high. They were driven up by high demand, not for fluid milk but for milk powder. The demand has since receded, and prices are following it down. But the support floor limits how far they will be allowed to go. The support price now is 50 cents per hundredweight, or about 5 percent higher than it would have been under the old rules.
Supporters argue that this is a good thing, not just for producers but for consumers. They say that the old system would have let the price fall too far, driving farmers out of business and creating wide production swings, supply shortages and price spikes. The floor is simultaneously high enough to stabilize the market but low enough so that, over the long run, supply will not exceed demand. So they contend.
But others think the floor means that the government again will have to buy a costly dairy surplus -- and the authors of the bill, for all their reassurances that no such thing would occur, seem to have agreed. Thus they ordered the secretary to make a study of supply management -- some kind of allocation system in case supplies get out of hand -- and provided that if costs exceed a certain range beginning next year, the producers themselves will be assessed to help defray them. Those are both insurance policies against a return to the days of large surpluses and costs. The choice in an election year was to vote to let the price decline or to set up a Rube Goldberg machine to achieve about the same effect. It was easy.