Congress is again in the midst of rewriting federal dairy policy, and without fail, critics are again distributing misinformation.

"Let the free market work," they say. "Reduce the support price, and farmers will get the signal to cut production, and consumer milk prices will drop from their inflated level."

These ideas are not new, and they still don't work. One wonders why The Post continues to support their adoption. There are more dairy products produced than consumers buy. The government buys what is left over, and the cost to American taxpayers is simply too much.

In a time when all of agriculture is facing financial distress, we must be searching for ways to enhance net farm income in the short term while moving toward more market-oriented agriculture in the long term. At the same time, we must minimize the impact of our actions on consumers.

The "Dairy Unity" provisions of the committee-passed bill accomplish these goals. The Olin-Michel amendment, which provides for a simple price cut, does not. The House Agriculture Committee has proposed a dairy policy that seeks to permanently reduce surplus milk production and government cost while providing a reasonable income for dairy farmers. It's called the dairy diversion program. The 24-month diversion program pays farmers (from a farmer-financed fund) who volunteer to cut their production levels. It encourages a permanent reduction in the number of cows and provides for continued promotion of dairy products. The diversion program provides a reasonable transition. It doesn't pull the rug out from under dairy farmers.

A similar diversion program was in effect in 1984 through March of this year, which resulted in almost 5 billion fewer pounds and a savings of almost $1 billion in the dairy price support program in FY '84 alone. The General Accounting Office estimates that approximately $650 million of this savings was directly attributable to the diversion program. But the program lasted only 15 months. Milk production shot up as soon as we went back to price cuts. From 1981 through 1983, Congress and the president tried to address the problem of surplus dairy production through price freezes and cuts. The result was greater production. History speaks for itself. A producer-financed diversion program works. Price cuts do not.

The Congressional Budget Office estimates that by going with price cuts rather than the committee bill, net farm income will decrease by 30 percent. CBO also estimates that price cuts will cost taxpayers an extra $450 million over three years by increasing the dairy program price tag. There is no such thing as a free market in dairy. As many as 46 separate federal marketing orders restrict the sale of milk from region to region. Frankly, Wisconsin dairy farmers would welcome a move to a truly "free market" in this country. But they resent the hypocrisy of those who want a free market in price yet want to limit a farmer's ability to sell his product to a small area.

Finally, a producer price cut seldom translates to cheaper consumer prices at the store. A 50-cent-per-hundred- pounds price cut to producers theoretically translates to a 4-cents-per-gallon saving to consumers. However, economists will tell you that based on past experiences consumers are likely to save less than a penny per gallon when farmers lose that 50 cents.

The support program has done a good job of keeping the consumer cost of dairy products down in recent years. Since 1978, the Consumer Price Index has gone up by 123 points and the total "food basket" has gone up 97 points. Yet, the retail price of dairy products has gone up only 72 points. Agriculture production levels soar,t many of our best farmers are on the verge of bankruptcy. Federal farm policy must be budget-responsible, but it still must stabilize the deteriorating rural economy.

It's easy to respond to the short- term budget needs and fail to see the long-term economic implications of what we do. The House Agriculture Committee has developed dairy policy and a farm bill that are responsive to both budget needs and the long-term survival of American agriculture.