WE INTERRUPT the drama over the “fiscal cliff” to bring you news of yet another scary precipice: the “milk cliff.” Congress has not yet passed a new five-year bill reauthorizing agriculture programs. If lawmakers do not pass a bill by Dec. 31, the country will revert to 1949 dairy price support law. Under those 63-year-old rules, the Agriculture Department would be required to buy dairy products at $40 per hundredweight, or about twice the current market price. That would deliver a windfall to producers but drive milk prices up to as much as $8 per gallon in the supermarket.
The conventional wisdom is that this pending mess is yet another symptom of congressional gridlock — for which dairy policy itself is blameless. The Democratic-controlled Senate has passed a farm bill, and the Republican-controlled House Agriculture Committee has passed one, too, though it has not yet come to the floor. Both versions would replace existing milk subsidies with a new subsidized insurance program to ensure producer profits even when prices are low. The impasse over the farm bill relates to other provisions and to cost — currently $969 billion over 10 years in the Senate version, which is $12 billion more than what is in the House version, which many Republicans want to cut even more.
Supporters of the Senate bill argue that it would reform the most egregious direct-payment subsidies for crop farmers, thus saving at least $23 billion over what would have been spent absent the changes. This is a compelling argument, if you accept the warped logic of subsidized agriculture. The supposed savings would come from replacing direct payments with a lush “crop insurance” program that some economists believe could end up costing as much or more as the old system under certain circumstances.
In other words, the true cause of the “milk cliff” is Congress’s endless attempts to manipulate markets in favor of the various farm lobbies. Like other commodity programs, dairy supports are so complex that even many farmers can’t comprehend them without accountants and lawyers. But their objective is simple enough: to protect dairy farmers from the market vicissitudes with which every other business in America must contend, all in the name of a “secure” supply of milk.
This was always a wasteful endeavor, but it’s especially so now that America does not want or need a secure supply of milk as much as it once did. Per capita consumption of fluid milk has fallen 30 percent since 1975 and is likely to continue declining because of an aging population (fewer young drinkers) and the shift in consumer preferences toward such substitutes as soy milk, juice and bottled water. Dairy producers have managed to offset some of this by boosting demand for cheese.
The bottom line, however, is that federal dairy policy increasingly amounts to using public resources to protect producers of a decreasingly popular commodity. Going over the “milk cliff” would harm many consumers, but the pain might be worth it if it finally shocks the country into demanding an end to Congress’s fiddling with the milk market.