Federal Dairy Policies Need Fundamental Reform

Current dairy programs have many negative impacts on the industry including stimulating over production and penalizing efficiency. In fact, despite multiple layers of federal dairy programs that prop up milk prices and/or support dairy farm income, farm milk prices are at the lowest level in 25 years. They simply are not working.

Federal Milk Marketing Orders are not working as originally intended and are at the root of many of the industry's problems. Federal orders have created regional differences in farm milk prices that are detrimental to producers where fluid milk use is lower than the national average. Federal orders lock milk into class uses, often keeping milk from moving to its highest value use, therefore depriving producers of the best possible price from the market. This depression era program is out of sync with today's markets and needs fundamental reform.

The Dairy Price Support Program deepens regional distortions when the nonfat dry milk purchase price is kept high, along with high market-based butterfat prices, driving base prices in federal orders higher. Government milk powder purchases and stocks have become so large and burdensome that dairy producer groups are proposing to assess dairy farmers to raise money for a dairy herd buy-out to address chronic overproduction. By locking the dairy farm sector into a cycle of overproduction, the price support program ensures its continual reauthorization, preventing the movement to a robust, dynamic, self-reliant dairy farm sector. Instead, the supports perpetuate the need for more artificial price and income enhancement.

The Milk Income Loss Contract (MILC), a new multi-billion dollar direct payment program for dairy producers created in the 2002 Farm Bill, is an inequitable subsidy that drives down income for the most productive dairy farms while propping up farms with the highest costs of production. The MILC program combined with the Dairy Price Support Program send signals for production of more milk, preventing supply adjustments that would otherwise occur. Milk prices will not recover until a balance between supply and demand is once again achieved.

ACTION REQUIRED: Congress should reject creating new dairy programs, recognize that current polices need reform and support one national farm safety net for dairy that is fair across all regions with the least market distorting effect.