Is Government Behind Increase in Milk Prices?

Economists predict milk prices could increase by as much as $.30 a gallon. Some say its supply and demand, coupled with higher feed prices. Others say it is government manipulation of the milk business.

I first learned that the federal government controls milk prices when I owned a convenience store. I aggresively protested the rise of retail milk prices two years ago that sent my customers to big discount stores for relief. Ignorantly accusing our milk distributor of price gouging, I was astonished to learn from our supplier that raw milk prices are controlled by the federal government, and that program ultimately leads to the retail price of milk. Political activists, watchdog groups, and one small Arizona dairy farmer have set out to change the socialist scheme of government in milk.

Most U.S. dairy farmers operate under a 1930's federal program that was designed to give small dairies a sure market for their milk and give consumers equitable retail prices across the nation. Farmers who participate in regional pools operated by federal or state governments, deliver raw milk to cooperatives or food processors. The farmers get a guaranteed price for the raw milk whether it ends up in a jug, in cheese, in butter, or in ice cream. Dairy farmers can opt to do business outside of the pool, but it is risky because it might end up with more milk than it can sell. As one small Arizona dairy farmer learned, the risk of not participating can also lead to a losing fight with big business.

HOW DOES IT WORK?

The government created the Federal Milk Marketing Order system. Federal milk order market administrators from the U.S.Department of Agriculture (USDA) collect retail price information from selected cities. The data is used to answer questions from Congress and others regarding retail milk prices. Data computed for the Consumer Price Index is also used by regulators. The differential pricing by regions and the price "classing" of milk (fluid, cheese, butter, ice cream, etc.), although helpful in the 1930's, is now hurting farmers and consumers. A study done by the USDA acknowledged that "dairy programs raise the retail price of milk." According to Citizens Against Government Waste, a watchdog group, it is estimated that these programs cost U.S. consumers at least $1.5 billion a year. "Rather than allowing commerce between dairy farmers and dairy manufacturers to flow freely, the milk marketing orders devise and administer a raft of intricate regulations to govern the overall price of milk. The regulations undermine the most basic free market concept of negotiating contractual agreements between buyers and sellers," says Tom Schatz, President of Citizens Against Government Waste.

WILL IT CHANGE?

In early 2006, private dairy companies and cooperatives petitioned the USDA to consider adjustments in the calculatons for "make allowances", which relate to the cost of turning raw milk into finished product. In January, 2006, the USDA conducted four days of hearings, where most of the evidence suggested that the current formulas are outdated. In June, 2006, the USDA said it was putting off a decision to make adjustments - a decision that would likely cost manufacturers as much as $26 million per month. The USDA planned to reconvene in September of 2006 (obviously to wait for the congressional elections), thereby delaying any implementation of new allowances until well into 2007. Schatz declares this is just another demonstration of why "the federal government should have no role in the production, dissemination, or manufacture of milk or dairy products in this country."

ONE ARIZONA DAIRY FARMER FILES FEDERAL LAWSUIT

Hein Hettinga, who owns a small Arizona dairy farm, took on big business and lost. Hettinga was competing for retail sales against Arizona's largest milk company, Shamrock Foods. Hettinga chose not to participate in the federal government program and the United Dairymen of Arizona (UDA) complained that he was affecting the USDA price-setting formula causing lower returns for other dairies. The UDA cooperative handles 85% of the state's milk. Powerful lobbyists paid off some politicians to have a law passed, which in effect, required Hettinga's Sarah Farms to participate in the program. He now has to pay his competitors $400,000 a year to stay in business - a sum that cripples his operation. According to some activists who claim sarcastically, this is why we need socialism - to keep big companies big and keep the little guy down. Hettinga has filed a federal lawsuit, alleging that the so-called Milk Regulatory Equity Act of 2005 is unconstitutional.

As I write this, still in disbelief two years after learning the government controls milk, I stand up and salute the little guy in America. I support all the moms and pops struggling to just have a small, happy life against the most giant of odds. Hettinga should command all of our respect for his comment to The Washington Post last year, "I still think this is a great country. In Mexico, they would have just shot me."

So, when you go into the store this summer and see milk prices up by as much as $.30 a gallon, and cheese and ice cream prices up also - please don't blame the store owner, or the dairy distributor, or even higher gas prices and feed prices. Just call your congressperson and demand that government get out of the milk business.