The first public policy involving milk dealt with health and sanitation issues. As discussed in the Social History section, people in the cities had the most problems with this; consequently they had the most sanitary regulations by the The government has been involved with milk pricing since the Depression. When they were first working on a pricing system they had to deal with certain unique pricing problems. It was the flow of milk that had to be priced, not any given lot. Production was variable with season while demand remained stable. Producing fluid milk was more expensive than producing milk for manufactured products. Transportation costs differed for fluid milk, butter and cheese. Finally, butter and cheese were sold in a national market while fluid milk was confined regionally (Manchester 1983). They decided on the classified pricing system, which involves paying farmers higher prices for fluid milk, which reflects the higher cost of production and a lower price for milk sold in the form of butter, cheese and evaporated milk (McInnerney 1939). As a result of the low prices and instability caused by the Depression, the federal government became directly involved with income support for dairy farmers. The Agriculture Marketing Act of 1929 established by the Federal Farm Board with the purpose of promoting the effective merchandising of agriculture commodities. The Board could make loans (Manchester 1983). Today, the federal government has two main programs involving the dairy industry: the Milk Price Support Program and Federal Milk Marketing Orders. The Agriculture Act of 1949 started the current Milk Price Support Program. The main objective is provide price supports to the dairy industry (USDA www.usda.gov). It allows the Commodity Credit Corporation (CCC) to buy any butter, cheddar cheese or nonfat dry milk at current support prices that is offered (USDA). The CCC can buy any surplus dairy products in the market. In 1993, the CCC removed 337 million pounds of butter, 317 million pounds of nonfat dry milk and 13 million pounds of cheddar cheese from the commercial market- a total cost of $315 million. From 1981 to 1986 the total cost to taxpayers of the Price Support Program was $2 billion annually (Harris and Outlaw 1995). The MPSP is meant to be a safety net for dairy, but according to Jerry Kozak, the president of the National Milk Producers Federation, the USDA has not been operating it in a way that is supportive of dairy farmers (Gutknecht 2003). The program does not guarantee producers a minimum price for their milk, so occasionally the market price for manufacturing milk will fall below the announced support price. Even in this situation some farmers will not sell to the CCC because sellers have committed sale arrangements and the actual cost of selling to the CCC is higher than to commercial buyers. To fix this, Ed Jesse (2003) recommends increasing the support price, increasing the make allowances used to derive purchase prices to account for any higher cost of selling to the CCC or require the CCC to alter product specification and payment terms to conform to the market. Through the Federal Milk Marketing Orders, which were established in 1937, the USDA divides the country into marketing order regions and establishes differentials between classes of milk. The regions are referred to as 'orders'. A complex system, involving the distance of producers from Eau Claire, Wisconsin, where dairy is assumed to have the lowest cost of production, is used to determine prices for each of the marketing orders (McNew 1999). It does two things. 1) Assures dairy farmers a reasonable minimum price for milk throughout the year and 2) assures consumers of an adequate supply of milk and help prevent wild fluctuations in price (USDA). This may have created problems for some dairy farmers. It causes regional differences and locks milk into class uses with out letting demand drive it (Gutknecht 2003). Photo of Milk Stand, State Fair, 1924 Minnesota Historical Society |
1920’s. Most of this early regulation was with the local government (Manchester 1983). On the federal level, the United States Department of Agriculture is assigned the task of promoting US agricultural interests and issue food and nutrition guidelines to promote US citizen’s health (Wiley 2004).
Milk prices have been low, according to the dairy farmers, so in May of 2003 there was a Hearing before a subcommittee of the House of Representatives about the state of the dairy industry. Gil Gutknecht, representative from Minnesota, was chairman. The objective of the hearing was to discuss the reasons for the low milk prices. In 2003 prices were at a 25-year low (Gutknecht 2003), and in February of 2005 total fluid milk product sales were down 1.6% from 2004 (USDA). Price volatility has increased in the last 15 years and dairy farmers are desperate (Gutknecht 2003). Some farmers have tried to specialize, such as producing organic milk. Consumers will often pay more for these products, and the farmers will get a premium price. Although the farmers argue milk prices are low, many other source I read argued that the high milk prices were causing problems. A possible explanation is that prices have been lower than in the past, but it is still high compared to if there was not governmental price control.