Monday, December 11, 2006

Harvesting Cash

Q: How do you starve a farmer?
A: Weld his mailbox shut.

As Congress prepares to debate a farm bill next year, the Washington Post is examining federal agriculture subsidies that grew to more than $25 billion last year, despite near-record farm revenue. The Wash Post series is called "Harvesting Cash: Working a Farm Subsidy." Since last summer the Post has run about a dozen articles on how US farmers "harvest cash" through farm subsidies, getting paid not to farm, etc. See the entire series
here.

In today's Washington Post, there is another article in the Harvesting Cash series titled "
Dairy Industry Crushed Innovator Who Bested Price-Control System," (featured today in Cafe Hayek - "Milking Us"), about a maverick Dutch-born dairyfarmer Hein Hettinga "who started bottling his own milk and selling it for 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores."

Hein's entrepreneurial approach of selling milk below the government-mandated guaranteed prices, set by the Department of Agriculture through "milk marketing orders," didn't go over real well with the Dairy Cartel, a.k.a. Dairy Lobby.

"That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers," and eventually succeeded in ending Hettinga's business model.

Bottom Line: This is a victory for a well-organized, special interest group (the Dairy Cartel), and a defeat for U.S. consumers, who pay about $1.5 billion per year in higher milk prices due to agricultural subsidies and protection.

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1 Comments:

At 12/11/2006 4:47 PM, Anonymous Anonymous said...

Retail milk price has generally followed the general rate of inflation. In the first year of President Regan, parity pricing was eliminated for dairy farmers. Since that time the slice of the pie going to those in the middle has increased,with retailers gaining the largest amount.

Subsidies are simply passed through to those in the middle as currently, farm milk price is about a dollar a gallon and USDA data indicates costs for farmers are about two dollars a gallon.

What should be a greater concern to economist is the fact that milk production is moving West, driven largely by LA real estate values and IRS tax code 1031.

At some point transportation costs will run milk price up for the public.

The public's larger interest is in a resilient, dispersed milk supply. With almost no one understanding the first thing about about food production, it is difficult to see what will drive the discussion, absent some crisis.

 

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