Dairy 'working girls' seek new 'protector'

By Vin Suprynowicz
web posted July 5, 1999

Given that this is a capitalist country, rather than some socialist "workers paradise" with commodity prices set by central planners, many Americans probably figure the price of milk is determined by the price of production, plus the cost of processing and transportation,plus modest profits for farmer, hauler, and grocer.

Um, no.

Actually, according to the Code of Federal Regulations, the method for determining the "basic formula price" for milk is to apply this simple mathematical formula:

Basic Formula Price (BFP) = {last month's average price paid for manufacturing grade milk in Minnesota and Wisconsin + [current grade AA butter price X 4.27 + current non-dry milk price X 8.07 - current dry-buttermilk price X 0.42] + [current cheddar cheese price X 9.87 + current grade A butter price X 0.238] - [last month's grade A butter price X 4.27 + last month's nondry-milk price X 8.07 + last month's dry-buttermilk price X 0.42] - [last month's cheddar cheese price X 9.87 + last month's grade A butter price X 0.238] + (present butter fat - 3.5) X [current month's butter price X 1.38] - [last month's price of manufacturing grade milk in Minnesota-Wisconsin X 0.028]}.

Then, once the farmer has successfully solved for his "Basic Formula Price," he is free to go ahead and determine his "Blend Price" by using this formula:

Blend price formula = (basic formula price + .12) X (percent of milk used for cheese powder and butter) + (basic formula price + .30) X (percent of milk used for ice cream and yogurt) + (basic formula price + 1.04 + .15 X {distance from Eau Claire, Wisconsin/100}) X (percent of milk used for fluid.)

These pricing formulas, enforced by the U.S. Department of Agriculture under laws enacted in 1937, at the depth of the Great Depression, are "a cross between something invented by the Mafia and the Soviet government," says Ed Hudgins, director of regulatory studies at the Cato Institute in Washington.

In supermarkets across the country, application of these formulae recently caused the price of a gallon of milk to surge 25 percent in a single year. But "the real culprit behind rising milk prices is not dairy farmers -- it is the largely unnoticed federal government," warn Policy Analyst Jonathan Tolman and Research Associate Clark Massey of the Competitive Enterprise Institute, in their recent article "Milked to the Bone" in Regulation magazine.

"The USDA's Economic Research Service determined that if dairy market orders were eliminated, consumer expenditures on fluid milk alone would drop 14 percent," the CEI researchers continue. "If the USDA's analysis of consumer expenditures is correct, federal market orders cost consumers an estimated $2.7 billion a year in higher milk prices. ...

"Moreover, by manipulating milk prices, the USDA effectively imposes a tax that disproportionately penalizes families with children -- half of the fluid milk sold in the States is consumed by children. ..."

Jerry Tao, legislative aide to Sen. Harry Reid on agricultural issues, argues government regulation of milk prices is necessary -- though he says it would now be better if local Nevada producers were allowed to opt out of the changing federal scheme, with local milk prices instead being fixed entirely by the Nevada State Dairy Commission.

Neither the sole local processor, Anderson Dairy, nor its Utah competitors, "who have more efficiencies of scale, has a pricing advantage, and that's the only reason Anderson is in business," explains young Mr. Tao. "The idea behind the USDA rules was to make sure there's a local producer in every region of the country so the milk will be fresher. It's to protect consumers."

From competition.

Before the federal marketing orders system was adopted in 1937, "There were no dairies in south Florida, for instance, so all the milk there was shopped in from Wisconsin and Minnesota. A lot of it went bad on the way, there were tuberculosis germs growing in the milk, and people got sick," Mr. Tao explains

"What some might claim made sense in 1937 is ridiculous today," respond the CEI researchers. "Improvements in roads and transportation over the past 60 years have freed dairy farmers from single processors, as have refrigeration, faster and more efficient trucking, and improved pumping.

It's not as though no one has noticed this little outpost of Moscow on the Potomac. Last year, the Republican congressional leadership attempted to enact a proposal called "freedom to milk," which would have phased out direct government payments to milk farmers and the 60-year-old milk market order system, entirely. But that plan foundered. Instead, Agriculture Secretary Dan Glickman is now operating under the far more modest "Freedom to Farm Act," which instructs him to prepare proposals to consolidate the 33 geographic areas under which milk "marketing orders" (fixed prices) are now imposed.

And how do Southern Nevada's four dairy farms, the State Dairy Commission, and U.S. senators Richard Bryan and Harry Reid respond to this modest attempt at reform?

"It would destroy the dairy industry in Southern Nevada!" thundered Sen. Reid at a meeting with two Agriculture Department officials in Sen. Bryan's office recently.

What really seems to scare all involved is that Secretary Glickman's modest new plan might force local milkmen to compete at least a little more directly in a larger consortium including dairymen from Utah or Arizona, who (gasp) can produce milk at lower prices.

"It's a step in the right direction, though an extremely modest one," says Mr. Hudgins of the Cato Institute. " It would throw in more producers with one another," in 11 regions instead of the current 33, "so you might get a little more competition."

Goodness. And what would happen if that eventually led to the eliminating governmentcontrols, entirely?

"Probably all our milk would come from Minnesota and Wisconsin," warns Mr. Tao, in Sen. Reid's office.

And here I thought Sen. Reid was one of those "new Democrats," proud campaigner against wasteful federal subsidies for mohair and the like.

Thank goodness he didn't turn up three or four mohair producers up in Duck Valley or Eureka, or young Mr. Tao would be warning us today, "Without government mohair protection, all our mohair would be coming to us from Peru and Tibet! And how would you like that?"

Vin Suprynowicz is assistant editorial page editor of the Las Vegas Review-Journal. His new book, "Send in the Waco Killers: Essays on the Freedom Movement, 1993-1998," is available at $21.95 plus $3 shipping through Mountain Media, P.O. Box 271122, Las Vegas, Nev. 89127, or web site http://www.thespiritof76.com/wacokillers.html, or 1-800-244-2224.

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