Milking the Market

This column originally appeared in the Williston Observer on August 20, 2009.

Milking the Market

Anyone who has ever prepared a family budget knows that there is one basic, overriding principle: don't spend more than you take in. If you earn $100, don't spend $110. If you do, you'll either dip into savings or start to accumulate debt. Vermont dairy farmers are keenly aware of this simple formula. They have one problem, though: It costs more to produce a gallon of milk than anyone is willing to pay for it.

The individual farmer can do nothing to change milk prices. The price is set in an international marketplace, and that price has been going down. The farmer could try to get into a niche market, like organic products, and some supplement their income by selling small amounts of raw milk to neighbors, but the real money is (or should be) in the general bulk market.

If a farmer cannot make money on his farm, there are only a few options. One is to change what he produces. This is a viable option for a grower, but not so much for a dairy farmer, who has a herd to take care of. Another is to get out of the business completely. The loss of a farm or two might not be any more than a local tragedy, but according to the Rutland Times-Argus, since January 1, Vermont has lost over thirty farms.

The federal government has resurrected the Milk Income Loss Compact (MILC) program through which farmers can receive payments from the government when milk prices fall below a certain level. The formula is a bit complicated, because it is adjusted monthly for feed costs, but it is roughly $17.50 per hundred pounds of milk.

The government is also helping by increasing the floor that it pays for milk for its own needs. Vermont's congressional delegation pushed hard for this increase, and spoke favorably of Department of Agriculture Secretary Tom Vilsack's announcement.

Senator Bernie Sanders is attacking the problem from another angle, directing his office to investigate the pricing policies of monopolistic dairy companies, companies large enough to be able to influence prices in ways that individual producers can only dream of.

If this all sounds familiar, it's because dairy prices rise and fall in cycles. The problem is the low end of the cycle is often far too low. The last big dip was in 2006. Back then, Vermont Public Radio commentator John McClaughry touted programs that were trying to make dairy farmers more productive in their business. Watching the nightly news on WCAX, it seems that there are unending reports of dairy farmers who are making milking or feeding more efficient.

Our ultimate goal should be the elimination of all subsidies. Government subsidies and tariffs are generally not a good thing, and can have far-reaching economic implications.

The imposition of tariffs on imports can hurt domestic producers, to the point where the exporting country retaliates with tariffs of its own. This sort of tit-for-tat economics has the real possibility of cutting goods off from a nation in the best case, and becoming a diplomatic crisis even leading to war in the worst case.

Looking to avoid such games, the United States has sought and supported free trade agreements across the world, from our own continental neighborhood to the tiny nation of Singapore. Even so, most free trade agreements have exceptions, as with the prohibition of Mexican trucks on most U.S. roads and U.S. tariffs on Canadian softwoods.

The increase in the number of free trade agreements the U.S. has with other nations is a recognition of the general proposition that tariffs and subsidies are not of long-term benefit. Though dairy may be a special case, given the perishable nature of liquid milk, we should still try to avoid subsidies when we can.

Because dairy is in a precarious position right now, we should continue to pay out subsidies. At the same time, we should be increasing our technological aid to dairy farmers, to ensure that those who are capable can get their product out for the least cost possible. We should take a close look at each dairy operation and make hard but necessary choices about farms that are beyond saving. And we should ensure that no one company has too great an effect on pricing.

Taking coordinated steps such as these can provide us with an industry that is both local and sustainable, and which protects vital national interests.