John Feehery: Speaking Engagements


Why Buy the Milk?

Posted on December 5, 2013
Everybody is for the free market, except when they are not.

Take the milk program for instance.

You would think that in America, we would have a pretty simple system to get milk in the refrigerator every morning.

We don’t.

In fact, it is probably one of the most complicated systems ever devised by man.

You can’t count on a cow to produce milk at exactly the same rate every day.

Sometimes cows have good days and sometimes they have bad days.

Sometimes they are overflowing with milk and sometimes they are as dry as a bone.

Metaphorically speaking, of course.

Our milk program was initially constructed at the height of the Depression, when the marketplace for a lot things when completely haywire.

The conundrum for the dairy program is easy to diagnose, but pretty hard to cure.

When the milk is flowing, it depresses prices, which puts eventually puts pressure on producers.  When milk is not flowing, it increases prices, which puts pressure on users.

During the Depression, when the Federal government was almighty, they set about a system to cure the cyclical nature of the dairy farmer.  They were mostly worried about depressed prices for dairy farmers and their solution was to come up with price support system, so that prices couldn’t fall below a certain price.

Makes sense so far, although when you screw with the free market in that way, you are never quite sure what the end result will be.

Like most things in America, geography plays a big role in how you view a program.

When it comes to milk policy, this is especially true.

Dairy compacts are cooperative agreements within certain states to establish milk prices.  Because any agreements between states have to be approved by the Congress, these cooperative agreements can become fodder for political disagreement.

Northeastern States have their own dairy compact amongst themselves, where they basically set higher prices for milk than just about any other region.   They do that because if their dairy farmers go out of business, consumers in that area are completely screwed.  They need their milk in Boston and New York City!

The problem with the Northeast Compact is that has caused resentment among other regions, especially Wisconsin farmers, who want a more free-market approach to milk prices.

John Boehner, the House Speaker, thinks the whole thing is an overly complex boondoggle that inflates prices for consumers and restrains the free-market.

He supported an amendment earlier this year to largely scrap the program, which passed.  Unfortunately for him and for proponents of his amendment, its passage helped to sink the bill and Congress had to go back to work.

They ended up splitting the bill into two (one side had the Farm programs, while the other had the food stamps), and included a provision to end the price support system but include a feed insurance program to help manage the risk of a fickle market place.

The Senate’s Farm bill alternative continued the price support system, although with certain reforms that are far too complex for my simple mind to understand.

In any event, milk, like almost every other commodity, doesn’t operate in a completely free market, as just about any dairy farmer will tell you.  The milk marketplace depends on the government, and has since the middle of the Great Depression.

This is not a good thing or a bad thing.  It is just the reality.  People have easy access to milk at fairly stable prices, and I guess that is just about the only thing that consumers really care about.

But underneath that seemingly simple and placid transaction, there lies a extraordinarily complex (some would say needlessly complex) set or relationships between farmers, marketers, manufacturers, Teamsters, state health officials, investors, Agriculture Department regulators and politicians.

That’s how America works, for better or worse.   So, next time, when you take a sip of milk, don’t just think of the cow.  Think of all of those other non-cows who helped bring it to your house.

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