Socialism Does Milk Good?

by | Apr 25, 2001

Socialism is dead in the former Soviet Union, but if you live in New England, it is alive and well in your grocer’s dairy case. The price you pay for a gallon of milk is not determined by competition and the free market. It is set instead by a cartel called the Northeast Interstate Dairy […]

Socialism is dead in the former Soviet Union, but if you live in New England, it is alive and well in your grocer’s dairy case. The price you pay for a gallon of milk is not determined by competition and the free market. It is set instead by a cartel called the Northeast Interstate Dairy Compact, which was created for the explicit purpose of overcharging New England consumers in order to make rich dairy farmers richer.

That is not, of course, how the compact describes itself. It claims to be in the business of keeping local dairy farms from going under and of ensuring a steady supply of milk. And how does it achieve these admirable goals? By artificially hiking the price of milk and using the extra money to subsidize dairy farmers.

If this strikes you as government price-fixing, corporate welfare, and hopeless economics, you’re not alone. Individuals and organizations across the political spectrum — from the very liberal Thomas Birmingham, president of the Massachusetts Senate, to the conservative Beacon Hill Institute, a Suffolk University think tank — have called for ending this sour milk-pricing system. It’s a call worth heeding.

Federal regulators have been setting minimum prices for most of the milk sold in the United States since the Depression. By means of a bureaucratic device known as marketing orders, dairy companies are effectively forced to buy milk from local farmers, with payment determined by a convoluted formula based on — no joke — how far they are from Eau Claire, Wis. A Boston creamery might prefer to buy milk from a Midwestern dairy farm, paying less and sharing the savings with its customers. The law says it may not.

The Northeast Dairy Compact takes this bizarre federal scheme and makes it even worse. While milk prices in other parts of the country can rise and fall with supply and demand, the compact guarantees dairy farmers a high price for their milk no matter what. Milk processors in New England have been forced to pay about 20 cents per gallon more than processors elsewhere. That surtax gets passed on to consumers, which is why milk costs more in Boston and Hartford than it does almost anywhere else.

Defenders of dairy socialism laud this highly regressive rip-off, which transfers money from families that have a lot of children to families that have a lot of cows. In language that sounds like it was adapted from a Khrushchev-era Five-Year Plan, the compact’s Web site brazenly declares that “the ability of the states to regulate milk prices collectively, rather than individually, is in the public interest.”

A 1996 federal statute authorized the compact in response to the supposed “crisis” of dairy farms going out of business. Unless this decline were reversed, Congress was told, local supplies of milk would dry up, precious open space would be lost, and a lifestyle rich in tradition — dairy farming — would be gone forever.

Most of this was nonsense, beginning with the notion that dairy farming was in danger of disappearing. To be sure, the number of farms with milk cows has steadily shrunk — there were 4.7 million of them in 1940; fewer than 140,000 in 1996. The number of milk cows has likewise been dropping — from 23.6 million in 1940 to just 9.4 million in 1996.

But these numbers simply reflect the fact that dairy farming, like all farming, has become dazzlingly productive. Despite the 60 percent plunge in the number of dairy cows since 1940, US milk production has skyrocketed from 109 billion pounds per year to more than 160 billion pounds. Fewer farmers, milking fewer cows, are producing more milk than ever before.

Family farms have been shutting down. But that too is a function of modern agriculture. Dairying today depends on economies of scale. Mom-and-pop farms are easy to romanticize, but they require a grueling amount of work and don’t make much money. They are vanishing not because milk is underpriced, but because they represent an obsolete and uncompetitive way of providing milk to consumers. Making families overpay for milk isn’t going to change reality.

In any case, if the dairy compact was supposed to save small farms, it has proven a bust. Between 1995 and 1997 — the two years before the compact began its price-jacking — 34 Massachusetts dairy farms and 117 in Vermont went out of business. In the first two years after the compact kicked in, farm losses totaled 44 in Massachusetts and 153 in Vermont. Not only didn’t the compact stop dairy farms from dying, it didn’t even slow the rate of death.

The reason is that revenue from the milk surtax is divvied up according to milk production. Bigger farms produce far more milk than the mom-and-pop operations, and so get far more money. Small farms receive only a few thousand dollars a year, not nearly enough to make them economically viable. Yet they are the ones that are failing: Farms with herds of 50 or fewer cows account for three out of every four dairy farms lost in New England.

To date, New Englanders have paid $100 million more for milk than they would have if the compact had never been formed. By far the largest share, $45 million, has come from Massachusetts consumers. Of that, a mere $6 million has been retained by Massachusetts farmers. The rest has gone out of state, mostly to big-time dairy operations in Vermont and New York.

[In May 2000] the Massachusetts Senate voted to get the Bay State out of this sucker’s deal. The House of Representatives ought to waste no time getting on board. Politicians often hear that their constituents are getting milked. Here is a chance for them to do something about it.

(Jeff Jacoby is a columnist for The Boston Globe.)

Jeff Jacoby is a columnist for The Boston Globe. This is an excerpt from his weekly newsletter, Arguable, and is reprinted with permission. To subscribe to Arguable at no charge, click here.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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