Milk Prices
As a lover of milk and cheese and a resident of Wisconsin, this post is sure to tick off some folks.
WASHINGTON — The top leaders in both parties on the House and Senate Agriculture committees have agreed to a one-year extension of the 2008 farm bill that expired in October, a move that could head off a possible doubling of milk prices next month.
Basically, we have a system whereby the federal government props up the dairy industry by buying excess milk to keep prices high enough to justify the number of dairies we have. It’s an artificial market. Let’s drop the federal subsidy. Yes, it will take a while for the market to adjust and prices will fluctuate wildly, but at the end of it we’ll have the dairy industry competing just like the vast majority of the rest of industries. Consumers will be better off and so will the Dairy industry.
Just for the record, if you buy dairy products at a store, you’re the one being propped up. The purpose of these programs is not to justify the number of dairies we have but to ensure an oversupply of dairy products so that consumers receive both a low price and short term availability of the product.
None of what I’ve written above should be considered a justification of our various agricultural programs, but simply an acknowledgemnt that market based agriculture will result a lack of availabilitiy of food products at times and higher prices to consumers.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1053 hrs
...but simply an acknowledgemnt that market based agriculture will result a lack of availabilitiy of food products at times and higher prices to consumers.
Incorrect, if you are talking only about market based supply side.
If you leave the government demand skew programs in place….
Food Stamps make dairy available to consumers regardless of price.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1232 hrs
Food stamps do not make dairy or any other product available to consumers in the short term.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1245 hrs
Food stamps do not make dairy or any other product available to consumers in the short term
...not if you use them for soda, candy, or steak.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1246 hrs
BVBB is correct in that there will be a lack of availability and Owen is correct that prices will fluctuate wildly. As that happens the american consumer will be screaming wildly because they are not used to empty shelves in their supermarkets and 99% of them could not grow a tomato on their own.
In a purely academic sense your economic idea would work, but in the real world it will cause alot of pain. Most americans would not be willing to deal with the difficulties.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1248 hrs
Most Americans would not be willing to deal with the difficulties.
Let’s take the tomato as an example.
Let’s say there is a drought that wipes out 90% of the tomato crop. Prices should not rise, to ration demand, for the limited amount of supply available?
(I ask, because I want to know where the USDA was on Spanish peanuts last year. Price doubled-tripled depending on supplier because of a similar bad crop issue. We had to switch to a different kind of peanut to meet our supply needs).
The idea the USDA is smarter than the trillions of marketplace decisions in micro managing agricultural supply is laughable.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1255 hrs
Agricultural policy in this country goes back to the pre-depression era. The leaders of this country saw what made people unhappy. lack of food, shelter and clothing. So, they have created a system, in this country, that has allowed for overproduction and then subsequent storage of overproduced foodstuffs and other necessities.
Nobody gives a crap about the spanish peanuts you put on the peanut buster parfait. They care about meat and milk and bread. At one point a few years back there was a back log of cheese in this nation that forced the government to change dairy policy. Much of that cheese was owned by the government.
There is an adjustment in pricing of foodstuffs all the time depending on weather, but it is mitigated by the fact that there is so much food in storage. A person may not get the fresh tomato that they want but there is two years of canned tomatos stored in warehouses across the nation. the same thing is true of all canned veggies. If we were to go away from all of the corn being used for ethanol you would not have seen the price of cereal go up last year when the corn crop was not strong. Thats because there would be so much corn stored around the country.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1320 hrs
I agree with Owen and Kevin.
Our farm policies were crafted before the days of accurate weather forecasting and instantaneous market information flow. They are outdated and now simply distort the markets.
You would think we would have learned not to screw with food prices after the dust bowl.Posted by Charlie Hillman on December 31, 2012 at 1403 hrs
In addition to my comments above, I would suggest that everyone recognize that the single biggest change in our nation over the last century has been the mechanization of agriculture. Farming substituted capital for labor. That substitution may be more efficient, but it is less flexible and entails more risk. That risk was offset in part by price stability. Remove the price stability and you increase the risk. Increase the risk and you will see either reduced investment in that capital or higher returns on that investment. Absent a return to labor intensive farming that means reduced production and higher prices.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1426 hrs
Everyone should read the above comment twice. It’s spot on.
When it comes to dumping on farm subsidies, I’m usually first in line. But price supports have benefits to both suppliers and consumers. As BVBigBro notes, absent price supports most banks aren’t going to lend to farmers - it’s too risky. They’re involved in one of the very few businesses where most of the risks are on the supply side (i.e. drought, flooding) and not the demand side (i.e. people simply not wanting your product anymore).
Consumers benefit from price stability because it ensures that market prices are relatively constant. That means I don’t have to concern myself with hoarding flour when commodity prices are low so that I have some when commodity prices are high and can’t afford to buy it. That behavior also leads to inefficient consumption - people hoard product when it’s on sale and then throw a lot of it away when it goes bad. And the average person isn’t going to become an expert in commodities futures and long-term forecasting any more than they’re going to become an expert in shopping around for cancer treatments or triple-bypass surgery.
I don’t doubt that there are lots of ways to improve farm policy, but I’d also wager that, if someone sat Joe Public down and explained the whole situation as clearly as BVBigBro has done, the vast majority of Joes are going to agree that this is a reasonable investment. Most people like consistency - it makes it easier to plan.
Posted by Recess Supervisor on December 31, 2012 at 1530 hrs
Absent a return to labor intensive farming that means reduced production and higher prices.
Hey, two birds…put all those unemployed folks to work in the fields. I’m sure the kids who racked up 6 figures worth of debt will love it.
I’m always amazed at how little people think about or realize the impact of automation. I guess it’s inevitable to some degree as a result of how pervasive technology has become. I’ve enjoyed watching a lot of episodes of Food Network’s Unwrapped & the various other How stuff is Made type shows. It’s simply stunning how fast, efficient and safe those machines have become. Certainly it’s a shame the number of people who’ve lost jobs as a result. But also just amazing to see the creativity and innovation that goes into their creation.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1658 hrs
I am guessing if figured in the per capita costs of farm bills/subsidies as part of the cost of food we would still have one of the lowest ratios,as a percentage of income, in the world.
http://www.worldbank.org/foodcrisis/food_price_watch_report_feb2011.html
Is that a desirable outcome?
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1710 hrs
Kris said,
Nobody gives a crap about the spanish peanuts you put on the peanut buster parfait. They care about meat and milk and bread. At one point a few years back there was a back log of cheese in this nation that forced the government to change dairy policy. Much of that cheese was owned by the government.
This is untrue.
Government is involved in all kinds of agricultural markets besides the ones you mentioned. I even know a DQ operator who acquired a location where the parcel still gets paid not to plant corn from the USDA!!!
So we should just forget about the poor Spanish peanut farmers who now lost out on all that demand shift? USDA should not help them?
Where is your compassion?
This is the problem with government intervention, there is always a hard luck case to subsidize. What is cruel is a political system that rewards those that can manipulate the political system vs. satisfy the market….that type of political system is not moral.
Posted by .(JavaScript must be enabled to view this email address) on December 31, 2012 at 1723 hrs
Unmnhhhh…mark this spot.
RS and I agree. Supply fluctuation due to bugs, floods, droughts, (etc.) is a serious threat.
OTOH, there are lots of ‘farm scams’ going on such as the ‘no plant reward’ and ‘farmette’ games usually played by system-beaters.
For that matter, USDA never, ever audits “crop losses”; there are people with very recognizable Wisconsin names who have “written off” a non-existent crop due to “floods.”
What the farm program needs is green-eyeshade auditors who have very large teeth, not “market forces.”
Posted by dad29 on December 31, 2012 at 1848 hrs
Supply fluctuation due to bugs, floods, droughts, (etc.) is a serious threat.
Rationing, through higher pricing, should not deal with these issues?
USDA should keep price low, despite short term limited supply? USDA is better at rationing limited supply vs. the market?
Take my Spanish peanut example, instead of switching to a different product as a way to deal with rationing by higher prices, government should subsidize acreage, stockpile reserves, or do something else.
At what cost to the taxpayer?
Even if you want to discriminate, and Spanish peanuts are not important enough for special political favors…which crops are important enough?
Food is too important to be left in the hands of dysfunctional government.
Posted by .(JavaScript must be enabled to view this email address) on January 01, 2013 at 0933 hrs
At what cost to the taxpayer?
Is that a “No” in answer to my question in #12 Kev?
Posted by .(JavaScript must be enabled to view this email address) on January 01, 2013 at 1016 hrs
Kevin, your example is flawed because, unlike milk, Spanish peanuts are a prime candidate what economists call substitution goods. Demand for them is almost entirely elastic. When they aren’t available or when cost goes up, consumers will substitute to other similar products or will simply omit them. When it comes to milk, demand is almost entirely inelastic. There are substitutions to an extent (soy milk functions comparably in cooking and baking), but that’s a cost-prohibitive substitution.
So the rationing that occurs in your context is that those who can afford milk will buy it can - even though they are also the ones best able to move to a higher-cost substitute product. And those who can’t afford it won’t buy it. But from a public health standpoint focused on nutrition, that’s not such a great thing, when consumers can’t afford to buy staple goods.
That’s the point that Kris was making, and that you seemed to miss. Demand for certain commodities (grains and dairy, mostly) is inelastic. What the USDA’s price support system ensures is that in a scenario where supply is reduced, all consumers have reasonable, affordable, and consistent access to the staple goods that they need to feed their families. (Oh, and for what it’s worth, there are price supports for peanuts too, even those Spanish peanuts!)
Posted by Recess Supervisor on January 01, 2013 at 1407 hrs
Recess,
But we are not facing a milk shortage.
The issue was: the expiring regulation was going to be replaced with a more damaging regulation from 1948 forcing government to by up milk at high demand levels driving price up for all.
We are talking about getting government out of the way here, not about shortages.
The milk situation is government bipolar regulation run amock.
Posted by .(JavaScript must be enabled to view this email address) on January 01, 2013 at 1613 hrs
I support this subsidy like Texans support their beef and oil subsidies for Texas.
...much of which is exported to everyone’s benefit.
...you want fresh beef, fresh milk supplies, fresh oil/gas?
Wake up.
In a capitalistic society. Wisconsin residents must protect their own or risk being swallowed by their wealthiest neighbors.
Unless the ultimate goal is feudalism.
Posted by .(JavaScript must be enabled to view this email address) on January 01, 2013 at 2040 hrs
<i>“market based agriculture will result a lack of availabilitiy of food products at times and higher prices to consumers.”
BUT markets don’t work like that- stuff that’s in demand doesn’t become unavailable, it just becomes more expensive.
Surely it’s economics 101 to realize that when supply is reduced, prices rise until demand equals supply?
It’s surely true that there would be much greater price volatility without price supports. High/low prices provide a signal to producers to increase/decrease production, but they cannot do so in the short term. The result is a control system with a large delay in the feedback loop and (absent government price supports) very little damping- supply is likely to overshoot when prices rise and undershoot when they fall.
In any case, I’d expect the political reality is that U.S. representatives and senators from WI simply must support dairy price supports as a condition of political survival.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1045 hrs
You have a time problem in agriculture, Albiensian. You cannot add another shift and have more food in a week. Additionally you have short term risks of production that are uncontrollable, i.e. weather. Unless an oversupply is planned, you will have periods of undersupply.
Markets are efficient. Efficiency, though, almost always means not everyone gets the product. In the case of food, that means not everyone eats.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1141 hrs
BVBigBro,
What are you saying?
People cannot shift to another substitute or similar food in abundance?
People are too dumb to evaluate the economics (pricing) of milk vs. Orange Juice, themselves?
You must think very little of your fellow man that someone in DC is smarter than the rest of us.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1145 hrs
Let us know how your soft serve sells with that milk-for-OJ substitution. If you think that’s a substitution in the market for anyone who’s buying for reasons other than hydration, I’ve got a great price on some flying pigs out back.
Posted by Recess Supervisor on January 02, 2013 at 1203 hrs
Understand, Kevin, we live under a system that intentionally generates an overproduction of food. The abundance exists because of that system, including products that substitute for one another. Drop that system and there may be no available substitutes. Now a clever person may suggest we go out on the international market and buy food in the short term, but then we have to compete using dollars that we are intentionally devaluing. A cleverer person still will suggest we are already competing in an international market and they are correct. However, domestic food production gives us the option of restricting food exports if push ever came to shove. If you think restricting food exports is an unlikely scenario, I suggest you look at the list of countries that have done so in your own lifetime. It’s not a real exclusive club.
You live in a nation that intentionally generates an oversupply of food for domestic consumption and exports the excess. It’s not normal and it’s not an accident.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1339 hrs
We generate an “overproduction” of food because of:
1.) Profit motive.
2.) Technology.
Not because of government.
Technology, in many facets, has made yield and production much more efficient.
Technology also makes the investment in farming greater, giving incentive in maximizing use of machinery. ($800,000 combine works better, investment wise, farming 2000 acres, than 1000 acres.)
Your assumption is false, that USDA is responsible for overproduction. It is profit and technology that is more responsible than our wasteful Federal Government.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1522 hrs
I refer you back to comment 9 regarding capital investments in agriculture, Kevin.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1530 hrs
Kevin, you are stubborn and wrong as usual. The price support from the USDA for milk is what gives us milk. WIthout that price support, many dairy farmers would not be able to afford to produce milk, and we would not have the supply we have. Eliminate the support, and in the short term, we will lose dairy farmers and have an inconsistent milk supply.
Yes, it is a bad system, but give Americans $7.00 a gallon milk or no milk and they will scream for help. What would happen to your business if you had to double the price of every ice milk product you sell?
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1715 hrs
Seriously Kevin, there have been a number of very on point and succinct explanations of why the price of milk is the way that it is and you continue to argue. In this case you are incorrect.
Milk is inelastic in its demand as was stated before. The USDA does have support pricing and the government does purchase surplus product. This keeps the price artificially high. the purchasing is not confined to milk. It includes other commodities.
As i said before the government is smart. They know that a well fed population does not overthrow its government. Starve the people, give them crappy living conditions, poor clothing and you are ripe for a revolution. We are a society of fat and happy people. Where else can a person go to a store and buy 48 rolls of Toilet paper or have a shelf with 27 different kinds of cheese? Not too many places, but we can do that here and we love it. I’m not saying it makes great economic sense or that I agree with it, but it is the system we have and you can tilt at that windmill all you want it does not change the facts.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1744 hrs
WIthout that price support, many dairy farmers would not be able to afford to produce milk, and we would not have the supply we have. Eliminate the support, and in the short term, we will lose dairy farmers and have an inconsistent milk supply.
Is this supposed to be a USDA success? If so, it is an awful result.
The family farm has been nearly, and completely, destroyed the last 25 years, in favor of large corporate farming.
The only result is: a hidden milk tax on poor and middle class.
I’d address Kris’s “government is smart” comment…when I stop my uncontrollable laughter.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1828 hrs
...and for those wondering…one of the reason’s for destruction of the family farm is that large corporate farms are better at navigating the giant USDA farming mooch.
So there it is. Liberals hurting the little guy, again.
Family farms want to farm, not navigate and play the sink and dysfunctional lobbying game in DC.
It’s as simple as that.
Government destroys the little guy.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1834 hrs
The family farm has been nearly, and completely, destroyed the last 25 years, in favor of large corporate farming.
Want to help the family farm Kev?
You could probably set up a deal with DQ and these guys?
http://www.organicvalley.coop/about-us/overview/our-history/
Where do you get your dairy from?
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1841 hrs
fu,
I’m a director of a CO-OP that sources alternate supply for franchisees in our system. The trick is: to get corporate approval of the parent franchisor.
Based on my experience on dealing with our franchisor, its very doubtful the organization you point out would meet the super elaborate approval process in place.
The approval process in place is also very cost prohibitive sometimes. (Which usually ends up being a legal issue from time to time.)
I’d hate to see small producers bankrupted making the attempt. Alternate source approval is a political battle in our system nearly every step. Unfortunately, smaller companies can be hurt in the crossfire.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1859 hrs
Kevin, do you actually read and try to understand the responses? I know the answer is no.
Without the subsudies, your raw materials would double in price—a cost you would have to pass on. Are you willing to give up the subsidies and double your prices?
It is not a good system, but it is what is in place.
As to your whole DQ discussion, I remind you, you have a free choice to be a franchisee of the DQ system. One of the reasons it is successful is that it is so regulated by DQ International and the product is consistent. If they are a part of the problem, you have a choice to leave the DQ system and strike out as an independent, but I suspect for all of the anti-government anti-regulation BS you spit out, you only care about making money and it is much harder to do as an independent.
So, for you to make money, you have to live with the subsudies and the DQ system which regulates what you sell.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1929 hrs
I’d hate to see small producers bankrupted making the attempt.
They will probably hit $1 billion in revenue this year.
Give George a call:)
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1933 hrs
Kevin, interesting when it impacts your bottom line, you complain about the system but choose to live within it. It seems you value profit over your ideals.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 1949 hrs
AV,
Who’s complaining? Just explaining reality.
Fu,
They might be large enough to deal with the approval hurdles in our system. I will refer them to our CO-OP office.
Posted by .(JavaScript must be enabled to view this email address) on January 02, 2013 at 2016 hrs
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