Letter: Most government involvement in dairy is interferencePrint
We can all find common ground and consensus in knowing that dairy farmers deserve and are being disadvantaged by the present milk pricing system. There are several options in front of us, some more popular than others. However, it is my opinion that the government's role should be minimized to providing accurate and timely market information and to protect and enforce equal competition between all milk buyers. Any further milk pricing involvement by state or federal government only interferes with and slows down market responses, distorts market price signals, and requires economic and social transfers and costs that we can no longer afford.
By equal competition, I mean that no milk purchasers or group of purchasers should be granted by government enforced policy, to have any price advantage, price disadvantage, or price restriction that is not common to any other milk purchaser regardless of location, size, or what final product[s] are made from all raw milk that meets a like quality standard. Good healthy competition between milk buyers maximizes producer milk prices, minimizes consumer prices, and maximizes market efficiencies and resource allocations in all locations and circumstances.
Our present system shifts benefits and burdens upon specific milk purchasers and groups of milk purchasers and severely restricts and reduces healthy competition. Our present system also benefits some regional milk producers at the expense of milk producers in other regions and encourages an excessive milk supply in high-cost milk production areas while penalizing and unfairly burdening milk producers in low-cost milk production areas. Ultimately, in my opinion, this artificial transfer of benefits, burdens and responsibility is the root cause of our milk-pricing dilemma.
Many tend to be focusing on margins and covering the cost of production but costs of production and margins vary considerably over time, by location, and by any number of constantly changing and illusive circumstances. Trying to lock in any given price or even a price margin based upon some kind of cost index is not fast enough or flexible enough to change with dynamic market circumstances and tend to always eventually become too late and after the fact. We have already tried this experiment with "parity" and most recently with illusive "make-allowances."
Tying feed costs and margins to national indexes still benefits some at the expense of others who are above or below the national average. Indexes also must be tied to specific commodities that, by policy-induced default, benefit and protect some while burdening or increasing the market risk to others. For example, our present system benefits those milk buyers who are large enough to justify whey-drying equipment and penalize those smaller-scale milk buyers who cannot justify whey-drying equipment. Feed cost indexes, like those used in the Dairy Security Act, for example, corn, soybean meal, and alfalfa hay benefit those producers who utilize these three feed commodities but puts milk producers who utilize other alternative feeds such as barley, cottonseed, silage or pasture at risk. These schemes also tend to shift advantages and disadvantages to certain regions where consumer demands and feed costs are different than the national average. This fact is already evident by our present state and national systems with fixed and illusive make allowances, classified pricing, and mandatory pooling where actual marketing circumstances and utilizations vary considerably from the national average.
It is an economic fact that artificial price support to a portion of a homogeneous commodity simultaneously artificially depresses market-clearing prices as the true market naturally seeks out an overall equilibrium price. Lower Class I utilization areas with manufacture milk processing capabilities, become, by policy induced default, the market clearing locations for the nation. These locations are therefore burdened with artificially low and artificially depressed market clearing prices.
In addition, non-fluid milk products are more storable compared to fluid milk products. Therefore, whenever supply begins to exceed demand, non-fluid milk product inventories tend to build, sometimes very quickly. These inventories then tend to exacerbate the boom and bust cycle as these stored up inventories clear out and seek to clear the market. Thus we see increased national volatility and increasingly severe price depressions that extend over longer and longer periods of time (such as 2009) and the increasingly evident boom and bust cycle that plagues our entire nation. Present cold storage inventories are already again reaching record levels. These boom and bust cycles will continue to become more severe and last longer and longer until we correct the root of the problem.
What is the root problem? Policy-induced benefits to some at the expense of others rather than allowing the market to self-regulate, self-balance, and provide equal opportunities and equal justice for all. America's independent dairymen need not fear the free market. The market is the most just, sustainable, impartial, responsive, and profitable way to produce and market all our wonderful dairy products.
If classified pricing and mandatory revenue pooling were to be gradually phased out over time, milk prices in all locations and circumstances would gravitate and self-adjust to true market equilibrium. Governments can and should collect, aggregate, and disseminate local, regional, and national market information without collecting or redistributing wealth. In this way, maximum market revenues remain in the marketing chain and are allocated in a more direct, responsive, efficient way that rewards innovation and creativity and maximizes the freedoms and opportunities to all those who truly serve the market's true and dynamic demand however unique or common each marketing niche may be.