Early 1980s legislation dealt with oversupply and burgeoning government expenditures; however, most of those programs ended by 1985.
Congress authorized the Food Security Act of 1985. Most provisions addressed surpluses through modifying Class 1 differentials, buying whole herds and developing a viable export program.
Controversies soon evolved as the modification of differentials was not applied evenly across the Federal Milk Marketing Orders, with increases of $0.08 per hundredweight in the Midwest compared to $1.03 per hundredweight in southeast Florida.
Today there are still extreme differences between these two geographical areas in the Class 1 differentials, which reflected the added cost of producing Grade A milk, transporting that milk to market and the inelastic nature of the price demand for Class 1 products. Recent initiatives of advocacy groups such as Farm Bureau are attempting to eliminate these extreme differences.
The FSA of 1985 marked the second major attempt to control overproduction through payments to farmers. In its Dairy Termination Program, whole herds were bought, and farmers agreed to not re-enter dairying for at least five years. The goal was to remove about 12 billion pounds from the market. Nearly $2 billion was spent over 18 months, but participation across the country wasn’t uniform. California and the southeastern states had the highest rates of participation. Interestingly, Pennsylvania was among the states with the lowest rates.
Along with herd buyouts, the FSA included an export incentive program, which paid subsidies to exporters who sold higher-priced U.S. dairy products in the world market, generally at lower prices, allowing them to recoup any losses.
Support prices were lowered, but drought conditions in the late 1980s brought increases in the supports only to see them lowered again. By 1990, price support was at $10.10 per hundredweight from the original $11.60 established in 1985. By the mid-1990s, the farm price of milk had risen while the support price had fallen to $9.90 per hundredweight. Dairy farmers have been arguing since then that the support prices are too low relative to market conditions and costs of production to provide them with any meaningful assistance.
I want to clarify that the government does not purchase dairy surplus directly from farmers, but purchases from vendors and processors to ensure that farmers receive the mandated support price for their milk. Farmers may receive more, but the mandated price is the minimum required payment. Clearly, when the support price is drastically below costs of production, it does not benefit the farmer to the extent intended unless local markets support higher prices. As I am writing this, an email came to my inbox reporting $1 billion in USDA contracts to purchase foodstuff, including dairy, for the Farmers to Families Food Box Program.
Most government support interventions were taking place while domestic milk use shifted away from beverage products to cheese and other dairy products used in food service and manufacturing, a trend that began in the 1970s which continues today.
How has all this history impacted today’s dairy farmers? They face risks from two sources: First, their income is from fluid milk sales, and second, farm-level sales can fluctuate from month to month.
Government policies and the markets brought greater instability in both milk and feed prices in the 2000s. By 2009, an intersection of farm costs and revenues with the market and policies created huge losses in the industry and led to more policy changes in 2014.
Bottom line: Producers respond to incentives, which affects production, taxpayer burden, price fluctuation and individual farm financial status. Taxpayer burden plays a large part in program design and changes, and international markets and agreements can constrain programs as well.
I stated in an earlier article that I believe we need to act proactively in dealing with problems in the industry, and I stand by that statement. Historically, price supports and other dairy legislation have been reactive, responding to changes in the markets or other stressors.
What do I mean by being proactive? While current policies are still in effect, the industry as a whole needs to engage with government, at both the state and federal levels, to consider what values constructs tie together government responsibilities to maintain a food supply and the economic constraints imposed by a free market society. I don’t believe that many people would argue that politically controversial supports for the auto industry or Wall Street have much in common with supports for dairy.
The daunting task is that we essentially need to start over, embracing a “beyond economics” mentality to structure government response to dairy markets in a way that will ensure the all-important food supply, be able to respond quickly to market fluctuations and also to respond to crises such as the pandemic. It will be difficult.
It will require a change from polarization over political ideologies to a consensus view of dairy as an important and fundamental component of who we are. And, it will also require a broader view of how to distribute surplus dairy products.
I have been in communications with Feeding PA, and there is a need for shelf-stable milk for their clients. This is especially needed during times of crisis. We are planning discussions among industry stakeholders to seek solutions to how we can better use surplus products and deal with food insecurity issues. One solution is to identify a funding mechanism for shelf-stable milk processing in Pennsylvania.
I am grateful to Dr. Andrew Novakovic for giving me permission to use his and Eric Erba’s 1995 article, “The Evolution of Milk Pricing and Government Intervention in Dairy Markets,” in developing the early history of price supports for this series of articles.
Pennsylvania Milk Marketing Board is always available to address concerns and questions. I can be reached at 717-210-8244 or by email at firstname.lastname@example.org
Carol A. Hardbarger is the secretary for the Pennsylvania Milk Marketing Board.