Trade Briefing Paper No. 24

Milking the Customers: The High Cost of U.S. Dairy Policies

By Sallie James
November 9, 2006

The U.S. dairy program, administered through federal and state governments, subsidizes milk production and regulates dairy prices. The current system costs taxpayers more than $4 billion per year in subsidies and adds millions of dollars to the grocery bills of American consumers and to the costs of food product manufacturers.

By boosting prices, the dairy program encourages overproduction. It also penalizes more efficient farmers in the futile attempt to prop up smaller dairy farmers and stem the tide of decades of changes in the dairy market.

In order to preserve domestic prices above the world prices for dairy products, the U.S. government maintains prohibitively high tariffs on imported dairy products. That invites scorn and retaliation from our trade partners and is one more agricultural program that exposes the United States to charges of hypocrisy as it seeks to paint itself as a country in favor of free markets and opportunity for all.

A better policy would be one that allows farmers to make their living, like other entrepreneurs, from markets rather than a government check. As Congress prepares to draft a new farm bill, world dairy prices are unusually strong. Thus, this is the perfect time for the government to fundamentally reform dairy policy in the United States with minimal “disruption” to dairy farmers.

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Sallie James is a policy analyst with Cato’s Center for Trade Policy Studies. Her articles have been published in the Australian Journal of Agricultural and Resource Economics and the European Review of Agricultural Economics.