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

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The U.S. dairy program, administered through federal and stategovernments, subsidizes milk production and regulates dairy prices.The current system costs taxpayers more than $4 billion per year insubsidies and adds millions of dollars to the grocery bills ofAmerican consumers and to the costs of food productmanufacturers.

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

In order to preserve domestic prices above the world prices fordairy products, the U.S. government maintains prohibitively hightariffs on imported dairy products. That invites scorn andretaliation from our trade partners and is one more agriculturalprogram that exposes the United States to charges of hypocrisy asit seeks to paint itself as a country in favor of free markets andopportunity for all.

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

Sallie James

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.