Federal Dairy Policies Need Fundamental Reform

Current federal dairy policies and subsidy programs date back to the Great Depression and have not kept pace with the dynamic realities of today's marketplace. The outdated and complicated web of dairy support programs are regionally divisive and discourage innovation. To ensure the U.S. has a healthy and vibrant dairy industry that is able to meet the changing demands of the marketplace, Congress should reform dairy policies to be based on the following five principles.

Federal dairy policy should not distort or disrupt the marketplace. The combination of the multi-billion dollar direct payment program, the Milk Income Loss Contract program (MILC), which encourages overproduction of milk, and the Dairy Price Support Program (DPSP), which buys the resulting surplus, is a classic example of dairy programs working at cross purposes and distorting markets. The two programs have created expensive government outlays and self-perpetuating price slumps that have taken money out of the pockets of taxpayers, processors and even dairy farmers themselves.

Government interference in the dairy marketplace must be minimized. If the dairy industry is to evolve and compete in an increasingly international marketplace, the Federal Milk Marketing Orders (FMMO), the government's complicated regional milk pricing system, must be streamlined. These Depression-era policies handcuff the industry so that it cannot keep pace with today's more competitive and diverse marketplace. FMMO regulations must be streamlined and the most growth-inhibiting aspects removed.

Government expenditures on dairy subsidy programs must be decreased. Between 2000 and 2004, the government spent more than $5 billion on dairy subsidy programs. One of the most expensive programs is the expiring MILC program. When created in 2002, the program was expected to cost $900 million dollars, but it has ballooned to cost more than $2 billion. A 2004 USDA study also found that MILC in combination with the DPSP actually decreases farmer income.

U.S. dairy policy should treat all dairy farmers and processors in every part of the country fairly. Regional dairy compacts and other divisive programs like the MILC program favor some areas of the country over others. Such programs are not only unfair, but counterproductive; hindering innovation and stifling the industry.

U.S. dairy policy must be consistent with trade obligations. Costly subsidy programs must be reformed in order to facilitate rather than impede sales of U.S. products into rapidly expanding markets abroad. Currently dairy programs are responsible for 30% of all U.S. "amber box" payments for unfair trade practices reported to the World Trade Organization. The trade-distorting nature of dairy programs should be eliminated, or it could put other commodities at risk and jeopardize future trade negotiations.

ACTION REQUIRED: Congress should use these principals to create federal dairy policies that are fair for producers and processors across all regions, fiscally responsible and designed to help the industry grow here and abroad.