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Why millk prices may have gone up

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webmaster | 01/02/13

Apparently, without the renewal of the Agricultural bill late last week, we might have wound up paying more than $8 a gallon for milk. I read a story about why that would have been, but I don’t understand it.

I don’t think the person who wrote the story understood it either.

Here is the best explanation I could find, courtesy a Washington Post writer:

“Without legislative action … the government will have to revert to a 1949 dairy price subsidy that requires the Agriculture Department to buy milk at inflated prices. Much like the current fiscal cliff, the law was left on the books ‘as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products,’ as Vincent Smith, a Montana State University professor, told the New York Times.”

The Farm Bill does provide for a dairy subsidy if milk market prices fall below a certain level, and that subsidy is designed to help domestic dairies stay in business if foreign suppliers flood the market with dried milk and cheese, thus driving fresh-milk prices down.

Providing a floor for dairy prices has long been considered good public policy. Milk is one of the most important foods. From it, we get not only fresh milk but cheeses, yogurts, creams, ice creams and many other products containing milk and its byproduct, whey. Many food-product manufacturers depend on milk. They especially depend on a regular supply of milk at fairly stable prices.

Putting a floor under the price of milk helps provide that regular supply and those stable prices. Dairying requires huge investments, and those investments might not be made without some assurance of stability.

The doubling of milk prices would be welcomed temporarily by a few farmers, but would seriously hurt consumers all up and down the food supply chain.


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