The Farmer’s Cow

12 March 2009 at 10:13 am 3 comments

| Dick Langlois |

This morning I read a story in the Hartford Courant about the state legislature’s proposals to save the small local dairy farmer. The naïveté and economic illiteracy of the article filled me with a sudden (and, for me, unusual) urge to post a comment on the newspaper’s website. Here is what I wrote.

This article is awash in errors of commission and omission.

First: it is misleading to the point of mendacity to say that the federal government “tells farmers what prices to set.” The government effectively specifies the price floor — it mandates that farmers set a price no lower than the floor, but it permits farmers to raise the price if they like. What is forcing prices down to the floor is supply and demand.

Second: the plight of the farmers is entirely the fault of the byzantine federal farm-price system, which creates a myriad bad incentives. For a short description with further references, see: http://www.cato.org/pubs/tbb/tbb_0707_47.pdf

Third: it is wrong to imply that the beneficiaries of the current supply and demand situation are the supermarkets. Retailing milk is a highly competitive industry — milk is often a price loss-leader for convenience stores. The real point is that the milk price support system, and the proposals being considered by the State legislature, will raise the prices consumers pay for milk. This is what economists call a “regressive” transfer. Since poor people spend a larger fraction of their incomes on milk than do affluent people, raising milk prices to keep farmers afloat transfers income from the poorer people in Connecticut to a group whose income is above the state average.

Finally: if you have a Romantic desire to save small or local farmers, you are free to pay extra to buy their milk. Marketing associations like The Farmer’s Cow explicitly brand their milk as local. If it pleases you to do so, spend your own money on local farmers; don’t force poor Connecticut consumers and taxpayers to do it for you.

Entry filed under: - Langlois -, Food and Agriculture, Public Policy / Political Economy.

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3 Comments Add your own

  • 1. Warren Miller  |  12 March 2009 at 1:21 pm

    Bravo, Dick!!!

  • 2. REW  |  13 March 2009 at 12:06 am

    Great post!

    Milk prices at the farm hit all-time record levels in 2007 and 2008 still had the second-highest price levels. Guess what? There was a supply response! Plus, there was continued demand decline — a secular trend. There are large economies of scale in on-farm production that are not available to the minuscule CT operations and the sparse production in most of New England causes assembly costs to be very high. There is no wonder that the industry is unprofitable at less-than-record prices.

    Dick, do you remember the Northeast Dairy Compact? The New England states, led by Senator Leahy, asked Congress to permit them to administer a cartel to charge price premia at wholesale so as to save the dairy industry. It lasted 5 years (1996-2001) before consumer backlash doomed it (over the protestations of the farmers and legislators).

  • 3. Rafe Champion  |  13 March 2009 at 6:32 pm

    You can probably get your milk cheaper from New Zealand. The planes could backload with west coast cherries which were recently causing grief among our local cherry growers. Get Milo Minderbinder (out of “Catch 22”) on the job!

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