Milking the Consumer

July 1st, 1999 by Leave a Comment

By E. Frank Stephenson
The following article originally appeared in the July 1999 issue of the Georgia Policy Review. E. Frank Stephenson is assistant professor of economics, Campbell School of Business, Berry College, Mount Berry, GA. Any opinions expressed herein are his own, and do not necessarily represent those of Berry College. In the interest of full disclosure, it should be noted that Berry College operates a small dairy.


In its 1999 session, the Georgia General Assembly again passed legislation authorizing Georgia to join the proposed Southeastern Dairy Compact. Gov. Barnes, unlike his predecessor Zell Miller, signed the authorization into law thereby entering Georgia into the dairy compact. (Federal legislation is still required for the compact to become operative, but such approval is likely as Congress approved a similar compact for New England in 1997.) Unfortunately, the dairy compact is little more than a backdoor tax on Georgia milk consumers.

Georgia’s dairy farmers are hurting. Georgia is a high-cost state for producing milk because of the humid climate.1  Moreover, increases in milk productivity have resulted in an abundant supply of milk nationwide and, as a result, suppressed milk prices.2  As is typical in market economies under such circumstances, some 20 percent of Georgia dairy farms have left the industry in the last five years.

In response, Georgia dairy farmers persuaded the General Assembly and the governor to join the compact, a multi-state agency designed to set a minimum price that dairy farmers receive for their milk. This minimum price, to be set above the price established by the federal government’s dairy program, will increase the revenue that dairy farmers receive. While one would expect this increase in revenue to stem the tide of farm closings, Vermont’s experience suggests otherwise. Since the New England dairy compact was implemented in July 1997, the number of dairy farms in Vermont has decreased from 1,862 to 1,715.3

The cost to milk consumers will, however, be considerable. According to the Georgia Department of Agriculture, Georgia’s dairy farmers produced some 165 million gallons of milk in 1998. Media reports suggest that the New England compact raised the price paid by consumers between 10 and 20 cents per gallon. A similar increase in Georgia would cost consumers between $16.5 million and $33 million. While this amount is only $2.14 to $4.28 for each of Georgia’s 7.6 million residents, it yields a $39,000-$78,000 benefit for each of Georgia’s 419 dairy farms. Moreover, the “milk tax” for consumers would actually be larger than $2-$4. This is because much (perhaps one-half or more) of the milk consumed in Georgia is imported from other states and out-of-state dairy farmers would receive the higher compact price on any milk they ship to Georgia. Perversely, the Georgia General Assembly seems more concerned with the welfare of New Mexico and Wisconsin dairy farmers rather than that of Georgia citizens.

In a “Conversation Starter” forum on the dairy compact, the Atlanta Journal-Constitution (AJC) asked readers if they would be willing to pay higher milk prices to support dairy farmers. Assuming the published letters were representative of public response, no consumers indicated a willingness to do so. However, even if some individuals are willing to pay higher prices to support dairy farmers, it is inappropriate in a free society for the government to force all consumers to pay a higher price for a product just to benefit the producers of that product. Concerned individuals could contribute to a “Dairy Farmer Relief Fund” or buy an extra gallon of milk each week to help dairy farmers, but the government should not compel consumers, some of whom are even worse off financially than are dairy farmers, to pay higher prices to support dairy farmers.

The AJC did publish letters advocating the compact from two dairy farmers. One claims, amusingly, that “the quality of milk produced in Georgia is better than that shipped in ….” This assertion is dubious at face value, and the fact that Georgia dairy farmers have not “branded” their product as have the producers of Florida orange juice or Vidalia onions confirms that this argument is without merit. If Georgia milk were somehow tastier than, say, Wisconsin milk, one would expect to see ads asking “GotGeorgia milk?” and featuring prominent Georgians (Ted Turner? REM? Hank Aaron?) with milk mustaches.4

The farmer also bemoans Georgia’s status as “a milk-deficit state.” So what? Georgia is also a lettuce-deficit state and a citrus-deficit state, yet no one has proposed a Southeastern Lettuce Compact or a North-of-Florida Citrus Compact. Likewise, Wisconsin is a peanut-deficit state, and it has not proposed a Midwest Peanut Compact. Georgia is a milk-deficit state for a good reason: It is more costly to produce milk here than it is in Wisconsin and other states.

That the dairy compact is an attempt by Georgia’s relatively inefficient dairy farmers to use the powers of government to gain wealth that they cannot obtain competing in a free market is so obvious that even the AJC editorialized against it. Unfortunately, unless Congress fails to approve the compact, it appears that Georgia’s dairy farmers will be milking more than their cows.

Footnotes

#f11. According to the USDA’s Statistical Bulletin Number 952, Georgia cows produced 15,340 pounds of milk on average in 1997, some 1,500 pounds less than the national average and 5,000 pounds less than cows in Arizona, Washington, and California.

 #f22. Nationally, milk productivity increased from 15,722 pounds per cow in 1993 to 16,871 pounds per cow in 1997. (Source: USDA Statistical Bulletin Number 952.)

 #f33. Source: Telephone conversation with Dairy Section, Vermont Department of Agriculture.

#f4 4. While one might interpret the farmer’s statement as claiming that Georgia milk is fresher than that shipped in from out-of-state, a conversation I had with a Georgia Department of Agriculture official suggests otherwise. This official told me that a number of large-scale farms in other states load their milk directly into tankers for shipment to Georgia and get the milk here in 36 hours or so. In contrast, many smaller-scale Georgia farmers hold their milk in storage tanks on the farm up to 48 hours before shipping it to processors.

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