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InsiderOnline Blog: November 2005

Government Milk Insurance

Today, the Wall Street Journal opines (sub. req'd) on the Milk Income Loss Contract program, which the Senate reauthorizes in its budget cutting bill. 

MILC makes direct payments to farmers based on their production whenever the milk price falls below a certain level. What's more, MILC kicks in at a much higher level than the price-support program. The effect of this is that production is encouraged by MILC even as prices are falling, which drives the price down toward the support level and prevents the shakeout that the price-support program is intended to allow.

The Agriculture Department found that MILC does in fact artificially depress the price of milk by encouraging overproduction, which is just what you'd expect. Then, through the price-support mechanism, the government winds up buying the milk that MILC encouraged the farmers to produce. Thus, in the Ag Department's dry bureaucratese: "The price support program and the MILC program provide an example of problems that can be caused by conflicting policy outcomes."

Three years of the MILC program have cost taxpayers $2 billion, more than the initial estimates of $1 billion.  These milk programs are actually quite widespread, remnants of all those Depression-era programs that haunt us still.  In a 2005 Piglet Book, Citizens Against Government Waste railed against the Virginia Milk Commission which "ensures that the citizens of the Commonwealth have a constant, available and reasonably priced supply of milk."


Posted on 11/14/05 10:53 AM by Larry Scholer

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