A Curious Way To 'Save' Dairy Farmers
Dairy Compacts Are No Way To Help US Farmers
January 18, 1999
by Dennis T. Avery
CHURCHVILLE, Va.—For some reason, the world's dairy farmers seem to lack faith that people really like milk, butter and cheese. They are eager to pursue any half-baked dairy policy, rather than risk liberalizing farm trade to help supply Asia's rising dairy demand.
In Western Europe, dairymen fiercely defend their declining price supports, even though the system forces them to pay huge sums of money for "quotas"—the right to market their own milk.
In Canada, dairymen cling to costly marketing quotas that don't even offer price supports.
American dairymen are content to trade their promising future in the world's growing export markets for a new set of regional marketing "compacts" that won't provide them any extra income.
THE LATEST SCHEME is the Northeast Dairy Compact, which essentially keeps milk from the rest of the United States out of New England by establishing a regional pricing mechanism for milk sold in the region. Before the compact took effect in 1997, the region was importing milk from other states. Afterward New England milk prices rose and dairymen all over America were demanding "compacts" of their own.
What are these "compacts" doing to benefit dairymen? New England dairies have geared up to produce more milk. They may even be buying some of the same cows that used to produce the milk New England imported.
But at the same time, the higher prices for New England milk are depressing consumer demand. That means the New England Dairy Compact won't make much difference to kids' nutrition or, in the long term, New England dairy prices.
CONGRESSMEN IN dairy districts eagerly back these ploys, because Big Labor opposes free trade in farm products. Never mind that free trade in farm products would create perhaps 200,000 non-farm blue-collar jobs.
Thanks to union opposition, the 105th Congress refused to give fast-track authority to the executive branch, which would have enabled the U.S. Trade Representative authority to negotiate treaties, with the Senate having only an up or down vote. Congressmen aren't eager to become the target of union phone banks and union-sponsored billboards.
If American dairymen continue to waste their political capital on regional compacts instead of pursuing free trade, they could miss the biggest opportunity in dairy history: Supplying the rising demand for milk in densely-populated Asia. Meanwhile, India and Indonesia are clearing irreplaceable tropical forests to make way for low-quality dairy pasture.
THE CLINTON administration's early enthusiasm for free trade has faded as the President's political troubles have mounted. Although free trade would raise world dairy prices, American farmers essentially won't be at the table when the World Trade Organization takes up farm trade reform at its conference later this year.
Without the United States at the WTO negotiations, dairy farmers' best chance to eliminate Europe's export subsidies and China's and India's import barriers will be wasted.
Dairy farmers have done a marvelous job of making milk more affordable. Artificial insemination, better feed rations, milking parlors and computer databases have all helped cut the cost of milk. When I milked cows in Michigan in the 1950s, we were pleased with cows that gave 5,000 pounds of milk per year. Today, farmers cull any cow producing less than 15,000 pounds.
WORLD DAIRY DEMAND is expanding radically. Free trade is increasing the number of Third World workers with high enough incomes to buy milk, cheese and butter. For instance:
—India's economy is growing three times as fast as its population. Indian milk consumption has been rising more than a million tons per year, despite high prices and a severe feed shortage.
—China's dairy consumption has roughly doubled during the 1990s.
—Schools in South Korea tell mothers to give their kids cheese as an after-school snack.
IF THE WTO liberalizes farm trade, much of Asia's extra milk for the future will come from the United States, France, Poland and other countries with quality pasture.
If not, then Asia will pay high milk prices to its own newly created dairy farmers, and clear huge amounts of tropical forest for cattle grazing.
Meanwhile, America and Europe will have to auction off the farmsteads of their dairy farmers who weren't saved by the false promises of export subsidies or "regional dairy compacts."
Dennis T. Avery is based in Churchville, VA, and is director of the Hudson Institute's Center for Global Food Issues.