Milk Surplus Continues To Grow As Price Climbs Ever Higher

Article #8: Milk Surplus Continues To Grow As Price Climbs Ever Higher By Dan Carmichael

United Press International

Milk is the most political food in America, the product of an industry that enjoys legalized price fixing and a system financed by tax dollars to the tune of more than $2 billion a year.

Dairy executives wince every time the facts are repeated. Demand for dairy products is declining dramatically, production is skyrocketing and it costs U.S. taxpayers $250,000 each hour for their government to buy the surplus.

National milk supplies are 10 percent above demand and it costs $5,319 more every hour to store the surplus—or more than $127,000 a day.

The system has been called “a national scandal” by numerous critics, including President Reagan’s budget director, David Stockman.

Even the critics, however, concede the odds are overwhelmingly against a major change. The dairy lobby has 1 heavy clout and last year alone contributed more than $2 million to congressional campaigns.

At the core of the system is a national network of milk cooperatives. The largest co-op—Associated Milk Producers Inc. (AMPI) of San Antonio, Texas—got caught in the Watergate scandal and its bagman carried $100,000 cash in an overnight case destined for Richard Nixon’s illegal “dirty tricks” fund.

After AMPI made “campaign contributions” to Nixon, the president allowed milk price supports to rise by 37 cents per hundredweight, which gave the industry an additional $105 million to $500 million.

The system works extremely well—for everyone except consumers. It is difficult to reform because its complexity is beyond the economic understanding of many voters.

American taxpayers are buying about $2 billion of dairy products this year that no one wants. But the government is committed by law under an entitlement program to buy the surplus—no matter how much is overproduced deliberately.

The figures are mind-boggling.

Current stocks of dairy products—cheese, butter and dry milk—would fill a train stretching from New York to Washington.

As of April 30, 1982, the Commodity Credit Corporation had 411.7 million pounds of butter in storage, 550.5 million pounds of  cheese and 917.7 pounds of nonfat dry milk. The annual storage cost: $46.6 million.

Governmental warehouses across the nation are overflowing. Nonfat dry milk fills 180 huge warehouses. Another 127 are full of butter and 171 are overflowing with cheese.

The figure for butter is lower than normal because the government recently sold 220 million pounds to New Zealand—a dairy nation—at bargain prices.

Surplus dairy supplies have been increasing since 1979, when government expenditures jumped from $46 million to $1 billion in 1980, to $1.9 billion in 1981 and $1.9 billion this fiscal year.

Some of the surplus is rotting. Some of it is being sold at major losses overseas—losses that taxpayers are financing. Some of it is being given away.

In December, President Reagan ordered 100 million pounds of cheese given away, cutting annual storage costs by more than $16.8 million.

The government has discussed several other options to reduce the cheese surplus, including dumping it in the ocean or burying it.

Currently, the government is buying about 9 percent of the total U.S. dairy production. The total in 1981 for milk and ice cream was a record $18.1 billion, 9 percent more than the record set in 1980.

An AMPI executive, Leland Anderson, said 10 percent of the nation’s dairy farmers would go out of business if the price support system were abandoned.

“It’ll cause a drastic drop in production to the point where we won’t have adequate supplies,” said Anderson, the assistant to the AMPI manager.

“We would have chaos in the industry,” Anderson said. “Everybody would be trying to dump on the market to get sales and undercut everybody else. The product would become worthless.

“And the ultimate result is a certain number of people would go out of business,” he said. “Are you going to put 10 percent of dairy farmers out of business and have them looking for jobs in the cities where there, are no jobs?”

Critics say this means taxpayers currently are supporting one out of 10 of America’s dairymen.

Agriculture Secretary John Block is seeking congressional approval to give him flexibility to reduce government price supports to discourage even larger surpluses, but he has promised to make only a relatively small reduction.

Under current law, the support level is $13.10 per 100 pounds of milk. Block wants legislation giving him authority to set the support level—as opposed to specific minimum support levels mandated by law. He said he likely would not have to reduce the level lower than $12 per 100 pounds.

Time is short because the price support level is scheduled to increase again Oct. 1, despite the 9 percent overproduction.

Even before Block’s recent announcement, the dairy industry was mobilizing to defeat the administration’s plan which Block said would save taxpayers $700 million the first year.

The surplus milk program, designed to stabilize dairy prices, is regarded as the most expensive byproduct of America’s complex array of agricultural support programs.

The prices that milk processors must pay to farmers are set by federal milk marketing orders. Premiums are charged for drinking-type milk, which studies have indicated adds 2 to 8 cents per gallon to the retail price. The marketing order system makes price fixing legal.

Since the processor must pay the higher price anyway, the system keeps reconstituted milk uncompetitive with fresh milk—which, according to Consumer Reports, “is exactly what the dairy industry wants.”

To give consumers a lower-cost alternative to fresh milk, the Community Nutrition Institute petitioned the USDA in 1979 to hold a hearing on pricing reconstituted milk lower than fresh milk.

Estimates by the USDA itself showed consumers would save between $186 million and $339 million a year. But the USDA did not respond until April 1981 when it denied the petition, saying such a move would cause major changes in the dairy industry.

A source in the Office of Management and Budget says “The price support program raises the price of milk higher than it would be in a competitive market. It’s not a good deal for consumers. Also, large government purchases further increase the (retail) price of milk substantially—to the tune of hundreds of million of dollars, if not billions.”

The reason milk prices are a lightning rod for public criticism, AMPI’s Anderson says, is because of milk’s high profile as a staple.

“It’s the most visible food in America,” he said. “That’s why it has become the most political food in America. Everybody is concerned about the price of milk because they buy it every week.”

“It’s easy to say dairy farmers are ripping off the public, the government shouldn’t be in the program, we’d save billions of dollars if we didn’t have this price support program, co-ops and federal orders are causing consumers to pay more, all of that,” Anderson said.

“But when you really get right down to it, I think dollar for dollar, we’ve got a situation here that has produced a product that is good for consumers, that they want, that they expect to be available fresh.”

(Reprinted from the St. Petersburg Times, June 3, 1982)