Sacred Cow

The idea behind the dairy price supports authorized by the Agricultural Act of 1949 was simple: provide the nation with an adequate supply of milk by guaranteeing a fair price for farmers. So how did such wholesome intentions wind up costing taxpayers billions of dollars to store cheese in caves?

Under the 1949 act, the Federal Government agreed to buy up dairy products that could not be sold on the open market. The price was tied to parity, a complicated index of earnings and farm costs designed to ensure that the price of milk gave farmers roughly the same purchasing power it did back in the golden days of farming before World War I. Parity was an appealing idea, but it did not allow for the radical changes in farming that have made cows increasingly productive.

Still, the milk price-support system was not unduly expensive until the early 1970s. Then drought and detente intervened: the sale of wheat to the Soviets in 1972 and the parched summer of 1974 drove up feed costs, resulting in lower dairy production and higher milk prices. To put more cows on-line, Congress in 1973 raised the minimum price support from 75% of parity to 80%.

Farmers naturally jacked up production to take advantage of the higher prices paid for milk and cheese surpluses. In 1973 the Government purchased only 1.9% of milk products, but by 1980 its share of the market had grown to 7%. In 1981, in a feeble stab at slowing production, Congress dropped parity as an index and froze the price at $13.10 per hundredweight. Still production rose. In 1983 the Government bought 12% of all dairy products and stored away an incredible 17 billion lbs. of butter, cheese and dried milk. The cost to taxpayers had risen from $136 million in 1973 to more than $2 billion. Congress in 1983 dropped the support price to $12.60 per hundredweight (the market price was $13.60). At the same time, the Government launched a 15-month "milk diversion program": it began paying dairy farmers $10 for every hundredweight they cut back from the year before. To help finance the program and discourage production further, dairy farmers were assessed 50 cents for every hundred pounds they marketed. Production dipped slightly, from 138.9 billion lbs. of milk in 1983 to 137.4 billion lbs. last year, but it is expected to turn up again when the diversion plan expires in April. "This program is so bad," quipped Senator Robert Dole of Kansas, "even the cows are laughing."

Why does Congress treat the dairy support system like a sacred cow? The main reason is the strong dairy lobby: the Associated Milk Producers PAC was the tenth-largest campaign contributor to Congressmen in 1984. Yet, despite this clout, most dairy farmers realize that some reforms are inevitable. "We want to be less dependent on subsidies," says James Jarvis, a small dairy farmer in Wautoma, Wis. "But we can't be cut off cold turkey. We've got to be let down slow."