A New Direction for Supply Management

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As the dairy crisis slogs into its fifth year , there is renewed interest, once again, in some form of supply management. Base-excess plans and a milk price reallocation plan from the National Farmer Organi- zation (NFO) are gaining buzz.

John Newton, chief economist with the American Farm Bureau Federation, posted a review of past U.S. supply management efforts. There have been four attempts at supply management over the past 35 years, three of which were activated. None provided long-term relief.

The first of these was the Milk Diversion Program of 1983. It offered to pay $10 per cwt to farmers to reduce milk marketings 5% to 30%. The program cost USDA nearly $955 million, and reduced marketings by about 4 billion pounds in 1984. By 1985, when the program ended, production had rebounded to earlier levels.

The Herd Buyout Program was part of the 1985 farm bill, with a goal of reducing milk supply 12 billion pounds over 18 months. “While the growth in production remained flat through 1987, national milk production did not decline as non-participating operations expanded production during the 18 months of the program,” Newton says.

Supply management 3.0 came with the National Milk Producer Federation’s Cooperative Working Together (CWT) program, where dairy farmers contributed to a fund to buy out their neighbors’ herds. Over CWT’s seven-year run, it reduced cow numbers by an impressive 510,000 head. It, too, proved ineffective—even resulting in a class-action lawsuit that alleged dairy farmers were conspiring to raise milk prices.

In the 2014 farm bill, the Dairy Market Stabilization Program (DMSP), version 4.0, was coupled with the Margin Protection Program. It would deduct up to 8% of a milk check if more milk was delivered than the DMSP- assigned base when the milk- feed margin fell below $6 for two months or below $4 for one month. It failed in Congress, with then Speaker of the House John Boehner, R., Ohio, calling such an effort “Russian-styled agriculture.”

In 2019, some farmers and their organizations are floating supply management or income redistribution plans. An ingenious plan comes from NFO. Rather than controlling supply, it’s a massive reform of the Federal Milk Marketing Order program to redistribute milk income from large farms to small.

It takes the first $4 per cwt of the Federal Order price and pays this to a farm’s first 1 million pounds of production each month (roughly 500 cows). The rest is distributed to all the milk in the pool. The idea is small farms have a higher cost of production and deserve a higher price. Margins would be equal because larger farms have lower costs per cow.

Such a plan would move the industry beyond socialism because it would dictate milk price based on herd size. Karl Marx’s axiom comes to mind: “From each according to his ability, to each according to his needs.” I wonder what John Boehner would say about it.