Dairy prices

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(Host) Commentator John McClaughry says the Legislature’s attempt to help farmers doesn’t address the root problem of dairy prices.

(McClaughry) When milk prices paid to farmers plummeted earlier this year, the Vermont legislature produced a new law that allows a state agency to distribute up to $20 million dollars in farm operating loans. The taxpayers will pay up to $1.5 million dollars to subsidize the interest rates of these loans. Farmers can also defer up to nine months of debt payments to their banks, and have the state guarantee the banks that they’ll eventually get paid.

The dairy rescue bill was an expression of sympathy for hard pressed farmers, but one that pretty much misses the mark. The central economic problem facing Vermont dairy farmers is the low price of milk. The principal reason for the low price is the fact that the dairy farmers are making too much milk.

What would bring a higher price? Most importantly, less milk on the market. And so the state is putting millions of dollars into new loans, and tapping the taxpayers for up to $1.5 million dollars in subsidies, to encourage farmers to keep on making ever more milk.

Vermont farmers still hope to revive the New England Dairy Compact, but everyone agrees that that is not very likely. More realistically, they are joining with dairy farmers all over the country in an unprecedented effort to do the one thing that will bring higher market prices: reduce the supply of milk.

The new program, called Cooperatives Working Together CWT – has already signed up 70% of U.S. milk production. The program will raise $245 million dollars through an assessment on participating farmers, and use it to buy out weak producers, pay others to curb production growth, and subsidize manufacturers to export dairy product inventory.

The goal is to get rid of 125 thousand cows and cut U.S. milk production by 2.7%. If it works, 100-cow farms should see a net price increase of $1.78/hundredweight. It’s not a bonanza, but it will significantly improve the economics of many Vermont farms. Every Vermonter who cares about farming should be cheering this new effort on.

Unlike the government-enforced price fixing of the Compact, the new farmer-led program is wholly private. And instead of pointing the finger at a host of largely imaginary villains, CWT realistically focuses on the farmers’ central problem: too much milk.

In that respect it is miles apart from the Vermont legislature’s popular but foolish fix: more taxpayer-subsidized loans to assist more farmers to produce more milk, thus driving down the milk price and putting further at risk farmers who would, but for the government, be able to make it on their own.

This is John McClaughry thanks for listening.

John McClaughry is president of the Ethan Allen institue, a Vermont policy research and education organization. He spoke to us from our studio in Norwich.

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