Review & Outlook
The OPEC of Milk
The whole world knows how Jim Jeffords’s somersault
into “independence” cost the Republicans control of the Senate. Less
well known is that he may have shot his state in the foot while doing it.
He has set in motion the death of a price-fixing cartel for milk that has
raised prices by 20 cents a gallon in New England and is threatening to
spread across the country.
Senator Jeffords’s pet project, the Northeast Dairy Compact, was created in 1996 to “stabalize” the dairy industry by dictating a minimum price farmers are paid for their milk. Its negative effects on consumers led the full senate to refuse to reauthorize it in 1999. It was saved only when Mr. Jeffords convinced the Majority Leader Trent Lott that his re-election hung on preserving the compact. It was slipped into the final budget with the stipulation that it would expire in September of this year.
But the longer the compact remained the greater the chance it might spread. New England produces less than 3% of the nation’s milk, but New York, New Jersey, Delaware, Pennsylvania and Maryland have all formally petitioned Congress to join the Compact. Fourteen states have passed legislation to create a Southern Dairy Compact stretching from Virginia to Oklahoma. A total of 25 states with almost half the nation’s milk supply are on record as wanting to join a cartel that would add as much as $2 billion a year to the price of milk.
When the Senate became evenly divided in January, Senator Jeffords counted on using his new leverage to extend the compact. He told the AP in April that he planned to “sneak it in through the stealth of the night, get it through when people aren’t looking.”
That’s no longer possible, given the new fame he and his cartel now have. GOP Rep. Jim Walsh of New York admits that the spotlight of publicity has dealt us almost a death blow.” Today the House Agriculture Committee takes up the dairy compact, after the House earlier rejected including it in the $74 billion agriculture bill. Governor George Pataki of New York was pessimistic after he lobbied Agriculture Secretary Ann Veneman for the compact. “It’s going to be difficult to win the fight to get New York included,” he said. Senator Hillary Clinton, another supporter of raising milk prices for the poor, has acknowledged the same thing.
Unless it’s rammed through as part of a political horse trade, it’s hard to see how anyone justifies dairy compacts with a straight face. They are basically a highly regressive tax on milk drinkers, starting with school-age children. Creating them is a tacit endorsement of the OPEC cartel model. Claims that it doesn’t gouge consumers are preposterous.
Ironically, the Northeast Dairy Compact has failed in its chief goal of preserving family dairy farms, the “way of life so special to Vermont” that Senator Jeffords rhapsodizes over. The Boston Globe reported last year that in the two years before the compact was formed, 34 Massachusetts and 117 Vermont dairy farms went under. In the two years after the compact “stabilized” prices, 44 Massachusetts farms and 153 Vermont farms went out of business. Not even higher prices can stop the long-term trend toward consolidation that is occurring in all of agriculture.
What the Northeast Compact has done is overcharge New England milk drinkers by $100 million a year. Professors Ken Bailey and Jose Gamboa of the University of Missouri recently calculated that a combined Northeast and Southern dairy cartel would raise the price of milk by 15 cents a gallon. This mega-cartel would no doubt create more than the existing level of excess milk production, which the federal government spent $500 million last year buying up.
Government manipulation of milk prices began in 1937, when New Dealers set out to create a dairy industry in every state by establishing minimum prices. But since then technology has brought us refrigerated railroad cars and interstate highways that make it possible for cheaper Midwestern milk to be transported everywhere. Nonetheless, federal dairy subsidies are still determined by an arcane formula under which the subsidy increases in relation to how far the producer is from Eau Claire, Wisconsin. Why Eau Claire? It was the hub of the dairy industry – in 1937.
With Senator Jeffords no longer having the ability to hold an evenly divided Senate hostage, there is no reason for Congress or the White House to prop up such a stupid policy. Let his Democratic friends now support Jim Jeffords against milk consumers. It’s time for the rest of the Senate to shut it down.