Got Milk?
August 14, 1998

Long ago, when refrigeration systems were still in their infancy, milk produced in Wisconsin or Minnesota could not be transported easily to distant cities in the southern and eastern parts of the United States. In order to encourage farmers in those reg ions to produce milk, Congress authorized the Department of Agriculture to set higher support prices there. But how much higher? The Agriculture department settled on a formula that tied the pricing in a city to its distance from Eau Claire, Wisconsin. This policy ensured that consumers in the South and East would not be deprived of milk; they would merely pay more than their counterparts in the Midwest (where it was naturally cheaper to produce the stuff.)

That was then. Transportation systems have come a long way since those days. All sorts of perishables traverse vast distances, losing little of their freshness in the process. Milk produced in Wisconsin at a lower cost could be shipped without too much difficulty to any part of the country. The milk support system, one might be tempted to think, was ripe for dismantling.

That is what a group of Minnesota dairy farmers thought. In 1990, they brought a lawsuit urging the federal government to scrap the milk-price regulations contending that they unfairly depressed milk prices. The legal action was backed by the attorneys general of Minnesota, Wisconsin, Iowa and North Dakota.

In November 1997, U.S. District Judge David S. Doty handed the Minnesota farmers a victory: he ruled that the some of the price regulations were unlawful because they were "arbitrary and capricious." The decades-old price support system seemed to be in jeopardy.

But the Agriculture Department was far from finished. It appealed the decision, and now a three-judge panel of the Eighth Circuit Court of Appeals has overturned Judge Doty's earlier ruling. The Agriculture Department has welcomed the appellate panel's decision; the Minnesota dairy farmers ponder the advisability of a further appeal.

During all this, the Congress has not been sitting by idly. They are aware of the pernicious effects of the current system: the price regulations, according to a government study, impose an annual cost of over $1.5 billion on consumers and taxpayers.

At the urging of legislators from the Midwest, Agriculture Secretary Dan Glickman has agreed to reform the antiquated price support system and make it more market-oriented. But dairy farmers in the South and East, loath to relinquish their federal milk subsidies, are pressuring their Congressional representatives to derail any such move. Moreover, the recent court ruling is likely to delay any planned reforms of the price support system. The cup of sorrow for Midwestern dairy farmers, it seems, continues to brim over.

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