Down on the farm, the latest news is the battle over dairy policy that thwarts passage of a new five-year package of federal subsidies for agriculture — and the nutrition aid for low-income families that is attached to the bill. The conflict pits the Democratic-majority Senate, which wants to boost dairy farm incomes in part by limiting milk supplies, against the Republican-led House, whose leader, Speaker John A. Boehner of Ohio, calls the Senate approach “Soviet-style.”This story of partisan bickering — true enough as far as it goes — does not quite do justice to the wasteful absurdity of the entire dairy-subsidy effort.
Start with the fact that dairy farmers are beseeching Congress now to undo damage that Congress did through past efforts to aid corn farmers — specifically, mandating the addition of vast quantities of corn-based ethanol to the nation's fuel supply. This forced dairy farmers to compete with ethanol producers for grain to feed their cows. Grain prices have shot up over the past half-decade or so and become more volatile. With their operating margins shrinking, dairy farmers ran to Capitol Hill — even though the government already had helped them to the tune of $5.3 billion between 1995 and 2012, according to the Environmental Working Group.
The House and the Senate obliged; each body's version of the farm bill contains a new “margin insurance” program that pays farmers when the difference between their operating income and their operating costs goes below a certain amount. Unlike previous “safety net” programs, however, this one would cover large-scale, high-income producers; farms with more than 1,000 cows would get 36 to 43 percent of the benefits, as opposed to 6 percent under current law, according to the University of Minnesota Food Policy Research Center. How this helps mom-and-pop operations in the long term is not obvious.
The Senate would add a “market stabilization program” to margin insurance. Basically, farmers who participate in the latter would agree to curtail production at times of low margins in return for full benefits. The goal, of course, is to reduce supply when farmers' margins are low, drive up prices and help producers at less cost to the government. This is the provision Mr. Boehner decries as Soviet economics — though it might be more accurate to call it a federally sponsored cartel. Like most cartels, to the extent that it doesn't punish consumers, it is vulnerable to cheaters and free-riders, especially since farmers can often use modern forecasting tools to calculate market prices and operating costs in advance, as economists John Newton and Cam Thraen of Ohio State University have noted.
Neither bill contains a convincing explanation of why the dairy industry deserves government-guaranteed prosperity. The industry's real problem is that it has become phenomenally efficient at producing huge quantities of a substance Americans no longer want as much as they used to: per-capita consumption of fluid milk is down 30 percent since 1975. The Agriculture Department expects that to continue. Congress can write all the farm bills it wants, but it can't repeal the law of supply and demand.