The Reverse Robin Hood Dairy Compact

The pressure is on in Washington to persuade Congress to ratify the Northeast Interstate Dairy Compact, a price fixing scheme aimed at taxing milk drinkers to increase returns to dairy farmers, the struggling and the prosperous alike.

Dairy farming is vitally important to the Vermont economy and to the state's character. In 1993 Vermont dairy farmers produced more milk than in any year in the state's history. Unfortunately for friends of the small family dairy farm of legend, the milk is being produced on 1,959 active farms, compared to 3,688 active farms in 1975.

American dairy farming has changed quickly and radically from a quaint mom-and-pop-and-kids business to a knowledge-intensive, capital-intensive agricultural industry. Unfortunately the industry is still operating under a insanely complicated Federal regulatory system conceived in the 1930s, described in a New England Farmer editorial (September 1991) as "our own American brand of dairy-price socialism governed by a junta of lobbyists, social welfare advocates, urban politicians, and arcane economic formulas."

As in every market, there are some very efficient producers and some that are not so efficient. The efficient Vermont producers are producing milk at $2.00 per hundredweight below the current blend price of $12.52/cwt. Others have production costs over $20/cwt, which means they are not long for this world.

The less efficient and thus endangered dairymen have clamored either for a "fair price" for their product, established by some kind of government-enforced cartel, or for outright government supply management. The current scheme, mind-boggling in its audacity, is the, Northeast Interstate Dairy Compact, which if approved by Congress would allow the Northeastern state governments to create a region-wide price-fixing cartel to jack up milk prices. In support of this last scheme the Vermont legislature has done astonishing things, often in the dark of night.

First, in 1989, it ratified Vermont's participation in the cartel scheme. In the same year a "minor agricultural amendment" was passed that makes it illegal in Vermont for anyone to sell milk in violation of a cartel order. (Penalty: $10,000 fine per violation, every day of violation a separate offense, and loss of license.) In 1990 it sight unseen ratified a bill pending in the New York legislature which never passed.

In 1992 the legislature authorized a Vermont Milk Commission to force handlers to pay "over-order" prices to Vermont farmers, a scheme which collapsed in six months when Boston handlers turned to cheaper New York milk. There was the 1992 milk tax, levied on all Vermont producers, $30,000 of the proceeds of which were used to hire a lobbyist to try to get Congress to approve the Compact! In other words, milk drinkers were taxed to finance a lobbyist for higher milk prices.

What we have here is a concentrated special interest driving through legislation that most legislators only dimly comprehend, to provide government enforcement to an otherwise unworkable price fixing cartel. The cartel's goal is to increase the prices farmers receive for milk by forcing handlers to pay more for it, while blocking entry to lower cost milk that would otherwise come in from more efficient producers outside the cartel area. The inevitable effect of this scheme will be higher prices for dairy consumers.

A lot of farmers, particularly the efficient ones who are making money, are not very comfortable with the Compact proposal, and the milk police that will inevitably follow in its wake. They would be content if the government would quit keeping the weakest dairy farmers alive by heroic assistance, which results in lower prices for the strong, efficient farmers who otherwise would prosper without help. They hate to oppose the plan in public, because they don't want to be seen as failing to support their struggling neighbors.

Every special interest wants to find some political scheme to transfer money, privilege and opportunity from others to itself. In this case the government-forced transfer will be from dairy consumers, who are disproportionately young and politically powerless families with children including those on food stamps and the WIC program, to dairy farmers, whose average net worth is well over $300,000. Worse yet, most of this forced transfer of wealth will go to the biggest producers, whose net worths are considerably higher. If there was ever a scheme which robbed the poor to give to the not-poor, through a mechanism that most of the victims cannot see or understand, the dairy cartel scheme is it.

If this transfer of money from milk drinkers to milk producers can be effected by a Northeastern Interstate Dairy Compact, politicians can claim that they voted "to help the farmers", confident that the victims will never find out what is being done to them, and by whom.

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September 1995