Exploring the Nether World of Politics
Well under the radar during the current battle over the state budget, a small bill moved through the legislative process to passage. A review of how this bill (S.89) made it through to the governor’s desk reveals some of the nether world of politics.
Ever since arriving in the legislature in 1979, Bobby Starr has had one great legislative passion: to get dairy farmers more money. In 1988 he pushed through a provision that simply handed $7.5 million of the (then) surplus to all dairy farmers. The purpose of this handout was to buy dairy district House votes for Gov. Kunin’s land use planning bill, Act 200.
A year later the surplus was spent. Starr needed a new scheme. This was the Northeast Interstate Dairy Compact, largely designed by Starr’s legislative counsel, Dan Smith. The Compact was a multistate government cartel to force dairy handlers to pay farmers above-market prices for their milk (and pass the cost on to consumers).
It took until 1996 for Compact supporters to win Congressional approval of this regional government for milk. But the Compact expired in 2001, and Congress declined to reauthorize it. In its place a taxpayer-financed price support program called MILC put a floor under fluid milk prices, but not at a high enough level to satisfy Starr.
By 2008, after a year of record high market prices for dairy farmers, it became apparent that changing global market conditions would drive milk prices down in 2009. So Starr and his leading co-conspirator, Senate leader Peter Shumlin, engineered an appropriation to support a new scheme, to be imposed by the then-inactive Vermont Milk Commission. The appropriation provided funds for the Commission to hire as counsel Starr’s favorite staff member, Dan Smith.
In September 2008 Smith presented to the Commission a draft order levying a 38-50 cents per gallon tax on milk handlers. The tax would of course increase the cost of milk to supermarkets, general stores and convenience stores. The proceeds – like Starr’s Act 200 bonus of 1988 – would be handed out to every dairy farm in Vermont. Sweet!
The majority of the nine-member Commission, including Agriculture Secretary Roger Allbee, was decidedly cool to the proposal, as were the dairy coops and Farm Bureau.
Then Smith came up with a solution to a major problem: the passthrough of higher milk prices to consumers. Let’s couple the milk tax with price controls on the grocers! That way the government would confiscate the “surplus profit premium” enjoyed by the handlers, consumers wouldn’t pay more, and farmers would enjoy big handouts. Brilliant!
Unfortunately for Starr and Smith, the Commission concluded its business without approving Smith’s handiwork.
In response, on February 11 Starr and Shumlin introduced a bill that – strangely - offered no benefit to farmers at all. It authorized the legislature to impose milk price controls on the retailers. This bill, Shumlin said, “takes a step toward addressing the economic pain that Vermonters are facing.”
On April 15 the Starr/Shumlin price control bill emerged onto the Senate floor. Gone were all of its price control provisions. Instead, the bill now mandated the Milk Commission to reconsider Smith’s failed milk tax and subsidy scheme (that would increase the economic pain of consumers).
But by this time the $50,000 contract to pay Dan Smith as “special counsel” was used up. So Starr and Smith came up with the idea of making the bill authorize the Commission to levy a milk tax on handlers, not to subsidize farmers, but to employ (presumably, at least by Starr) Dan Smith to devise more Marxist theories, milk taxes, price controls, and subsidies.
The Senate passed the amended bill on a voice vote. The House Agriculture Committee, however, stripped out all of Starr’s milk tax language, leaving only a dairy antitrust study by the Attorney General plus some miscellaneous handler bonding provisions. The bill then went to conference.
Apparently under strong pressure from the House leadership, the House conferees agreed to reinstate the substance of the Senate-passed language, with the significant amendment that the Milk Commission “may” – instead of “shall”- tax the handlers up to $35,000 to finance the Commission’s further consideration of Smith’s rejected handiwork.
The Milk Commission may choose not to levy the milk tax to finance its ongoing deliberations. It may choose not to hire Dan Smith again to promote Starr’s grand idea, a decision that would certainly send Starr into orbit.
But this misbegotten scheme – a hidden milk tax on families with young children, to be levied by an unaccountable commission, the proceeds distributed to members of Bobby Starr’s special interest group, and a special tax provision intended to finance Dan Smith’s continued employment – richly deserved termination by veto.
On May 22 Gov. Douglas signed S.89 without comment.
Get Ready for a New Tax on Milk
Proposing a new tax only weeks away from election day is not generally thought of as a smooth political move. But that is precisely what the Vermont Milk Commission is in the process of doing.
A 1991 law gave the obscure five-member Milk Commission the power to levy an “assessment” on fluid milk distributed to Vermont retailers. You don’t need to be a dairy economist to figure out that this “assessment” is a disguised consumer tax. Not only is it a tax, but it’s a tax that no legislator ever voted to impose. It will be levied by a wholly unaccountable state board.
Under the Commission’s draft proposal, when a milk processor distributes a gallon of milk to a Vermont retail store, the processor would be required to pay the milk “assessment” to the Commission. This raises the cost to the retailer. So the retailer has little choice but to raise its price to its customers by at least the same amount.
Not so, says the Commission. It declares that retailers would keep prices level, and just absorb the “surplus profit margin” out of what the Commission believes to be their unjustifiably high margins on milk sales.
Says the Commission, “establishment of the new benchmark procurement price should not result in any increase in consumer prices, at least in the 70% share of the regulated market controlled by the dominant supermarket chains.” In other words, the Commission believes that supermarkets, convenience stores and country stores that have been unjustly fleecing milk consumers will quietly absorb the 38 cents (or more) per gallon increase caused by the Commission’s new milk tax.
Only someone who has grown up in Wonderland is likely to believe this economic fairy tale. As Kathy Miller of the Elmore Store told the Commission, “we can not and will not absorb this cost.” Consumers will absorb it.
This new milk tax will give the Milk Commission a pot of money extracted from consumers who buy milk in Vermont. What becomes of this money? The Milk Commission will pay it out to farmers, both in and outside of Vermont, based on the quantity of their milk that was sold in Vermont stores.
The net effect of this scheme is to transfer money from the pockets of milk consumers, rich and poor alike, to the pockets of (mostly Vermont) dairy farmers. Both profitable and struggling dairy farms will get the same payment per gallon.
The average farm can expect to receive $5,900 in 2009. As Agri-Mark dairy economist Robert Wellington observes, “if you give farmers a little bit of money but you’re charging consumers a lot, what have you accomplished?”
For years dairy farmers, plagued with volatile prices for fluid milk, have proposed reasons why government should route more money to them, one way or another.
The proponents of the milk tax are convinced that somewhere in the chain from farm to shopping cart somebody is making an unjust “surplus profit margin”, and the farmer isn’t sharing in it. So they believe they are justified in using the power of the government to tax the supply chain and turn the tax proceeds over to the farmers who were shortchanged.
For comparison, suppose Ford Motor Company sells a pickup to a dealer for $20,000. The dealer sells it to a customer for $25,000. Would anyone expect Ford Motor Company to ask the government to make the dealer return part of its “surplus profit margin” to the manufacturer? Not likely.
The Milk Commission’s proposal is a new milk tax, levied by an unaccountable public body, with the proceeds handed out to the milk producers, whether they need it to stay alive or not, the workings of the scheme mostly invisible to the consumers who get stuck with the tax.
Dairy farming is a tough and nerve wracking business. Vermont’s surviving 1,050 dairy farms are an important asset to the economic well-being, landscape, and character of this state. The federal milk marketing system is badly skewed, on balance probably to Vermont’s disadvantage. That needs to be fixed in Washington.
But the survival and prosperity of our dairy farmers ultimately ought to depend upon what Vermont farmers have historically done well: quality, innovation, efficiency, and persistence – not on advocating for hidden taxes that hammer their neighbors who consume their product.
Vermont’s Agricultural Future
The Undersecretary of the U. S. Department of Agriculture came to Burlington last week to seek citizen input on farm policy and rural development. One wonders why anyone from even as close as Milton or Hinesburg would journey to Burlington (in a snowstorm) to deliver a three minute commentary. But the subject matter is important, and some creative thinking is in order.
Vermont farming means, principally, dairy farming. Because of its economic impact, its influence on the Vermont landscape, and its historic contribution to Vermont’s character and traditions, the future of the dairy industry is very important to the state.
For the past 40 years national dairy policy debates have revolved around one big issue: too much milk. Even as small dairy farms have steadily disappeared in Vermont and across the nation, milk production has marched steadily upward. The major reason for this is the effect of a web of Federal dairy support programs. In a politically popular attempt to “preserve the family farm”, those programs give dairy farmers incentives to produce ever more milk, even as consumers (unwisely) shift their preferences from dairy products toward margarine and soft drinks.
Since the 1930s Federal Milk Marketing Orders have set floor prices that handlers must pay to farmers for milk. The orders include regional price differentials, to keep lower cost Midwestern milk from driving out higher cost regional production. When too much production drives market prices below a specified level, the Federal government buys up butter, cheese and dry milk powder.
Support programs encourage production. Excess production drives down price. So periodic attempts have been made to curb production at the same time as other policies are stimulating it. Notable among them was the dairy diversion program of the early 1980s, followed by a “whole herd buyout”. The latter curbed production for five years, after which it took off again.
In 1996 Congress was persuaded to ratify a six-state Northeastern Interstate Dairy Compact, a price-fixing cartel that allowed a dairy-dominated commission to force handlers (and ultimately consumers) to pay higher prices for milk. This produced a backlash from urban consumers and counterattack from Midwestern dairy interests who saw the Compact as an internal trade barrier to protect higher priced New England milk from lower priced Midwestern imports.
The Compact expired in 2001, and was succeeded by the MILC program. Under it, the government makes payments to farmers to support the price they get on their first 2.4 million pounds per farm per year. MILC expired on September 30, and the Vermont Congressional delegation is working feverishly to get it reinstated.
Dairy organizations have spent great time and effort lobbying the federal government to fix milk prices so they will get what they conceive to be a “fair” price for their milk. With the demise of the Compact and the eventual if not immediate demise of the MILC subsidy, more dairy farmers may at last come to realize that their economic success will not come from government market rigging, trade barriers, and taxpayer subsidies, but from competing creatively and aggressively in a marketplace that now includes all of the world.
New Zealand offers an instructive example. In the early 1980s New Zealand’s government had spent the country into the poorhouse. In an earth-shaking reversal of policy, the Labour government installed in 1984 tossed out the entire web of price fixing, privileges, protection, and subsidies. It told its industries, including agriculture, that virtually overnight they would have to get efficient, compete, and either succeed or disappear.
New Zealand farmers rose to the challenge. Today they are the world’s most efficient dairy producers. They rely on low-input, ecologically sensitive, management-intensive grazing. Some farmers disappeared in the transition, but the innovative, aggressive survivors have now defined world-class efficient dairy farming.
Some pioneering Vermont dairy farmers have gotten the message and have become more profitable than many old fashioned high-investment confined feeding operations. Examples are the Yandow farm in Swanton, the Chase farm in Holland, and the Forgues farm in Alburg Springs.
The UVM Center for Sustainable Agriculture and the Vermont Grass Farmers Association have been important sources of support, along with the UVM Extension Service, NOFA, Shelburne Farms, and the Intervale Foundation. They have helped farms improve profits by organic certification, waste-to-energy systems, direct to consumer marketing, on-farm processing, farm tourism, and exotic crops (llamas, ginseng, fallow deer, emus, water buffalo, specialty cheese, chevon, etc.)
Simply dropping all government support for dairy farms overnight, as New Zealand did, would be too much of a shock. In time, however, Vermont’s dairy farmers will prosper from having more freedom to innovate and compete in the marketplace. As their hardy forebears did long ago when the state was new, they will succeed by relying on their own ingenuity and hard work, instead of pleading for an undependable government to guarantee them a special deal.
After the Dairy Compact
The Northeast Interstate Dairy Compact expired on September 30. Efforts in Congress to revive it continue, but with every week it seems more likely that the passing of this price fixing cartel will open a new chapter in Vermont's agricultural history.
The idea of the Compact was hatched in 1988, upon the failure of a voluntary price fixing scheme called RCMA. The Compact scheme was classically simple: a mandatory, state-enforced cartel to dictate fluid milk prices high enough to "save our farms". The beauty of the Compact (to the producers, their feed and equipment suppliers, and their bankers) was that in the name of "saving" Vermont's most economically threatened farms, the mandated higher milk price would benefit hundreds of efficient and profitable dairy farmers who had little or no claim to windfall benefits at consumer expense.
The Compact was vigorously promoted in the legislature by the chairs of the agriculture committees, Rep. Robert Starr and the late Sen. Francis Howrigan. They whistled through a bill authorizing Vermont participation in the proposed Compact. In what was rightly considered a legislative miracle, Congress in 1996 ratified the Compact for an initial term.
In 1999 the Compact got another two years of life when Senate Majority Leader Trent Lott agreed to an extension in an effort - later found to be seriously misguided - to strengthen the fragile loyalty of then-GOP Sen. James Jeffords. Jeffords, like Sen. Patrick Leahy and Rep. Bernie Sanders, has been an ardent champion of making the Compact permanent, vowing to try to "sneak it in through the stealth of night, get it through when people aren't looking."
In its five years of operation the Compact added $146 million to the wallets of New England's dairy farmers. But the money received by farmers had to come from somewhere. New England farmers, through their cooperatives, sell their milk to handlers, chief among them the huge Dallas-based conglomerate Suiza Foods. The handlers simply mark up their higher fluid milk costs and pass them on to consumers.
The Compact scheme thus leads to the "Robin Hood in reverse" result that milk drinkers - mainly young families with children - pay as much as a 20 cents per gallon premium at the checkout counter. Most of the proceeds of this exaction are then turned over to far more prosperous dairy producers, many of them million dollar operations. Because of their dependence on cartel profits, many Vermont farmers have shown little interest in strategies that could lower their cost of production or increase their net farm income. These techniques include agritourism, management-intensive grazing, on-farm energy production from animal and crop wastes, better cow management, new information technology, capturing more downstream profits through their cooperatives, organic and specialty crop marketing, and product diversification (beef, pork, ratites, timber, ginseng, maple, etc.) Instead, most Vermont farmers are marching - or are being led - down the road to Quebec-style supply management. This is the equivalent of the New Deal-era peanut and tobacco programs with their allotments, price supports, production quotas, and rigid government controls. Sanders and Vermont's Progressive Party, who view dairy along with any other politically useful industry as a potential public utility, are ardently promoting that result. In the meantime, Sanders is promoting legislation to create one big national Compact.
The end of the Compact premium will bring unhappy consequences for many high-cost farms and their hard working farm families. It will also bring new opportunities for the best managed and most profitable farms, who will take over the assets of their weaker neighbors and make them more productive even without the Compact over-order premium. A strong farm economy is very important to Vermont. Its importance goes far beyond the dollar value of exported dairy products. Farms are vital to the beauty of Vermont's landscape. Though the tradition is now in retreat, farmers have historically given a special character to our state's public life.
Now that this government-enforced cartel scheme is (probably) history, those concerned about the preservation of Vermont agriculture need to begin taking a new look at that industry. For their part, legislators should reexamine the state's tax and regulatory structure to lower the costs, obstacles, and annoyances visited upon farmers. Once farmers realize that capturing the coercive power of government to increase their incomes is no longer an option, their native ingenuity will begin to find new ways to organize, produce, compete, and prosper. The sooner this begins to happen, the better for us all.
Next Step for the Dairy Cartel
On May 3 New England's dairy farmers took the next logical step on their seemingly inevitable march toward a supply management system. On that day the New England Interstate Dairy Compact Commission voted to adopt an incentive system to pay farmers for not making more milk.
Over the past seventy years many thousands of Vermont's small dairy farms have winked out. Sometimes a farm's disappearance has been due to the lack of a new generation to carry on the family enterprise. But the most common reason is that the less efficient, less capitalized farmer can no longer pay his bills and make a profit at the price the market offers for his milk.
There has never been, since 1935, a "free" market in any sense. The federal government has enacted a host of protective devices to put a floor under fluid milk prices. For example, the government has long maintained major barriers to the marketing of reconstituted milk. Large Midwestern dairy factories using new technology could flood the country with low-cost aseptically packaged milk concentrate. Because there would be no need to ship refrigerated trucks of perishable fluid from farm to plant to grocery, the price of milk in many parts of the country would drop dramatically. Government barriers make this almost impossible.
The Federal government also has an elaborate system of marketing orders and regional fluid milk differentials not only to prop up the price, but to ensure the continuation of dairy farms, however inefficient, in every state of the union. That's why the nation's most expensive milk is produced in Florida, when the Florida market could be far more efficiently served by cheaper Midwestern milk. In 1996 Congress ratified the six-state producer cartel called the Compact. The cartel tells New England milk handlers that they must pay farmers $1.23 per hundredweight (11 cents per gallon in bulk) over the regional federal floor price. Last year this made New England's 4000 dairy farmers $33 million richer. It also made New England's millions of milk drinkers correspondingly poorer, but they aren't organized to make any effective protest. New England schools discovered that the higher cartel price for milk was eating into their school lunch budgets. So the Compact agreed to make payments to the six state departments of education to offset the higher costs. Of course, the Compact is not compensating welfare mothers, food stamp families, or working people who are required to pay higher milk prices. If the Compact compensated everybody who is paying higher milk prices, there wouldn't be any money left over to hand out to farmers.
The May 3 Compact Commission vote puts out to farmer referendum a proposal to pay farmers for not producing more milk. If 60% of all farmers agree, five cents of the compact premium would be distributed to farmers whose production is increasing no more than one percent per year. In other words, part of the higher price the Compact extracts from consumers at the checkout counter would be used to pay farmers to not produce more milk which, absent the web of government price regulation, would reduce prices to consumers. Supply management is popular with small farmers who don't want to expand, or who lack the credit or management skills to expand. One Highgate farmer was quoted in an article in the April 23 Times Argus as saying "If there's more money to be made in milking less cows, that's what the majority of farmers would want to do." Probably so. For some farmers the ultimate goal is a New Deal-style program which would pay farmers a lot of money for producing nothing at all.
Like it or not, small dairy farms are becoming less and less viable, unless they have off-farm or non-milk income, a contract buyer, a specialty product, or lottery winnings. The dynamics of the national dairy market are shouting "get big or get out" more loudly than ever.
The final chapter in this epic, after incentives fail, will be Quebec-style supply management. Every farm will have a government-determined production quota. No farmer can increase production without buying a quota from another farmer going out. No milk can enter the region. The government will fix the price high enough to make all existing farmers financially comfortable.
Can Vermont's non-competitive small farms be saved? Switzerland saved its inefficient farms by simply paying them tax dollars to keep farming, on the theory that their production is important to national security, their work is important to the landscape, and their children are better off in Valais or Obwalden than at loose ends in Zurich. Vermont farmers despise such "welfare payments" as incompatible with their independent status. Instead, they want to extract the same amount of subsidy through a complicated price-control and trade barrier mechanism, backed by the government's coercive power. This scheme invisibly taxes milk drinkers to boost producer incomes. In the long run this is not likely to succeed.
Milk Cartel Economics
On July 1 the New England Interstate Dairy Compact went into full effect. Starting on that date, milk handlers were required by law to pay an additional $3.00 per hundredweight for fluid milk. This amounts to an estimated 21% increase in the bulk price of milk for July.
According to a Burlington Free Press feature story, in July a typical 75-cow Vermont farm will receive an additional $1500 or so from this cartel-required over-order price. This $1500 will come in very handy for struggling dairy farmers. The identical per cwt. benefits will flow to both the smallest and weakest dairy farm, and the largest and most profitable dairy farm. The owners of a 1500 head operation will get a Compact check for an additional $30,000.
The enormously complicated Federal dairy program was created in the 1930s to make sure that milk for local or regional markets was produced by dairies in the region. To keep a surplus of milk from driving down the price and putting the least efficient farmers out of business, the Commodity Credit Corporation buys up, at a stated price, all the butter, cheese and milk powder brought to it by processors who can't sell those products at a higher price in the market.
The Federal marketing orders require handlers to pay an additional "Class I differential", different for each region to keep lowest cost Minnesota-Wisconsin fluid milk from moving around the country and displacing higher cost local milk (notably in Florida). Strict import controls keep foreign products from coming in and driving down the market for cheese and butter.
Now on top of all this, the Compact requires New England handlers to pay an extra $3.00 per cwt. (in July, $16.94 instead of $13.94). Theoretically a New York farm could ship milk to a Boston handler to get the higher cartel price, but the Boston handler will buy from New England producers if the price it must pay is the same. Out of region producers who might want to sell lower-priced milk are excluded from the six-state market.
With all this government-sanctioned price fixing to confer higher incomes upon dairy farmers, somebody has to produce the money to be distributed. Up to this year, in other agricultural programs such as wheat and feed grains, the government (i.e., taxpayers) made subsidy payments to farmers whenever the commodity price dropped below a target price set by Congress. But this turns up as an unacceptably large item in the federal budget and so became politically vulnerable.
There are two ways out of the budget crunch. The most obvious is to stop spending - back the government out of price supports and deficiency payments, and let farmers produce and sell in a free market like everybody else. For most crops that was achieved in the 1996 "freedom to farm " act, which will phase out taxpayer subsidies over the next seven years.
The more devious way out is to find somebody other than the taxpayer to take the hit. That is the route chosen by the promoters of the Dairy Compact, which ironically was approved by Congress as a part of the same farm bill that deregulated most of the rest of agriculture. This cartel scheme simply fixes prices above market levels, and keeps competition out. Since voluntary price fixing is always undercut in free markets, an effective cartel requires government enforced-price fixing. In Vermont the penalty for selling a gallon of milk below the cartel price is $10,000.
When the Dairy Compact cartel forces handlers to pay $3.00 more per cwt. for fluid milk, who gets stuck with the tab? Farm organizations often suggest that the handlers will swallow the higher cost and keep on selling milk at the same prices. Of course they will not. They will increase the price of milk to the ultimate fall guy, the consumer.
Consumers, being unorganized and largely unrepresented in political battles, will probably pay the higher price of milk without politically effective complaint. Young mothers who buy milk for their families on tight budgets will notice that they are now paying $2.30 per gallon instead of $2.15, but they will keep on doing it. The appropriation for the Women, Infants and Children (WIC) nutrition program will run out more quickly, and families dependent on food stamps will have to either buy less of milk or of something else.
By contrast, last summer when gasoline prices jumped 10%, there were demands from liberals for a national investigation of the oil industry, and demands from conservatives to roll back the federal gasoline tax. Liberals dislike the oil industry, conservatives dislike the tax industry, but nobody dislikes the hardworking dairy farmer.
If government price fixing that showers benefits on dairy farmers, rich and poor alike, by extracting higher prices from voiceless consumers, rich and poor alike, is not such a good idea for helping family dairy farms, what is? A few years ago Putney farmer John Nopper offered a clever idea . He proposed that the government require all dairy farmers to make a choice. They could produce for the market like any other business, free of marketing orders and subsidies, or they could become kept farms, controlled and supported by the government to keep the landscape attractive for the tourism and real estate industries and nostalgia buffs. The plan would not soak consumers, it would not shower benefits on the prosperous, and it would be perfectly clear how much the kept farms were costing the taxpayers. This was thought to be far too radical - and perhaps too honest - for further consideration.
If the people of Vermont desire to keep more family farms farming, the legislature could shift farm property taxes to other taxpayers. It has done this repeatedly since 1977 (current use, WFTAP, the 1997 education finance reform bill, etc.)
It could encourage vertical integration, where farmers get a share of the profits from the downstream processing and marketing of dairy products by their cooperatives. It could promote grass-based management, which by reducing the need for costly Midwestern feed has had remarkable success on one Waitsfield farm.
It could deregulate electricity and let farm groups bargain for lower-priced power. It could promote alternatives like organic farming, prime beef, fallow deer, ratites, and specialty crops.
When government gets into the price fixing business to benefit one politically influential industry - including the biggest and most prosperous producers in that industry - at the expense of unorganized and voiceless consumers, most of whom are less well off than the farmers who are receiving the price fixing benefits, eventually there will be trouble. Not only trouble, but anger, resentment, and retaliation against the people and politicians who rigged this consumer-fleecing deal.
The sad thing is that because of this political overreaching at their neighbors' expense, ordinary dairy farmers may end up worse off than they would have been had they chosen to compete in a free market. They'll find out in 1999, when the Compact's price fixing authority is scheduled to expire.
A Shabby Special Interest Story: The Dairy Compact
Very soon many Vermont dairy farmers will rejoice at the news that U.S. Agriculture Secretary Dan Glickman has signed an official paper declaring that there is a compelling national interest in creating a milk price fixing cartel for New England dairy farmers. At that point the Northeast Interstate Dairy Compact Commission will be born. Someday those who will be rejoicing in this special interest victory may well regret it.
The problem that led to the movement for creation of the Commission was, simply, milk prices too low to allow every New England farmer to finish each year in the black. Struggling farmers firmly believe in the proposition that they are absolutely entitled to a higher milk price. Many farmers who are not struggling also like the idea of a higher milk price. By 1989, several other schemes having failed, the dairy price hawks reached the unavoidable conclusion that the only way to get a milk price high enough to keep most of them in farming - and make some of them very prosperous indeed - was to create a regional dairy government.
Such a government - the Compact - could force dairies to pay over-order prices, and at the same time make it impossible for the dairies to bring in "cheap" milk from outside the region.
The chief promoter of this scheme in Vermont has been Rep. Bobby Starr (D-Troy), who is chairman of the House Agriculture Committee and for all practical purposes a wholly-owned subsidiary of the St. Albans Coop and other major dairy producers.
In 1989 Rep. Starr and then-Sen. Francis Howrigan, chairman of the Senate Agriculture Committee and brother of St. Albans Coop head Harold Howrigan, pushed through a bill approving creation of the Compact. The same year they secured passage of another little bill (Act 86) authorizing appointment of commission members and, in the fine print, loss of license and a $10,000 per day fine on anyone who dared to market a gallon of milk below the cartel-fixed price. This latter provision was perfectly logical and necessary, however, for the market will always undercut a cartel unless it is enforced by the threat of government penalties.
In 1992 the Vermont legislature passed a short-lived milk tax on producers and distributors. In an act of surpassing audacity, the conference committee on that bill snuck in a provision, never agreed to in either House or Senate, which assigned what turned out to be $61,823 of the proceeds of the milk tax to hire a lobbyist to lobby for Congressional approval of the dairy industry's cartel.
The current Congress did not hold a single hearing on the Compact, thus conveniently avoiding a forum at which outraged consumer groups could denounce it as a special interest rip-off. By a miracle of log rolling not yet fully explained, the conference committee on the 1996 Farm Bill included the required ratification, even though it had been voted down in the Senate (50-46) and was strongly opposed by a majority in the House.
There are still a couple of dark clouds ahead. If the Compact Commission fixes a higher price for milk, which is the sole reason for its existence, efficient producers will make more milk so they can make more money. Much of that extra milk will go into cheese and milk powder and drive down the national market for these commodities. When the price falls below a Federal floor price, the Federal government has to buy cheese and powder. That is a budget outlay, and the Congressional budgeteers insisted that the authorizing language require the Commission to "develop and implement a plan to ensure that the over-order price does not create an incentive for producers to generate additional supplies of milk."
Fine. And what will that program be? Nobody is talking, but the leading choices are a two-price system , or a Quebec-style supply management system which will enforce production quotas for every farm. Either way, farmers are likely to face an IRS-type dairy police tracking down contraband milk and levying Commission fines on uncooperative producers.
The success of this remarkable exercise in special interest political lobbying was made possible with your tax dollars. Unlike Phillip Morris, Budweiser, and WalMart, which at least use their own money for lobbying, the Dairy Compact lobby group was paid from tax dollars. In addition to the $61,823 from the state's failed milk tax experiment, the group pocketed $60,000 from the general fund. The industry stands to recover its lobby expenditure many times over. And the taxpayers? They'll get to pay more for their milk.
This shabby story of special interest politics and taxpayer looting is bad enough, but the final insult was committed on May 14 by Gov. Howard Dean. The Compact Commission includes several "fig-leaf" consumers so that the price-fixers can claim "consumers" at least have a voice in their own exploitation. After a long and conscientious search, Gov. Dean found and appointed the very model of a courageous, knowledgeable, champion of the Vermont consumer: Rep. Bobby Starr (D-Troy).
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.