Why Is Government Fixing the Price of Milk?

Prices should be decided by buyers and sellers.

The Denver Post warns, "Milk, food prices could rise if Congress fails to act."

Congress is working on a farm bill, which, among other things, will set limits on how high or low milk prices can be in different regions of the country.

Politicians from both parties like to meddle in agriculture. When the Heritage Foundation told Republicans not to pass any farm bill, "conservative" politicians banned Heritage from their weekly meetings.

But why should politicians be involved in agriculture? Why should they set food prices, any more than they set the price of books or staplers? The market decides most prices, so we don't have to wait with bated breath for politicians to make up their minds.

In a normal market, sellers charge the highest price their customers will pay—and then lower the price when they lose customers to sellers who charge less. Competition keeps prices low, not generosity or warm-heartedness. Or government.

The price of milk, on the other hand, is decided by regulators, using complicated formulas. They set one price for wholesale milk used to produce "fluid" products and another for milk used in making cheese. It's a ridiculous game of catch-up, in which the regulated prices never change as fast and efficiently as they would in a market, one buyer and seller at a time.

Next week, California will hold public hearings about milk price negotiations, as if more arguing will reveal the "correct" price. The agricultural news site Agri-View reports that dairy farmers filed a petition with the California Department of Food and Agriculture (CDFA), demanding it implement an earlier, massive milk-price compact agreed to by cheesemakers and legislators.

Under the agreement, cheese processors must kick in an additional $110 million to a statewide pool of money used to pay dairy farmers, who are upset that they've been paid less than what farmers get in surrounding states.

Rob Vandenheuvel of the state's Milk Producers Council says, "Government has the responsibility to keep us in line with what the rest of the country is making, and they're not doing it. It gives us no choice but to spend money on lawyers."

Great. How many lawyers does it take to produce a gallon of milk?

The dairy farmers say some dairy farms lose money, which proves milk prices are too low. But cheesemakers say they can barely stay in business, proving milk prices are too high.

Why is any of this the legislature's business? It shouldn't be. Prices should be decided by buyers and sellers.

Prices are not just money. They're information. Rising prices tell farmers to produce more; that increases supply and prices go back down. Falling prices tell producers to invest in other products. This system works well for plums, peaches, cars and most everything we buy.

But bureaucrats and lobbyists say milk is "special."

Vandenheuvel says cows can't be subject to market demand because "there are several years of lead time between when you decide to buy a cow and when that cow produces milk."

The CDFA agrees because: "Milk is a perishable product and must be harvested daily," and "Milk continues to be viewed as a necessary food item, particularly for children."

I say, so what? It's not "lead time" or being "perishable" or even being "necessary" that makes milk unique. Plums and newspapers are perishable and harvested daily. It takes long lead times to build assembly lines to make cars. No entrepreneur has a guarantee of market demand once the factory is complete. All business is risky.

The CDFA wails that without price controls, "no other regulations would be in place to assure an adequate supply of milk."

Give me a break. It's in planned economies, like Venezuela, North Korea and the former Soviet Union that shortages occur. When politicians micromanage markets, consumers suffer.

Milk isn't "special." Almost no product is. Let competition set the price.