It would be hard to find a better example of how archaic and counter-productive U.S. agricultural price supports are than the recent "dairy cliff" negotiations in Washington. While much of the nation was focused on the much larger fiscal cliff as the year ended, Republicans and Democrats struggled to reach a compromise on a farm bill. Without one, milk prices were set to rise to as much as $8 per gallon.
The reason for this had nothing to do with market conditions, something farm bills in this country have long treated with hostility. Quite simply, without and agreement, a 1949 law would suddenly take effect once more, which set a floor for milk prices based roughly on conditions at a time when modern efficiencies and technology did not exist. Washington would buy milk at $38.54 per hundredweight, compared with $18.62 under the bill that expired Jan. 1.
Farm legislation in this country often transcends conservative or liberal philosophies. Many Republicans represent agricultural states and have difficulty applying free-market principles to their platforms without losing votes. But the current fight at least divides along ideological lines, and proposed versions of a new farm bill have included ideas that would inject some common-sense reforms. Those now appear to be on hold once again.
At press time, top leaders in both parties appeared to have reached a deal that would extend the 2008 farm law for one year. They may have been spurred to this action by the threat of expensive milk, but such an extension, if it holds, would fall far short of what is needed.
An earlier Senate version of a new farm bill would have removed direct price-support payments to farmers and replaced them with insurance premium supports against crop failures. That would have been a slight improvement, but it would have been fraught with consequences of its own. The insurance program would have been voluntary, and many small family farmers likely would not have been able to afford it, even with supports. Large corporate farms, meanwhile, would have had incentives to take risks or mismanage soil rotations because they would face few consequences.
When it came to dairy farmers, the bill would have required those who bought such insurance to be involved in a market stabilization program. When oversupply drove down prices, they would have to cut production. No wonder House Speaker John Boehner referred to the old system of dairy supports as "Soviet-style" and said the proposed new version was even worse.
A larger dispute in farm bill negotiations has been the future of the food stamp program, which takes up the lion's portion of the farm bill's costs. Given the nation's fiscal problems, many lawmakers have wanted to make cuts to the program. A better solution, however, would have been to turn the program over to the states in the form of block grants. Experimentation and innovation at the state level could have provided the best and most effective relief to suffering people during difficult times.
Unfortunately, these ideas are likely to be pushed aside as arguments to be debated at a future time.