Big “Farma” Or Who’s Milking Whom?

The failure of the 112^th Congress to pass a new version of the farm bill which expired on September 30 of this year is going to cause the price of milk to go through the roof.  We could be seeing the price on grocery shelves double to $6 or $7 a gallon.

I guess this news is only good if you’re lactose intolerant.

Washington Post Columnist Charles Krauthammer has suggested that going over the "dairy cliff" might have an upside:

"I do think if we went over the milk cliff it would actually be a good idea. [If] people actually saw the milk price double, it would be less abstract than watching a debt clock. They would finally understand that we have the insane laws that acquire barnacles over the decades. And the farm laws are the worst. They are all kind of pressure, special interest favors, pay offs which make no economic sense. I'd like to wipe them out and start all over again, and it would be good if the law expired. People would actually be awakened to how insane our system is and how much we really need tax reform. It wouldn't be an abstraction, it would be real."

Federal law puts a giant safety net under the dairy industry by promising that if the price of milk collapses, the government will swoop in and push it back up by buying mass quantities of dairy products. The goal is to make sure that the farmers are paid somewhere close to what it should cost them to produce the milk, a figure that's determined by a complex formula. 

Usually, dairies can earn plenty selling their product on the open market, and the government doesn't need to intervene. But the 1949 law getting ready to kick back in, bases its formula for the cost of milk production on how the industry worked in the early 20th century, when it was far less efficient than today. As a result, it will automatically force the government to start paying a giant premium for milk products, which will then cause prices to jump for everyone else as well. 

Don’t think for a moment you can avert the so-called “dairy cliff” by stocking up on powdered milk or almond milk or soy milk.  It’s all milk-based.

What’s next?  Oreos?

That giant sucking sound you hear isn’t just the milking machine hooked up to the udders of cows; it’s going to be hooked up to our wallets relieving us of its contents.  Thanks you miserable POS congresscritters.

Happy New Year, citizen.

UPDATE 12-31-12:  Deal could prevent spike in milk prices.