If an agreement on the fiscal cliff is not met, reports are that we could see an increase in the cost of milk anywhere between $6 and $8 per gallon.
So why is this? Apparently a subsidy that is nearly 63 years old will kick in and the Agriculture Department will be required to buy milk at inflated prices.
The Washington Post reports on the "Milk Cliff,"
Come Dec. 31, Washington’s inaction could push the country’s milk prices to as much as $6 to $8 per gallon unless Congress passes a farm bill renewing federal support for agriculture programs.
Here’s how that would happen: Without legislative action in the next five days, the government will have to revert to a 1949 dairy price subsidy that requires the Agriculture Department to buy milk at inflated prices. Much like the current fiscal cliff, the law was left on the books “as a poison pill to get Congress to pass a farm bill by scaring lawmakers with the prospect of higher support prices for milk and other agriculture products,” as Vincent Smith, a Montana State University professor, told the New York Times.
The Farm Bill isn’t technically part of the fiscal cliff. Speaker John A. Boehner (R-Ohio.) has resisted the call by Agriculture Secretary Tom Vilsack (D) to incorporate it into the budget negotiations — to avoid complicating the budget talks and losing GOP votes, a Boehner aide told Politico last week. Legislators from rural districts are also worried that crop subsidies could be a tempting target in the fiscal cliff negotiations, so they’ve been trying to push Congress toward a separate resolution, to little avail. Although producers would temporarily benefit from the hike in milk prices, it would hurt processors and consumers, and the dairy industry would prefer a long-term resolution as well.
The Post's editorial section carried these comments:
The conventional wisdom is that this pending mess is yet another symptom of congressional gridlock — for which dairy policy itself is blameless. The Democratic-controlled Senate has passed a farm bill, and the Republican-controlled House Agriculture Committee has passed one, too, though it has not yet come to the floor. Both versions would replace existing milk subsidies with a new subsidized insurance program to ensure producer profits even when prices are low. The impasse over the farm bill relates to other provisions and to cost — currently $969 billion over 10 years in the Senate version, which is $12 billion more than what is in the House version, which many Republicans want to cut even more.
Supporters of the Senate bill argue that it would reform the most egregious direct-payment subsidies for crop farmers, thus saving at least $23 billion over what would have been spent absent the changes. This is a compelling argument, if you accept the warped logic of subsidized agriculture. The supposed savings would come from replacing direct payments with a lush “crop insurance” program that some economists believe could end up costing as much or more as the old system under certain circumstances.
In other words, the true cause of the “milk cliff” is Congress’s endless attempts to manipulate markets in favor of the various farm lobbies. Like other commodity programs, dairy supports are so complex that even many farmers can’t comprehend them without accountants and lawyers. But their objective is simple enough: to protect dairy farmers from the market vicissitudes with which every other business in America must contend, all in the name of a “secure” supply of milk.
Our family simply goes to the farmer directly for fresh raw milk. I understand the government has been incredibly intrusive in other states, even staking out the Amish "milk terrorists" for a year. I don't know if we will see an increase or not, but we pay just $4 a gallon currently and it lasts longer than the FDA approved milk and is better for you.
I do have to constantly wonder why it is that the federal government wants to subsidize business and industry and then tax the owners out the wazoo when they die.
Charles Krauthammer echoed my sentiments on the issue. He said, "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."
The bottom line here is that the federal government is using public funds to protect producers of a particular commodity. Like anything else we are dealing with, including the fiscal cliff, consumers are the ones that will pay the price for this. However, if it woke enough people up to demand that Congress get its hands out of things like this, it would be worth it. My guess is they would simply ignore the public outcry, much like they do today.