Is there a solution that can satisfy the dairy producer, consumer and taxpayer when a price floor exists in the situation below?

Price Supports:Rigging the Market for Milk

Price support programs were introduced in the 1930s as a way to help farmers improve their income from after suffering low marker prices during the Great Depression.

Under the dairy price support program, the government agreed to buy milk products that can be stored. Storable milk products include cheese, butter and dry milk. If farmers were unable to sell their dairy products to consumers over the price support level of that time, the government would purchase the fluid or bottled milk, milk products including whey and dry milk, cottage cheese and yogurt products that had not been sold. State run dairy commissions would set their own milk prices similar to the federally set prices and within three percent of any bordering states set price. In addition to the government purchasing the surplus of milk products that can be stored under the dairy price support program, the government would purchase the products at prices that are above the market price.

Even though the government's intentions were good, the price supports program was heavily scrutinized. Some of the opposing views suggested that:

• The government encourages farmers to increase the production per cow through the use of modern farming techniques.
• Dairy price support programs resulted in average consumers paying higher prices for dairy products.
• With the government paying billions of dollars to dairy farmers for products that are either destroyed or stored for high costs, the programs can be a waste of tax payers' money.
• Since the dairy support program is a corporate welfare program, the biggest government price support checks go to large farms and does not support or help small family farms.
• The continuous flow of revenue provided to corporate farms enhances their ability to buy smaller and less efficient farms. This will result in raises in land values thus making it hard for others looking to enter the farm business and contributing to the decline in in dairy farms.

Pictured below is a graph to explain how setting a price floor above the equilibrium price results in a surplus using a Supply and Demand curve. Increasing the quantity supplied from Qe to Qs results in the price increase from Pe to Pm.

To minimize the surplus and bring the supply and demand curves closer to equilibrium, I don't think the government should continue to purchase the dairy surplus from farmers. While modern technology increases productivity, it is possible for farmers to decrease the number of livestock that produces dairy by euthanizing and supplying more organic beef products. This can slow down dairy production and contribute the non-GMO meat project. Another way for dairy farmers to get us closer to equilibrium is by continuing to produce as they normally would while improving both their and the country's economic situations by selling milk products to foreign countries. Another way to equilibrium is to place more taxes on dairy producers because this would create an incentive to decrease production.

Due to the criticism that the dairy price support program received, Congress repealed the price supports on dairy products and passed the Agricultural Act of 2014 as it would still provide some assistance to farmers. The Dairy Product Donation Program (DPDP) and the Margin Protection Program for Dairy (MPP-Dairy) were introduced.

The Dairy Product Donation Program requires the Secretary of Agriculture to purchase dairy products to be donated to low-income groups when the difference between the cost of production of the dairy products and the market price falls below $4. The program also guarantees a minimum level of revenue to dairy farmers by prohibiting the prices from falling below a certain level. In addition to the benefit to dairy farmers, consumers also benefit from the program because they wouldn't have to pay high prices on their dairy products with the price being under the minimum support price. However, taxpayers do not benefit from the program because they will have to pay more if the difference between the cost of production and the market price of dairy products falls below $4.

The Margin Protection Program for Dairy (MPP-Dairy) is a voluntary catastrophic insurance coverage offered dairy farmers at almost no cost to them, and the option to purchase some additional insurance coverage at their own expense if the difference between the market price and the cost of production falls below a certain level. With this insurance coverage, dairy farmers would be protected from extreme revenue loss by preventing the price of dairy products from falling below a certain level. Just like the Dairy Product Donation Program, consumers will also benefit from the program because they wouldn't have to pay high prices on their dairy products with the price being under the minimum support price. And again, just like the DPDP, taxpayers do not benefit from this program because their tax dollars are used to fund the insurance coverage that is of no cost to diary farmers. Taxpayers will have to pay more taxes to the government if the difference between the cost of production of dairy products and market price falls below a certain level.

From a Dairy Product Donation Program, my recommendation would be for the Secretary of Agriculture to analyze the data retrieved in the annual census to determine how many low-income families there are in each state and purchasing just enough milk products on a weekly basis for each family instead of purchasing all of the excess products. From a Margin Protection Program for Dairy perspective, the insurance coverage offered should also have higher premiums and deductibles. Implementing the two methods recommended, would change how price supports operate and will put more responsibility back on farmers. They would be required to analyze how much they're producing to determine if and how production should be decreased, increased or maintained. Since the supply exceeds the demand and raises the price, these two solutions will push the price level closer to equilibrium which is something that dairy producers, consumers and, taxpayers can all benefit from.