I don’t know a lot about it, but the US Government apparently provides subsides to milk producers in order to keep prices down artificially. I assume this is done in order to promote milk consumption in the US, which is considered a ‘common good’.
Do other industrialized countries have similar milk subsidy programs, or is this unique to the US or perhaps Canada?
It’s not (usually) a subsidy. The USDA will buy certain dairy products from processors at a fixed price. If the processor can get a better price (prices are good), then the USDA buys nothing. This ensures a minimum price to dairies.
(For a while this resulted in “government cheese” that was handed out to poor people, etc., but that ended some time ago.)
There was a more direct subsidy to dairies when prices got too low from 2002 until last September.
If Congress doesn’t get its act together ASAP, another program kicks in which will send milk prices skyrocketing.
The nominal purpose of this system is to provide a reliable market price to farmers so that production is stabilized. Wild swings in prices (which can happen very easily without intervention) can wipe out farmers who cannot adjust production quickly enough to deal with it. And milk herds are notably inelastic.
The European Union has more-or-less the opposite system, limiting milk production in order to keep prices high. This is done through a quota system - each member state has a national quota, and this is in turn divided among producers. Member states (and producers) who exceed their production quota are fined. The effect is to benefit producers at the expense of consumers.
(Bolding mine.) http://abcnews.go.com/Politics/wireStory/deal-reached-stopping-spike-milk-prices-18095641
As was posted above. The purpose is to provide stability for the national herd through a minimum price that will provide enough money to farmers that they can afford to feed and breed their herd. It takes a little over two years for a calf/heifer to come to production the first time. It takes roughly a year for each time after that (for cows)… so a farmer today is making decisions that will produce milk in 12 to 24 months.
In today’s climate, with the prices of hay/feed, if there were no minimum price, many cows would go unbred and be sold off to slaughter. That would mean less production next year and the next. That would mean less milk, so higher milk prices (due to lack of product) and those high prices wouldn’t come down until (a) more cows were brought into production or (b) more milk using products were moved to other raw materials like soy. Then when prices go up, more cows are brought into production and prices go down… it becomes an ugly yo-yo effect and the dairy herd doesn’t exactly progress very far.
Drought in the last couple years has caused beef producers to sell off even their base breeding stock…so it will be interesting to see where beef prices go in the next year.
They don’t do much good for consumers, either. (And there are a lot more milk-consumers voting than milk=producing farmers.)