Milk Pricing:

New Method for Setting Farm Milk Prices Needs to Be Developed

RCED-90-8: Published: Nov 3, 1989. Publicly Released: Nov 22, 1989.

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Pursuant to a congressional request, GAO determined whether the Minnesota-Wisconsin (M-W) price series was a reliable and appropriate adjuster of milk prices and whether it needed to be improved.

GAO found that: (1) the M-W price is becoming gradually less reliable as a measure of national supply and demand conditions for milk used for manufacturing, does not provide a valid pricing mechanism over the long term, and is affected by local conditions; and (2) grade-B milk production and the number of grade-B purchasing plants in Minnesota and Wisconsin have declined significantly since the M-W price series was introduced. GAO evaluated five alternatives to the current price series, including: (1) a regulated grade-A manufacturing price series; (2) a deregulated grade-A price series; (3) a product formula; (4) an economic formula; and (5) an administratively determined price. GAO found that: (1) the first two options would reflect national prices that would be generally unaffected by local conditions, but a deregulated grade-A price series would treat some producers unequally; (2) a product formula would be superior to an economic formula; and (3) an administered price alternative would not incorporate the desired price mechanism characteristics.

Recommendation for Executive Action

  1. Status: Closed - Implemented

    Comments: USDA established an alternative pricing series effective August 1994.

    Recommendation: In view of the declining importance of grade-B milk, the Secretary of Agriculture should initiate efforts to develop and test an alternative pricing series.

    Agency Affected: Department of Agriculture

 

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