Federal Dairy Programs:

Insights Into Their Past Provide Perspectives on Their Future

RCED-90-88: Published: Feb 28, 1990. Publicly Released: Feb 28, 1990.

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Pursuant to a congressional request, GAO reviewed: (1) changes in the dairy industry over the last several decades; (2) the evolution of federal dairy programs; and (3) how federal dairy programs have affected dairy supplies.

GAO found that, although the number of farms declined substantially: (1) milk production increased from about 100 billion pounds in 1930 to about 146 billion pounds in 1988; (2) dairy production patterns increased in southwestern states by nearly 60 percent; (3) increases in price supports created incentives for farmers to increase milk production despite accumulating dairy surpluses; (4) net government purchases of dairy products significantly increased from $251 million in 1979 to $2.6 billion in 1983; and (5) efforts to reduce milk surpluses achieved only temporary success.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: Congress rejected this approach in the 1990 farm bill.

    Matter: Congress should continue to use the supply-demand adjuster tied to a relatively low level of expected surplus purchases by the Department of Agriculture (USDA) to set price support levels.

  2. Status: Closed - Implemented

    Comments: The Federal Agriculture Improvement and Reform Act of 1996 made substantial changes in the dairy program. Specifically, it directed USDA to develop and implement a new pricing system within the next 3 years. The act further directs USDA to establish new basing points and consolidate marketing orders.

    Matter: Congress should gradually decrease the federal role in milk pricing. This could be accomplished by establishing new basing points for calculating distance differentials.

  3. Status: Closed - Implemented

    Comments: USDA has addressed this issue under its authority and has removed down allocation and compensatory payment provisions.

    Matter: Congress should gradually decrease the federal role in milk pricing. This could be accomplished by removing down allocation and compensatory payment provisions.

  4. Status: Closed - Implemented

    Comments: The Federal Agriculture Improvement and Reform Act of 1996 made substantial changes in the dairy program. Specifically, it directed USDA to take steps to phase out distance differentials in federal orders over the next three years.

    Matter: Congress should gradually decrease the federal role in milk pricing. This could be accomplished by eliminating the grade-A and distance differentials in federal orders.

 

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