Federal Dairy Programs:
Information on Dairy Pricing and Related 1995 Farm Bill Issues
RCED-95-97BR, Mar 27, 1995
Pursuant to a congressional request, GAO provided information on the dairy program, focusing on: (1) how the U.S. dairy pricing system operates; and (2) dairy issues that may need consideration during the 1995 farm bill reauthorization.
GAO found that: (1) the U.S. dairy program sets minimum milk prices through milk marketing orders (MMO) and the price support program; (2) processors, not the federal government, pay farmers for milk; (3) 38 voluntarily adopted MMO cover 80 percent of U.S. Grade A milk production; (4) MMO prices are based on geography and product classes; (5) higher raw milk prices for Class I and II products are based on the price for Class III products; (6) the free-market price for Grade B milk, which is not covered by MMO, determines the price for Class III products; (7) the price support program acts as a floor price for commercial milk sales; (8) because the dairy program's market environment has changed substantially since its inception, the program's components may be unnecessary today; and (9) two issues that need consideration during the farm bill reauthorization are the outdated premises for pricing milk under MMO, which lead to excessive milk production and inequitable producer prices, and price supports' creation of barriers to a more market-oriented dairy industry.