Overview of the Dairy Surplus Issue--Policy Options for Congressional Consideration

RCED-85-132: Published: Sep 18, 1985. Publicly Released: Sep 18, 1985.

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To assist Congress in its consideration of various legislative proposals to revise dairy policies, GAO summarized its work on dairy-related issues over the last 6 years, discussed the magnitude and nature of the dairy surplus problem, and analyzed several policy options for dealing with the problem.

GAO found that government dairy product purchases and inventories have increased sharply from 1979 through 1983 and the Department of Agriculture expects this trend to continue. In addition, the nation's milk consumption has not kept pace with production, and the potential for significant increases in farm productivity is great due to technological advances. Therefore, GAO believes that, unless the government adopts policies that will reduce economic incentives attracting resources into dairy farming, burdensome surpluses of federally purchased dairy products and high government costs will likely continue. GAO analyzed nine policy options and their potential consequences in terms of six specific goals that could help ensure that an adequate supply of milk is met in an efficient manner. The goals related to automatic adjustment of price levels, accommodation of changes in production costs, maintenance of production patterns, avoidance of excessive government costs, program cost visibility, and market determination of price and farm income. GAO found that: (1) the use of a supply-demand adjuster or a moving-average price would meet five of these goals; (2) deregulation of the dairy industry would meet most of the goals but would result in substantial industry instability; (3) using a dairy parity index and placing marketing quotas would not meet three of the goals; and (4) four other options would not meet two of the goals and only partially meet from one to four other goals.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: The Food Security Act of 1985 includes a supply-demand adjuster mechanism and a new milk diversion program.

    Matter: To avoid reverting to a parity formula required by the Agricultural Act of 1949, which would result in increasing the current support price from $11.60 to $16.22 a hundredweight, legislation will be needed to revise or replace the present dairy price-support program. In deliberating on such legislation, Congress may wish to give consideration to either the supply-demand adjuster or moving-average price option.

 

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