Federal Dairy Programs: Dairy Inventory Management Alternatives

GAO discussed alternatives studied by the Department of Agriculture (USDA) to address dairy inventory management problems. GAO noted that: (1) the level of deficiency payments in the target price/deficiency payment program to raise farmer incomes while allowing farm prices to be competitive would depend on the established target price, market demand for dairy products, and the level of producer participation; (2) although the reclassification program to create a new use category for milk that exceeds domestic commercial needs could lead to significantly lower government costs, subsidies would conflict with the U.S. position in international trade negotiations to reduce commodity subsidies; (3) although the two-tier pricing program to establish a national marketing quota for the amount of milk each producer could market at a government-established price would cost less than the $522 million needed to continue current programs, such quotas would limit output, reduce costs per unit, create barriers to entry for future dairy farmers, and limit export opportunities; (4) the milk diversion program to provide payments to dairy producers in return for voluntarily reducing production was effective in the short term for reducing surplus production and USDA purchase and storage costs; and (5) of the programs studied, a temporary milk diversion program with some program design, implementation, and duration modifications would offer the most potential as a transitional program to help the industry adjust.