Milk Marketing Orders: Issues for Consideration in Reauthorizing the Farm Bill in 1995

GAO discussed the Milk Marketing Order Program and the 1995 farm bill reauthorization. GAO noted that: (1) the market environment for milk has changed since the inception of the federal dairy pricing system and the premises for milk pricing under such a system are outdated; (2) milk marketing orders have led to excessive milk production and inequitable treatment of some milk producers, since producers in some areas of the country receive unjustified higher prices; (3) milk production is distorted by incentives for producing higher quality fluid (grade A) milk and shipping milk from high production areas to low production areas; (4) grade A milk constitutes 90 percent of American milk production, but less than one-half of this milk is needed for fluid milk consumption; (5) the grade A price differential far exceeds the marginal costs of producing grade A milk; (6) some low milk production areas are compensated to increase their production capacity at the expense of traditionally high production areas; and (7) alternatives for changing the U.S. dairy program include establishing more price-basing points, phasing out the grade A and distance differentials, and eliminating the milk market order program.