California dairy farmers have a big beef with the California Department of Food and Agriculture, which sets the minimum prices for milk in the state. Unhappy with a divergence in state and federal milk price controls in recent years, the dairy farmers have launched a campaign to be regulated under the federal government’s rules.
Their proposal would establish an all-milk price almost 7 percent higher than the current price, and the U.S. Department of Agriculture estimates that it would increase annual producer revenue by $700 million a year.
This does not bode well for milk processors, who buy the milk from the farmers to make cheese, butter, yogurt and other products. Nor would consumers appreciate paying higher prices for their dairy goods.
“Market conditions we can respond to,” Rachel Kaldor, executive director of the Dairy Institute of California, a trade group that represents milk processors, told us. “But if it’s just the government setting the price then that’s a problem for us in California.”
Moreover, she said, since prices are arbitrarily set, and not responsive to market forces, regulators “have to hit the bull’s-eye to ensure all milk produced is sold.”
Herein lies the problem with price controls, whether imposed by the state or the federal government: No central planner can ever hope to amass or quantify all the information and changing preferences of millions of consumers to determine the “correct price” for a good; this can only be determined through the decentralized forces of the market, as revealed and altered by consumers’ purchasing decisions. It is what Nobel Prize-winning economist Friedrich A. Hayek explained as the “knowledge problem.”
Exchanging a set of heavy-handed state regulations for even stricter federal regulations is no solution, particularly if the purpose is simply to benefit narrow special interests — in this case, the large dairy farmers — at the expense of consumers.
Not only should the federal government not agree to gouge consumers even more than they already are, these Depression-era “marketing order” regulations should be eliminated, and dairy farmers forced to be subject to the same market pressures that producers of other goods and services must navigate.