Milk Pricing

New Method for Setting Farm Milk Prices Needs to Be Developed Gao ID: RCED-90-8 November 3, 1989

Pursuant to a congressional request, GAO determined whether the Minnesota-Wisconsin (M-W) price series was a reliable and appropriate adjuster of milk prices and whether it needed to be improved.

GAO found that: (1) the M-W price is becoming gradually less reliable as a measure of national supply and demand conditions for milk used for manufacturing, does not provide a valid pricing mechanism over the long term, and is affected by local conditions; and (2) grade-B milk production and the number of grade-B purchasing plants in Minnesota and Wisconsin have declined significantly since the M-W price series was introduced. GAO evaluated five alternatives to the current price series, including: (1) a regulated grade-A manufacturing price series; (2) a deregulated grade-A price series; (3) a product formula; (4) an economic formula; and (5) an administratively determined price. GAO found that: (1) the first two options would reflect national prices that would be generally unaffected by local conditions, but a deregulated grade-A price series would treat some producers unequally; (2) a product formula would be superior to an economic formula; and (3) an administered price alternative would not incorporate the desired price mechanism characteristics.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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