Dairy Programs

GAO concludes that during 1986-90, the Dairy Termination Program and price support cuts were a cost-effective way of reducing the quantity and expense of government purchases of dairy products. GAO projects that the two programs will reduce government purchases of manufactured dairy products--cheese, butter, and nonfat dry milk--by about 10 million pounds a year from 1988 through at least 2001. This will save the government $8.5 billion, benefit consumers by nearly $3.3 billion, and cost producers about $2.3 billion. The Dairy Termination Program provided more immediate reductions in government purchases and helped to mitigate losses to producers or eased their transition to lower price support levels, whereas support price reductions were slower to affect government purchases but will substantially and permanently reduce them in the long run. Government purchases should remain near current levels--eight to 10 million pounds annually--through 1997 and then decline to below five billion pounds by 2001. Despite the near constancy of the quantity of government purchases, government outlays associated with the support price program have been cut substantially, in great part due to a lowering of the government's purchase price for butter, a product constituting the bulk of government purchases.

GAO found that: (1) DTP and support price reduction initiatives are a cost-effective means of reducing the quantity and expense of government dairy support purchases and could reduce government purchases by about 10 billion pounds annually between 1988 and 2001, save the government $8.3 billion and consumers $3.3 billion in price supports, and result in net losses for producers totalling $2.3 billion; (2) although some DTP program participants will return to dairy production, they are not expected to significantly expand dairy production, and will do so with lower price supports and added health safety legislation; (3) although the DTP program has reduced government purchases, helped producers mitigate losses, and eased the transition to lower support levels, support price reductions are gradual, long-term, and permanent; (4) government purchases of excess dairy products are expected to remain near current levels for several years; (5) the government has substantially reduced its price support program costs due to general support price reductions and downward price adjustments in the government purchase price for butter; and (6) previous dairy price support reduction programs may not be adequate to reduce future excessive government purchases.