Federal Dairy Programs

The U.S. dairy pricing system was created more than 50 years ago to guarantee adequate milk supplies, stable prices for consumers, and economic stability for dairy farmers. In deliberating the 1995 farm bill, Congress will be considering possible changes to the U.S. dairy program. This briefing report provides information on (1) how the U.S. dairy pricing system operates and (2) dairy issues that may need consideration when the farm bill is reauthorized in 1995.

GAO found that: (1) the U.S. dairy program sets minimum milk prices through milk marketing orders (MMO) and the price support program; (2) processors, not the federal government, pay farmers for milk; (3) 38 voluntarily adopted MMO cover 80 percent of U.S. Grade A milk production; (4) MMO prices are based on geography and product classes; (5) higher raw milk prices for Class I and II products are based on the price for Class III products; (6) the free-market price for Grade B milk, which is not covered by MMO, determines the price for Class III products; (7) the price support program acts as a floor price for commercial milk sales; (8) because the dairy program's market environment has changed substantially since its inception, the program's components may be unnecessary today; and (9) two issues that need consideration during the farm bill reauthorization are the outdated premises for pricing milk under MMO, which lead to excessive milk production and inequitable producer prices, and price supports' creation of barriers to a more market-oriented dairy industry.