Summary: GAO reviewed several aspects of federal milk-pricing policies to determine how: (1) the milk marketing order program affects the U.S. dairy surplus problem; (2) to change the program to reduce incentives for milk production; and (3) such changes would affect the surplus and the program's ability to meet dairy policy goals.
GAO found that: (1) because dairy market conditions changed, the milk marketing order pricing policies no longer applied; (2) the federal milk marketing system contributed to a milk surplus and benefited producers in some regions of the country at the expense of others; and (3) recent legislation provided that increases in production that resulted in annual federal dairy purchases of over 5 billion pounds would trigger a downward adjustment in the support price. GAO also found that: (1) the two basic strategies for changing milk marketing orders were controlling production and lessening government influence on milk prices; (2) the production control system would limit the quantity of milk that producers, singly and in total, could market at a given price, but could increase consumer prices, create windfalls for current producers, bar entry for new producers, and impact production in the long run; (3) the options for reducing government influence would include establishing more basing points and eliminating grade-A and distance differentials, allocations, compensatory payments, and order-pricing provisions, while retaining supervision; and (4) eliminating pricing provisions would lessen the likelihood that the support price supply-demand adjuster would trigger price reductions in the future.
