Commerce Dpt.: The Agriculture Cartel

Nowhere is the government’s exploitation of people (especially the poor) for the sake of privileged clients so stark as in agriculture. A single dramatic, yet typical, illustration demonstrates this.

The United States does not have a free-enterprise dairy industry. It has, rather, a government-sponsored cartel, devised by and run for several large dairy cooperatives. The law mandates a minimum price for dairy products and restricts where dairy producers may sell their products. Imports are also restricted. The government supports the minimum price by buying up whatever goods cannot be sold at this above-market level.

Since the U.S. Department of Agriculture is the buyer of last resort, dairy farmers have an incentive to produce more than the free market would have called for. Shrunken demand, a response to the artificially high price, expands this surplus even more. The results of years of this political cartel is a government hoard of 411 million pounds of butter, 641 million pounds of nonfat dry milk and 439 million pounds of cheese. Each month the Department of Agriculture acquires some 10 million pounds of butter.

You may wonder where the government keeps such incredible amounts of dairy products. It has no storage facilities, so it must lease private space. The butter alone, which must be kept frozen, costs $1.07 million a month to store. Since storage space is scarce, Agriculture Secretary John Block has said he expects butter will soon be kept in his office.

Most people probably don’t realize that the federal government holds prices artificially high and hoards consumer products in this way. Only this can explain their failure up to now to storm the USDA, tear it down brick by brick, and lynch the bureaucrats.

But now they have an opportunity to contemplate government’s raw injustice. The magnitude of its “program” was revealed in the newspapers recently, when the White House was reported to have had second thoughts about selling surplus butter on the world market. USDA wants to get rid of the surplus because the butter is going bad (frozen butter lasts about three years and much of it is that old), and storage costs are high. But the White House balked, because it figures the Soviet Union will probably buy most of it. The world price of butter is about $1.05 per pound, barely half the American retail price. So the Reagan administration is uncomfortable with what would look like a subsidy for the Soviets, especially since it just sold 30,000 metric tons of butter to Poland at 33 percent less than the world price. The administration now apparently intends to sell butter to foreign countries only if they promise not to resell it to the Soviets.

A government source says the USDA can’t give the butter away in this country, say to schools and churches, because “they are saturated” with surplus dairy products already. Even if the government finds a way to sell it to someone other than the Soviets, its troubles would not be over. The European Economic Community and New Zealand, the only international butter traders, would be furious and would claim that the U.S. was tampering with the world price.

Let’s put this matter into perspective: At least since the New Deal, American politicians have espoused the politics of the “safety net.” Indeed, President Reagan, Jack Kemp, and the other prophets of the supply side routinely affirm the government’s responsibility to maintain a minimum standard of living for those who cannot achieve it on their own. This is why Reagan declared seven major federal programs off limits to the budget-slashing moguls.

But radical political analysts have long pointed out that the safety net is a farce. It consists of a few crumbs intended to buy off the poor and keep them from learning that the state has blocked off virtually every self-help route out of poverty. The state gives poor people food stamps, but, through the minimum wage, licensing, regulations, taxation, and union legislation, it keeps them from finding entry-level jobs or starting their own businesses or entering the crafts.

Now we see other evidence of the state’s hypocrisy regarding the poor. Massive government programs aimed at helping certain large farming operations force up the price of food and divert it from consumer markets to government warehouses. Then when the warehouses fill up, the government unloads the food abroad, at rates Americans would regard as a bargain.

The people shedding crocodile tears because the food-stamp program isn’t as big as they want would be more convincing if they took after the entire U.S. Department of Agriculture, which exists only to loot the American people for the sake of certain privileged farmer-businessmen. The politicians who claim to be free enterprisers are no more honorable than these liberals. President Reagan, Senator Jesse Helms, and others talk a good game, but what do they do? Reagan has proposed that dairy price supports not be increased as frequently as before, but he is not planning to challenge the programs themselves. Nor can most conservatives be expected to oppose the programs, since they favor them for the crops in their own states: for instance, Helms votes for tobacco supports; Senator Steven Symms of Idaho votes for sugar supports; Representative Richard Schulze of Pennsylvania opposes mushroom imports.

The biggest villains in the story, however, are the agribusinessmen who promote the programs. They pay tribute to free enterprise, then explain why their particular crop is unique. Perishability is the most popular reason. But as Professor Richard McKenzie of Clemson University points out, many other things that are perishable don’t get this special treatment. He reveals the claim to be a simple rationalization for protection from market risks.

Sometimes just plain chutzpah seems the only explanation for the farmers’ activities. For example, the same dairymen who support price supports and milk marketing orders want a prohibition against the importation of the dairy substitute, casein. Casein is a dairy derivative that the American farmers could produce themselves, but don’t, because its price is not held high by the government. Not only do they refuse to make it, they don’t want foreign producers (mostly in New Zealand) to send any here. Pat Healy, Washington director of the National Milk Producers Federation, says his members don’t want American consumers to do without casein; they’d be glad to produce it—if the government supports the price.

The dairymen are not the only culprits. Many fruit growers are of the same ilk. Farm associations and co-ops such as Sunkist have erected government-sponsored marketing restrictions that hold up the price and cause the destruction of millions of pounds of fruit each year. A recent Inquiry magazine story (May 11) noted that in California 3.5 million pounds of oranges will be allowed to rot in the sun this year alone. When a USDA official was reminded of the hungry people who might like to buy cheap fruit, he said, in effect, “Let them take vitamins.”

Fortunately, there are a few heroic mavericks among the growers. Inquiry quoted one, Carl Pescosolido, who doesn’t like the government telling him how many oranges he can sell: “They say these regulations are democratic. Yes, as democratic as the Kremlin. In fact, we call them the Red Menace. On second thought, I wish you wouldn’t use that analogy because I don’t believe communist Russia would ever allow this kind of waste of food. It’s not even a good socialistic system. I don’t know what it is.”

The agency that maintains most of these programs, the Commodity Credit Corporation, is a creation of the New Deal, so on the surface it is ironic for conservatives (who hate the New Deal) to leave it untouched. (Actually, it is not so ironic, since the New Deal and FDR had substantial big-business support.) Reagan was right long ago when he said fascism was the basis of the New Deal. Anyone who doubts this should study its legacy in agriculture, where a few large farm operations benefit at the expense of small farmers, consumers, and the poor. Even USDA concedes that its rules have fostered large farms.

A similar system of privilege was assaulted more than a century ago when Richard Cobden, the businessman and free-market radical, led a movement for free trade and peace:

If government desires to serve the interests of our commerce, it has but one way. War, conquest, and standing armaments cannot aid, but only oppress trade; diplomacy will never assist it — commercial treaties can only embarrass it. The only mode by which the Government can protect and extend our commerce is by retrenchment, and a reduction of the duties and taxes upon the ingredients of our manufacturers and the food of our artisans.

Sheldon Richman is the editor of Competition, the newsletter of the Council for a Competitive Economy.