EDITORIAL: Reap Rewards of Dairy Deregulation
By The Wisconsin State Journal
Jan. 6–To understand the benefits of reducing dairy subsidies, the United States should look down under.
After Australia slashed subsidies in a wholesale deregulation of its dairy industry in 2000:
–Consumers saw retail prices for dairy products immediately drop by 16 percent.
–About three-fourths of farmers reported increases in net income in the year after deregulation.
–Milk production rose by 10 percent in the two years following deregulation.
The Australian experience is not directly transfer able to the United States because Australia’s dairy program was different from the U.S. program.
For example, U.S. taxpayers have more to gain from the elimination of subsidies than Australian taxpayers did. U.S. taxpayers foot the bill for most of the $4 billion a year that U.S. dairy policy costs. In Australia, the cost of subsidies was paid by levies imposed on dairy processors and on farmers themselves.
Nonetheless, parallels exist between Australia and the United States that make Australian deregulation instructive.
In the 1980s Australia entered into a free trade agreement with New Zealand, which had recently deregulated its dairy industry. The deregulated New Zealanders were far more efficient milk producers than Australian farmers. Consequently, Australian farmers had to get more efficient.
Over the next several years the dairy industry negotiated with federal and state governments to remove regulations and subsidies. An important development occurred in 1993, when the federal government required that all state-based regulations pass a public benefits test.
In the state of Victoria, dairy regulations failed the test. As a result, Victoria prepared to eliminate dairy regulations, prompting other states, the federal government and the dairy industry to agree on an overall deregulation plan that included compensation to help farmers through the transition to a freer market.
The compensation, amounting to $1.5 billion distributed over eight years, allows farmers to refinance debt, invest in equipment, expand or sell out.
Because consumers benefit from lower retail prices, they were tapped to pay for the compensation package, through a tax on milk.
In the first year of deregulation, the number of dairy farmers going our of business doubled, to about 7 percent of the total. Most were smaller, higher-cost producers.
Australia is now reaping the rewards of a freer market for dairy farmers because it was willing to accept the trauma of temporarily accelerating the loss of smaller farmers and because it was willing be pay for a large compensation program to cushion the transition.
It’s time for the United States to accept short-term pain for the long-term gain of a freer market that can benefit consumers, taxpayers and farmers.
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Copyright (c) 2007, The Wisconsin State Journal
Distributed by McClatchy-Tribune Business News.
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