Tax Fact #31: Dairy Cartels Impose a Milk Tax on Consumers

Most Americans would be shocked to know that the price they pay for a gallon of milk is dependent in part upon how far they are from Eau Claire, Wisconsin. It sounds crazy, but it’s true. In addition, under the antiquated dairy compact schemes, holdovers from the Great Depression era, Congress has allowed states to form cartels that prop up prices for the inefficient local dairy industry, costing consumers millions of dollars in higher milk prices, and effectively imposing a “milk tax” in those regions.

Now, Congress wants to prevent the milk marketing reforms proposed by Agriculture Secretary Dan Glickman, which would lessen the distortions in the milk market. Even worse, Congress is set to expand this terrible cartel system, distorting the market to an even greater degree than it already is, and costing consumer millions more in higher dairy prices.

Who bears the cost of these cartels? It is the consumer in the “protected” regions. The Northeast Interstate Dairy Compact is estimated to cost consumers between $73.4 million and $224 million annually in higher milk prices. The impact on consumers of the massive new Southern Interstate Dairy Compact, which Congress is considering creating, would dwarf those of the current Northeast Interstate Dairy Compact. The Southern Interstate Dairy Compact could eventually encompass sixteen states, and cost consumers in those states a whopping $550 million to $1.6 billion annually.

Since milk is a staple, these dairy compacts disproportionately effect lower-income Americans. In fact, the number one purchaser of milk in America is the Women, Infants, and Children program (WIC). Moreover, according to the Public Voice for Food and Health Policy, the Northeast Interstate Dairy Compact costs food stamp recipients $7.4 million to $22.8 million annually in higher prices, and the proposed Southern Interstate Dairy Compact would cost food stamp recipients a staggering $85.4 million to $252 million per year in milk tax.

All of this because the dairy industries in the Northeast and the South apparently can’t compete with the efficient dairy farmers of Wisconsin. So, to make things “fair,” consumers are slapped with a milk tax. Well, using this principle, what could be next? A Midwest Wine Compact to protect Midwest vintners from Napa Valley producers? A Western Bourbon Compact so that Idaho and Montana distilleries can compete with their more-established Tennessee and Kentucky counterparts? Or, how about a series of regional software compacts to give other regions of the country a chance to catch up with Seattle, the Silicon Valley, and Austin?

Dairy cartels are economically inefficient, protectionist, unfair, and costly to consumers. But, they sure are good for the cartels protected by the scheme, and for the politicians who enjoy the political benefits of imposing a milk tax to help a special interest.