(12-31-12) Now that the "fiscal cliff" issue has been set aside, the so-called "dairy cliff" shows just how dysfunctional Washington has become -- and more importantly how it got that way.
The dairy cliff refers to an expiring 2008 farm bill which has certain subsidies without which the retail prices for milk, butter and cheese would all double in 30 days. Milk, for example, which sells for an average $3.53 per gallon could rise to $7 a gallon.
First it must be understood that there are different types of agricultural subsidies. Price support subsidies for certain grains and other fungibles have an underlying USDA guarantee for certain prices.
If the price falls beneath a certain level, the USDA would have to start buying and taking in inventory from farmers and that includes milk solids, butter, and cheese. The price of these items in the free market now is such that we are three to four times above where the price support mechanism is.
The subsidies that farmers receive are separate and distinct from the price support mechanism.