Thursday, December 28, 2006

Throttling milk drinkers

One of the more shameful actions Congress took last year (a more detailed version of the story is available here) was crushing an innovative dairyman who found a way around federal dairy regulations that artificially raise the price of milk and cost consumers, according to Citizens Against Government Waste, some $1.5 billion.

It was a bipartisan conspiracy, embodied in an amendment that was never subject to committee hearings through a procedure usually reserved for “non-controversial” legislation.

Hein Hettinga is a Dutch-born dairyman who started out as a hired hand in Southern California dairies and through entrepreneurial moxie came to own several dairies. Then he figured out a way around federal milk marketing regulations.

Passed in the 1930s when most dairies were small and localized, federal milk regulations guarantee a given price – a “floor” price, higher than the market would dictate, of course – for dairies who deliver raw milk to cooperatives or food processors. The U.S. Department of Agriculture enforces these prices through milk “marketing orders.” Defenders of the system laughably claim it benefits consumers.

But the 1937 law allows “producer-handlers,” who bottle milk only from their own cows, to operate outside the pools. For small operators this can be risky. But Hein Hettinga had become a fairly large-scale dairy owner.

So in the early 1990s he built his own bottling plant in Yuma, Arizona. His first customers were in Mexico, then he got a large chain store in Arizona to carry his milk. In 2002 he and his son built a second bottling plant in Yuma to supply Costco stores in Southern California.

The effect on prices was immediate, lowering the wholesale price of milk by 20 cents a gallon. Other suppliers had to cut their prices and their bloated government-supported profits.

Well! Such consumer-friendly marketing couldn’t be tolerated for long. Republican Sen. John Kyl of Arizona introduced a bill to force Hettinga to pay into the state’s diary pool even though he operated outside of it. That didn’t pick up steam until Sen. Kyl united with Democratic Sen. Harry Reid of Nevada, who had issues dairy farmers in Nevada wanted him to address.
Hettinga did hire his own lobbyists, but he was no match for the milk cartel Dean Foods, with 100 plants around the country, spent more than $600,000 on political contributions in 2005 and 2006, and the dairy industry dropped at least $2.5 million on lobbying. (If that sounds like a lot, consider the $1.5 billion the laws force consumers to put in the dairy industry’s pockets each year.)

Last March the amendment was quietly passed, by 13 votes, forcing Hettinga to pay $40,000 a month to the milk marketing pool – subsidizing his competitors.
In a free society with even a glancing understanding of free-market principles, the milk marketing laws would be repealed instantly. Instead they have been reconfigured to hurt one lone producer who simply wanted to offer lower prices to consumers.

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