Title II of the Agricultural Adjustment Act of 1948 (herein referred to as “the act”), allowed the Secretary of Agriculture to, “Support the prices of whole milk, butterfat, and the products of such commodity… at a level not in excess of 90 per centum not less than 75 per centum of the parity prices.” To achieve this, the act gave the secretary the legal authority to support dairy prices, “Through loans on, or purchases of, the products of milk and butterfat.” To conduct the purchases or loans of dairy commodities, the Secretary of Agriculture was legally authorized to make the purchases of butter or cheese through the Commodity Credit Corporation (CCC). Under the legal framework in the Agricultural Adjustment Act of 1948, the dairy provisions are permanent law, although they have been regularly suspended by subsequent farm bills.
Parity prices are prices received by farmers for agricultural commodities that ensure a level of farm income to cover the costs of production and provide a living wage (7 U.S.C. §§ 608c-659, 1933). The idea behind parity prices originated in the Agricultural Adjustment Act of 1933 in response to the low commodity prices farmers experienced during the Great Depression. To calculate parity prices, the U.S. Department of Agriculture (USDA) used agricultural prices from 1910 to 1914, the Golden Age of Agriculture, since the industry generally regarded these prices as fair during this time. One of the commodities designed to receive a parity price was milk, which was spurred by the Wisconsin milk strike and subsequent cheese plant bombings. Parity prices reflect the purchasing power from 1909-1914 but in today’s prices.
Although the dairy parity price is no longer used in the current dairy pricing scheme in the U.S., it is still reported monthly in the USDA price report due to federal mandates in existing legislation (USDA-NASS, 2011). In September 2023, the USDA Agricultural Prices Report indicated an all-milk (across all classes) parity price of $67.40 per hundredweight (USDA-NASS, 2023). The actual price received by producers in September 2023 ($21.00 per cwt) was approximately 30% of parity. Milk prices by percent parity are shown in Table 1. Under the act, the secretary has the legal authority to set the parity price, which becomes the new price floor. The new price in turn is supported through dairy foods commodity purchases by the CCC.
|Table 1. Parity milk price.|
|Pricing factor||Price ($)|
|Income above market price||39.66|
|1Reported by NASS 2Current market price|
Policy Implication Discussion
If Congress fails to extend the farm bill between now and the end of the year, concerns will grow about a potential return to permanent law after the first of the year. Although many dairy farmers would be thrilled to receive an all-milk price of $60.66 cwt, there are a few long-term implications that need to be considered before celebrating a high milk price.
- Undoubtedly, the price of milk paid by consumers would increase significantly. Historically, milk was considered an inelastic food product; therefore, even as the price of milk increased, there was little effect on the quantity consumers demanded (Schröck, 2012). However, some economists have observed that milk is no longer as inelastic as once believed. This begs the question: even if the lowest-priced milk in the grocery store went above $4.00 per gallon, how would consumers respond?
- If milk consumption were to decline, there would subsequently be a ripple effect that would decrease the amount of milk processed into fluid milk and other dairy foods. Therefore, in a market where there is already an oversupply of milk, this could potentially increase this issue even further.
Schröck, R. (2012). The organic milk market in Germany is maturing: A demand system analysis of organic and conventional fresh milk segmented by consumer groups. Agribusiness, 28(3), 274-292.
USDA-National Agricultural Statistics Service. (2023, September 29). Agricultural Prices. Economics, Statistics, and Market Information Center. https://downloads.usda.library.cornell.edu/usda-esmis/files/c821gj76b/p5549b47m/6108ww46v/agpr0923.pdf
USDA-National Agricultural Statistics Service. (2011). Price Program. USDA-National Agricultural Statistics Service. https://www.nass.usda.gov/Surveys/Guide_to_NASS_Surveys/Prices/Price_Program_Methodology_v11_03092015.pdf
Myers, Jack, and Hunter Biram. “Implications of Reverting to Dairy Policy in the 1948 Farm Bill.” Southern Ag Today 3(46.4). November 16, 2023. Permalink