Award Winning Blog

Wednesday, October 30, 2019

Lessons From Milk Price Supports

            On a trip to see the In-Laws in Ohio, I noticed milk prices at half ($1.99 for a gallon) the rate available at home. Pennsylvania law establishes a price floor ostensibly to promote family farms and a “fair” price.  In application, so-called price supports prevent grocery stores from using milk prices as a lost leader.  Additionally, a $4 price point suppresses demand as the same time oversupply has pushed wholesale prices to record lows.  Meanwhile, intermediaries in Pa. make out like bandits exploiting the wide gap between the wholesale market price and the floor price paid by retail consumers.

            Price supports probably never made sense, but they hurt family farms now.  Of course, sponsored researchers and p.r. firms tout the non-existent benefits to the small farmer. What’s $2 a gallon if it helps sustain small farms?

            The better question: Why pay $2 more when not one dime flows downstream to the small farmer?

            The lesson here lies in the manipulation of emotions and good intentions, by stakeholders able to capture all the financial benefits.  This kind of “rent seeking” occurs all the time at the FCC.  Just now, the prospect of Huawei rigging its 5G wireless equipment for espionage warrants an absolute bar on the use of $8.5 billion in annual universal service funds available to subsidize rural access to wired and wireless telecommunication technology.  No one has offered clear evidence that Huawei equipment provides China a spying opportunity.

            Forcing Huawei out of the marketplace will raise the cost of 5G and other telecommunications equipment, particularly for price sensitive rural carriers. U.S. telecommunications consumers end up subsidizing “national heroes” even if these manufacturers sell more expensive and inferior equipment.