The following news report depicts the pressures that sometimes lead governments to try to interfere with the prices that emerge from markets. As the price of milk dropped in August 1991, legislation was introduced into the U.S. Congress to put a floor on the price. At the time the market price for milk was $11.47 per hundred pounds; the legislation would have put a floor on the price at a higher level, $13.09. Hence, if the legislation passed, the situation would be exactly like that in Figure 3.15. Consumers would have paid more for milk, and there would have been a milk surplus.

The article focuses on the hardships of milk farmers and their families, but it does not mention the cost to consumers. In this case the legislation did not pass. It is, therefore, an example where the government, through the political process, chose not to impose price controls, perhaps because of concerns about the harms from such controls, as illustrated in Figure 3.15.  

Source of article: Burlington Free Press, March 23, 1991, pp. 1–2. Reprinted courtesy of the Burlington Free Press.

Dairy price support defeat worries Vermont farmers

John Malcolm, Vermont’s dairyman of the year, estimated the U.S. House defeat of milk price support legislation Thursday would cost him $10,000 this year, and would cost the state’s economy $28 million.

"Anything is a lot of money," the Pawlet farmer said Friday. "We aren’t even breaking even now."

Bulk prices for milk have dropped nearly 30 percent since August. Prices per hundred pounds of milk average $11.47, while the cost for Vermont farmers to produce that amount of milk averages $13.75. Leahy’s plan would have temporarily fixed the price at $13.09.

Malcolm said he can keep farming for about a year with prices the way they are now, provided he makes cuts in equipment purchases. For some Vermont dairy families, the prospects are worse.

"We are just hanging on by a thread," said Helen Wilcox, who leases a farm in Alburg with her husband, Alvin. Of the couple’s nine children, six are still at home, and the family has been selling bull calves for grocery money.

"I thought it was really sad," she said of the proposal’s defeat, "because it would have helped drastically. . . . If (the price of milk) continues at $11.50, we’ll be out of farming by the year’s end," she said.

"The Senate recognized that dairy farmers in virtually every state are suffering and acted to stop the hemorrhaging," Leahy, chairman of the Senate Agriculture Committee, said Friday. "This is a sad day for our nation’s dairy farmers. The administration and House turned a deaf ear to their plight."

The Bush administration had threatened to veto the entire spending bill if it included the price support.