Friday, June 21, 2013

Why stores sell milk so cheap

Ever wonder why milk sells in the store for $2 to $3 per gallon while milk direct from a farm cost $10 to $20 per  gallon?  How can the farmer, the bottler, two transportation events and the grocery make a profit at 5 times lower cost than farm direct  to consumer with no transportation? The assumption is usually that economies of scale are at work here, and there certainly is some of that. However economies of scale can't explain 5 to. 10x difference with 4 levels if business removed. There must be something else at play here....

There is. The government pays certain farms, larger farms, to produce milk. The price those farmers sell for had little to do with supply and demand, cost of  production, or any normal free enterprise businesses principles. It had to do mostly with how much tax money goes to sellers to producer milk. As soon as the tax payments to farmers end... Prices go up dramatically as large farmers are forced to actually price according to cost of production.

But this is good, many think... The government keeps food costs down. Well hold on. Someone pays the taxes... Government doesn't make money, it takes it from citizens. So this is just shuffling money around, not keeping food cheap. Those that don't drink milk are forced to pay to produce milk for this that do drink it .

More importantly, this tax scheme called the farm bill is unfair competition. Add a small farmer producing real milk, our prices can not compete. We have to actually cover costs of feed, labor, insurance, facilities, maintenance. Etc through only milk sales. The larger farms exist on tax money instead. If the government would stop paying for milk, direct farm prices would seem much more in line.  Then we could talk about economies of scale vs quality.

Even deeper than this is the forcing of centralization in agriculture through government control through handouts. If only one type or size of business get large handouts, government is essentially controlling the entire market. Tax supported milk is cheap, only large companies get tax supports, so small farms can not compete. Soon you Gav centralization into only large corporations. Quality slides since size of producer determines method of production. And method of production determines quality.

So next time you pay taxes, remember that you just paid, in part, your milk bill. The part of you milk bill that you don't see.

This post was inspired by the following new story.... Intended to be as political news story, but what I see as a small farmer is government sanctioned unfair competition through forced taxation.

"Trouble for Boehner, dairy prices? Guide to farm bill defeat - Fox News"

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