Tuesday 13 April 2010

American dairy

HomePaddock rightly warns Kiwis not to set their expectations too high about free trade with the US on dairy. Which of course reminded me of this wonderfully depressing piece from the Washington Post, now four years old. I think I used the article in a take home exam question in my Public Choice class a couple years back, one of those wonderful "discuss with reference to theory developed in class" questions that lets the students show me whether they really understood things.
In the summer of 2003, shoppers in Southern California began getting a break on the price of milk.

A maverick dairyman named Hein Hettinga started bottling his own milk and selling it for as much as 20 cents a gallon less than the competition, exercising his right to work outside the rigid system that has controlled U.S. milk production for almost 70 years. Soon the effects were rippling through the state, helping to hold down retail prices at supermarkets and warehouse stores.

That was when a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.).

Last March, Congress passed a law reshaping the Western milk market and essentially ending Hettinga's experiment -- all without a single congressional hearing.

"They wanted to make sure there would be no more Heins," said Mary Keough Ledman, a dairy economist who observed the battle.
It's a long article, but it's essential reading for anyone in New Zealand dairy who wants a reasonable assessment of what the American dairy industry is like. I love the final line from would-be American dairy entrepreneur Hettinga:
"I still think this is a great country," Hettinga said. "In Mexico, they would have just shot me."
Lowered expectations about America's commitment to free markets is key to happiness.

Here's Hettinga's website; it's not been updated in some time, so I really don't know whatever happened to his lawsuit.


  1. I'll admit I had trouble keeping all of the threads of that story together, but the picture I got from it was one of a new entrant forcing lawmakers into a compromise that actually lowered the net level of regulation across the industry. So while I feel for the poor guy who had to take the hit in the name of progress, I'm struggling to read this as a 'bad' outcome, or as a cautionary tale for our dairy farmers.

  2. New entrant comes in via a mechanism explicitly allowed for in the rules, but which had been unanticipated by the big guys; the big guys get the rules changed such that he can operate but only under massive handicap such that he winds up paying his competitors. And that's a win?

  3. I was referring to this: "Kyl agreed to back removing all of Nevada from federal milk regulation, and Reid agreed to support legislation cracking down on Hettinga and protecting Arizona dairies from competition from low-priced Nevada milk. In 2003, the senators co-sponsored an amendment with both provisions. In effect, Nevada bottlers would get some of the same rights that were being taken away from Hettinga."

    Or did that bit get ditched by the end? Like I said, it was kinda hard to follow.

  4. @Anon: Nevada produces 0.3% of the overall US milk supply, as might be expected from a state that's mostly desert. Removing Nevada from federal regulation while protecting Arizona (with negligible milk production) from Nevada milk hardly seems much of a liberalisation.