Thursday, June 11, 2009

Bad Policy

Map by Central Milk Market Order

Let's say that you believe in the dairy market system. And let's say for the sake of argument the supply and demand is in complete balance based on price. Then, let's say the price is dropped. Farmers will then have to produce more milk to keep their heads above water. Experts will then say the the market is again in balance based on the price system.

If dairy farmers receive every year, in terms of real dollars, less money for their milk, eventually, milk production will start to fall. Capitalism requires a profit which generates capital to survive.

However, if there is some form of capital generated from an external source, the experts will then claim efficiencies for the additional production.

Real estate, from suburban Los Angeles, and IRS tax code 1031 has generated the bulk of annual U.S. milk production increase. Less but, significant increases came from European farmers, particularly Dutch, selling cows, quota and land, then coming to America with pockets full of cash.

If, indeed, milk price determined production, all states would rise and fall together. The above map shows the impact of external capital inputs.

Los Angeles real estate as a kind of ATM for dairy capital has dried up. It would be fair to say that the national dairy policy has boiled down to putting most eggs in one basket. That basket, ever escalating real estate, is now a basket case.

So, what if more milk is needed in the future? What will drive milk production. Certainly not basement milk prices.

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