On 26th April, the U.S. Senate approved a draft Farm Bill for the period 2013-2017. For milk, this text suggests volume management administered by the Department of Agriculture (USDA).
Specifically, the mechanism would be based on a system of direct aids coupled with production control: when the cost of feed increases above that of the floor price set for milk, the USDA pays premiums to producers, who in return, must agree to limit their production until the market recovers. This system would be on a voluntary basis.
Of course, the Senate draft is still awaiting approval by the House of Representatives and may be amended due to divisions on the draft within the agricultural and agri-food sectors and tensions between the House of Representatives (Republican tendencies), and the Senate. But even though the modalities might vary, the principles will not be called into question.
Yet again, the European Union (EU), committed to liberalizing the dairy sector, with the elimination of quotas in 2015, is out of step. The U.S. proposal reflects not only the different directions taken by the ongoing reforms in the U.S. and Europe, but also a certain paradox.
While the U.S. is often seen as the homeland of economic liberalism, who have often criticized the EU for being too interventionist, this proposal shows that the U.S. is above all, practical and pragmatic. They continue to say that free trade is the best possible form of market organization but, when markets dysfunction, as is the case for milk, the U.S. government does not hesitate in regulating them. Whenever their interests are at stake, and this is the case for most agricultural markets, the United States react with pragmatism.
No need to wait to find out which strategy, American or European, will be better at stabilizing the milk market! Recent history demonstrates that the dismantling of regulatory mechanisms is a risky option, because agricultural markets do not self-regulate. The potential fiscal gains to be derived from such a policy would very weak compared with the cost induced by a subsequent crisis.
Also, while the European deadline of 2015 is fast approaching, it would be wise to reassess the relevance of CAP reform in terms of the current economic climate and the recent directions taken by the United States, whose interventionist practices are rarely devoid of economic and… strategic justification.