October 13, 2009

Small farmers, not big corporations, gouge consumers

Recently I pointed out how backwards were the complaints about the large corporate buyers of farmers' raw milk being "too big" and supposedly wielding their buying power to fleece people who like dairy products. In fact, it's the dairy farmers themselves -- not those who buy up the raw milk and distribute it elsewhere -- who are trying to take the consumer for a ride.

The basic way that a monopoly harms consumers is by restricting output in order to send prices skyrocketing. Imagine when De Beers controlled almost all of the world's diamonds -- if prices were to fall unexpectedly, they'd simply choke off the supply. With fewer diamonds available, consumers will fight more intensely over them and so drive up the price. By creating an artificial shortage, De Beers makes consumers pay higher prices just so it doesn't bring in less money.

Unlike De Beers stuffing diamonds in their sock drawer, though, dairy farmers would have to pay huge costs to maintain cows that they'd taken out of milk production. So they just get rid of them altogether (from this WSJ article)

[L]ow prices have forced farmers to sell dairy cows through an industry program called Cooperatives Working Together. Member farms contribute money to the program, which purchases cows and slaughters them. So far this year, the number of working dairy cows in the U.S. has fallen by 170,000 to 9.2 million, says industry expert Jerry Dryer.

There you have it. Right in the pages of the newspaper with the widest U.S. circulation, we have an open-and-shut case of a group colluding to restrict its output in order to push prices back up to where they'd like them to be. For god's sake, they don't even break the law behind closed doors -- they've established the anti-competitive Cooperatives Working Together in plain view!

Of course, since they're farmers, they're not "gouging consumers" or "breaking the law" but merely struggling to preserve their endangered habitat. You can imagine the reaction if McDonalds and Starbucks saw their prices dropping due to the coffee war competition and agreed to destroy fully 2% of their coffee output so that they could charge higher prices for the remainder. Ditto if Wal-Mart and Target colluded. Actually, the elites would give Target a pass because they bring edgy designer junk to those who could otherwise only afford tacky crap. *

With most layers of government strapped for cash, the best policy response here is to shutter the DoJ's Antitrust division and have these glorified hall monitor pansies go do something useful.

* BTW, looks like the word "edgy" isn't so edgy anymore. One last slang-tastic paroxysm from the euphoric culture before it tumbled over like a drunk into a sewer.


  1. people will pay exorbitant prices for what they want. people begrudgingly hand over pennies for something they need.

    reminds me of the grocery store when i watch someone on their cell phone the entire time, holding up the checkout line, wearing sneakers which cost more than my dress shoes for work....and i see them pay for their food with EBT(foodstamps for those who don't know of such things).

  2. I see this less as price-gouging and more as supply reacting to demand. The price of milk drops, so farmers reduce their dairy herds. How is this not capitalism in action?

    The only nefarious thing I see here is the socialist-sounding Cooperatives Working Together. This organization could engage in price fixing, but if the price of milk is dropping then it's doing a poor job.

    Full disclosure: I'm lactose intolerant, so I don't actually care about the price of milk.

  3. Hey agnostic...

    Did you see this great article by an actual farmer about why the Pollan-ites drive him crazy?

    Good stuff: The Omnivore's Delusion: Against the Agri-intellectuals


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