Governments largely assume that markets cannot be relied upon to provide essential goods and services to the public. Thus, regulatory systems influence prices, production, and market participation across a wide range of industries. While such regulations are often implemented in response to specific economic challenges, questions inevitably arise when they remain in place long after the conditions that justified them have changed. 

Few examples illustrate this tension more clearly than the U.S. dairy industry. A network of federal and state Milk Marketing Orders establishes minimum prices that dairy processors must pay farmers for milk (U.S. Department of Agriculture, 2024). These regulations were originally adopted during the Great Depression to stabilize dairy markets and protect farm incomes. Nearly a century later, however, they continue to shape the price of dairy products and influence competition throughout the dairy sector. Their continued existence raises legitimate questions about their modern utility.

Milk Marketing Orders reduce one of the most important forces in any market: price competition. In many industries, firms that discover more efficient methods of production can lower prices and pass some of those savings on to consumers. In regulated dairy markets, minimum pricing rules can limit the extent to which that process occurs. As a result, firms may have fewer opportunities to compete through lower prices, even when they can produce or distribute goods more efficiently. Critics argue that these regulations make it more difficult for new firms to gain market share and challenge established producers. As one analysis notes, distributors in some regulated markets have faced substantial penalties for violating mandated minimum pricing requirements (Cato Institute, 1997). USDA research has also suggested that pricing regulations may make it more difficult for some new entrants to compete profitably in regulated regions (U.S. Department of Agriculture, 2024). These rules can also contribute to higher prices for consumers.

Those higher prices matter most to households with the least financial flexibility. Since food represents a larger share of spending for lower-income families, even modest increases in the cost of staple goods can place additional strain on household budgets. Whatever benefits Milk Marketing Orders may provide to producers, consumers ultimately bear part of the cost through higher prices. Therefore, milk pricing regulations can impose burdens on households that have fewer resources available to absorb rising food costs (Cato Institute, 1997). Supporters of the system respond that price stability benefits both producers and consumers by helping maintain a dependable milk supply and reducing the risk of severe market disruptions (U.S. Department of Agriculture, 2024), but the tradeoff between market stability and consumer costs deserves closer examination than it often receives.

Even if policymakers agree that changes are needed, the structure of the system makes reform unusually difficult. Changes to Federal Milk Marketing Orders require a lengthy administrative process involving formal hearings, industry participation, and producer referendums (U.S. Department of Agriculture, 2024). These procedures are intended to ensure that affected stakeholders have a voice in policy decisions, but they can also make major reforms slow and politically challenging. Research by dairy economists has emphasized the importance of flexibility in milk pricing policy, particularly when markets face unexpected disruptions such as the COVID-19 pandemic (Zhang & Abler, 2023). Regulatory systems based on administered prices may adapt more slowly to changing economic conditions than markets that rely primarily on decentralized price signals, which raises concerns about whether the present framework is acceptable for modern economic realities.

There is little disagreement that Milk Marketing Orders were created to address legitimate economic challenges facing the dairy industry during the Great Depression. While this system may still provide benefits to certain stakeholders, policymakers ought to periodically reevaluate whether those benefits outweigh the costs imposed on consumers, competition, and market flexibility. A regulatory framework that has endured for nearly a century deserves scrutiny to ensure that it remains appropriate for the economic conditions of today.

Acknowledgement

The Institute for Youth in Policy wishes to acknowledge Rylan Wang for editing this policy brief.

Works Cited

Cato Institute. (1997, September 15). Milk Cartel Economics. Cato.org. https://www.cato.org/commentary/milk-cartel-economics

Jankovic, Anita. White Candle in Clear Glass Holder. Photograph. October 8, 2020. Unsplash. https://unsplash.com/photos/white-candle-in-clear-glass-holder-c7PT4PZMcNA

Manchester, A. (1994). The U.S. Dairy Pricing System. Economic Research Service. Agecon Search. https://ageconsearch.umn.edu/record/309710/

U.S. Department of Agriculture. (2024). Federal Milk Marketing Orders. Agricultural Marketing Service. https://www.ams.usda.gov/rules-regulations/moa/dairy

Zhang, Z., & Abler, D. (2023). Dairy pricing policy, production, and water quality: Application to the Chesapeake Bay watershed. Journal of the Agricultural and Applied Economics Association, 2(2), 350–365. https://onlinelibrary.wiley.com/doi/full/10.1002/jaa2.62