Friday, March 16, 2012

More on tax breaks for Qualifying Cows

In my last post, I wrote:

 If the milk price is declining, there is presumably plenty of inexpensive milk for the yogurt makers to buy.  The dairy market in upstate New York seems to be working just fine, as far as I can tell.   If yogurt producers need more milk, their increased demand should drive up milk prices, which will encourage farmers to raise more cows.  Even if some sort of intervention is needed, why do it through the tax code, which is NOT working so fine? 
Actually, the dairy market in upstate New York is NOT working just fine.  WBNG in Binghamton reported last week:

 There's a yogurt culture growing in the hills of Chenango County. But, the impact on dairy farmers is questionable. 
"A lot of farmers are hopeful for their future that it will hold the milk price up, but sometimes it's more driven globally than it is locally," said Josh Lathrop, a dairy farmer in Sherburne. 
Many dairy farmers in many local counties are supplying milk to Chobani, the wildly popular Greek Yogurt manufactured in New Berlin. 
But, the net price of milk in New York is lower than the national average and lower than that of neighboring states. 
"Now that we've exhausted our milk supply in New York State, we've gone in to Pennsylvania and surrounding states," said Kelly LaCorte, spokesperson for Chobani, who spoke with Action News at a recent event in Binghamton. 
Data from the USDA puts New York's milk price at nearly $1.00 below that for Eastern PA, and $1.40 for states in New England. "You would think they would want to pay more money for local milk and have the better quality," Lathrop said. 
Transportation costs would be lower. 
"It helps the whole economy if the milk price is higher because farmers are the first ones to spend money in improvements of machinery or equipment," Lathrop said.
Hmmm, the market is NOT working the way the textbooks say it should.  Demand for milk in Upstate New York is growing due to the raging popularity of Greek yogurt, but prices of milk paid to farmers are staying stubbornly low.   Meanwhile, retail prices of milk in New York supermarkets have been increasing.

What gives?  Why is there a disconnect between rising retail milk prices and shortages of milk to yogurt factories and the failure of the milk prices paid to farmers to respond to encourage them to respond.

The market is not working.  Two Cornell economists point out that the New York dairy industry is riddled with market imperfections, including federal and New York state dairy price regulations that interfere with the market allowing milk prices to rise to encourage dairy farmers to produce more.

It sounds like the Upstate New York farmers would prefer less government interference with market mechanisms, allowing their prices to rise to reflect the growing demand for milk to produce Greek yogurt.

This makes a lot more sense to me than giving more tax breaks for qualifying cows.  If the market is allowed to work and prices paid to dairy farmers are allowed to increase to reflect the greater demand, they can afford to raise more cows without special accelerated depreciation tax breaks.

Less paperwork, a simpler tax code, less unnecessary market intervention--what's not to like?  Farmers can spend more time milking their expanded herds of cows and less time filling out complicated tax forms to take accelerated depreciation on them.

Upstate New York dairy farmers apparently don't want more bed buffaloes in the tax code.  They would just like the prices to reflect the increased demand so they can afford to meet that demand.

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