The Electric Commentary

Sunday, February 19, 2006

Milking Regulations

Great story in the Trib today about Hein Hettinga, a dairy farmer who has not only improved the efficiency of his business, but has also done so in a way that allows him to avoid anachronistic, depression-era regulations:

But what distinguishes Hettinga from other large-scale dairy farmers is that he also bottles the milk from his Arizona farms and trucks it to stores in Arizona and Southern California. At one of them, Sam's Club in Yuma, two gallons of Hettinga's whole milk sell for $3.99.

That's the same price as a single gallon of whole milk in Chicago, which is second only to New Orleans in the cost of milk.

By controlling all stages of production, Hettinga says he can produce milk so efficiently that he and his customers can make a hefty profit at dirt-cheap prices. Such vertical integration, as it is known, is increasingly popular in agriculture as farmers and processors try to find ways to eliminate costs and increase revenues.


Isn't this great? Hettinga has figured out a better way of doing things. I remember an episode of The West Wing that focused on flashbacks of President Bartlet's climb to power. At one point he is giving a speech to some dairy farmers who are complaining about the fact that he cut some of their subsidies. He simply replies that "Yep, I screwed you there," and explains that he did not want hungry children to be deprived of milk. I always liked that episode. As in The West Wing, some dairy farmers are not happy about this:

Major dairy cooperatives and milk processors successfully persuaded federal regulators to write new rules that would prohibit the business practices that Hettinga has so successfully put in place.

Under the proposed regulations, Hettinga could continue to process his own milk only if he agrees to participate in a federally regulated pool of milk revenues, which would essentially require him to pay his competitors to stay in business. A bill that would have a similar effect is working its way through Congress.


You've got to be kidding. Here is a friendly tip for any legislators out there who happen to be reading. If your proposed regulations start to resemble the regulations of an Ayn Rand novel, you may want to rethink them. Here's a quote from a clueless member of the Dairy Farmers of America:

He has said that if Hettinga were allowed to continue, it "will lead to the disintegration of the entire federal order system and consequently, to chaotic milk markets across the United States."


Damn those chaotic markets! It's amazing that we can buy anything in this country. Here is some further proof of Hettinga's genius:

English also argued that Hettinga had an unfair advantage over regulated milk bottlers because he didn't have to pay the federally mandated price for raw milk. The result is that Hettinga is stealing customers by offering prices that regulated processors can't match, English said.


Unfortunately, it looks like Hettinga is going to lose unless there is some sweeping reform, and we all know how well congress deals with sweeping reforms. This is crony capitalism at it's worst:

"The federal order system is driven by people with power, and that now is the co-ops and Dean Foods," said Charlie Flanagan, business manager of Mallorie's Dairy, adding that being forced to join the federal milk pool would cost his dairy $1million a year, more than its annual profits. "They shape the rules that everybody has to play by."

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