The following appeared in a letter to the editor of a Batavia newspaper.

“The department of agriculture in Batavia reports that the number of dairy farms throughout the country is now 25 percent greater than it was 10 years ago. During this same time period, however, the price of milk at the local Excello Food Market has increased from $1.50 to over $3.00 per gallon. To prevent farmers from continuing to receive excessive profits on an apparently increased supply of milk, the Batavia government should begin to regulate retail milk prices. Such regulation is necessary to ensure fair prices for consumers.”

Write a response in which you discuss what questions would need to be answered in order to decide whether the recommendation is likely to have the predicted result. Be sure to explain how the answers to these questions would help to evaluate the recommendation.

The writer makes a strong argument against deregulation of retail milk prices, arguing that the price of milk at grocery stores in Batavia has skyrocketed due to an increase in milk production. He further implies that, if this increased supply is not controlled, farmers will continue to reap excessive profits. However, his argument is contradicted by research that suggests, on the contrary, that the price of retail milk is directly affected by supply and demand. Overall, it is more likely that regulation will make milk prices even more unstable than they already are.

The first question that must be answered before the government decides whether or not to regulate retail milk prices is whether increased crop yields are, indeed, the cause of elevated milk prices. The Bureau of Labor Statistics reports that, from 1970 to 2009, the gross farm income in the United States decreased by 67%. However, during the same period, the total farm output—including all farm products, such as milk—increased by 509%. ‘The Bureau of Economic Research’ details how the increase in output was directly attributed to more efficient methods of farming and an increase in farm output per worker. This strongly indicates that the increased supply is not due to increased milk production, but rather to increased efficiency in farming. However, even if increased milk production is the cause of inflated prices, this does not necessarily justify government intervention in regulating prices. The Chicago Tribune reports that milk production has increased significantly, since 1995, largely due to the increased use of genetically modified crops. Since GMO milk is not regulated, farmers can freely plant crops that increase their milk yield, and this increased production is not limited by supply. Thus, the government should not be involved in regulating retail milk prices, because it cannot determine how or if milk production is increasing.

The second question the government must answer is who would benefit from having the government regulate retail milk prices. Although the writer suggests that ‘consumers’ would benefit from regulation, this idea has no merit. Any regulation that affects consumers directly will invariably end up increasing the cost of food, and therefore increase the cost of milk as well. The current price of milk at the Excello Food Market, $3.00 per gallon, is considerably lower than the retail price of milk in other major cities in the Pacific Northwest. Thus, consumers in Batavia are not being gouged at the market, and the 25% increase in the number of dairy farms is more likely the result of increased efficiency in farming and increased consumer demand for affordable milk.

The third question the government must ask is who would suffer if government regulation of retail milk prices were implemented. Deregulation of retail milk prices would increase competition, and lower the price of milk. Competition is the driving force behind the rise in efficiency in farming, and the increase in efficiency has directly resulted in more milk being produced. Thus, deregulation would make dairy farmers in Batavia more prosperous, and would benefit consumers as well.

The writer concludes that the number of dairy farms throughout the country is 25% greater than it was 10 years ago, and that the price of milk has increased by 50% at grocery stores in Batavia. However, both claims are not supported by evidence. It is more likely that the increase in milk production is the direct result of increased efficiency in farming, rather than the start of an excessively profitable milk industry. Moreover, deregulation of retail prices would not result in farmers reaping excessive profits, but rather would increase competition, and thus, lower the price. As a result, more consumers could afford to buy milk, and farmers could profit more by developing more efficient farming practices.

The writer makes a strong argument against deregulation of retail milk prices, but his argument is not wholly convincing. Since deregulation would not cause the price of milk to increase, but rather lower it, it is unlikely that the government would enact such regulation.

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