Milk Madness

British farmers are lamenting that they just don’t make enough money from producing milk. They receive, on average, less than one third of the price of a litre of milk: a price, they say, that has changed very little over the last few decades. Such a low profit margin threatens to drive them out of business. Their solution is now to threaten to halt milk production altogether in order to force supermarkets to pay more for their product, much to the displeasure of the cows needing to be milked I assure you!
The problem with this is that they seem to lack a basic understanding of the free market. Alas, in the very home of Adam Smith! The problem is not that the supermarkets pay them to little. What the supermarkets pay them is the fair market value of the commodity which they produce. The ‘fair’ price for that commodity is determined by supply and demand: not by a committee somewhere or some fanciful notion of the ‘fair’ price of their product, but individuals deciding just how much they will pay to drink milk. Supermarkets don’t determine the price of milk; consumers and producers do. Consumers such as myself demand milk, but naturally desire the lowest price.
If milk farmers want to increase the price at which they are able to sell milk, they have one real option – decrease milk production. This will create milk scarcity, forcing consumers to pay more if they want to get milk. Farmers can achieve this by either producing less milk per farm or by switching some milk farms to produce something else, which is exactly what the free market is forcing them to do. The problem with their present solution of forcing supermarkets to pay more is that it is an artificial increase that will only last until inflation brings them back into the present situation. Unless they address their overproduction problems, consumers and middlemen will continue to milk them for all they are worth.