Resolved: That the United States should substantially change its federal agricultural policy.
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|Source: Forbes, June 17, 1996 v157 n12 p78(2).
Title: Gallo's whine: should Uncle Sam force business people to
Full Text COPYRIGHT 1996 Forbes Inc.
DAIRY FARMER and cheesemaker Michael Gallo figures he spent more than $300,000 last year advertising that his competitors' cheeses are as good as his are. He also spent money to promote milk, which he doesn't even sell.
Why did Gallo spend so much money so foolishly? Because state and federal bureaucrats forced him to.
Gallo, the estranged nephew of wine makers Ernest Gallo and the late Julio Gallo, raises 14,500 dairy cows on a farm midway between Sacramento and Fresno. It is the largest dairy farm in the U.S. Gallo uses the cows' milk to make his own "Joseph Farms" brand of cheese.
He'd like consumers to think his cheese is better than other brands. But under federal farm laws dating to the 1930s, Gallo forks over to the National Dairy Board and the California Milk Advisory Board 15 cents for every 100 pounds of milk his cows give. These bureaucrats spend the money they collect from Gallo and other dairy farmers to promote generic dairy products.
Gripes Gallo: "I have to spend even more on advertising to overcome what my competitors spend saying my cheese is the same as all other cheese."
Gallo is now suing state and federal milk marketing boards, and the state and federal agriculture departments, which oversee the boards. His grounds: The involuntary assessments violate his freedom of speech.
Marketing everything from kiwi fruit to cut flowers to grape root stock, U.S. commodity boards throw a lot of money around. Thanks to the coerced contributions, commodity boards for agricultural products pull in more than $750 million a year from U.S. farmers. The federal government plunks down an additional $90 million of taxpayers' money for overseas promotions.
Does the generic advertising created by these boards do much for the farmers? Michael Wohlgenant doesn't think so. An agricultural economist at North Carolina State University in Raleigh, he concluded that campaigns like National Dairy Board's "Got Milk?" can take credit for increasing milk prices by just 1.3%--and demand by a scant 0.3%--between 1984 and 1990.
Remember those California Dancing Raisins singing "Heard It On The Grapevine?" Brought to you by the California Raisin Advisory Board, they were so popular that they eventually had their own Saturday morning cartoon. But raisin sales declined during the $20-million-a-year Dancing Raisins campaign that ran in the late 1980s and early 1990s.
Who benefits from the $840 million a year collected by the various agricultural commodity boards? Mostly the bureaucrats running the commodity boards. The California Tree Fruit boards collect almost $7 million a year from growers, and spend 20% on salaries and expenses for 20 staffers. Some advertising firms do pretty well, too. The Fluid Milk Processors Promotion Board's milk mustache campaign is an anticipated $165 million national campaign; assuming the usual industry cut, ad agency Bozell Worldwide could get over $22 million of that as its fee. (Bozell won't discuss its fee.)
Farmers like Mike Gallo argue--and in some earlier cases the courts have agreed--that even if generic advertising does work, the farmers might be better off doing their own branded advertising. One of the biggest innovations in the milk industry has come from a soft drink maker, Pepsi-Cola Co., which is marketing a drink called SmoothMoos Smoothies that contains 70% milk.
Opined the federal Ninth Circuit Court of Appeals last year in a case against commodity boards marketing peaches, plums and nectarines: "We are unwilling to assume, in the absence of hard evidence to the contrary, that a government agency is better at marketing than an individual business person."
The Ninth Circuit court went on to rule that forcing farmers to contribute to advertising campaigns violates the farmers' rights of free speech. But the bureaucrats haven't given up. On behalf of the U.S. Department of Agriculture, the U.S. Solicitor General is now asking the Supreme Court to rule that forced contributions are constitutional. The Supreme Court is expected to announce in June whether it will hear the case.