cheese | Business in American History

When reading about President Trump’s promise to the farmers, the article kept mentioning how it will bring back the “government cheese” event from Jimmy Carter’s campaign. Prior to reading this article, I had not even heard of the term “government cheese”. To hear about more on the subject, I listened to the Planet Money podcast on Big Government Cheese.

Within this podcast, I was informed about how in 1976, Jimmy Carter was running for president and proposed to give farmers an equal break. He planned to do this by raising milk prices by 6 cents per gallon every 6 months. Carter followed through on his promise to the farmers and tried to figure out a way the government can step into the market to make it happen. They figured out they can either make demand greater or lower supply. USDA decided to go down supply the chain one step to find milk products that could store well. They came to the conclusion of cheese, specifically cheddar cheese. The government sent out sheet of paper to farmers that states they will buy as much butter, cheese or nonfat dry milk they are willing to sell at certain prices. By the government buying more cheese, cheesemakers buy more milk which in turn drives milk prices up.

Consequently, the government had an issue with storing cheese and had to store cheese in caves in Kansas because they had no other place to store the cheese. By early 1980s, the dairy support plan for cheese was costing tax payers around 2 billion and the government was buying 1 in every 4 pounds of the country’s cheddar cheese. This dilemma reached the point where the Agricultural Secretary held up hunk of cheese in a press conference and talked about the mold deteriorating cheese and how there wasn’t a market for it. A new program was created to give cheese away through food banks so that the market for cheese wouldn’t take a huge hit.

Government cheese became a symbol of crappy government handout as well as a parable in how government intervention in markets can have a butterfly effect, Jimmy Carter makes an innocuous announcement to help farmers and then the government ends up spending billions of dollars filling caves with cheese they couldn’t get rid of fast enough. The most prominent “Big Idea” for this course that is brought to our attention within this podcast is unintended consequences. Failing to acknowledge what might happen to the markets or the fact there will eventually be a large surplus for cheese came come back to bite the government. After finding the solution of food banks, the caves slowly emptied and the price for milk automatically froze every 6 months. The government did not foresee that price controls would be hard to unwind once they are started. Because of this, the government pondered how to get out of cheese business without harming the farmers too much. They ended up paying money to the farmers to encourage them to stop producing milk.

Due to the argument that our country has to be able to produce its own food because if our farmers go out of business, then we become reliant on other countries for food which is a security risk. It’s one thing for the government to provide stability and it is another to step into the market in a big way and possibly the wrong time because playing with price controls is like playing with fire.

(image on the left from twitter and image on the right from the podcast)

Katie Shore

(Image from NPR: “Uncle Cheese”)

Who would have thought that the government cared about cheese? Believe it or not, they did. The government and cheese have interacted in the past and affected our country’s economy and society.

Let’s go back to when it all started: Jimmy Carter’s campaign promise to give farmers what he called “an equal break.” It makes sense that Carter would want to help the farmers because he knew what it was like to be a struggling farmer: in 1954, his farm’s net profits were a mere $187. After winning the election, Carter went to work trying to fulfill his promise. First, he raised the price of a gallon of milk by six cents. The interaction here between business, state, and society is quite remarkable. The government came into the dairy industry and raised prices by using a price floor. I wonder how other businesses felt about this decision by the government. They must have been asking why the dairy industry was getting bailed out; surely, the dairy industry wasn’t the only struggling industry at the time. The state’s involvement in the pricing of dairy clearly shows Carter’s bias towards the farmers. While these dairy farmers and their businesses might have benefited from the government’s help, the rest of society was stuck paying more for their milk.

Let me pull out my notes from my Economics class (thank you, Dr. North). Because of the government-instituted price floor, dairy farmers were ramping up production; at a higher price, producers wanted to make and sell more goods to earn more money. Consumers, however, didn’t want to pay this higher price and demanded less than the producers were producing. This led to a surplus, which led to more government intervention.

The government started buying and trying to store lots of milk, but milk has a short shelf life. The solution then was to turn this milk into products that didn’t expire as quickly, such as powdered milk, butter, and cheese. Next, the government told dairy farmers that it would set a price and purchase as much as the farmers were willing to sell. Unfortunately, farmers took advantage of the situation and tried to sell the government their worst cheese. That’s where cheese graders – not graters – came into play. These people traveled the country evaluating cheese based on specific criteria including its flavor, acidity, fruitiness, and so on. The government bought cheese that met all of the grading requirements and then stored it in caves.

This whole cheese-buying extravaganza was costing billions of dollars, and the government needed to find a way to get rid of its cheese. Rather than flood the market with the cheese, destroy it, or send it overseas, the government decided that it would process the cheese, package it, and then give it away. These blocks of government cheese – pictured below – were given to schools and food banks to try to provide for the hungry.

(Image of a Block of Government Cheese from a magazine titled Rolling Out)

Government cheese often gets a bad rap, primarily because of its unintended consequences. First, the government’s efforts to help the farmers led to very expensive cheese for consumers. Second, the government’s supposedly beneficial price controls were actually harmful and very difficult to undo. Third, the government had to start paying farmers to stop producing milk while simultaneously instituting campaigns to convince people to buy milk. Got milk? Today, instead of directly buying farmers’ products, strategies such as direct subsidies work much better – and don’t require the government to store billions of dollars worth of cheese in caves.

You would think that we had learned our lesson from the past, but it appears the government is going back to its old ways. As of August 31, there are plans to purchase $85 million worth of dairy for schools and food banks. I’ll leave you with a quote by philosopher George Santayana: “Those who do not remember the past are condemned to repeat it.”

If you have time to listen to the NPR episode of “Planet Money” about the history of government cheese, I would recommend that you do so. Who knows? We might have another cheesy situation on our hands very soon…