The ultimate effect of all forms of taxation on goods is therefore that both buyers and sellers are affected, as the market responds to both changes in demand and supply, regardless of which carries the initial effect.

II. PRICE CONTROLS and TAXATION on MILK

According to Chris Edwards (2007), the milk market has been affected by government-imposed price controls since the 1930s, with the implementation of "marketing order" regulations. According to these, minimum prices were imposed upon diary processors, which were payable to farmers. This policy limits marketing competition by imposing a minimum government price upon dairy products. In other words, entrepreneurs are unable to supply dairy products at competitive prices and raise demand as a result. Another effect of this price control factor on the market is that lower-cost regions are restricted from obtaining market shares in regions where the costs are higher. Specifically, Edwards notes that Cincinnati residents were paying an average of $2.68 per gallon of milk in 2006, compared with New Orleans residents, who paid $4.10.

A further control upon price was imposed in 1949, according to Edwards, when a price-support program was implemented to assist farmers. In this program, government guaranteed their purchase of cheese, butter and dry milk at a minimum price; in this way ensuring that market prices remained high. A further income support program was implemented for dairy farmers in 2002, by which cash payments would be distributed if prices fell below predetermined...

This results in overproduction even while prices remain artificially inflated. According to Sue Dunlevy and Alex Dickinson (2008), the government however appears to plan some relief for dairy consumers by means of tax cuts projected for 2009.
According to the authors, controversial dairy taxation was imposed upon consumers during July 2000. The aim of this taxation was to raise $1.8 billion, mainly for compensating dairy farmers for industry deregulation. However, it later came to light that money raised in this way was also used for other purposes, such as igloos for free-ranging ducks and a polocrosse field. The responsibility of these taxes extended only to consumers, as dairy farmers were directly benefited from at least part of the money raised.

A cut in these taxes during March 2009 would mean that consumers pay 11c per liter less for milk, although presumably the other programs mentioned by Edwards would still be in place. In the dairy industry, therefore, the market is artificially inflated by government programs and taxes to benefit dairy farmers. Consumers carry the full economic responsibility of these policies, which are particularly detrimental to the poor.

Sources

Dunlevy, Sue & Dickinson, Alex. (2008, Sept. 25). Milk price set to drop after axing of tax. The Courier Mail. http://www.news.com.au/couriermail/story/0,23739,24398026-953,00.html

Edwards, Chris. (2007, June 29). The Madness of American Milk Prices. Cato Institute. http://www.cato.org/pub_display.php?pub_id=8479