Dear Farm Aid,

A farm in a neighboring county declared bankruptcy last week and I just read an article that anticipates 200 dairies will go under in my state by the end of 2010. Why are dairy farmers in so much trouble right now?

Thanks,

Ben Z.
Shelburne, VT

I often find myself asking the same questions, Ben. Family dairy farms are in serious trouble and, frustratingly, they have been for a long time.

It’s been nearly a year since Farm Aid and 57 other organizations sent a letter to Congress pushing for an emergency floor price that would save dairy farm balance sheets. And it’s been just over a year since we stood alongside dairy farmers and rural organizations from eight states to rally against unfair dairy prices in Manchester, Iowa.

Still, our nation’s dairy farms have found little relief as they keep bleeding red ink. Many have gone out of business, and over the course of 2009 we even received devastating news of farmer suicides. American dairies face a long, grim tunnel with no clear end in sight.

The Tale of an Industry Gone Sour

The story starts with a set of price swings that could give you a case of whiplash.

In 2007, dairy farmers enjoyed soaring prices for their raw milk—a whopping 67% increase from the previous year’s average. But importantly, this temporary price spike occurred as production costs, including feed and fuel expenses, were also on the rise, leaving many farmers with little to no profits at year’s end.

Then, while their production costs stayed high, the prices dairy farmers received took a dive towards the end of 2008, falling to as low as $9 per hundredweight by early 2009[1]—far below the cost of production for nearly every dairy in the country, which generally falls between $17 and $27 per hundredweight depending on the region. Blamed on the economic downturn and decreased global demand (an oversimplification, which we’ll get to in a moment), the milk price squeeze left many farms with losses as high as $200 per cow, per month, for months on end![2]

Meanwhile, the country’s economic crash eroded the credit markets farmers rely so heavily on to operate their farms. Dairy farms in particular were being turned away left and right for loans from banks and lenders. Our 1-800-FARM-AID hotline rang off the hook with calls from dairy farmers watching in horror as their bottom lines sank to new lows, while no credit was available to keep them afloat.

The same combination of factors continues to push droves of family dairies out of business, placing incalculable burdens on the rural communities they call home. Your state of Vermont, Ben, lost 62 dairy farms in 2009. The Secretary of Vermont’s Agency of Agriculture recently predicted the state could lose another 200 farms by the end of 2010.[3] From coast to coast, we’re hearing similar stories, though it’s difficult to tally just how many dairies have gone under so far or predict how many we’ll lose in the end. Even the USDA says it will be five years before we know the complete extent of the loss of farms from this pricing disaster.

Experts on the matter compare the situation to what dairy farmers faced during the Great Depression. Yet the story’s not nearly as simple as volatile price markets.

Something’s fishy here…

Turns out that power in the U.S. dairy industry is concentrated into the hands of a few corporate players. In fact, today just two firms, Dean Foods (the largest milk processor in the country) and Dairy Farmers of America (DFA) (the largest dairy cooperative) dominate the fluid milk sector, controlling most of the milk processed and marketed nationwide.

For example, DFA controls about a third of the nation’s raw milk supply, meaning farmers have little choice when it comes to selling their milk on the market.[4] Meanwhile, Dean Foods controls 90% of the market for fluid milk (the processed milk we buy in grocery stores) in the state of Wisconsin, 90% in Michigan, 70% in New England and between 70 and 90% of the market in several other states.[5]

That alone spells trouble, but the dairy industry’s big boys have a history of being, well, bad boys. Both Dean Foods and DFA are subjects of pending federal class action lawsuits where they are accused of colluding to prohibit other firms from entering the market and manipulating milk prices.[6]

In August 2006, a U.S. Department of Justice (DOJ) antitrust task force concluded a two-year investigation of competition in the dairy industry. The result? Investigators recommended action against Dean Foods, DFA and the now-defunct National Dairy Holdings for alleged anti-competitive behavior, but action was never pursued by the Bush Administration.

What’s more, the Commodity Futures Trading Commission (CFTC), an independent agency of the US government charged with protecting the public from fraudulent markets, is reviewing complaints of price manipulation by these very players on the Chicago Mercantile Exchange (CME), where the price for milk is set. But this is nothing new, frankly. Back in 2007, the Government Accountability Office, the investigative arm of Congress, released a report suggesting too few players control the market for dairy, creating the perfect opportunity for price manipulation. And in 2008, DFA agreed to pay $12 million to settle charges by the CFTC that it manipulated prices.[7]

What You Can Do

While more farmers are forced out of business, we’re all still waiting for meaningful action on antitrust issues in the dairy sector. There’s no use crying over this milk matter—it’s time to get mad!

After years of sleeping at the wheel, the Department of Justice joined the U.S. Department of Agriculture and held a workshop on antitrust and competitive issues in the dairy industry on June 25, 2010, in Madison, Wisconsin.

This was welcome news, of course, but will do little to stop the bleeding on America’s dairy farms immediately. The results of this workshop may not be felt for years to come, while the 2006 investigation calling for action against mammoth corporate dairy players collects dust on the desks of DOJ officials. That’s why we’re calling on you, Ben, and all our readers to take action by asking Attorney General Eric Holder to move forward with investigations against dairy industry giants today.

In addition, if you know someone who is struggling from the dairy crisis, please email us at farmhelp@farmaid.org or call our 1-800-FARM-AID hotline. We take seriously the emotional toll that the current environment is placing on farmers, their families and their communities. Please do not hesitate to send a farmer our way.

Thank you for this critical question, Ben. I hope you and all our readers will join us in fighting on behalf of our nation’s dairy farms.

Alicia

Take action to tell Attorney General Eric Holder to act now and restore fairness to the marketplace and save our family dairy farmers.

Your thoughtful comments are encouraged, but all comments are held for moderation to protect against spam. Farm Aid does not censor or refuse comments for content unless they are spam or a personal attack.

Sources:

1. Levitt, A. (2009). Daily Dairy Report. CME Group. Chicago, IL, Chicago Board of Trade. 13(50).

2. Hoese, S. (2009). Statement before House Agriculture Subcommittee on Livestock, Dairy and Poultry Concerning Review of Economic Conditions in the Dairy Industry. House Agriculture Subcommittee on Livestock Dairy and Poultry. Washington, D.C. July 21, 2009.

3.(2010). Vermont family farms face a grim future. Burlington Free Press. Burlington, VT. May 30, 2010.

4. Burnett, J. (2009). Independent Farmers Fell Squeezed by Milk Cartel. All Things Considered. National Public Radio. August 20, 2009.

5. Monroe, M. (2009). Milk brand choices slim as skim: Sanders calls for Dean Foods, DFA probe. St. Albans Messenger. St. Albans, Vermont. August 8, 2009.

6.Sanders, B., Feingold, R., Schumer, C. (2009). Letter to Assistant Attorney General Christine Varney. U. S. Senate. Washington, D.C. August 6, 2009.

7.Fitzgerald, A. (2010). Why Dairy Farmers are in a Sour Mood: Market dominance and possible manipulation hit milk prices. Business Week. May 27, 2010.