Dairy: Family Farmers in Crisis

A crisis has hit dairy farms — and hit them hard. The dairy crisis is being felt across the nation, in every region and on every American dairy farm.

The Scoop on our Sour Milk Industry
Dairy farmers have been hit with a catastrophic combination of factors beyond their control. They are struggling to cover record-high feed and fuel costs just as credit markets have tightened in the midst of the country’s financial crisis. Most damaging of all, the price of milk paid to farmers collapsed from a record-high of $21.70 per hundredweight in 2007 to $9 per hundredweight in 2009. To put this in perspective, just to break even farmers need to make between $17.00 and $27.00 per hundredweight, depending on the cost of production in their region. Consequently, dairy farmers nationwide have been losing up to $200 per cow per month for months on end, draining billions of dollars from rural economies.[1]

False Scapegoats
Analysts cite diminished demand and oversupply as lead culprits in the price squeeze felt on American dairy farms. Yet data on U.S. exports and imports of dairy products challenges the idea that oversupply burdened our dairy markets. The U.S. is generally a net importer of dairy products, and in 2008, it increased imports of fluid milk, milk components, cheese, and milk substitutes. Consumption data indicates that U.S. consumers were consuming more milk products than U.S. dairy farmers were producing, calling into question whether oversupply or diminished demand could have caused this crisis.

Why aren't milk prices also dropping in the supermarket?
The prices farmers receive for their raw milk are unrelated to retail milk prices or a farmer’s cost of production. Instead, the price of milk is dictated by the price of block cheddar cheese on the Chicago Mercantile Exchange (CME). The CME has a reputation for price manipulation that leaves farmers with less at the farm gate. Between 1998 and 2007, dairy farmers' share of the price spent on milk dropped 25 percent, while the retail price increased by 40 percent. In December 2008, the Dairy Farmers of America, one of the few big players influencing prices on the CME, paid a $12 million settlement with the Commodity Futures Trading Commission in response to charges of price manipulation. In short, too few players control the CME, resulting in artificially low prices for farmers and windfall profits for milk processors.

How will the dairy crisis affect rural America?
Dairy farms are pillars of their local economies and rural communities. As dairy farmers are forced into bankruptcy, the impacts on farm service industries, input providers and local purchasers will ripple throughout rural America, further taxing the country’s already fragile economy. Communities facing a shortage of local dairy farmers will also have to rely on milk imports and substitutes that compromise their health and safety. The loss of local dairies also limits consumer access to locally produced, fresh milk products.

What is Farm Aid doing to address the crisis?
Since the start of 2009, Farm Aid, along with the National Family Farm Coalition and other farmer organizations, has called attention to the dairy crisis, advocating for dairy pricing reform and anti-trust investigation. Farm Aid has met with Secretary of Agriculture Tom Vilsack, delivering petitions signed by more than 13,000 consumers and farmers calling on the USDA to establish a floor price for milk that covers farmers’ cost of production. Farm Aid has also made emergency assistance funds available to dairy farmers and has offered support to dairy farmers organizing rallies nationwide and trips to Washington, DC, to inform consumers and legislators about the impact that losing the country’s remaining dairy farmers will have on the U.S.

Sources

1. 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.

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