February 2009
Dear Hilde,
I’ve been hearing that dairy farmers are in real trouble in my state, yet am surprised to see that milk prices have remained more or less the same at the grocery store. What’s the story?
Thanks,
Gary E.
Eau Claire, Wisconsin
Hi Gary,
Crisis has hit the dairy industry and hit it hard. While small dairies, like the majority of those found in Wisconsin, are most vulnerable to fluctuations in the market, the dairy crisis is being felt across the nation, in every region and on every farm. You are right to think that such a collapse in the industry would at least translate into lower consumer costs at the supermarket. Yet, as you’ve noticed, milk prices have hardly begun to budge.
The simple story behind the dairy crisis is that the industry is drowning in milk, the result of a catastrophic convergence of factors beyond farmer control. The global economic downturn has significantly soured demand for milk and milk products; farmers are struggling to pay bills from record high feed and fuel costs this past summer; adequate credit is increasingly impossible to come by; and, to top things off, the price of milk paid to farmers by processors collapsed a record 30% in January alone, and 50% since July. With little relief in sight, the price of milk is projected to continue this decline throughout 2009 before making even a slight recovery.
To pull this into perspective: a hundred weight (cwt) of fluid milk, about 11.8 gallons, is currently selling for as low as $9, but just to break even a dairy farmer needs to make at least $20-25.
Then comes the part of the story that doesn’t make much sense.
Despite the disastrous circumstances for dairy farmers described thus far, the consumer price for milk has remained largely the same. That’s because, unlike other commodities, the price of milk paid to a farmer is completely unrelated to the price paid by a consumer at the grocery store, and it is not based on the cost of production. The price of milk is dictated by the Chicago Mercantile Exchange, which has a reputation for being manipulated into charging consumers more and paying farmers less. Corruption, price gouging, and anti-trust violations by the nation’s biggest dairy cooperatives, processors and food companies have resulted in artificially low prices of shattering proportions and an industry known in great part for its volatility.
Still, despite their experience with precarious markets, dairy farmers haven’t faced such dire circumstances since the Great Depression. In 1939, dairy farmers famously dumped milk on the side of the road in an effort to both decrease supply and protest milk prices far below the cost of production. There is no reason why they should be forced to suffer the same way seventy years later. We know that dairy farmers in America are a tenacious bunch. Their ingenuity and work ethic have kept them afloat through the ups and mostly downs of the market. As dairy farmer and farm advocate Joel Greenoexplains, “The good times are measured in months, the bad times in years. “But even the most tested farmers haven’t seen anything quite like this.
As a result, many small and medium-sized dairy farmers have already shut down operations, while others continue to head to the slaughterhouse to thin their herds. In January alone, 72,000 cows were culled, and estimates suggest another 250,000-300,000 need to be immediately pulled from our nation’s stock in order to begin to stabilize prices. While this may seem like a logical short-term fix to stem the impact of the industry’s collapse, it is a controversial measure and the strategy has failed us before. Furthermore, herd reduction tactics place stress on other industries, beginning with beef. Dairy farmers are finding it increasingly difficult to find anyone willing to buy their culled cattle at a reasonable price. And as dairy farmers are forced into bankruptcy, the impacts on farm service and input industries ripple through rural America and beyond, further taxing our country’s already fragile economic and unemployment situation.
If current trends continue, we risk losing 20,000 of our nation’s 60,000 dairy farmers by year’s end.* And if this level of devastation weren’t enough, reports of farmer suicides have begun to surface, further adding to the unconscionable impacts of the crisis, and punctuating the need for immediate action.
The Dairy Subcommittee of Farm Aid-funded group and ally, the National Family Farm Coalition (NFFC), has been actively lobbying Congress and the Administration for temporary measures to address the current crisis in the economic stimulus package while pressing for long-term reforms. Ultimately, what our dairy farmers need is a complete overhaul of the milk pricing system: one that incorporates the national average cost of production, a fair living wage, and an inventory management mechanism designed to address overproduction as needed. Furthermore, the Department of Justice must tackle unchecked anti-trust violations and excessive control in the industry to ensure a pricing system that is fair and transparent for dairy farmers, processors and consumers alike.
Supporting the dairy industry through this deepening crisis is critical to the stability and vitality of our country. As Farm Aid President, Willie Nelson, often reminds us, American family farmers are the first rung on the economic ladder. If we lose even one family farmer or make it increasingly difficult for new or beginning farmers to get on the land, we put our food security and our local economies at risk.
If you or someone you know is struggling amidst the dairy crisis, please email us at FARMHELP@farmaid.org or call our referral hotline (1-800-FARM-AID). We may be able to direct you to a farm organization or farmer advocate in your area to help explore your options. Furthermore, the more information we have directly from farmers to communicate their struggle to the members of Congress and the Administration, the more tools we have on-hand for affecting true positive change.
-Hilde
