Another point of view on the dairy situation

by Sally Colby

Jim Goodman, dairy farmer and president of the National Family Farm Coalition says the dairy industry is in a crisis situation, and added that it isn’t the first time. “I’ve been a dairy farmer all my life, basically the last 40 years; 20 as conventional farmer and the last 20 as an organic dairy farmer,” he said. “I farmed through the farm crisis of the 1980s, and a lot of the things that happened then are happening now.”

Goodman says he converted to organic production because it was a way to make a decent living and remain as a small farm. But today, there’s too much milk being produced. “I think now, as we saw in the 80s, the problem with conventional dairy production is there’s just too much milk produced at too low a price for producers to sustain,” he said. “The model back in the 80s with continuing and expanding farms is if you want to stay in the dairy business, you need to get bigger — bigger farms produce more milk and they can do it at a somewhat lower cost. It’s good for the processors because they want cheap product, whether they are using domestic milk or milk from overseas; which can be even cheaper.”

Another problem Goodman sees with the loss of dairy farms is the impact on rural communities. In the 80s, many businesses in farming communities closed because as small farms disappeared because the community could no longer support businesses such as machinery dealers and other retail establishments.

“This is not the first time, and certainly not the last unless some actions are taken,” said Goodman. “I think some of the things that can be done immediately, especially in the conventional sector, are an immediate $20 floor price for milk — this will keep farmers from going out of business. The USDA can purchase excess commodities for distribution in food banks. USDA and Congress should initiate hearings on the milk pricing formula because the way it’s working now is unfair to farmers. We need to think about implementing a supply management system like they have in Canada, which has kept farmers farming, supplies domestic needs and ensures fair prices for both farmers and consumers.”

But would the Canadian system of supply management work in the U.S., and would U.S. farmers be willing to convert to such a system? Ralph Dietrich, Canadian dairy farmer and board member of the Dairy Farmers of Ontario, participated in meetings in the Midwest to share information about Canada’s supply management system.

Dietrich starts with the fact that supply management is 50 years old. “We had some farms that were very prosperous based on location, others in the country didn’t have a market for their product and the price was dictated to them,” he said, adding that farmers are often price takers and not price makers. “Supply management has allowed us to have a constant production formula that allows farmers to have an income that is profitable.”

Digging deeper with his point, Dietrich says the attitude in the industry is that although we can milk more cows, that doesn’t mean we should. “The whole world is built on supply and demand,” he said. “The price curve is low now and staying low longer than it has been. Look what happened in Europe — when they removed quotas, farmers doubled in size. They wish they had supply management back. People have to learn to be satisfied with a certain level. We’re dealing in a world-wide economy now and we have other countries across the ocean as our competitors. Supply management works on the basis of production discipline. We do have controls on some products, but we also import more than we export.”

Dietrich explains the most recent example of what happens with the quota system. “As of May 1, quotas in Ontario were reduced, and the reason we did that is because we were getting too much production,” he said. “Rather than continuing to produce more, we’re putting some production discipline in place. In the states, when there’s too much milk, some processors will say ‘we don’t need your milk’ to certain farmers. We don’t do that (in Canada). Everyone takes a bit of a hit because the system is for everybody, not just a few.”

Sarah Lloyd, dairy farmer and Wisconsin Farmers Union staff member, says small and medium size farms can be viable if some of the volatility is removed and farmers’ cost of production is stabilized. Sarah’s family milks 350 cows conventionally, and one thing they’ve done due to the long, low price period is convert a short term operating loan to a long term 20 year note.

“In Wisconsin, the estimate is they are losing 1.5 farms/day, and 11 farms were recently dropped by a cheese plant,” said Lloyd. “In a system where demand and supply are matched, as Ralph said, if there was too much supply, you wouldn’t just drop 11 specific farmers. Everyone would take a small piece of that so it’s spread out over a community of farmers.”

Ed Maltby, executive director, Northeast Organic Dairy Producers Alliance, says when the organic rules were passed in 2002 and the National Organic Program came under the USDA, there was a working relationship between processors, organic milk buyers and producers to make sure they wouldn’t take too much milk ahead of what was in demand. As the industry grew and experienced growth rates of 10 to 15 percent annually, those relationships suffered. “We are now in a situation where there is a surplus of organic milk, and none of the milk buyers throughout the country are taking on additional farms,” said Maltby. “They have refused to honor obligations to farmers that have been transitioning over a three-year period, despite the commitment of producers.”

Maltby says there’s a lot of hardship among younger farms trying to transition to organic and farms with high debt level. He explains that from 2012 to 2014, there was a shortage of organic of milk so the farm gate price went up. Large dairies took advantage of a loophole in the organic regulations, transitioned conventional animals to organic and flooded the market with milk.

“We’re now seeing organic dairy producers in the northeast who were getting $35 cwt, now down to $27 cwt, which sounds like more like conventional prices, but the costs of organic are higher,” said Maltby.

From what he has observed, Maltby believes that the U.S. is well-geared to adopt some version of a supply management system. He says the conventional U.S. dairy industry survives on exports; the price determined by the value of milk internationally. “By looking at the issue from supply management point of view, you can assure a more vibrant and sustainable dairy industry,” he said. “For both conventional and organic, the timing is right to do it, but unfortunately, the power over what happens in the national cooperatives and national policy arena is in the hands of large-scale dairies that control vast volumes of milk.”

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