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Dairy farmers seek escape from volatile milk pricing

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Posted on August 24, 2009 |
By Kathryn Flagg



MIDDLEBURY — Inching toward consensus, Addison County dairy farmers last Thursday hunkered down over coffee and donuts at the American Legion in Middlebury to discuss a plan some dairymen hope could pave the way beyond dramatic highs and lows in milk prices.

That plan — championed by the Holstein Association, Dairy Farmers Working Together (DFWT) and a number of other dairy federations from around the country — is the dairy price stabilization program. Ultimately, as demonstrated in a show of hands at the end of the meeting, the majority of the nearly 100 farmers on hand Thursday agreed: moving forward with a such a plan seemed like a good option for farmers who are otherwise helpless against volatile swings of the market.

“Until now, increasing our production was the fastest way to bring in more money,” said Marie Audet, a Bridport farmer and member of the group DFWT, an organizer of the meeting. “Historically, we have measured our success with production and growth. Every time we built a new barn or added more cows, we had an open house. That’s the environment we were raised in.”

Now, she went on, is the time for unity among farmers.

“The way to manage our price is to manage away from surpluses, to stop creating them,” Audet said.

The milk price stabilization program would aim to keep supply and demand in check by establishing a production “base” for each farm.

Many farmers and dairy experts say it is supply and demand that’s responsible, in large part, for the wild swings in prices that the dairy industry encounters. When prices are strong, farmers make more milk to capitalize on high prices. That floods the market with milk, driving down prices until some farmers are forced to leave the business. Gradually that corrects the over supply, and prices begin to climb again — sending the cycle into another round of high and low prices.

Farmers say those highs and lows are becoming more extreme, and the cycles are repeating themselves more quickly. On Thursday, Audet said that if farmers didn’t work to correct the oversupply of milk in this country soon, they’d be facing dangerously low prices again in 2013.
That’s where the price stabilization plan would step in.

Under the proposal, every quarter, a board made up of regional farmers, U.S. Department of Agriculture representatives and a dairy economist would determine how much milk needs to be produced to meet demand for the product, and adjust a farmer’s “base” as necessary. If demand for dairy goes up, farmers’ bases would grow, too; if demand falls, farmers would be asked to cut back on the amount of milk they ship.

The program’s architects are quick to say that this is not like a Canadian-style quota system. Farmers could grow if they want to, but they’d be charged a “market access fee” for producing more milk than their allotted base. The fee would be collected and returned to farmers who stayed within their own base for the quarter.

Though this plan does not call for a reform of the federal milk marketing order, which sets the price for fluid milk, it would give the board power to influence the factors that drive those prices. That’s according to Methuen, Mass.-based Agri-Mark Co-Operative economist Bob Wellington. While Agri-Mark doesn’t have an official opinion on the plan, Wellington is largely supportive.

“I think the industry has to develop a consensus,” he said. “We have to do something.”

SOME OPPOSITION
At Thursday’s meeting, though, the plan met with some opposition from farmers. Miles Tudhope, a first-generation Orwell farmer, voiced concerns that the system might discourage new farmers from getting into the business.

Under the plan, new farmers could either buy an existing herd, taking over the previous farmer’s “base,” or start from scratch. In the latter case they’d be charged a market access fee on the milk they produce during the first quarter.

“I don’t want to shut the door to people getting into this business,” Tudhope said. “That ‘access fee’ is going to keep people out. I think we need to do everything possible to encourage young people to get into this business, not discourage them.”

The system, Tudhope said, would protect farmers already established in the industry while unfairly putting new or growing farms at a disadvantage.

Tudhope also spoke up against the stable prices for which so many farmers have clamored. According to the Holstein Association, a dairy price stabilization plan could hold prices for milk between $15 and $19 per hundredweight (cwt), eliminating price crashes like last winter’s that left the price of milk hovering near $10 and $11 per cwt.

“We made huge financial progress in our business in ’07 and ’08,” Tudhope said, referring to years when milk hit prices as high as $23 and $24 per cwt. “I don’t want to change a system that allowed me to make that kind of progress in those two years. This system … is going to lower that top price. Personally, I’ll take this period of low prices so I can get the high prices.”

JUMPING ON THE WAGON
Again and again on Thursday, advocates for the plan stressed that because this program is the one gaining traction nationally, farmers should rally behind the dairy price stabilization plan.

Audet also stressed that the program is one she’s confident in. It represents a consolidation of a number of plans (including a supply management program authored by Cornell University), and it would ultimately be managed in large part by regional farmers. That would be a first for the dairy industry, Audet said.

In order for the plan to be effective, advocates say the price stabilization program would have to be mandatory — which means the Holstein Association and other proponents of the plan are angling for Congressional action on the plan.

“Does it have a chance? Yes. Is it going to be an uphill battle? Yes,” said Lucas Sjostrom, one of two representatives from the Holstein Association on hand for Thursday’s meeting.

Meanwhile, milk prices are inching back up, Wellington said, though it will be a month or so before farmers see any increase. Right now, farmers are earning roughly $13 to $14 per hundredweight. While that marks a slight increase from lows this winter, the price is still several dollars below the cost of production, meaning farmers lose money on every gallon of milk they sell.

Even if prices rebound to the point where dairy farming is again profitable, farmers like Audet hope the momentum behind the dairy price stabilization plan doesn’t let up.

“Doing nothing is not an option,” Audet said.

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