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Why Dairy Farmers Are Facing Their Worst Crisis

Gina-Marie Cheeseman
| Monday July 27th, 2009 | 0 Comments

250px-Friesian-HolsteinAmerican dairy farmers are facing their worst crisis since the Great Depression. The price dairy farmers are paid for milk dropped 50 percent since December. Currently farmers are receiving $11.28 per hundredweight, and it costs an estimated $17 to$18 to produce milk. Unfortunately prices are not expected to suddenly rise. According to the June Dairy Market Report by the National Milk Producers Federations, “recovery will be more gradual.”

Over 100,000 dairy cows across the U.S. have been sold to beef processors, and industry officials think over 1.5 million of the country’s 9.3 dairy cows could meet the same fate. Farm advocacy groups estimate that about 20,000 family dairy farms could be lost.

Many experts blame the drop in price on the national pricing system, called the Dairy Product Price Support Program (DPPSP). Until 2008, the DPPSP was called the Milk Price Support Program. The U.S. Department of Agriculture (USDA) buys excess milk (nonfat dry milk, butter, and cheese) to main a minimal price to dairy farmers. The government stores the dairy products in warehouses until they are sold or donated.

A report by the U.S. Department of Agriculture (USDA) calls milk price supports the “backbone of the pricing system for milk and dairy products for some 50 years.” The report pointed out since the 1990s, price supports “have been well below market prices so as to have little more than a psychological effect.”

The government website, Expectmore.gov criticizes the program for not having “demonstrated results” because it “has not been updated in response to changing industry conditions,” and characterized it as having “major design flaws.”

Earlier this month the U.S. Secretary of Agriculture Tom Vilsack said he would consider overhauling the milk pricing system. The state of Vermont’s Secretary of Agriculture Roger Allbee said Vilsack’s remarks were “a positive first step.” He added that the “system is broken and it needs to be fixed.”

Ed Welch, president and CEO of Associated Milk Producers Inc., testified on June 22 before a House Agriculture Subcommittee meeting on low milk prices. During his testimony, Welch said the DPPSP “is not fully functioning.” Welch urged the USDA to take the following action to fix the DPPSP:

  1. Increase the Commodity Credit Corporation (CCC) purchase prices for butter, powder and cheese.
  2. Restore the pre-2009 policy of paying a premium price for consumer-packaged products that are more readily usable in USDA nutrition and food donation programs
  3. CCC should be an active buyer of dairy products on the Chicago Mercantile Exchange (CME) at established price support levels.
  4. Take all practical actions available to harmonize CCC packaging and grading standards with commercial standards set by the CME.

A dairy monopoly

Two weeks ago, Senator Bernie Sanders (VT-D) asked the U.S. Justice Department antitrust division to investigate Dean Foods Inc., the top producer of milk and dairy products in the U.S. Dean Foods controls 70 percent of the dairy market in New England and 40 percent of the U.S. market.

“We’re supposed to be living in a country that embraces competition in the marketplace and free enterprise but that’s clearly not what’s happening when one company controls 70 percent of the market,” Sanders said in a statement.

Francis Thicke, an organic dairy farmer who is running for Secretary of Agriculture in Iowa, released a statement in May about the low dairy prices, where he pointed out that the Dairy Farmers of America (DFA) buys 34 percent of the milk produced by U.S. dairy farmers. Thicke also pointed out that Dean Foods “reported record profits last quarter.”

Thicke said, “These two industry giants, Dean Foods and DFA, work together and have marketing agreements for purchase of raw milk from farmers (DFA) and processing and wholesaling of dairy products (Dean) all across the U.S.”


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