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I would like to commend freelance writer Laura Clark for her article on dairy farming. When Ms. Clark asked what I thought the biggest, single problem was facing the dairy industry it was very difficult to answer because truthfully, nobody knows. The two most common schools of thought are oversupply and corruption.
The majority of milk in Kentucky is marketed to Dairy Farmers of America or to DMS (Dean Foods). These companies together last year paid a total of $12 million in fines for price fixing. They are both currently under investigation by the Department of Justice for price manipulation and as Ms. Clark was preparing this story yet another lawsuit was filed in the sate of Vermont alleging the same thing.
Cheese prices on the Chicago Mercantile Exchange determine to a large extent what price dairy farmers receive. many dairy manufacturers have features called “make allowances” embedded in the contracts with producers that guarantees them a certain profit margin, no matter what retail prices or the CME is doing. Even though the USDA raised the support prices of dairy products this summer in an effort to prop up mile prices, the effort failed because manufacturers refused to sell products to the government at a higher price, choosing instead to sell to retailers at lower prices. This kept demand overall for milk down, which depressed our pay price which is the price they must pay for their raw material. Their cost of production was covered by the “make allowances”, thus they were able to flourish with record profits even in the middle of a recession . With their profit margin already in place it is in their best interest to work the other end of the equation, thereby keeping their input cost as low as possible.The National Family Farm Coalition has long argued that the dairy pricing system is prone to price manipulation.
The other theory is of course the “oversupply” theory. Nobody questions that when last year’s record prices occurred many dairy farmers expanded, and now we’ve overproduced which would suggest supply management. However, when butter prices began to rise this past summer, imports increased a dramatic 200%. Increasing imports of something you already have too much of by 200% doesn’t make much sense. Imports of dairy products into the US increased to the equivalent of 230 tanker truckloads each day and that’s not counting imports of milk proteins, a dry substance used in processed cheeses, dairy desserts, crackers and energy bars. These proteins are imported from countries that subsidize their production, thereby putting the American farmers on an unlevel playing field.
Scott Williams and I both serve on the Dairy Advisory Committee for Kentucky Farm Bureau which can make policy change suggestions that sometimes become law. The Kentucky State Legislature passed into law last winter the Milk Commission Law which originated in the Marion County Farm Bureau. Not much action was taken tat this year’s Dairy Advisory meeting because while many farmers would like to see supply management become law, that would run counter to Farm Bureau’s market oriented approach.
With each dairy farm in the US losing an average of $400 per cow each month it’s been estimated that 25% of the dairies in the country will go under by January. Because of the shakeout of the industry this year it’s been predicted that we could see a 7 billion pound milk deficit by the year 2013, which will lead to higher prices, which will lead to decreased consumer demand, which will lead to another oversupply problem and the vicious cycle will have repeated itself. We feel the time to act is now. what we want is a level playing field, a market that can utilize what we produce, and a pricing system that is fair and equitable. We’ve earned it.