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House Subcommittee Discusses Crisis in Dairy Industry

posted on July 17, 2009

While the full economic impact of proposed cap and trade legislation in rural America remains to be seen, few sectors of agriculture have had a rougher go recently than the dairy industry.

According to the National Family Farm Coalition, prices paid to dairy producers plunged 44 percent over the past year in the largest single decline since the Depression. Despite higher input costs, dairy prices dropped from more than $19 per hundredweight in February of 2008 to about $10.00 on Friday.

And in Washington this week, members of the dairy industry pleaded with Congress to intervene on their behalf.

House Subcommittee Discusses Crisis in Dairy Industry

Rep. Phil Roe, R-Tennessee: "If we don't do something now, we are going to wipe out the dairy industry in this country!"

The House Agriculture Subcommittee on Livestock, Dairy, and Poultry held a hearing this week to review the economic conditions facing the dairy industry.

Brad Bouma, Plainview, Texas: "The crisis in the country today is huge. It doesn't make a difference if you milk a hundred cows or 3,000 cows. A hundred plus a cow in losses can't be tolerated by this industry."

Today's economic situation in California's dairy industry is, in a word, dire. My neighbors, a fifth-generation dairy farm family, just sold their cows. Just a few days ago, three generations were operating that farm. Today, after cows have been milked on that farm for 112 years, that family has left the business."

Rep. Leonard Boswell, D-Iowa: "What can we do that could get some relief out there really quick?"

James Miller, USDA, Under Secretary for FFAS: "Short term, we should review the full range of creditor options we have not only with FSA, but also other agencies to see if they have programs that could help. The dairy industry is highly leveraged. That is causing stress on dairy farmers currently."

USDA's Economic Research Service data indicates that dairy farms are among the most highly leveraged in U.S. agriculture. The industry ranks third in average debt to asset ratio, behind poultry and hogs.

Ray Souza, Turlock, California: "To extend credit to an industry that is not able to pay its bills now will create us digging ourselves a deeper hole. I think credit is fine, but it has to work with a price recovery program at the same time."

To put things in perspective, a hundredweight of fluid milk, about 11.8 gallons, currently sells for as little as $9 in some parts of the country. Nationally, USDA estimates the cost of production to be $24. Meanwhile, consumer prices for milk have remained virtually the same. That's because the price of milk paid to a farmer is completely unrelated to the price paid by a consumer at the grocery store. Unlike grain farmers who sometimes hold out for better prices by storing their crops, in the dairy business, it's either "sell it or smell it." And cows keep producing whether the economy's in recession or not.

Tom Wakefield, Bedford, Pennsylvania: "It's no fault of any American farmer we're in this position. It just so happens the world economy went south and so did our market. And now we're dealing with extra milk on the market. In factories, you can shut down for awhile. This business is 24/7 and we can't turn it off and hope it will be better in a few weeks. It doesn't work that way."

Many small and medium-sized dairy farmers have already shut down operations, while others continue to head to the slaughterhouse to thin their herds. Cow numbers are expected to decline nationally by 145,000 this year.

James Miller, USDA, Under Secretary for FFAS: "Our estimates are as we get into the early part of 2010 begin to see improving returns to dairy producers. I think the question is how quickly will those dairy prices respond and how high will they go so producers can begin recovering their cash costs of producing milk."

Secretary of Agriculture Tom Vilsack has initiated several measures to provide relief to producers. They include $150 million in Milk Income Loss Contract payments. And USDA's March purchase of 200 million pounds of surplus nonfat dry milk.

Despite government intervention, many dairy farmers say further measures are needed to save their industry.


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