While the ethanol industry contemplates an uncertain future, America's dairy producers are coping with prices that, like the milk they produce, are in the tank.
Unlike grain farmers who sometimes hold out for better prices by storing their crops, dairymen must sell their perishable product at the going price. And cows keep producing whether the economy's in recession or not.
U.S. dairy exports soared in recent years as supplies fell in Europe and Australia while demand grew in China. Exports rose to $3.82 billion, or 11 percent of all milk production in 2008.
The industry responded by increasing production, but once the global recession accelerated last fall, foreign demand dried up and prices plummeted.
Now, the dairy sector is faced with too much milk and too many cows. And in many cases, producers are spending more to maintain their herds than they are receiving for raw milk.
Late last week, though, the Agriculture Department intervened.
Robust foreign demand for US dairy products fueled record domestic wholesale prices for milk in 2007. But, in the shadow of the current global economic crisis demand for US dairy exports has fallen dramatically. Class III milk prices are now about half of what they were just two years ago. And the reduction in demand has created a crisis for dairy farmers across the nation who have seen as much as a 40% drop in revenue.
Late last week the Agriculture Department announced it will aid U.S. farmers by subsidizing the export of over 92,000 metric tons of dairy products. However, this week 29 countries of the World Trade Organization criticized the subsidy saying it "undermined the effectiveness and credibility of the WTO system." Secretary of Agriculture Tom Vilsack said the move was consistent with WTO rules." Vilsack also said "These allocations illustrate our continued support for the U.S. dairy industry, which has seen its international market shares erode, in part, due to the reintroduction of direct export subsidies by the European Union earlier this year." According to WTO rules, the U.S. can hand out annual subsidies of up to $150 million for up to 92,000 metric tons of dairy products.
Other efforts to reduce the surplus supply of milk include trimming the size of the U.S. dairy herd. Cooperatives Working Together, a program started by the National Milk Producers Federation, plans to reduce milk production by 2 billion pounds by removing 100,000 cows in the first of a series of reductions over the next 12 months.
Dairy Farmers Working Together, the Holstein Association USA, and the California-based Milk Producers Council are cooperating to create legislation that would penalize producers who boost production from one year to the next. And, U.S. Senators Arlen Specter and Robert Casey Jr. have introduced a bill titled the Federal Milk Marketing Improvement Act, which would reduce extreme price volatility by requiring all milk produced in the United State be priced using a national average cost of production.