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Farm Aid News & Views January 1997
FARM AID NEWS & VIEWS
January 1997
Volume 5, Number 1
__________________________________________
Headlines:
- FAMILY DAIRY FARMERS STRUGGLE TO SURVIVE
- DAIRY SHIFTING TO THE WEST AND SOUTHWEST
- THE NATIONAL CHEESE EXCHANGE DISTORTS MILK PRICES
- AGRIBUSINESS FIRMS CONTROL CHEESE MARKET
- FARM GROUPS CALL FOR USDA INTERVENTION
- FAMILY FARMERS FORM NEW PRICING ASSOCIATION
- THE NE INTERSTATE DAIRY COMPACT
- FARMERS EXPLORE SUSTAINABLE DAIRY METHODS
- LAND O'LAKES PROPOSES MERGER
__________________________________________
FAMILY DAIRY FARMERS STRUGGLE TO SURVIVE
Ten years ago, dairy farmers received 49 cents of every dollar spent at the
dairy case. Five years ago that dropped to 42 cents, and now stands at
approximately 34 cents. These declining numbers do not take into account
the activity of the milk market over the past few months: a free-fall in the
price paid to family farmers. This was caused, according to an Extension
dairy economist, by "the archaic manner in which the federal government
calculates milk prices paid to farmers. The federal price formula, created in
the 1930s, no longer works." Low prices mean that family dairy farmers
can't stay in business: in 1982, there were 311,800 dairy farmers; by 1994
that number had dropped to 120,000; and today, only 106,046 dairy
farmers remain, nationwide. There has also been a geographical shift in
dairy farming away from the traditional dairy states in New England and the
Midwest to larger dairy operations in California, Arizona, Florida and New
Mexico. In 1993, California surpassed Wisconsin as the largest dairy state.
According to the Milk Industry Foundation, a Washington DC-based trade
group, 1996 saw a slight reversal of the two-decade trend of declining milk
consumption. The group attributed this increase to the $52 million "milk
mustache" advertising campaign that began in January 1995, featuring
celebrities sporting creamy white upper lips. The national milk supply is
down due to the lack of good-quality feed caused by last summer's severe
weather conditions. The law of supply and demand would consequently
suggest that as demand increases while supply is down, prices paid to
farmers would increase. However, by the end of 1996, consumers were
paying 12.1% more for their dairy products than a year ago, and farmers
were left staggering from the largest milk price drop in history.
Dairy farmers across the nation are finding it hard to stay in business when
they are fighting increasingly difficult battles. In addition to receiving low
prices for their products, family dairy farmers compete with mega-milking
corporate dairy operations and unfair farm policies. In Wisconsin --
"America's Dairyland," according to their license plates -- only 25,000
dairy farmers remain, down from 86,000 in 1965; three family farms go
under each day, on average.
This issue of Farm Aid News & Views will examine the current status of
dairy production and look at what some groups are doing to improve the
situation.
DAIRY SHIFTING TO THE WEST AND SOUTHWEST
Shifts in dairy farming since the mid-1980s have made the sector more
diverse in location, size of operations and management practices. Just over
half of 1994's total U.S. milk production came from five states --
California, Wisconsin, New York, Pennsylvania and Minnesota. Milk
production has grown fastest in the West and Southwest -- areas outside the
traditional producing states that stretch from New England to Minnesota.
Dairy operations in the West tend to be larger, more specialized, and
managed more as industrial enterprises than dairy farms in the traditional
producing areas. In California, Arizona, Florida and New Mexico, large
dairies (milking over 200 cows) account for over 90 percent of each state's
production. In traditional dairy states such as Minnesota and Wisconsin,
the opposite is true. Farmers with fewer than 100 cows produce 87%
percent of the milk.
THE NATIONAL CHEESE EXCHANGE DISTORTS MILK PRICES
The National Cheese Exchange, based in Green Bay, Wisconsin, consists
of 40 traders who meet for half an hour every Friday morning to trade
cheese. While these transactions represent only about two percent of
national cheese production, the prices set by this group are used by the U.S.
Department of Agriculture to determine the nationwide cheese and fluid milk
price, called the Basic Formula Price (BFP). A one-cent drop in cheese
price equals a 10-cent drop in the milk price paid to farmers. The recent
plummeting cheese prices translates into an annual loss of $18,000 to
$30,000 for an average dairy farm -- a $1 billion cut in monthly milk checks
paid to the nation's dairy farmers. Dairy farmers in Wisconsin, Idaho and
Minnesota were the first ones hit by the price drop, as over 85% of their
milk is processed into cheese. The price drop is just now affecting New
England, where over half of the milk is sold as fluid milk.
AGRIBUSINESS FIRMS CONTROL CHEESE MARKET
In 1992, four companies, Borden, Sargento, Schreiber, and Kraft
controlled 42% of the U.S.'s $16 billion cheese market. The nation's
largest buyer of bulk cheese and most powerful player at the National
Cheese Exchange is Kraft Foods (which includes Maxwell House coffee,
Jell-O, Miracle Whip, Velveeta, Kool-Aid, Oscar Meyer, and Post cereals),
a subsidiary of Philip Morris.
A three-year study released in March 1996, issued by the University of
Wisconsin-Madison Agricultural Economics Department and the Wisconsin
Department of Agriculture, found that Kraft had manipulated national dairy
prices through the National Cheese Exchange (NCE).
The Wisconsin study found that Kraft dumped cheese on the NCE between
1988 and 1993 in order to artificially depress prices paid to farmers, while
at the same time increasing the price paid by consumers. Producers (such
as Kraft) then profited from the lower-priced cheese. Despite the findings
of the Wisconsin study, which concluded that Kraft had the financial motive
for influencing NCE prices; had the power to influence prices; and had at
times exercised this power for its benefit, the Federal Trade Commission
ruled last summer that Kraft Foods had not violated any anti-trust laws.
As a result of the allegations made by the Wisconsin study, Wisconsin
Governor Tom Thompson assembled a special task force to investigate
cheese pricing. According to John Kinsman, president of Family Farm
Defenders, "Nothing is going to happen with the task force. The task force
is stacked with Kraft officials and sympathetic friends."
There is a bill pending in the Wisconsin state legislature which would
establish regulatory authority over the National Cheese Exchange (NCE)
and require corporations trading on the exchange to report all sale
transactions.
FARM GROUPS CALL FOR USDA INTERVENTION
In response to the recent dairy pricing crisis, the National Farmers
Organization (NFO), the National Farmers Union (NFU) and other farm
organizations petitioned U.S. Secretary of Agriculture Dan Glickman in late
December to take immediate action in reforming the National Cheese
Exchange (NCE). Among other requests, the farm organizations asked the
U.S. Department of Agriculture to discontinue the use of the National
Cheese Exchange in calculating the Basic Formula Price (BFP); establish a
floor under the BFP in all milk marketing orders; increase sales of dairy
products to school lunch and other government programs; and help establish
a common marketing agency among cooperatives to facilitate more orderly
marketing of cheese.
On January 7, Glickman agreed to pursue several of the farm organizations'
requests. While these promises were viewed as steps in the right direction,
farm organizations will continue to push for fairness and profitability for
dairy farmers, and will pressure the USDA to develop a new basic formula
price and establish a floor price for milk.
Several organizations are taking this pricing crisis as an opportunity to push
for legislation calling for fair farm policies. In Minnesota, for example, the
Minnesota Farmers Union, Land Stewardship Project, Minnesota COACT,
and Minnesota Catholic Conference are sponsoring three organizing and
strategy meetings on agriculture and rural issues for the 1997 Minnesota
Legislative Session. According to Jon Youngdahl of MN COACT, the
purpose of these meetings is to educate farmers so they can become the
voice behind the legislation and participate in policy decision making.
Legislative priorities that will be discussed in these meetings include
enhancing opportunities for family farm marketing and processing ventures;
strengthening the corporate farm law; co-op reform; and feedlot regulation.
FAMILY FARMERS TO FORM NEW PRICING ASSOCIATION
The Capper-Volstead Act passed by Congress in the 1920s gives family
farmers the legal right to collectively bargain for fair prices in the
marketplace. Today, realizing that the way they have traditionally sold their
products simply isn't working any longer, dairy farmers are banding
together to weather milk market fluctuations.
In Wisconsin, concerned family dairy farmers have organized the American
Raw Milk Producers Pricing Association, Inc. (ARMPPA), a membership
pricing agency. ARMPPA does not process or manufacture dairy products
and has no allegiance to any existing milk handler, cooperative or
corporation. Its sole purpose and mission is to obtain optimum milk prices
from already-existing milk handlers, plants and manufacturers.
According to John Kinsman, President of the Family Farm Defenders, this
is the rebirth of an effort that began about four years ago, which didn't
work out because of a high level of industry involvement. The new
organization consists solely of family dairy farmers.
Following a kick-off event in late December, ARMPPA's focus has been on
broadening its base of members, according to Bill Wenzel of the Wisconsin
Rural Development Center. "Farmers have gone back to their communities
and held town meetings to get other farmers interested," says Wenzel.
"This is a real grassroots effort," says Mary Lippert, spokesperson for
ARMPPA. "We started with seven or eight farmers on a steering committee
who became the interim board of directors. We've found out that we've got
to set prices ourselves because the government isn't going to do it fairly."
The immediate goal is to control 20% of Wisconsin milk production. By
pooling milk sales through ARMPPA, smaller producers will be able to
more effectively compete with larger operations and receive higher prices
for their milk. So far, approximately 20 town hall meetings have been held
throughout Wisconsin, and 20 more are planned for the next few weeks.
A similar organization called the Dairymen's Marketing Cooperative, Inc.
(DMCI) was started May 1996 in Missouri. According to Delano Calton of
the Family Farm Defenders, DMCI was organized by 30 family farmers and
now boasts 150 members in the Springfield, Missouri area.
THE NORTHEAST INTERSTATE DAIRY COMPACT HELPS NEW
ENGLAND FARMERS
The Northeast Interstate Dairy Compact, negotiated into the 1996 Farm Bill
by six New England states, has the potential to help stabilize fluctuating
milk prices in New England. The Compact meets on a monthly basis and
works on technical issues affecting the fluid milk market. Dairy farmer Lee
Light of Rural Vermont says that while the Compact is "our little miracle" in
a Farm Bill that was especially hard on dairy producers, it does not at this
time have a supply management component, which would ensure that dairy
farmers meet demand without creating surplus. "What happens is that when
the prices paid to farmers are high, farmers produce more to make more
money. When prices are low, farmers produce more in order to pay their
bills," Light says. This inevitably results in a milk surplus, causing prices
to farmers to plummet even further and often requiring the federal
government to purchase the surplus in order to keep farmers afloat. Still,
many New England dairy farmers view the compact as a step in the right
direction.
The Compact has received criticism from some large farm organizations and
cooperatives, arguing that it will give New England dairy farmers an
advantage over Midwest farmers. However, according to Light, many
farmers and grassroots farm groups support the Compact, and are using it
as a model for implementation in their areas.
FARMERS EXPLORE SUSTAINABLE DAIRY METHODS
There is strong interest within the farming community in utilizing farming
methods that don't deplete the environment, livestock and natural resources.
John Kinsman is a Wisconsin dairy farmer who has farmed sustainably,
without pesticides, herbicides or fertilizers, utilizing a rotational grazing
system, for the past 40 years. He says that many farmers are interested in
moving their production to more sustainable systems. However, low farm
prices make it difficult for farmers to take the steps necessary to convert.
"They can't be sustainable while they're working at a loss," Kinsman says.
The current milk price paid to farmers is 1/3 below the farmers' cost of
production, leaving dairy farmers struggling to survive.
Some farmers who produce certified organic milk have been able to better
withstand pricing fluctuations because their product brings a premium price.
Organic milk is typically $3-4 higher per hundredweight than non-organic
milk. Organic milk is in great demand; factories are only able to provide
about half of the demand. Nationwide, sales of organic milk now total
about $30 million annually, and are growing rapidly, due in part to
consumer concerns about government approval of growth hormone rBGH
in 1993.
LAND O'LAKES PROPOSES MERGER
Many family farmers fear the dairy industry is headed in the same direction
as hogs, cattle and poultry, which are largely controlled by a handful of
agribusiness giants. These fears were highlighted recently with the
announcement of a proposed merger between Land O'Lakes and the Atlantic
Dairy Cooperative. This consolidation would create the third-largest dairy
cooperative in the United States, behind Mid-America Dairymen and
Associated Milk Producers. Farmers are concerned that increased
consolidation in the dairy industry will force thousands of family dairy
producers off the land.
RESOURCES
For more information about issues affecting family dairy farmers, contact:
Rural Vermont, Lee Light 802-223-7222
Family Farm Defenders, John Kinsman 608-986-3815
Minnesota COACT, Jon Youngdahl, 612-645-3733
Wisconsin Rural Development Center, Bill Wenzel 608-437-5971
ARMPPA, Mary Lippert 608-487-3104 or toll-free 1-888-276-7720
________________________________________
Farm Aid News is produced by the Institute for
Agriculture and Trade Policy for Farm Aid. Editors
Harry Smith and Kate Hoff. We encourage the
reproduction of Farm Aid News & Views. Comments and
suggestions welcome. Farm Aid (617) 354-2922. Fax:
(617) 354-6992. Email: Farmaid1@aol.com. For more
information on agricultural publications contact IATP,
(612) 870-0453. Fax: (612) 870-4846.
Email:farmaid1@aol.com