The Dairy Crisis


NFFC Backgrounder

What if we told you that dairy farmers have been subsidizing your ice cream and half & half for decades? It’s true. On average, farmers are paid $1.45 per gallon for milk it costs them $2.00 to produce. The shortfall makes it impossible for them to break even or provide for their families – much less make a profit. With just a few exceptions, dairy farmers have not been getting paid what it costs them to care for their cows for years.

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The so-called “solution” to not getting paid the costs of farming is to produce more milk. Federal dairy farm policies encourage farmers to “get big,” making up for low prices with high volume, or to “get out.” Producing ever more milk instead sets up a vicious cycle in which increased production floods the market and succeeds only in lowering prices further. To compete in the “get big or get out” world, farmers must contend with corrupt dairy cooperatives, fraudulent organic imports, international trade disputes, loss of buyers, and more. How will this cycle be broken?

Over several decades, NFFC and our farmer members, such as the Progressive Agriculture Organization, Family Farm Defenders, California Dairy Campaign, Rural Vermont, Ohio Farmers Union, and Midwest Organic Dairy Producers Association, have been fighting for justice for dairy farmers. Using wide-ranging strategies and tactics, we have been advocating for a commonsense federal dairy policy that will guarantee farmers fair prices while discouraging overproduction, including the use of rBGH (recombinant Bovine Growth Hormone).

Today, we join the growing chorus of farmers and advocates in the Dairy Together coalition, which calls for emergency measures to end the dairy crisis now, and the adoption of a supply-management program to bring long-term stability to the industry. Click here to jump to NFFC’s dairy policy recommendations.

Crisis in Farm Country

Milk prices for farmers have been well below production costs for four years straight (and they weren’t much better before). Farmers who are managing to hang on are relying on credit or working extra off-farm jobs, and struggling to pay for feed, seed, vet visits, equipment repairs, and to cover utilities and groceries. As farm families try to make ends meet, calls to farmer support hotlines have increased. Dairy cooperatives have sent out information about suicide hotlines with the milk checks; in desperation, more farmers are taking their own lives.

With farmers’ paychecks being so low, dairy farms are closing in record numbers. In 2018, Wisconsin (the second largest dairy state) lost nearly two dairy farms per day, which is 30 percent more than in the previous year. Nationally, 2,700 dairy farms went out of business in that same year.

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PHOTO: kqedquest/FLICKR

Dairy Farms Getting Too Big

Some dairy farms still look like the ones on the yogurt carton: with silos in the background, a red barn, and cows grazing on pasture. The farmer might milk 50 or 75 cows, which spend most of their time on grass. Many of these farms are certified organic or sell their milk to a processing company that markets grass-fed milk, both of which afford the farmer a premium price. But even with that premium, it is hard for these small farms to stay afloat.

Somewhat larger than these are many midsize dairy farms milking a few hundred cows each. The animals spend most of their time in large barns where they can move around freely. They eat a mix of processed feed, some of which may be grown on the farm. Cows at midsize farms spend some time outdoors, especially young or pregnant animals. Too large to make a niche product and too small to absorb market fluctuations or long periods of low prices, these farms are the hardest hit by today’s dairy crisis.

Much larger operations – megadairies with several thousand cows or more – are where most milk in the US comes from. Megadairy cows live in massive barns or on an outdoor dry lot without vegetation. They consume feed trucked in from miles away and are milked as many as four times a day. Half of all milk sales in 2017 were from these large operations, with one-third of sales from dairies with over 2,500 cows. The biggest megadairy factory farms have as many as 30,000 cows.

Federal farm policy of “get big or get out,” leads to the proliferation of megadairies. The message is: “If you can’t cope with falling milk prices, either get more cows so you can make more milk or get out of the business.” It’s not a new story: in 1997, 125,000 US dairy farms were milking 9 million cows; in 2017, there were only 54,000 farms, but they were milking 9.4 million cows. During the same period, annual US milk production grew from 167 billion pounds to 218 billion pounds.

In sum: more cows are producing much more milk on many fewer farms.

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PHOTO: GUY MONTAG/FLICKR

How Are Milk Prices Set?

So, how do we support a different kind of system – one that encourages the family dairy farms and not the megadairies? Let’s first take a look at how milk is priced today.

Dairy farmers have been in a precarious position from the very beginning. They sell their milk to a processor, which bottles the fluid or further develops it into cheese, yogurt, or other products. It is the processor that sets the price for milk, not the other way around. In economic terms, dairy farmers are called price “takers” rather than price “makers.”

The price the processor pays is based on the regional base prices for milk set by the US Department of Agriculture (USDA). Unfortunately, since 2014, the USDA’s prices have not been based on an average farmer’s expenses, but on market prices of milk products: butter, cheese, dry whey, and powdered milk. Manufacturers of dairy products (which are usually also the processors) tell the USDA each week how much they were paid for their butter and cheese. The USDA plugs these numbers into a complex formula that determines the price that processors must pay dairy farmers. Since it is not a system designed to cover farmers’ costs of production, the base price is often far less than what farmers need simply to break even.

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By Myrabella - Own work, CC BY-SA 3.0, Link

The Role of Dairy Processors

The extreme perishability and constant production of milk makes the farmer highly dependent on the processor. If the processor says it won’t pick up a farmer’s milk, the farmer has nowhere to store it – given limited on-site storage and the fact that cows produce more the next day. Farmers in this situation may have to dump their milk, which means that both food and money go down the drain quite literally. The current system gives processors a great deal of power to pay whatever prices they want; the farmers have to accept these prices or risk not having their milk picked up.

The situation is made even worse by a shrinking number of dairy processors. Historically, most regions had many dairy processors, and farmers could negotiate among them for a better price. These days, some regions only have one or two processors. The remaining ones are on shaky ground: many are continuing to consolidate, or they prefer to pick up milk from just a few large dairies instead of many smaller farmers. Some supermarket chains now have their own dairy plants, leading dairy processors that used to supply those stores to end contracts with their farmers. If the one processor in a farm’s region terminates that farm’s contract, there is nowhere else to sell the milk and few options but for the farm to sell off its cows.

In the most dramatic example, Walmart recently opened its own processing plant in Indiana to supply milk to 600 of its stores. The plant sources raw milk directly from 30 megadairies. In response, Dean Foods, a major dairy processor for which Walmart was nearly 20 percent of its business, notified 100 family farmers in eight states that the loss of Walmart as a customer meant that Dean had to stop buying their milk. Big box stores lead to more big box megadairies and the closing of family farms.

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The Corporatization of Dairy Cooperatives

In an effort to gain more power over their prices, dairy farmers established cooperatives starting in the 1800s. Pooling milk from several farms gave cooperatives the bargaining power to negotiate better prices for their farmer members, and this has been a successful strategy for many years. However, dairy co-ops have grown and consolidated just like the rest of the industry, and the largest of them today actually work against the interests of their farmer members.

The largest dairy co-op, Dairy Farmers of America (DFA), controls one-third of the US milk supply and is involved in all parts of the supply chain, including processing and distribution. It’s a clear conflict of interest: the less DFA-owned processors have to pay farmers for their milk, the more money they (and DFA) make, while the farmers lose. Many DFA members say the co-op acts more like a corporation. As the dairy crisis devastated farms in 2018, DFA reported $108.5 million in net income, after moving into a new $30 million headquarters the year before. Charges of price fixing and collusion have been ongoing: NFFC members were part of a 2008 lawsuit against DFA for price manipulation that resulted in a $12 million fine; a $50 million settlement was reached in a separate class-action case in 2016, and 115 farmers are pursuing an additional case.

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The Global Dairy Trade

Global trade is another factor impacting US dairy farmers. Historically, the US was not a major exporter of dairy products, but that changed in the early 2000s. US dairy exports quadrupled from 2004 to 2014, before falling again since 2015. The decline of dairy prices is in part related to global trade factors, including increased production from the European Union.

The decade of growing exports may have made the industry overconfident that there would always be a market abroad for US milk. The dismantling of the US dairy price support system, which was finished off in the 2014 Farm Bill, coincided with a growing overreliance on exports, leaving dairy farmers vulnerable to the fluctuations of this market, as we see today. Small and mid-size farmers are particularly vulnerable to an export-focused industry, as most export markets are only accessible by large-scale producers.

Analysis of the global dairy market suggests that the US does not have much of an advantage in exports compared to other regions like the EU and New Zealand, indicating that US exports are not likely to increase significantly or raise prices for US dairy farmers anytime soon.

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The Solution to Low Milk Prices: Supply Management

The situation today for US dairy farmers is that we have more cows and more milk than ever, while milk buyers both in the US and abroad have consolidated or declined. The very cooperatives that should be advocating for dairy farmers are instead focused on increasing their own profits. How do we escape this cycle? We must address the fundamental problem of low milk prices, and this change must come from federal policy. Until the 1990s, the US had a policy that guaranteed dairy farmers a fair price and kept them from rampant overproduction and its consequences. The policy, known as supply management, works well in Canada, where dairy farmers have secure livelihoods and can pass on their farms to the next generation.

For the US dairy industry, a supply management program for the 21st century would control how much milk is produced nationwide, stabilize prices for farmers, and ensure that consumer demand is met despite seasonal fluctuation. NFFC supports a supply management program that includes a floor price for milk based on cost of production – much like a minimum wage.

If farmers knows they are getting a price that will cover their costs, they can pay their workers a fair wage, take better care of their cows, and better manage their land. Instead, a struggling farm today is pressured to expand – to sell more milk to make more money – even when milk prices are low.

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NFFC Advocates for Dairy Farmers

NFFC has fought for justice for dairy farmers for many years. These efforts have included:

  • Advocating to end the widespread use of milk produced with bovine growth hormone (rBGH/rBST), a genetically engineered chemical hormone that increases milk production by up to 15 percent. NFFC was part of a broad coalition targeting dairy processors and retail chains to stop using milk produced with the hormone. In response to this pressure, major supermarkets and other companies have pledged not to sell the milk, and use of rBGH has fallen.
  • Protesting the increased use of imported Milk Protein Concentrate (MPC), a milk-derived food additive in many common foods.
  • Holding regular press calls to educate media representatives on the challenges facing dairy farmers and NFFC’s solutions.

In April 2018, after years of inaction by lawmakers to help dairy farmers, we sent a letter to Congress, which was signed by the American Federation of Government Employees (with USDA employee members) and more than 50 organizations, laying out clear steps for how the federal government should respond to the dairy crisis. The letter called for adoption of a federal supply-management program, including a floor price for farmers. At the time, supply management was barely mentioned as a viable option. Our letter contributed to the policy gaining wider support, and as dairy prices continue to be well below farmers’ cost of production, supply management has become a mainstream policy solution to the crisis.

The letter also proposed easing restrictions on dairy donations as a short-term tactic to address the oversupply of milk; a similar program was adopted in the farm bill later in the year.

Today, we’re proud to partner with Wisconsin Farmers Union and many other groups and farmers across the country in the Dairy Together coalition, calling for both emergency measures to stop the dairy crisis immediately and adoption of a supply-management program to bring long-term stability to the industry.