Thursday, April 28, 2011

Dairy prices rise, farmers struggle

According to the Ithaca Journal,
"In the span of just five years, New York State lost 23 percent of its dairy farms. As of 2007, New York State is home to nearly 5,700 dairy farms, down from nearly 7,400 in 2002, according to the USDA.
Tompkins County had 84 dairy farms in 2007, a 3 percent loss from the 87 farms operating in 2002. Cortland County saw a 30 percent loss in dairy farms in that period from 178 farms in 2002 to 125 in 2007."


What's going on here?  Milk prices are rising but farmers are going out of business.  I asked the press office at NYS Ag and Markets to help me understand why NYS dairies have such a hard time making ends meet, and I've included some of the answers below.  This is just a start, I plan to have more info on this issue in the future.

Q Ithaca's Food Web: Can you explain milk pricing in simple terms? Who determines the amount farmers are paid for milk in NYS? Who determines the price consumers pay in the grocery store?

A NYS Ag and Markets: There's no simple way to explain milk pricing, but here's an overly simplistic explanation. The USDA Milk Marketing Administrator's system establishes the minimum price dairy processors are to pay farmers for their milk. This price is based on a complex formula that uses observed wholesale prices for various products made with milk, including cheese and non-fat dry milk, butter and whey powder. Dairy processors establish the price consumers pay.

Q IFW: Are NYS farmers selling milk at a loss?
A NYS Ag and Markets: In some cases, yes; others, no. The margin between the price farmers receive and the cost of producing milk is extremely small. It is estimated that it costs around $16 to produce a hundred pounds of milk. Right now, New York farmers are receiving $18 on average. Last year, they were receiving $16. Two years ago, they were receiving $12. Milk prices are known to fluctuate greatly; however in recent years the highs and lows are more dramatic than before, and the lows tend to last longer than before.

Q IFW: If they are selling at a loss, why can't farmers just charge more for their milk, so they can cover costs and make some profit?
A NYS Ag and Markets: Dairy farmers are price takers, not price makers. They typically sell their milk through milk cooperatives at wholesale prices. The cooperatives, owned by farmers, ensure a steady market for the milk and are able to distribute the milk to the plants that need it most. However, we are seeing a growing trend of farmers that are processing and marketing their own milk, which enables them to set their own price, but also requires the overhead of a processing facility and the risk and time required associated with marketing.

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  1. Thanks for delving into dairy! The Northeast states have about 13,000 farms, average of 100 cows. Roughly 42% of the milk produced by NY's farms goes into fluid milk consumption. We've seen two new yogurt companies, Chobani and Fage, ramping up NY production and seeking more milk. I have not really seen any farmers doing bottling in my part of the state.
    What we are seeing with prices paid to NY farmers is disturbing. For the past few years, prices paid to NY farmers are substantially BELOW all of the surrounding states. Looking at NY "mailbox" prices, the net price received by NY farmers in April, it was at $16.83 for one hundred pounds of milk. Just over the PA border, farmers were receiving $17.72 for one hundred pounds of milk. New England farmers are reporting $18.09 for same hundred pounds. What is wrong in NY? The NY price depression has been going on for a few years now. Since we are talking $2 billion dollars worth of gross milk sales at the farm gate, the NY price valley equates to millions and millions of dollars lost to rural NY. I would like to know what is causing this when new processors are asking for more milk?

  2. Thank you for your article! Someone once told me if something is so complex that you can't explain it to your mother, there is a simple reason: They don't want you to understand it! That is exactly what has taken place in the dairy industry. The price set to the dairy farmer is based off from surplus cheese sold on the Chicago Mercantile Exchange (CME) where there are very few buyers and sellers who can easily manipulate the prices to favor the processors. The Northeast dairy farmers have some of the highest production costs and more population than any other parts of the country. Yet, they are not paid adequately for their local product. Over the last 10 years, market competition has been squeezed to full supply contracts which has destroyed free market. The role of the cooperatives is to provide an adequate supply of milk that provides an ADEQUATE price to the farmers. Under the laws of the Cooperatives they are supposed to treat the members equally. The cooperatives have not been providing equal/adequate returns to their members. Today's dairy farmer is receiving the only 27% of the retail dollar. The lowest in history. Today's farmers bare all the risk for the industry while the processors and retailers profit. We need Dept. of Justice/NY Attorney General's office to look into the anti-trust laws that are being abused in this industry

  3. As an agribusiness man, a poor dairy economy effects me and my family tremendously. If farmers aren't making money, they have less money to spend on products like I sell them. That leaves less money in my pocket to spend in my community, less to keep our home looking good. Sorry to be a bit crude, but it is a difficult situation.

  4. The concentration of the dairy industry, and the destruction of family farms, results from many different examples of "meddling" by the Federal Government and various state governments. Water supports in western states (California, Idaho, Arizona, etc.) has allowed and encouraged the radical shift in dairy production (and population) from East to West. Easterners were taxed to pay fro the expansion in the West. Is this equitable? What is? Soil conditions, weather, employment options, profitability, innovation ... many things have impacted the dairy industry over the past 6 decades. Basically, what we see today is the end result of government strategy. Is it good to have political elitists choosing the winners and losers? Do we trust corrupt regulators to manage our lives and economy?

  5. NY State has a fantastic milkshed, will millions of acres available for grassland grazing. We have thousands and thousands of mostly smaller farmers who routeinly graze the cows. Howver, these farmers are paid much less than the multi-thousand cow farms who get a big "volume" premium. Hardly fair. And, yes, why in the world are NY's farmers taking a beating on price compared to other states.

  6. The existing "milk price scheme" was devised by people who are not dependent upon a milk check. The milk price is controlled by 1) those who purchase wholesale milk, and 2) regulators who have no clue what input costs are. The result is an industry that is declining, is inadequately profitable to attract investment, and reflects regional differences controlled by political elitists and looters. Not a pretty picture for a wholesome, natural product that is routinely slandered by mindless elitists and celebrities.