As Dairy Prices Tumble, Farmers are Angered by Minimal USDA Support

Posted Leah Douglas Dairy, Leah Douglas, Newsletter

Photo from Flickr user chriswaits.

Dairy farmers in the Northeast and Midwest are dumping massive quantities of milk, as a sharp decline in exports has driven milk prices down to a seven-year low. Meanwhile, independent farmers and members of Congress say that a new USDA insurance program designed to keep struggling dairy farmers in business is failing to do the job.

The dairy crisis is the worst since milk prices bottomed out around $11 per hundredweight (around 9 gallons) in 2009, at the height of the Great Recession, driving over 2,000 dairies out of business. Since then, prices have averaged between $20 and $22 per hundredweight, peaking in 2014 at $24. In recent months, prices have fallen as low as $15 per hundredweight.

This fall in prices is due largely to a sharp decline in exports to Russia and China. That excess milk is being dumped in mass quantities—nearly 140 million pounds in April, May, and June of 2016, according to the federal government. In New York, dairy farmer Lorraine Lewandrowski says farmers are pouring the milk “into lagoons.”

Two years ago, USDA established the Dairy Margins Protections Programprecisely to protect farmers in such a crisis. Farmers enrolled in the program pay a $100 annual fee for “catastrophic” coverage, and can also pay more for additional coverage. The program is supposed to pay independent farmers when the margin between the price of milk and the cost of production falls below a certain level.

The Department of Agriculture earlier this month announced $11 million in payments from the fund, but farmers say that’s too little. According to trade publication Farmshine, the $11 million will be distributed to fewer than 10% of U.S. dairy farms.

The fact that USDA both sets the price of milk and also administers the milk price insurance program has angered many advocates and farmers, who say the DMPP amounts to something of a racket.

In 2015, the USDA collected $73 million in DMPP premiums, but paid out only $700,000—around 0.1%— to farmers. The remaining funds were sent to the U.S. Treasury.

“It was supposed to be a safety net,” says Lewandrowski. But in the end, she says, it was a “flop,” one that “hasn’t helped anybody” in New York.

New York Senator Kirsten Gillibrand in July wrote to Secretary Vilsack describing how dairy farmers in her state “[have] to decide between buying grain and buying groceries.” She asked Vilsack to return excess DMPP funds to producers. Many New York dairy farmers are choosing simply to drop out of the program.

The DMPP was passed as part of the 2014 Farm Bill. It was proposed by the National Milk Producers Federation, which represents and lobbies on behalf of 31 dairy cooperatives. Among NMPF’s members are Dairy Farmers of America, the country’s largest cooperative accounting foraround a third of fluid milk production, and Land o’ Lakes, another massive cooperative which counted $13 billion in sales in 2015

These cooperatives, and especially Dairy Farmers of America, have amassed enormous market power and cornered the dairy market in many regions. Where there was once a vibrant marketplace for raw milk, dairy farmers today often find themselves with only DFA as a potential buyer. In New York, says Lewandrowski, “if you don’t sell to DFA, you can’t sell to anybody.”

In 2009, around 10,000 dairy farmers claimed that DFA and Dean Foods had collaborated to monopolize the raw milk industry in the Northeast and filed a class-action lawsuit. In 2014, DFA and its marketing arm, Dairy Marketing Services, agreed to a $50 million settlement. But this spring, a splinter group of farmers, headed by Mike Eby of the National Dairy Producers Association, filed a new lawsuit against DFA, seeking more money.

Eby says that massive cooperatives like DFA have the capacity to protect their margins even in the face of falling demand. This allows the giants to “push out the smaller guys at a faster rate,” he says.

Since 1970, the number of dairy farms in the United States has dropped from 640,000 to around 60,000. New England has seen a particular loss of its small dairy farms, with a 50% decline in number of farms and 25% decline in number of cows between 1992 and 2007. The average number of dairy cows on a farm, meanwhile, grew to 179, from 74 in 1992.

What We’re Reading

  • Monsanto is attempting to attract more farmers to its computerized farming services, which provide farmers advice on planting and productivity. The company hopes to build an Amazon-styled online marketplace of data-driven services. Farmers have already registered about 92 million acres of farmland with the services.

  • New York Governor Andrew Cuomo announced a new program that will define ambiguous food labels like “all natural” and “hormone free” within the state. Farmers who meet the new voluntary state standards will receive a special certification.

  • United Natural Foods, Incorporated, the largest organic food distributor, acquired Gourmet Guru for an undisclosed amount. Gourmet Guru reported $50 million in sales over the past year. UNFI reported sales of over $8 billion in 2015.
  • A video released this week by the animal rights group Compassion Over Killing reveals Tyson Foods workers in Virginia abusing chickens in four facilities. In a statement, Tyson called the behaviors “inexcusable.”

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