Wells County dairy farmer Paul Mills is tired of watching milk prices bounce around like a rubber ball.
Farmers struggle to stay afloat when prices are low, including during the current seven-month downturn. Then prices rebound, aiding farmers but prompting shoppers to complain when a gallon of milk costs $4.
Dairy farmers would love to find a way to end those cycles, allowing dairies to turn a consistent profit and consumers to buy an affordable product, Mills said.
Some dairy industry groups are touting price stabilization programs as a potential solution. These proposals would assign farmers a production quota based on expected demand and fine those who produce too much milk. Supporters say that would give farmers a larger share of the profits without raising retail milk prices.
But opponents are worried a quota system could raise prices and deter shoppers from buying dairy products. The changes also could make it harder to open or expand a dairy.
Dairy industry members agree on one point: Farmers need relief from the current low prices. Farm-level milk prices last month plunged almost 42 percent from July 2008, according to the U.S. Department of Agriculture’s National Agricultural Statistics Service.
Many northeast Indiana farmers are losing about $100 per cow each month, said Ron Fuhrmann, a southern Allen County dairy farmer.
The losses can quickly snowball when farms raise hundreds of cows. Fuhrmann and his brother milk about 60 cows, a relatively small herd.
Farmers who raise their own grain to feed the cows are faring slightly better than other dairies, Fuhrmann said. Otherwise, farms must pay high prices to feed their herds.
“But everybody is hurting,” he said. “Nobody is exempt from this.”
Low milk prices and high grain prices have combined to create the worst conditions Mills has seen in his 42-year career. Some dairies are being forced to close or file for bankruptcy, he said.
Industry groups are promoting various quota systems designed to combat the industry’s volatility.
Holstein Association USA Inc. proposed a government-run price stabilization program, where farmers would be assigned a quota based on past milk production.
Farmers who exceed the quota by more than 2 percent would pay a $2 or $3 fee for every 100 pounds of milk sold, said Lucas Sjostrom, government relations specialist and communications specialist for the Brattleboro, Vt.-based Holstein Association. A $3 fee would be about 27 percent of milk’s July sales price.
The quotas would be revised each year, taking anticipated demand and each dairy’s past milk production into account.
Other industry groups, including Dairy Farmers Working Together and the Milk Producers Council, support the Holstein Association’s plan. The National Farmers Organization has proposed a similar system that would be overseen by existing dairy cooperatives instead of the government. The National Milk Producers Federation, which represents most of the nation’s dairy cooperatives, is examining both approaches and other ideas.
The current system encourages farmers to produce as much milk as possible, Sjostrom said. Dairies are paid more for producing more milk, regardless of demand. But farmers need to take consumption into consideration if they want more consistent prices.
Milk prices have dropped because overseas demand for U.S. dairy products has fallen, said Mike Schutz, Purdue University associate professor of animal sciences.
About 11 percent of dairy products were exported last year. The amount is expected to drop to less than 5 percent this year. Australia and New Zealand, which had been suffering from droughts, are supplying more milk to world markets and competing with U.S. milk, he said.
But opponents say a quota system isn’t the best way to address declining demand for U.S. milk. Establishing a quota system could increase the prices shoppers pay for dairy products, said Jerry Slominski, senior vice president of legislative affairs for the International Dairy Foods Association, a Washington, D.C.-based trade association for cheese, milk and ice cream processors.
Instead of artificially inflating milk prices, the industry would be better off working to increase demand for milk and dairy products, Slominski said. Raising prices through a quota system could discourage shoppers from buying dairy products, he said.
The Holstein Association’s proposal wouldn’t raise retail prices, but it would give farmers a larger share of the sales revenue, Sjostrom said. Processors and retailers keep most of the profits currently, he said.
A quota system also would deter farmers who want to start dairies or expand a herd, Slominski said.
“It essentially taxes anyone who goes beyond the limits they’re at,” he said.
But farmers could plan to pay the fees for exceeding the quota and include that in their budgeting, Sjostrom said. Farmers have no way to plan for the market’s wild swings, but quotas would allow them to budget their income and expenses instead of being surprised.
Farmers still are examining the idea of a quota system, said Mills, who serves on the National Milk Producers Federation board of directors.
He is concerned a quota system – particularly one run by the government – could have unintended side effects.
It might be better for the industry to let this downturn run its course, he said.
But others would like to see changes in the industry’s structure.
A quota system would allow farms of all sizes to stay in the business, said Fuhrmann, who is a Holstein Association board member.
It would support milk prices without raising consumer prices, he said. Establishing a quota system would limit overproduction.
“I feel the only way we can be strong down the road is to produce what’s needed,” he said.
