America’s glut of milk became visible to the public in a big way recently, as media reports showed farmers dumping milk after losing markets due to COVID-19 business disruptions.
But this isn’t a new problem. The U.S. has had an overabundance of milk for a long time. Past attempts to curb the flow of milk haven’t been successful or popular. The “why” is complicated.
The tide may be turning. While some farmers balk at the thought of supply management, others are becoming open to the idea as they look for ways to fix an industry that’s been beleaguered by oversupply and low prices.
The American Farm Bureau Federation, National Farmers Union and other agricultural advocacy groups have come out in support of supply management in recent years, although their ideas for how to achieve that differ.
“Our vision is to have fair prices for family dairy farmers and have a situation where the majority of dairy farmers are making a decent living, which is not what’s happening now,” said Bobbi Wilson, government relations associate with the Wisconsin Farmers Union.
Independent decisions
What’s in place now for supply management? Nothing at the federal level. It’s up to cooperatives and processors to police their own supply, and some do.
It usually takes the form of a base excess plan. Processors establish a base level of milk they will accept from a farmer. Anything over that, the farmer will receive a lower price for that milk.
The dairy industry has historically been fairly decentralized. That’s one part of the problem.
“With dairy, we have 40,000 independent decision makers,” said Mark Stephenson, director of dairy policy analysis at the University of Wisconsin-Madison.
Each farmer can only make decisions for his or her own farm. Milk equals money. More milk equals more money. And, really, that’s the dream for a small business owner, right? To be able to make their own decisions and, hopefully, reap the rewards of those decisions.
“Most people don’t want to get into business and put assets at risk without having a pretty strong say about what they do,” Stephenson said. “You’ll find plenty of other producers that would say ‘I don’t want anybody telling me what I can or can’t do on my dairy farm. I want to produce as much milk as I profitably can.’”
Looking back
For decades, the federal government dealt with the milk oversupply by purchasing the storable dairy products off the market, thus propping up the price of milk. By 1983, the U.S. Department of Agriculture was spending $2.7 billion to buy excess dairy products and running out of storage.
Next, the federal government tried to control the supply of milk, first by paying farmers to cut production (the Milk Diversion Program of 1983). Then, they paid farmers to terminate entire herds (the Dairy Termination Program of 1985).
Later on, the National Milk Producers Federation launched an industry-funded herd buyout program through Cooperatives Working Together. The herd retirement program ran from 2003 to 2010. But the program was also the subject of two class action lawsuits alleging price fixing.
None of those programs worked long term, in large part because they were voluntary. Farmers didn’t have to participate, and those farmers could continue making as much milk as they wanted.
It’s like a version of the prisoner’s dilemma. Police have two suspects in custody. They’re being interrogated in separate rooms and each has a tough choice, stay silent or confess.
If neither confesses, they’ll get five years in prison, and if both confess they’ll get 10 years in prison. However, if one confesses and one stays silent, the silent suspect will get 20 years and the confessor will not be punished.
Now, apply that to dairy farmers. If all farmers stuck with each other and cut back milk production, they’d all benefit from higher milk prices. But all it takes is one farmer to flip and make as much milk as he wants to upset the balance for everybody else.
Looking north
A shift began in Wisconsin several years ago. The state with the most dairy farms in the country has been hit hard by the dairy crisis.
“We were hearing this outcry from our rural areas and people wanted to know, ‘how do we address this,’” Wilson said.
In looking for answers, people often look northward. Canada has had a national dairy supply management system in place since the 1960s. The Wisconsin Farmers Union invited Dairy Farmers of Ontario chairman Ralph Deitrich and vice chair Murray Sherk to give several presentations on the pros and cons of the Canadian quota system in March 2018.
Canadian dairymen have a quota that sets much milk they can produce. Anything over that quota, they don’t get paid for. The overall quota is set by provincial marketing agencies based on predicted demand for dairy products.
Farmers can buy and sell quota to get more or less access to the market. There’s also a minimum price guarantee that helps maintain a fair price for farmers.
“One thing the Canadian farmers said was ‘I’m getting $28 per hundredweight,” Wilson said. “That perked up some people’s ears.”
It’s not perfect. If you wanted to get into dairying, on top of all the expenses of starting a farm, you have to buy quota to have a chunk of the market. The retail price of milk is higher than in the U.S.
And to have such a system work well long term, you need to keep it closed so milk from other countries doesn’t flood the market. Canada historically restricted imports of dairy products with high tariffs.
The new U.S.-Mexico-Canada Agreement, slated to go into effect July 1, gave the U.S. more access to Canada’s dairy market.
“Canada doesn’t live in isolation,” Stephenson said.
Gaining steam
Wilson said some farmers were skeptical, but it gave them something to think about
“That’s when we realized people were hungry for change and looking to us to find answers,” Wilson said. “Folks wanted to know, ‘do we need to adopt a carbon copy of Canadian system or what would it look like here?’”
The Wisconsin Farmers Union commissioned economic research by Stephenson and Charles Nicholson, of Cornell University, to look into the various supply management plans. They came back with a report in February 2019.
The one that came out on top was a growth management plan. It would work similarly to a base excess plan. Farmers would be allowed to grow production within a certain range above their base per year.
If a farm expanded beyond that limit, they would be assessed a market access fee. The market access fees would be pooled and redistributed to farms that stayed within their limit. They’re not set on it completely, but this plan seems to have the broadest support among farmers too, Wilson said.
What they are set on is the need for a nationwide supply management system of some kind. Such a plan almost made it into the 2014 Farm Bill.
In its annual meeting earlier this year, delegates with the American Farm Bureau Federation voted to support “the creation of a flexible, farmer- and industry-led milk management system.”
John Newton, chief economist with American Farm Bureau Federation, said, however, that’s not a quota system. The farm bureau doesn’t support government intervention in the milk supply.
The Wisconsin Farmers Union is calling its push for a federal supply management the Dairy Together initiative. They’ve gained support from the National Farmers Union, other state chapters including Pennsylvania, National Farmers Organization, the California Dairy Campaign and Farm Aid.
“It’s not one farm organization versus another. It’s not big versus small,” Wilson said. “It’s an opportunity for us all to pull together and create a viable dairy economy for everybody.”
(Reporter Rachel Wagoner can be contacted at 800-837-3419 or rachel@farmanddairy.com.)
