United States-The Dairy crisis deepens.
Local milk producers hit hard by economy
While the slowing economy has been felt by all, few have borne the brunt of the recession as local dairymen have. Faced with a 50 percent drop in the value of milk in a year and a similar decline in the worth of dairy cows, dairymen in California have seen $2.6 billion in the equity of their herds disappear in about nine months, according to Western United Dairyman President and owner of Mel-Delin Dairy Ray Souza.
"When you lose that kind of income, the first thing you do is look to see how you can try to save money," Souza said. "We’ve eliminated everything not essential or put it off to a later date."
For the Mel-Delin Dairy, a 240-acre ranch that has called Turlock home for the past 80 years, that means abandoning construction on a half-finished building. Other measures have been taken to reduce the per unit cost of milk as much as possible, including the use of new genetic testing to pick young unproven bulls as sires, rather than retaining the services of more expensive proven bulls.
Unlike traditional industries, such as manufacturing or even office work, California’s $61 billion dairy industry has no real way to cut down on costs, according to Western United Dairymen CEO Michael Marsh. Daily activities such as feeding and milking the herd are unavoidable.
"You can’t turn the cows off," Marsh said.
Where crops such as almonds can be stored, fresh milk has to reach a processing facility within 24 hours. And, where excess cows could be "laid off" in the past through sale for meat, even that market has softened to the point where selling for slaughter is untenable.
"It’s kind of a lose-lose situation for the farmers," Marsh said. "In that respect the dairy industry, relative to other commodities, has been hit fairly hard."
Ballpark numbers thrown out by Marsh peg 1,000 cow dairies as losing up to $400,000 this year alone, not counting losses in equity. The losses are multiplied by the credit crunch for capital-intensive operations such as dairies, which are reliant upon constant cycles of credit to finance operations ahead of production, making the business extremely difficult.
"If this recession extends out further and further ... whether you have dairy farmers in October of 2009 becomes questionable," Marsh said. "You have the potential for this economic calamity that’s gone around the globe simply to continue to eat away equity so they can’t survive any longer."
Fortunately for farmers, the federal government and trade groups are attempting to respond to the dire situation.
The United States Department of Agriculture announced last week that approximately 200 million pounds of nonfat dry milk would be transferred from the Commodity Credit Corporation to USDA’s Food and Nutrition Services for use in domestic feeding programs. The move is expected to help clear stockpiled inventory and give dry milk prices a chance to recover.
According to Souza, California produces about half of the nation’s powdered milk. As Turlock processor California Dairies Inc., the largest powdered milk producer in the northern hemisphere, produces 170 million pounds of powdered milk product a year, local dairymen especially welcome the USDA’s move.
Additionally, Secretary of Agriculture Tom Vilsack announced April 1 that producers participating in the USDA’s Milk Income Loss Contract program would receive subsidies to help offset the low price of milk. The $1.51 per hundredweight of milk offered through the MILC program will still fail to return the price of milk to highs seen as recently as January, however.
"President Obama understands that dairy farmers are struggling during these tough economic times," said Vilsack when he announced the payments. "Today, as a result of low dairy prices, we are distributing MILC payments to ensure that dairy producers have the financial assistance they need. This action will also stimulate local economies."
The National Milk Producers Federation is also stepping in to stem the tide of falling prices through a herd retirement program under the auspices of Cooperatives Working Together. Funded through a voluntary 10-cent assessment on each hundredweight of milk, CWT is in the process of receiving bids to purchase herds for slightly above market value in order to reduce the nation’s production capacity, raising overall prices.
"We all recognize that 2009 is shaping up to be among the toughest years on record for dairy farmers, but CWT will help shorten the price plunge farmers are facing and speed the recovery," said Jerry Kozak, President and CEO of NMPF, which manages CWT.
According to Marsh and Souza, while these are good first steps, there is more work to be done. The USDA Dairy Export Enhancement Program, a program that would encourage development of overseas dairy markets, has long been funded with $200 million, but that money has not been spent since George W. Bush was President.
"The European Union has billions of similar export assistance for farmers," Marsh said. "Let’s not unilaterally disarm here.
"There is a world market for our product and we wish the USDA would utilize all the tools it has available."
According to Souza, the dairy industry could begin to bounce back this summer as demand increases for dairy products and the new initiatives take effect. But for local producers to weather this storm, dairymen need the support of shoppers.
"We consumers need to buy local," Souza said. "There’s a Real California Milk seal you should look for on your dairy products when you shop."
To contact Alex Cantatore, e-mail acantatore@turlockjournal.com or call 634-9141 ext. 2005.
