Dairy Hearing Again Exposes Deep Divisions

February 9, 2000

Deep divisions that have wracked the dairy industry for several years were exposed again Tuesday as the Senate Agriculture Committee heard fellow senators and industry officials argue for more legislation to straighten out pricing and income problems among farmers.

"The current pricing system is like a vampire. It cannot survive in the light of day," said Sen. Herb Kohl (D-WI). He showed the committee a list of 10,519 dairy farmers he said had stopped milking over the last three years. "Their ruin was brought on by an unfair policy intentionally imposed by their own federal government."

Kohl also called dairy compacts "an unprecedented price fixing scheme contrary to the principles of free markets that have made America’s economy the strongest in the world." Policies should be developed and enacted to help all farmers equally, he added.

Sen. Charles E. Schumer (D-NY) defended compacts. "I continue to believe in the necessity of the dairy compact for the Northeast as well as anywhere else farmers are in need of decent commodity prices in order to stay in business."

Schumer said the price of milk under the Northeast Dairy Compact never has been more than four cents higher than the national average. In contrast, said Schumer, Florida, which does not have a compact, has lost so many dairy farms that residents now pay up to 40 cents more per gallon of milk transported by truck from the Midwest.

Sen. Arlen Specter (R-PA) called for more disaster aid for dairy farmers. "Record droughts" hit the mid-Atlantic region last year, he said, and most of the $8.7 billion in disaster aid voted by Congress last year went to the Midwest. "We must work together to provide additional drought assistance to the hard hit dairy farmers who are struggling to economically survive each month."

Keith Collins, USDA chief economist, told the committee dairy farmers improved their financial position in 1998 and 1999. Dairy concentrate expenses declined 10% in 1998 and declined further last year. That combined with record-high milk prices caused returns over concentrate costs in both years to be "considerably above" the average of the 1990s.

Nationally, net cash returns – gross revenue less cash expenses – increased from only 65 cents per cwt. of milk sold in 1997 to $3.42 per cwt. in 1998 and "were likely near that level in 1999," said Collins.

Despite that improvement, the number of dairy farms continues to decline as smaller operations give way to fewer and larger operations. Last year the number of operations with milk cows declined 5% from 117,180 to 111,220, Collins said. While the total number of dairy farms is declining, the number of large operations is increasing.

"There are no indications that the structural adjustment taking place in dairy farming will slow down anytime soon and appears largely unaffected by current dairy programs," Collins said.

Commercial use of dairy products should keep pace with increased milk supplies. Milk cow numbers should decline slowly, continuing a long-term trend, but milk production should expand about 1-2% per year as productivity gains and structural changes continue to increase efficiency.

"A new type of dairy farm appears to be emerging that is much larger, lowering capital costs per cow," said Collins. This farm will use more purchased inputs, including labor, and "have other characteristics similar to typical western dairy operations."