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The Dairy Crisis Affects Us All

By   /  December 10, 2018  /  6 Comments

What’s happening to our dairy farmers doesn’t affect just them. It also affects the farmers and businesses who supply them, and the future of rural communities across the country. Let’s take a look at the problem and some potential solutions.

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“On Pasture is too nice to publish this.” That’s what Troy Bishopp told me about h
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  • Published: 3 years ago on December 10, 2018
  • By:
  • Last Modified: April 11, 2019 @ 10:40 am
  • Filed Under: The Scoop

About the author

Publisher, Editor and Author

Kathy worked with the Bureau of Land Management for 12 years before founding Livestock for Landscapes in 2004. Her twelve years at the agency allowed her to pursue her goal of helping communities find ways to live profitably AND sustainably in their environment. She has been researching and working with livestock as a land management tool for over a decade. When she's not helping farmers, ranchers and land managers on-site, she writes articles, and books, and edits videos to help others turn their livestock into landscape managers.

6 Comments

  1. Eric says:

    Hello On Pasture

    First off, thank you for creating and building this excellent online resource. Checking On Pasture is my favorite online ranching chore. Chores CAN be fun!

    Like a lot of the other Canadians who have posted comments, I too caution my American cousins on adopting supply management as a solution to their low prices. Well, at least to the American dairymen of the future. On the other hand, if you currently own a dairy herd, go for it. Liscense to print money. Let me explain.

    When a quota system is instituted generally the first batch of quota is free as long as you have the herd. You get the paper, and like magic your farm assets have increased millions. Admittatly it is more complicated then that but you get my point. Once the nation’s dairies have been issued quota proportional to their given herds, the system is in equilaliberium. Quota must be bought and sold no differently then any other kind of tangible asset on the farm. See where I’m going with this?

    It’s no surprise that the first cohort of dairy farmers under supply managment are likely to support it not just because of a price increase but also because it is going to increase their net worth. I get it. It’s good business. But what about the next generation? The aspiring farmers not lucky enough to be born on a founding quota dairy? It really stifles innovation which is the only way any industry can be sustainable in a global market.

    Another downside is that a quota system encourages hyper-growth and farm monopolization. Simply, the only way for a dairy to expand is to buy another dairy’s quota. Conversely, if you want out of dairy, the only entity that can afford the quota you are selling is a mega farm. Forget about thinking of selling it to the similiarilly sized farm down the road. Same thing happens when new quota is made available due to increased demand. It’s going to get gobbled up by the big guys. It is very conceivable that if the quota system is not dismantled in Canada in the next 20 years, there will be a handful of dairies, all owned by faceless corporations. Look at the trends.

    I am not suggesting that American dairies should not be seeking better prices. Just do it in a way, that will be truelly sustainable. Canada’s quota system might prevent a race to the bottom in terms of prices, but it encourages a race to the top in terms of industry monopolization.

    Thanks for your time.

  2. Bill Bredderman says:

    I am assuming that the reader from Canada who quoted a US price of $1.66 per liter (a little more than a US quart) meant price per gallon (Imperial gallon in Canada). Otherwise we would be paying almost $7 for a gallon of milk in the US.

  3. Karl Piper says:

    Classic case of the grass is greener. Look at the numbers and you will see Canada’s dairy farm numbers are falling faster then in the US even with supply management. And the price is based on the top 25% of producers cost of production, so if you’re in the other 75% you are more likely not making a profit hence the faster decline in numbers

  4. Paul Nehring says:

    Sometimes industries change in drastic ways that cause a lot of pain and suffering for many involved. The dairy industry is going through such a change right now. The Canadian model may be the way to go, but dairy farmers need to understand the one expensive and incredibly precarious side to that model, which I’ll mention after a few of my own rambling observations.

    The dairy industry keeps producing more milk: http://www.wisconsindairy.org/assets/images/statistics/wi_milk_production_10yr.gif

    In times past, milk production would grow during good prices, and slow, stop and even shrink a little when prices would drop to below the point of where the average producer was profitable. The cycles seemed to last about 12-24 months of good prices followed by the same for really bad prices.

    This time, though, production keeps going up and up, for seven years straight. The market can’t absorb that much milk and continue to pay a higher price. It’s just simple economics 101.

    Admittedly, it’s strange that production keeps going up. Maybe that’s driven by the huge dairy expansions.

    I have witnessed those expansions around my farm and feel their effects on my farm, as well. I modeled my farm on Greg Judy’s leased land system, which worked well, 16 years ago when I started, although I didn’t find free land, but did find land at reasonable lease rates. Those days are long gone, as several dairy farms in my area have expanded, including one going from 150 cows to recently announcing they are expanding to 13,000 cows and my leased land is now surrounded by land controlled by these big dairy farms, including one that is 30+ miles away. They are required by their nutrient management plans to have certain amount of land per animal unit, so they are willing to pay top dollar.

    One person in the dairy business told me that big farms often expand during times of crisis in part to bring in loans that help them to cash flow to weather that crisis. I don’t know if that’s true or not, but I have to wonder how they can otherwise justify the expansion during such poor prices, with no end in sight.

    Back to the economics 101, and managing supply and demand. Canada can control supply to more closely meet demand, which keeps prices high, however, high dairy prices creates high demand for the price of admission to dairy farm; that is, purchasing quota.

    The one thing dairy farmers need to understand about Canada’s system: if you want to dairy farm you have to purchase quota, so that you can milk cows and sell the milk into the regulated system. That quota ain’t cheap, somewhere around $35,000 per cow.

    You think you can make a decent living milking 100 cows at $24 per cwt? Hold on there, because you will also be paying debt on the quota in addition to the debt on your cows, land, machinery, etc. It will cost $3.5 million to buy that quota, which in effect, is just a piece of paper.

    Remember, other world leaders, such as Individual #1, don’t like Canada’s quota and are trying really hard to get Canadian leaders to dismantle it and allow full acces to their market. Those world leaders are threatening a big trade war if their demands are not met, and while Canada’s leaders like dairy farmers, they wonder if dairy is worth protecting at the expense of other industries, like steel. In other words, that peice of quota paper that cost you $3.5 million, to farm 100 cows, might not be worth anything one day, depending on the whims of politicians.

    https://albertamilk.com/ask-dairy-farmer/how-much-does-quota-cost-for-a-108-cow-dairy/

    Anyway, I’m not saying the U.S. shouldn’t try a quota system, but dairy farmers often forget or don’t realize the cost to get into such a system and the precarious nature of that expensive quota. I will also readily admit, that I’m sorry, but I don’t have any good solutions.

    One last thing to end on, a quote from Admiral Jim Stockdale, who survived 8 years in a prison camp during the Vietnam war, enduring torture, and abusive conditions, on how he survived:

    “You must never confuse faith that you will prevail in the end–which you can never afford to lose–with the discipline to confront the most brutal facts of your current reality, whatever they may be.”

  5. Haley Rutherford says:

    Hi Kathy, I’m a recent subscriber to On Pasture and really enjoy it. Thank you for your work.
    I just read your article about the plight of the US dairy industry and Canada’s industry being something to model. I don’t think it’s quite as successful and straight forward as you might think. I live and ranch in British Columbia, Canada and one of the issues we are facing is the loss of ranches as dairy’s move inland. Unfortunately the beef industry can’t compete with the supply-managed dairy farms and land values (as well as the cost of other inputs) have skyrocketed. As urban sprawl displaces dairy farms, dairy farms displace ranches and we now have an issue where we ranchers are back to fighting for our place in the world.
    I think the way the dairy industry here is set up is unsustainable. It’s created a generation of dairy technicians – not cowmen or farmers – and the smaller dairy farmer is struggling to stay competitive.
    I suppose I’m just saying these are complicated issues that likely have complicated solutions that have to constantly be revisited and restructured. Be careful what you wish for.
    Thanks again for the newsletter!

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