“On Pasture is too nice to publish this.”
That’s what Troy Bishopp told me about his piece, “The Giving Farm,” that is running this week.
He’s right. I try to make On Pasture a happy place and I tend to focus on solutions to problems. My brain is always a little whirlwind of “what ifs” and “why nots.” So I’ve filled On Pasture with articles about how to grow grass, how to manage and care for the livestock grazing it, how to cut costs, and how to keep on thinking of new solutions to old problems.
But sometimes there are outside forces, things we have less control over, and those are the things that can take us down if we don’t look at them and talk about them.
So this week, let’s take a look at a problem: the difficulty of our U.S. dairy farmers to make a living, and how farm and ranch failures impact rural communities.
First let’s talk about what’s happening right now. The average price dairy plants pay U.S. farmers for milk fell from a peak of $25 per hundred weight in 2014 to about $16 – or $2 per hundred weight less than it costs even the most efficient dairy to produce that milk. No matter how close they cut expenses, they’re still losing money. Many of them are in the same spot as Arizona dairy woman Rosemarie Burgos-Zimbelman, “We’re losing money every day. I mean $2,000 a day and you times that by 365, that’s a lot of money.”
Thanks to dairy farmers’ efficiency more milk than ever is being produced. And while it’s true that per capita, Americans consume less dairy than they did in the 1970s, the USDA says that total dairy consumption has still increased as we eat more yogurt, butter and cheese.
So what can be done? As Troy notes in his article, we attempted to solve this same problem in the 1980s with a dairy buy out program. That may have helped stabilize the dairy industry for a while, but it wreaked havoc on the beef industry with slaughter dairy cows bringing down prices. That’s probably not a solution we want to try again.
So what about international markets? Had the U.S. gone forward with the Trans-Pacific Partnership (TPP) Canada would have agreed to import 3.6% of its milk from the U.S. To replace that, the new trade agreement boosts tariff-free milk exports to Canada to 4%, or about the equivalent of all the milk produced by Wisconsin. International trade on our southern border has also become a problem. About 45% of Arizona’s dairy business relies on exporting dairy products to Mexico. But right now it’s too expensive to do that because of Mexico’s retaliation to the Trump administrations increased tariffs.
The Only Country Without These Problems? Canada
We’re not the only country with these problems. Volatile milk prices are a problem all over the world. The only country without an issue is Canada, where, in July, farmers received the equivalent of $24.20 per hundred weight, or about 50% more than U.S. farmers (per data from the Dairy Farmers of Ontario).
This video from CNBC gives a good summary of what Canada’s doing differently and how it is that the average Canadian dairy farm makes about $160,000 a year. They created this system because keeping dairies healthy means healthy rural communities and that’s something that makes 75% of Canadians very supportive of this system.
Canada’s protectionist dairy policies and why Trump hates them from CNBC.
Could the Canadian system work in the U.S.? Do you have other ideas for solving the problem? If you have thoughts, or would like to see proposals from dairy producers themselves, check out the Dairy Farm Income Enhancement Proposals website.
Meanwhile, though we’re talking about dairy farmers here, farmers and ranchers all across the country are facing challenges to profitability every day. Farms and ranches are the backbone of small communities and they are the reason that rural towns and their businesses and schools survive and thrive.
I believe that healthy rural communities are critical to the health of the U.S. and to every country. Talking about problems is a good place to start figuring out new solutions. Maybe we can find something together.
UPDATE: A Canadian reader wrote in to say that their milk prices are actually higher than what was listed in the graph. I did further research and found a more recent price survey done by a Canadian organization as a response to criticism of the Canadian system by the Trump administration. They found that a liter of milk in Canada costs $4.25 CAD ($3.18 US) and in the U.S. a liter went for $2.22 CAD ($1.66 US).
Their conclusion was:
“Canadians are paying more for milk than they would if the marketplace was truly an open market.” stated Doucette. “If trade barriers between provinces were broken down, we could have a more efficient system, although the smaller production systems in smaller provinces would likely be consolidated into larger systems in Central Canada.”
“A consolidated, more efficient, national milk production system may be a necessary evil in order to ensure that Canada’s dairy industry is competitive with a much larger system in the United States over the long term and delivers better value to Canadian consumers.”
You can read the article and download their full report here.
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.
Thanks Eric! This is very helpful!
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.
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
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.
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.”
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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