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Got
Milk?
Virginia
will always have milk in grocery stores, but
it may not be long before we lose our dairy farms.
The regulatory system supporting milk producers
seems broken beyond repair.
Here’s
a conundrum for you. Virginia
is a net importer of milk.
We don’t produce enough for our own
consumption. Yet
Virginia
dairy herds are diminishing in record numbers.
Our dairymen, caught in a nightmare of
government regulation and at the mercy of a
Byzantine price-fixing system that dates back to the
Great Depression, are in a life-and-death struggle.
Many are going under. Supply and demand
considerations typically associated with free market
theory have little to do with it.
Nor does quality.
Nor efficiency.
The
precipitous decline of this major industry in
Virginia
is sobering. According
to the Virginia Farm Bureau Federation, Virginia’s milk production fall-off in 2003 was tops among
the 20 top milk producing states in the nation.
Hardest
hit are smaller operators.
Says Tony Banks, an assistant director of the
Virginia Farm Bureau Federation’s
Commodity/Marketing Department in a
December 11, 2003
release: “What
we’re seeing is consolidation.
Larger dairy producers are taking over the
smaller producers because prices are low and
production costs are high.
The smaller producers can’t afford to stay
in business, so herds are being bought, creating
larger ones.”
But
that’s not the whole story.
There are 9,000 fewer dairy cows in Virginia
than there were one year ago.
Says
Banks: “Average
milk production for herds is increasing because
lesser-producing cows
are being weeded out as herds are consolidated.”
Many
of the marginal animals wind up on the beef market.
Such was the fate of the "mad cow"
from
Washington
state that sent recent shock waves through the
international beef industry.
But
even large operators in Virginia
are stressed, many to the breaking point.
I have personal knowledge of one Virginia
dairy farm — one of the largest in the state and a
top-five farm, out of more than 900, in terms of
herd average, an expression of pounds of milk
produced per cow — that lost three cents per pound
on every pound of milk it shipped during the year
just ended. That
farm shipped more than eleven million pounds of milk
last year. Do
the math.
Says
the Farm Bureau in the December 11 release:
“Applying the laws of supply and demand, one might
think with less milk on the market, dairy farmers
are getting record high prices.
But that’s far from accurate this year.
Farmgate milk prices have never been so low
for so long.”
(By
the way, dairy farmers refer to that "farmgate"
price as the ‘mailbox’ price.
It is the net payment they receive when the
check hits the mailbox.)
Fauquier
County
dairyman Raymond Schrock got out of the business in
February of last year.
Said he in a story reported by Don Rosso, a
staff writer with www.citizenet.com:
“Expenses
became greater than the income.
Milk is cheap.
That’s the worst part.
They don’t pay us hardly anything for it
anymore.
“It
was less than $12 a hundred pounds (under $1 a
gallon) when I got out.
And I can’t make milk for $12 a hundred
pounds. It
costs more than that.”
Shrock says he lost $5,000 a month for the
past couple of years.
Demand
is up, supply is down, yet prices are on the floor
and Virginia dairymen are leaving the field in record numbers.
There is something wrong with this picture.
Says
Fauquier extension agent Keith Dickenson in the same
write-up: “The
typical dairy farm is operating at a loss.”
And
this from Chris Galen, a spokesman for the National
Milk Producers Federation, based in Arlington, again, from the same article:
“The bottom line is that supply and demand
are out of balance. Even the most efficient farms
are having a hard time.
You’re dipping into your equity because
you’re not making enough money.”
Yet
Virginia
imports milk. We’re
drinking out-of-state milk while our farmers go
under. What’s
with that? Well, it’s complicated.
You have to go back to the 1920s run-up to
the Great Depression.
The
rise of the corporation on the industrial side of
the American economy had no real equivalent in
agriculture until passage of the Capper-Volstead Act
on
October 18, 1922
.
Sometimes
referred to as the "Magna Carter of
Cooperatives," that piece of legislation, named
for Senator Arthur Capper, of
Kansas
, and Congressman Andrew Volstead, of
Minnesota
, was a seismic event in American agriculture.
The
short version is this:
Capper-Volstead gave "associations"
of persons producing agriculture products certain
exemptions from anti-trust laws, specifically the
Sherman Anti-Trust Act, the Clayton Anti-Trust Act
and the Federal Trade Commission Act.
Said
Volstead in the 1921 Congressional Record:
“Business men can combine by putting their
money into corporations, but it is impractical for
farmers to combine their farms into similar
corporate forms. The
object of this bill is to modify the laws under
which business organizations are now formed, so that
farmers may take advantage of the form of
organization that is used by business concerns.”
Translation:
"We’re from the government and we’re
here to help you."
To
be fair, it did help, immensely.
At the time, chaos reigned in American
agriculture and that legislation, and lots of
derivative legislation since then, provided an
enormous measure of stability to the agricultural
marketplace. But
there were, and are, strings attached.
There always are.
And this was no exception.
Capper-Volstead marked the absolute end of
any notion of a free market in American agriculture.
What
were the strings? Quotas.
Price-fixing. And
on and on and on. You
get the drift.
Close
to home, one offshoot of the landmark legislation
was the creation of the Virginia State Milk
Commission in 1934.
Dairying
is big business in Virginia. How big?
The value of the milk production alone is
more than $300 million annually.
Ancillary support aspects add hundreds of
millions to that. The
industry employs thousands.
We all benefit from it, whether we drink the
stuff or not. A
North Dakota
State
University
study found that every dollar a farm grosses is
worth $5 to $7 dollars to the local community and
that every time a dairy farm is lost, the cost to
the local community is in excess of $2 million
annually.
And
dairying is pervasive in Virginia. Rockingham
County
leads the state, by far, followed in order by
Augusta, Franklin, Fauquie,
Washington, Wythe, Culpeper, Bedford,
Grayson and Montgomery.
Milk
is a tricky product, trickier than most, simply
because it is so perishable and, as a consequence,
has such a short shelf life.
That constraint dictates others.
You have to keep it cold.
You can’t, practically speaking, haul it
but so far. Long-term,
you can only store it in by-product form:
cheese and butter.
And there is another, unique, aspect to milk:
a steady, stable, affordable supply of it is
in the "national interest."
Put
those characteristics in a room full of folks prone
to legislate everything under the sun and let that
process run for 75 years or so and you get what we
have today — an almost unfathomable hodge-podge, a
quagmire of rules and regulations that govern every
single aspect of this basic commodity.
James
Thompson and Frank Edwards, economics professors at Murray
State
University, identified a number of "legacies" of
such policies in a recent Cato Institute
publication. Among their findings:
Current policy encourages an overproduction
but under consumption of dairy products and creates
a misallocation of the nation’s resources.
Says
the Web page for the Virginia State Milk Commission:
“The
Virginia State Milk Commission exists to ensure that
the citizens of Virginia
have a constant, available and reasonably priced
source of fluid milk.
The agency achieves this mandate through the
application of regulations promulgated to regulate,
control and supervise the dairy industry in Virginia. The
Commission’s narrowly focused legislative mandate
limits agency programs to those directly affecting
the production, storage, transportation, and
marketing of milk. The
agency can and should always identify and pursue
more effective and efficient processes of service
delivery. Activities
of the Commission, although narrowly focused in
scope, parallel those of the Governor in that they
are managed to be as least intrusive as possible,
limited in size and reach, and effective management
of the program avoids federal intervention into
state economic agricultural matters.
“In
order to achieve the mission, a viable dairy
industry must exist. The
key element to a viable dairy industry is a known
competitive producer price and an effective audit
program which determines that all processors pay the
same price for the same class of milk, and the
producers of milk receive an equitable payment for
the utilization of their production.”
You
know that gallon of milk you pick up at the grocery
store? Whatever
you pay for it — and some stores use milk as a
loss-leader — know that the farmer gets about half
of that.
What
drives milk prices in Virginia? Not demand.
Not consumer perceived value, or willingness
to pay. It's
the spot market in Wisconsin
and Minnesota
— the dairy capital of the world.
Essentially, it is that price plus a
differential representing transportation costs to
any given market area from Eau Claire,
Wisconsin. There
are some tweaks made to that — the Virginia State
Milk Commission uses six — things like tax rates,
average feed price per ton, average prevailing wage
rates, and so on. But
for the most part,
Virginia
dairy farmers are at the mercy of average spot
market prices in Wisconsin
and Minnesota. Which is why
a gallon of milk costs about the same, no matter
where you go.
Here’s
the thing, though. This
system we have now is not working.
A "viable" milk industry does not
exist in
Virginia
today. Our
farmers are not receiving "equitable"
payment for their milk.
This is not a slam on the Virginia State Milk
Commission. It
is simply a statement of fact.
Our dairymen are at risk. When they’re at
risk, the whole shebang is at risk.
--
January 5, 2004
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