The Economics of Industrial Milk

In 1964 there were 1.1 million farms with dairy cows in the US; today that number has fallen to somewhere between 30-35,000. Dairy farmers today receive about the same price for their milk that they received in World War Two! No wonder they are going out of business at the rate of about sixteen per week. The demand for fluid pasteurized milk has declined for decades but several other major factors are responsible for the industry's downfall as well.

First, laws meant to protect dairy farmers have instead served to drive them out of business. In 1922 Congress passed the Capper-Volstead Act, a law that enabled farmers to form marketing cooperatives to market their products; the Act granted cooperatives protections not given to most other businesses. What has actually transpired is that a cooperative like Dairy Farmers of America (DFA) has worked against the interests of its members; rather, its actions have benefited the big dairy processors. DFA has grown into a monopoly in many states; in a state like Kansas, it is the only dairy cooperative that milk producers can join. DFA has been able to get away with bankrupting farmers partly because it can hide behind the protections that Capper-Volstead provides.

Also responsible for the unfair prices that farmers producing raw milk for pasteurization receive is the Agricultural Marketing Agreement Act (AMAA), another law where the original intent of Congress has not been followed. The AMAA established the Federal Milk Marketing Orders (FMMO) that created a payment formula for farmers. The Act mandated that the U.S. Secretary of Agriculture consider regional production costs in determining the price of milk for the milk marketing order of each area in the country; in practice the Secretary has ignored the cost of production in setting prices. Milk marketing orders are complex pricing mechanisms; farmers know the orders don’t give them a fair price, but it’s difficult to figure out how exactly the prices are set.

A third factor in the decline of dairy farms are imports of dairy products. “Free trade” has led to oversupply in the U.S. market creating another barrier to success in addition to the pricing system and the cooperative monopolies.

The final and most significant reason for the loss of dairy farms is mandatory pasteurization laws. Bans on raw milk sales for human consumption have left the dairy farmer chained to a commodity system that has worked to consolidate the dairy industry by rendering most dairy farms unable to pay off debt and expenses. Many states have lifted bans on raw milk sales or distribution over the past twenty years but still limit revenues due to restrictions on venues for raw milk distribution or a cap on the quantities of raw milk that can be sold.

The three ways that dairy farms can escape the commodity system and remain in business are to purchase bottling and pasteurization equipment; to purchase the equipment to manufacture value-added dairy products such as cheese; and to sell raw milk for human consumption. The latter is the most economical way to escape commodity milk; with its continued increase in demand, supplying raw milk (and raw milk products) is the future for the family dairy farm.

October 31, 2018

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