AR-News: Many dairies struggle despite high milk prices

[jim robertson]

Many dairies struggle despite high milk prices

By The Associated Press


SUNNYSIDE, Yakima County — Even with milk prices in the Northwest among the 
highest in the country, Washington's dairy farmers say they're still losing 
money in a brutally competitive business that favors large corporate 
operations.

Case VanderMeulen, a native of Holland who owns two dairies in Sunnyside, 
says he's watching his version of the American dream turn into a nightmare 
as debt piles up.

"This is the longest and lowest downturn in 25 years, and we can't do this 
any longer," VanderMeulen told the Tri-City Herald. "If prices don't turn up 
real quick, there is going to be people out of business."

It costs VanderMeulen about $1.40 to produce a gallon of milk. But he gets 
paid about $1 — a minimum price set by the federal government.

Meanwhile, Pacific Northwest consumers are paying some of the highest prices 
nationwide for milk, according to a recent report by the Washington state 
Public Interest Research Group.

The Washington PIRG study cited government data indicating that the average 
price of whole milk in the Seattle-Tacoma area was $3.52 per gallon in July, 
compared to $2.78 nationally.

VanderMeulen said he's carrying about $1,500 to $2,000 of debt per cow, and 
he's not unique.

"There are only two options: You get more debt or you don't pay all your 
bills," VanderMeulen said.

To survive higher costs and lower profits, dairies have had to produce more 
and more milk. The result is large corporate operations.

"Bigger plants can produce units at a lower cost than smaller plants," said 
Andrew Novakovic, professor of agricultural economics at Cornell University 
and a national expert on milk pricing.




"There are going to be fewer and fewer dairy farmers," Novakovic said. "And 
the ones that are left are going to be very large scale."

Once milk leaves the farm, it requires about 60 cents worth of processing — 
pasteurization, bottling, labeling, testing and shipping — before it lands 
on grocery-store shelves, VanderMeulen said.

In the Northwest, nearly all farmers use cooperatives for processing, mostly 
the Northwest Dairy Association, which sells milk products under the 
Darigold name. Such processors can't sell their milk too high because they 
are all competing fiercely for grocery-store business, VanderMeulen said.

So if the cost of milk is similar, and the cost of processing it is about 
the same, that leaves one source for the dramatic increase in price, farmers 
say.

"Between the processor and the consumer — that's where someone's making a 
lot of money," VanderMeulen said.

Grocery-store officials contacted by the Tri-City Herald either denied any 
price gouging or refused to comment.

When asked how much profit 7-Eleven stores in the Tri-Cities made on milk, 
Kurt Schumacher, dairy category manager for 7-Eleven nationally in Dallas, 
wouldn't answer.

A recent posting by the 7-Eleven store in Pasco read: "Due to dramatic 
increases in the Federal Milk Order costs on milk over the past two months, 
we are forced to increase our retails on dairy products."

The minimum price farmers can be paid for their milk is regulated by the 
government's Federal Milk Order. Prices change monthly depending on supply 
and demand, and differ from region to region.

Milk prices for farmers are starting to go up, but not dramatically, 
VanderMeulen said. And farmers won't be paid those increased prices until 
next month.

Stores typically raise prices quickly when the market allows but then slide 
slowly down when prices are low.

"Although retail markets do respond to farm prices, on the down side in 
particular they don't respond as quickly," said Novakovic, the Cornell 
expert. "It doesn't have to do much with the farm price, but what consumers 
are willing to pay in the local market," Novakovic said.

More important for a grocery store is what the competition is doing, he 
said. And when there are only a few corporations controlling an area, they 
can set the prices wherever they agree, Novakovic said.

One way farmers could raise their prices is to cut milk production and 
increase demand, Novakovic said.

"Collectively it would make sense for everyone to cut back 10 percent," he 
said. But farmers are reluctant to cut back because they might wind up 
getting the same price for less milk if their colleagues didn't go along.

Back in Sunnyside, VanderMeulen said he is just hanging on for better times. 
"I keep telling myself every day it will get better," VanderMeulen said. 
"Hopefully I will be in business when that happens."


Copyright © 2003 The Seattle Times Company





In fact, if one person is unkind to an animal it is considered to be 
cruelty, but where a lot of people are unkind to animals, especially in the 
name of commerce, the cruelty is condoned and, once large sums of money are 
at stake, will be defended to the last by otherwise intelligent people.
-- Ruth Harrison, author of Animal Machines

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