Is Dairy Dying?
A new season for Talk Farm to Me | Season 3, Episode 1
This is Talk Farm to Me's first Deep Dive Series that addresses multiple angles on one issue.
When I was a girl, milk was a staple. It was on the dinner table and it was my go-to as a refresher after a long soccer practice. As a matter of fact, "Drink your milk." was a constant refrain of my childhood. Not any more. My kids were not big into milk after their baby years. Now I put milk in my coffee. That's it.
What does this mean? Do you think about milk at all? What about other dairy? When you grab some milk in the supermarket, do you think about everything that went into getting that milk there? Well, now's your chance. The details of the dairy industry are super interesting. And it's really much more complicated than I ever could have imagined. And quite frankly, where the dairy industry is having troubles is where other issues pop up too. Everything is connected.
In this first episode in the Deep Dive series on dairy, you get a Dairy 101 of sorts. What you learn here -- from a New York state dairy farmer and from a dairy policy expert -- will set you up to dive in to more complicated topics coming soon. Stay tuned for Episode 2 in a few weeks. At the end of this series, you will be able to decide for yourself the answer to "Is Dairy Dying?"
GUESTS
Our guests on this episode of Season 3 -- a Deep Dive on Dairy include:
1) Dairy farmer Rich Dirie of Dirie's Dairy Farm in Livingston Manor, NY and
2) Mark Stephenson, the Director of Dairy Policy Analysis at the University of Wisconsin, Madison's College of Agricultural and Life Sciences.
I am very grateful to both Rich and Mark for sharing their ideas, expertise and candor about farming dairy with me.
MUSIC
The music in this episode was created specifically for Talk Farm to Me by professional musician and songwriter Douglas Haines via Fiverr.
SPECIAL THANKS
Always thank you to the amazing farmers who have been on any episode of Talk Farm to Me. Thank you Rich and Mark for being the first in this Deep Dive on Dairy!
TRANSCRIPT
As always, a transcript of the episode follows. Please forgive any typos.
Deep Dive on Dairy: Is Dairy Dying?
Season 3, Episode 1
Farm Girl:
Welcome to Talk Farm to Me. I'm your host, Farm Girl. This is the first episode in a deep dive series about the dairy industry and farming dairy. As the first episode, I wanted it to be a dairy 101 of sorts, and it is that. But I will tell you this, it is a much different dairy 101 than I thought it was going to be. We can get into that a little bit later. To get us started on the right track, I want you to meet New York dairy farmer, Rich Dirie. He's been farming dairy his whole life.
Dairy Farmer Rich Dirie:
My parents bought the farm in 1944. They milked 10 cows. When they bought this farm, they moved the 10 cows over here. There was room for, I think, my dad said there was room for like 16 in the barn. After a few years, they started milking more cows, and gradually he changed to milking cows on both sides of the barn. That gave him room to milk 30. Then in 1960, I believe it was, we added onto the barn and made room for 15 heifers.
Farm Girl:
Just a quick aside here. A heifer is a female cow. She's usually the daughter of one of the dairy cows, and she's kept on hand as a replacement cow in case one of the dairy cows becomes less productive. Typically, a heifer is bread and starts milking when she's around two years old.
Dairy Farmer Rich Dirie:
So that we had 30 cows in the main barn to milk, and then there was 15 heifers in the addition. In 1944, when he bought the place, was the house, the barn, I guess just the bare farm, and around a hundred acres, and he bought her for $5,000. He borrowed money from my grandfather. My grandfather said, "How are you ever going to pay that money back?" He said, "That $5,000, that's a lot of money."
Farm Girl:
$5,000 for a 100 acre farm in 1944. This purchase set in motion Rich Dirie's entire life. Let's go back to the early days when Rich was just a little boy.
Dairy Farmer Rich Dirie:
They always say, it's in your blood, and I guess there's something to that. I always said, I knew, when I was six years old, what I wanted to do. I wanted to be a farmer. It's just the tractors, the animals, it's just what you want to do. Oh, it was one of those things, I know when I was 11 years old, I was helping milk cows and doing whatever I could. I was probably around that age when I got put on a tractor to rake hay and bale hay and to do tractor work. It was just, whatever you could handle, that's what you did. Weekends and summer vacation when you weren't in school, you were here working. I mean, that's just ...
Dairy Farmer Rich Dirie:
You didn't ask questions. "Why do I have to do that?" You just did it, was here to do, and that's what you wanted to do anyway. I was much happier driving a tractor than I would be going swimming or something.
Farm Girl:
Eventually, Rich took over more and more responsibilities on the farm and became pretty good at it. Like most farms back then, Dirie's dairy moved from generation to generation.
Dairy Farmer Rich Dirie:
From the time when I got out of high school was around the time that they quit doing milk cans, and we had to put in a bulk tank to put the milk in. November 1st was the last day they were going to take can milk at the local creamery. I remember, I don't know, probably about May or something like that, I said to my dad, "November 1st," I said, "if you're going to do anything about putting a tank in, we need to build a milk house. We need to do a bunch of stuff to get this lined up." I said to him, "What's your plan? What are you going to do?"
Dairy Farmer Rich Dirie:
He looked at me and he said, "That depends on what you're going to do, since I'm 60 something." He was 62 or whatever he was. He said, "You know ..." I said, "Well, I'm going to be here." He says, "All right, I guess we better get going and do this." He said, "We got to get this thing straightened around. It was just decided that half of the cows were mine and half of the cows were his, and we just came up with some figures and had a paper drawn up, took it to the lawyer and sign it, and that was it from there.
Farm Girl:
Farm transitions are harder these days. Rich has encouraged his two boys, now grown men, to have jobs off the farm, real jobs, he says, with benefits and pensions. He has seen changes in the business and knows it won't sustain them like it did his parents and his own family.
Dairy Farmer Rich Dirie:
Between myself and my wife and my parents, we were doing good. We were supporting both families. We were paying bills, we were buying equipment and everything. From 1970, probably until nearly 2000, I mean, it was really ... We were doing well. You needed a piece of equipment, you traded the old one and bought a new one, and you needed a tractor, or whatever. I'd say we had 10 or 15 pretty good years.
Farm Girl:
I just like to mention to you quickly here that Rich wasn't doing this alone. His wife, Maryann, farmed dairy alongside rich every single day while they were raising their two boys. Maryann sat in on the conversation between rich and me, and you can hear her chiming in, in the background, especially when we get to the parts about money.
Dairy Farmer Rich Dirie:
But from there on, we ended up dipping into the savings of what we had saved to keep the farm running. His advice, like he said, he understood that I knew how to run the business and I was good at it. I could make money here and have enough money to retire on, but it didn't work out that way.
Farm Girl:
When you go to the supermarket to pick up a gallon of milk, I want you to think about Rich and Maryann. There are layers and layers of complexity between the cows in their milking parlor and the jug of milk on the supermarket shelf.
Dairy Farmer Rich Dirie:
But from that point on, what actually happened is the milk price remained level, but the price of everything we bought kept going up. It got to the point where I was buying seven ton of feed on a load and we were getting three shipments a month, and the price of feed, the price of grain for the cows kept going up, and then it got to the point where one seven ton shipment of feed was costing more than the three that I was getting originally. Then, well, okay, what are we going to do? We have to cut back, feed more hay and less grain, which on the other end, milk production dropped. Now you don't have enough as much milk to send, and the price of the milk is remaining level, so now you cut out on your income.
Dairy Farmer Rich Dirie:
But on the other end, your expenses kept climbing, and it just got to the point where it's like, what do we do? The bigger farmers kept producing more and more milk. So, the supply was out there, but demand was either dropping slowly or remaining constant. So, there's more milk, less demand. The price of milk starts dropping, and it just snowballed into a thing where you're actually losing money.
Farm Girl:
Working hard farming dairy every day for decades and losing money.
Dairy Farmer Rich Dirie:
From there on, it's just been kind of a struggle really, and trying to figure out what you can afford to buy. You need tractor tires and can't really afford them. Well, maybe we can later go until next spring and we need this and we need that. But what do you do? You don't want to quit because this is what you do. The other problem is, is by that time I was old enough. It's like, what kind of a job 55 or 60 years old, what kind of a job do I go and get? Or I work for another farmer. I mean, that's not ... So, we stuck it out until this past summer, and then I decided it was time to sell most of the cows.
Farm Girl:
I wonder if you're thinking about the other dairy farms in the area. Could this possibly be just a problem with Dirie's dairy? Well in New York state in 1997, there were 9,286 dairy farms. By 2012, that number had dropped to 5,427. That's a loss of nearly 42% of the state's dairy farms, but in Sullivan County, the County where dairies dairy resides, in the 30 years between 1987 and 2018, dairy farm numbers dropped a precipitous 75% from 112 farms to just 28, and that number continues to drop.
Dairy Farmer Rich Dirie:
I believe there's either 11 or 12 dairy farms left in the county. I was just mentioning to my wife here the other day, I said, "On this road, there was a farm down the road was a dairy farm. This was a dairy farm. The next place up the road was a dairy farm. The next place above that was a dairy farm, and the place part-ways up the hill, there was a dairy farm." So, there's five that were right here on the road, and you take Stump Pond road up that way, there was four or five. I said, "There was more dairy farms right here in this little cluster than there isn't a whole county now.
Dairy Farmer Rich Dirie:
Every road was that way. Every place was a dairy farm and they milk maybe 15 or 20 cows, and everybody made a living. They weren't getting rich, but they made a living. Now, I mean, I guess we could still be considered a dairy farm because I'm milking cows and selling milk.
Farm Girl:
Rich Dirie is still selling milk a little locally, direct to consumers right off the farm. There's an on your on a jar to put the money in, in a glass front refrigerator with raw milk in it. Diries is certified to sell raw milk. That is a whole other issue that we won't get into right now. But besides the impact of a failing dairy farm on the farm family, the Diries, there's a ripple effect. Let's look at how the disappearance of small dairy farms affects the rural communities where they were.
Dairy Farmer Rich Dirie:
When I was a kid, there was creameries, there was one in Jeffersonville, there was one in Roscoe, there was one in Youngsville, there was one in Liberty. Every sizable town had a creamery where you could take your milk to. Little by little they ... I don't know what really, I guess, a thing of it was that there wasn't enough milk coming in anymore, or it was costing them too much to have their milk transported from here to New York, or whatever the story was. But little by little, they kept going out. Dairymen's League had three or four cranberries around, and then they decided, probably in 1960, early 1960s, they decided to close three or four other creameries and consolidate and put one creamery up in Briscoe, which worked out good.
Dairy Farmer Rich Dirie:
It was kind of a central location, but the sad part of it was, and maybe they didn't see this coming either, they built a new Creamery in, like I say, the early '60s, and by 1970, everything was bulk milk, no more canned milk, and they had to close down their creamery because it was more cost-effective to drive to the farm with a bulk truck, pick up the milk and transport it to a milk plant than it was to have everyone bringing their milk to the creamery, then put it on a truck and transport it to the ... It was one less step in handling the milk and less employees for them and so forth. They just got to the point where they weren't accepting any more canned milk. So, either had put in a bulk tank or quit sending the milk, one or the other.
Farm Girl:
Moving from small scale local creameries to having milk pumped directly from a bulk tank on the farm into a truck was an efficiency. It makes sense. New technology comes in and the industry changes. As the industry shifts to integrate this more efficient process of moving milk, smaller farms have more infrastructure costs that are hard to handle, especially when milk prices don't compensate farmers in a way that enables them to continue. What's more communities suffer. There's a domino effect.
Dairy Farmer Rich Dirie:
But the thing of it is, is that I keep saying, and I'm probably right, is that, at one point, we had, every town had a small car dealership, every town had a small general store. Every farm had 500 chickens, whatever. That all gradually, now we have Walmart and we have big car dealerships, and it's just, I'm saying it's nobody's fault, what it's going to be is big farms, and smaller farms are not going to exist anymore, because you can't. It's just the way economics works, I guess you would say.
Farm Girl:
It's a harsh reality. Smaller firms basically have to go big or go home. Let's hold Rich Dirie's experience up against the bigger picture. I invite you to join me as we zoom out, so to speak. We head to Madison, Wisconsin to meet the university of Wisconsin's Director of Dairy Policy Analysis in the College of Agricultural and Life Sciences. Huh, that's a mouthful, but let's just say that Mark Stephenson is a dairy expert, a dairy historian, a walking encyclopedia of dairy knowledge. Oh, and his grandfather was a dairy man, so there's family lineage on his side as well.
Dairy Expert Mark Stephenson:
Back in the 1930s, we peaked in the country in the US with the largest number of dairy farms that we've had. At that point in time, we had something like 3.6 million dairy farms in this country. Today, we have less than 40,000. So, there's been tremendous consolidation, and that's happened over a long period of time, and not always for the same reasons, but there have been some economies of scale that have been ... I mean, for example, when my grandfather was milking Guernsey cows at their farm, they put milk in cans, and the cans were cooled. I mean, these are big 40 quart metal cans that most of you may be somewhat familiar with, but those were cooled and they were picked up by the milkman, the cans were taken in.
Dairy Expert Mark Stephenson:
In the 1950s and early '60s, we had the innovation of the bulk tank on the farms, which is a much larger self cooled container for the milk to go directly from the cow into this bulk tank. It's not touched by human hands at this point in time. It's much more hygienic. It's much more efficient. It's also much more expensive than a milk cam was. If you asked me, when I first started in this industry, what constitutes a small farm? I would have probably said, I don't know, maybe 15, 20 cows, something like that.
Dairy Expert Mark Stephenson:
We saw farms like that. There were quite a few of them. Could hardly find a farm that size today. They've grown in size as. Well, at 15 to 20 cows, you can't justify the expense of a bulk tank. You had to have maybe 80 or a hundred cows to justify that expense. So, the technology has continued to push us toward farms that can afford the capital. When you've done that, you want to make sure that, that capital is fairly intensively used.
Farm Girl:
We heard this from New York dairy farmer, Rich Dirie, right? The small farmer has trouble keeping up with the necessary expenses on the farm, including new technology, and that's made even more difficult when milk prices are unpredictable.
Dairy Expert Mark Stephenson:
Back in the 1930s, actually even predating that, we had quite a lot of price volatility back then, and that's when the government began to step in to help try to regulate prices a little bit and normalize some incomes for dairy producers. Prices used to vary as much as 150% over the course of a year at that point in time.
Farm Girl:
Can you imagine that? What about your business? No matter what you do, could your business withstand that kind of price swing?
Dairy Expert Mark Stephenson:
So, we did squash price volatility for a long period of time, but we've kind of backed away from that. Some farmers are really seeing some stress in the price movements that we've had.
Farm Girl:
I'm wondering how one goes about squashing price volatility, aren't you? I mean, I know we all want our markets to work well on their own, but let's find out what the government did back then.
Dairy Expert Mark Stephenson:
Well, the government did it in an interesting way. Back then, most of that price volatility had to do with the seasonality of both production of milk and the demand for dairy products. Those two things have strong seasonal components and they don't mimic one another. They're out of phase. So, in the spring time, cows were historically moving out onto pastures again and beginning to calve at different times of the year that produced a lot of milk in the spring. Our big demand season of the year is kind of Thanksgiving through now Super Bowl. That's when cows are producing the least amount of milk.
Farm Girl:
Okay. So, in the spring, the cows have babies and start producing milk, a lot of it, and we want that milk the most, think cheesy lasagna, nachos, pizza, hot chocolate in the winter from November through February.
Dairy Expert Mark Stephenson:
Those seasonality components are still there. They're not as strong as they used to be, but our price swings now are not predictable and they used to be much more predictable. What the government did back then was stand willing to buy dairy products off the market in the spring time, and then sell them back to the marketplace when the market was short. So, storable dairy products like cheese, or butter, or nonfat dry milk, they would purchase in unlimited quantities as much as anybody wanted to sell to them at the announced prices, and then they would sell them back to the marketplace in the fall. That really did help to stabilize prices quite a lot.
Farm Girl:
The government doesn't do this anymore. Let's find out why.
Dairy Expert Mark Stephenson:
Well, the program got abused. As you can imagine, one thing that you can do by being willing to buy as much product as anybody wants to sell to you is that you can lift market prices to levels that is not reflective of consumer demand, and that did happen back in the 1970s and '80s, early '80s. We had a couple of years when the government bought more dairy products than all of Canada, for example, produced in a year. So, it was just a huge big bill. It was a system out of control, and the only way to finally deal with that, it's just to say, we're not doing that anymore.
Farm Girl:
How are farmers selling their milk now? They're certainly not going door to door with their milk bottles anymore, but how does the milk get from the farm into the grocery store? Let's find out where it starts.
Dairy Expert Mark Stephenson:
We have milk and we have to find a market for that milk. We may be a member of a cooperative that's going to do that for us. They will find a place to sell it, or we may sell our milk directly. Now, 80% of the milk in this country is marketed through a cooperative. The cooperative might own their own processing facilities. In other words, make cheese or maybe bottle fluid milk, or they made just market the milk for you. So, they negotiate on your behalf and would sell the milk to proprietary cheese plant or butter powder plant, or something like that. That's the way that milk gets marketed.
Farm Girl:
Okay. So, a dairy cooperative markets the milk and finds a place for it to be sold, to bottle milk, or to make cheese. That sounds pretty efficient and helpful. Then the farmer can keep to the business of making milk. In a future episode of this deep dive into the dairy industry, we are going to get into the business of dairy cooperatives. They are not as simple as they seem. Stay tuned.
When I first started this deep dive series into the dairy industry, I wanted your introduction to be a country drive down a winding road to a big red barn with green rolling hills and a herd of picturesque black and white cows grazing lazily. Apparently, I am not alone in that fantasy, and I am not alone in finding out that the reality is so much different.
Dairy Expert Mark Stephenson:
Well, I think that one of the things that's going to come into this becomes individual value judgements that people have. There are a lot of people who like driving out through the countryside, if we don't live and work on a farm, and we like seeing little red barns and black and white cows on green pastures. It's just what our mind says should be there. That's not the reality of most dairy farms today. Our farms have gotten larger. We handle cows in larger units and pens than we used to, but the care and comfort of cows is every bit as much cared for as it ever used to be. It's just done differently.
Dairy Expert Mark Stephenson:
Dairy farmers know that if my cow is not comfortable, well fed, and well cared for, I don't get the milk production out of them. The milk production is so much higher than it used to be, that animal carers, is something they look after very closely.
Farm Girl:
Well, I have certainly heard that before. If your cow isn't happy, it is not going to produce good milk. I do think it might be worth diving into cow care and how cows are treated on dairy farms. I mean, if milk production is up per cow, like the agricultural census says it is, are our cows just happier, or is there more to cow care than we currently understand? We can address this in a future episode. Let me know what you think.
Farm Girl:
Now, back to my original dairy farm fantasy for you, that has been replaced by a more urgent need, to follow the money. The prices go up and down, it's impossible to plan. You think farming dairy is about the cows, but for the farmer, it's really more about the finances.
Dairy Expert Mark Stephenson:
Farms have tried to handle this price volatility we've had in recent years by doing two things. One of them is paying down more of their debt so that they have greater balance sheet, equity reserves, and that's something they can draw on if they need to in bad times. I need to go in and get a loan that I'll hope to pay back here in the next year or two. They've also tried to hold more of what we would call working credit, or working capital. Those are just cash or near cash reserves. Farms have done that.
Dairy Expert Mark Stephenson:
They've tried to put themselves into position to withstand this volatility, but what we've had in this last cycle of prices, our cycles, over last 15 years or so, have been roughly three years in length of up and down. This time, we had ... We're going into six years of relatively lower prices. We haven't had much of that big recovery that we keep hoping for. Actually, 2020 was supposed to be that year. We had prices coming up at the end of 2019, and the forecast and projections were for continued strengthening of those prices all the way through 2020, but then the pandemic showed up and that kind of threw everything into a tailspin.
Dairy Expert Mark Stephenson:
Farms have been really quite stressed as far as most of their expenses go. When you're working 12, 14, 16 hour days, and you're still not able to pay all your bills, it's crushing. I mean, it gets to be a really difficult thing to just mentally cope with, let alone fiscally. So, it's been a challenge for dairy farms.
Farm Girl:
Farmers are stressed. Prices for milk are volatile and commodities prices in general have been down over 50% since 2012. Farm debt is at a record high. Add to that, worsening weather and trade tensions. Oh boy, and if dairy farmers are watching the numbers of dairies closing, or going into bankruptcy, which they are, that stress is compounded. No farmer wants to lose their farm, but even more deeply, no farmer wants to be the generation to end their family farming legacy.
Dairy Expert Mark Stephenson:
Losing dairy farms is not headline worthy. I mean, we've been doing that since 1930. It's the rate of exit. I mean, we've been having more attrition than ever before, and not all of that is because you've had a banker call and say, "I'm sorry, but I need to have your loan paid up now. You're way behind." A lot of it is just been stage of life for people, that maybe you're 60 years old or something, and again, as I said, you've been working these 12, 14, 16 hour days, and you still aren't able to pay all your bills. Do you really want to go into the banker and say, "I want a line of credit to pay these bills. I want to keep milking cows at a loss."
Dairy Expert Mark Stephenson:
The answer to that at that stage of life may be, no. If I don't have a son or a daughter that's coming back to inherit the farm, it's going to be terminal anyway, maybe now is just the time to get out and just stop the bleeding.
Farm Girl:
Do you wonder why some dairy farmers don't get out of farming dairy and start, maybe farming something else instead?
Dairy Expert Mark Stephenson:
If a crop farmer normally plants a rotation that includes corn and soybeans, they would probably try to convince themselves about what they think is going to be the better price this year, given the costs of raising the crop, and they could plant relatively more corn and less soybeans or vice versa. You can't do that with a dairy farm. Those facilities that you have and invested money in, they're good for nothing else except dairy cows. Not dairy sheep. You can't put them in the stalls, you can't run them through the milking parlor, but really just dairy cows. So, you're kind of committed to doing what you're doing when you've made that investment.
Farm Girl:
Okay. If you start as a dairy farmer, you've got to stick with dairy. When I was a kid, milk was always on the dinner table. I even had a tall glass of cold skim milk when I got home from soccer practice every day. A lot of folks think that dairy consumption is down now because people are drinking less milk, and now dairy alternatives line our supermarket shelves, almond milk, soy milk, oat milk. We'll talk about these in another episode of this deep dive series, so stay tuned for that. But I'll let you in on a little secret, dairy consumption is not down. It's just different.
Dairy Expert Mark Stephenson:
We're eating our dairy right now. We aren't drinking it. Cheese consumption in 1975 was about 14 pounds per person. Today, it's more than 38 pounds per person. We've really increased cheese consumption a lot, and we continue to. A pound of cheese is 10 pounds of milk. That's the only one product. We've had other products. If you remember, five, six years ago, we had quite a surge of Greek yogurt. It was a sort of a new thing for American consumers, and we sold a lot more milk and dairy product through that yogurt.
Dairy Expert Mark Stephenson:
We continue to find products. Butter's had a whole new flourish over the last 10 years ever since the medical community drew a truce and said, I guess those fats aren't so bad for us. Consumer said, "Thank goodness. There's nothing I want more than a little more butterfat in my dairy products." Even in our milk, we say the whole category is down, and it is, but whole milk sales have been up. It's skim milk sales that are falling off.
Farm Girl:
I'm wondering if you might be able to guess which food in particular tipped the scales from liquid milk to cheese. Here's a hint, it became popular in the 1970s.
Dairy Expert Mark Stephenson:
A lot of that rise in consumption was as a result of pizza sales, and that continues, but at a much slower pace, I think we're exploring now more what we used to call and still do, specialty cheeses. We're enjoying some of these cheese products just on their own. We don't just want yellow cheddar now when we think about cheese.
Farm Girl:
Dairy consumption is not down, it's just shifted, but why are prices so bad? Before we let Mark go, let's find out who's controlling and setting the dairy prices that are plaguing our dairy farmers.
Dairy Expert Mark Stephenson:
It's something that we call the Federal Milk Marketing Orders, and they're a branch of the US Department of Agriculture. We have 10 of those federal milk marketing orders around the country today, their irregular boundaries, but they're meant to describe the regions where processors competed for beverage or fluid milk sales. When Federal Orders were conceived, and we were trying to solve some of the problems that we had back in the early to mid-1900s here, they were all about beverage milk, fluid milk. That's what they were focused on.
Dairy Expert Mark Stephenson:
65% of the volume of the milk they regulated in that earlier time period was beverage milk. It's no longer that much today. It's much less than that. That's why fluid milk plants must be regulated if we have an order, and they pay a higher price for milk than other plants.
Farm Girl:
Here's where we get into milk classes, classes one, two, three, and four. It's something that you should know about.
Dairy Expert Mark Stephenson:
There's a minimum, we would call it class one price, it's a beverage milk price, and then, just for example, class two are soft dairy products like yogurts and creams and cheese, or cream cheese, that type of thing, and then hard cheeses are class three, and class four are butter and milk powders. You can imagine that if a farmer is sitting here and there are two or three plants relatively nearby, one of them is a fluid plant, and other's a cheese plant, and the other's a butter powder plant, that farmer is going to want to sell his milk to a fluid plant because they have to pay, usually, the higher milk price.
Dairy Expert Mark Stephenson:
In order to stop that from happening from all farms trying to go to a fluid milk plant, they created what they call pooling in these Federal Orders, which is to say all of these plants are obligated for these different milk prices, but we're going to try to share and disperse that equally across farms so that there's no big rush for an individual farmer or cooperative to go right after a beverage milk plant.
Farm Girl:
Okay. Do you see how this is complicated? There are Federal Milk Marketing Orders. There are four classes of dairy. Farmers are competing for liquid milk sales and prices, and now there's pooling. Are you with me? This doesn't get any easier from here, so pay close attention.
Dairy Expert Mark Stephenson:
The way it works is that a cheese plant that may have had to pay a lower price for milk gets to take a draw from this pool of money, usually, which is coming from the beverage milk plants, the class one plants. They take that and add it to their minimum price so that the class one plants are paying this weighted average price to their farmers and a little bit to the pool, and the class three plants are now playing this weighted average price to their farmers with a draw from the pool, as well as that minimum price.
Farm Girl:
The pool. It's an equalizer between the higher prices of liquid milk and the lower prices for produced cheeses. Are you following along? We'll get into a lot more milk math in a future episode. Do you remember back in middle school when you were doing all that math and you wondered, why am I doing this? Well, if you're a dairy farmer, math is at the heart of everything. How do you figure out who gets what, and what's fair?
Dairy Expert Mark Stephenson:
Well, if you've got consumers at one end of a marketing chain and farmers at the other, and you want this price to go up, but not this one, then it's got to take place somewhere in the middle. So, who are you going to reduce? Is it going to be the farm milk caller, the guy that's picking the milk up and taking it to the plant? He's part of that chain. Is it going to be the plant itself that's manufacturing the product? Is it going to be the co-packer who is making shreds and putting it in bags and things out of the cheese that you're buying?
Dairy Expert Mark Stephenson:
Is it going to be the distributor that's moving that through their retail stores? I mean, it's got to come out of somewhere. You tell me who's making too much money. I don't have an answer for that. I mean, you tell me. The dairy industry has been producing as much milk as the marketing chain wants for a long period of time. Not every farm can live at the kind of prices that are being generated by that. But until the marketing chain starts to get stifled by not enough milk being produced, that price is probably not going to be a lot higher.
Farm Girl:
This is a question that I've talked to a lot of dairy farmers about. What if dairy farmers stopped producing as much milk as they do? Then prices would go up and they would get paid more for the milk that they do produce. And yet, dairy farmers continue to produce or overproduce milk. So, we go back to economics 101, supply and demand. When the supply is higher than the demand, the prices are low. I asked our expert Mark Stephenson, what he thought needed to happen in order to fix the dairy industry's problems.
Dairy Expert Mark Stephenson:
The Federal Milk Marketing Orders have been in place for a long period of time. They've evolved and grown up over time, but I think we've got some real changes that need to be made in these Federal Orders. They can't be made quickly and simply. I think they have to have a long hearing process and try to think through the entire system again. One of the things we've tended to do is to focus on, what's today's problem? What's the one little thing that we think is an issue? And let's go in and fix that. Well, if you change that, that may have implications for the broader system.
Dairy Expert Mark Stephenson:
You need to think about these changes that are much more complete and try to rejustify what you're doing in the first place. That's not going to be an easy thing to do, but I think it's going to be necessary thing to do.
Farm Girl:
The not so easy part is that there would be a very extended hearing, where all of the players would get to weigh in on what the problems are and what the solutions are. You can imagine how complicated that would be. While complicated, Mark Stephenson feels like it's really necessary, and here's what he would start with.
Dairy Expert Mark Stephenson:
I would start with, we need to think about price discovery. In other words, how do we that monthly value for milk that we have right now? It's banging around like crazy. Do those prices have to move that much in a given month to signal what the market wants? Is this too much milk or not quite enough? We can do that without $10 changes in milk. It doesn't have to go as low as it goes. You'd have to give up some of those real high points to get there, but a lot of people increasingly are willing to have that discussion now, that weren't a few years ago. Then of course, you have to think a little bit in a Federal Order, not just about price discovery, but how do we share that income?
Farm Girl:
These are the big questions, who gets what in this big dairy pie? What is fair? How can it be more stable? And what are the consequences if these big complicated issues are not addressed? We are losing small family dairy farms in droves, and now you understand what that means to family, to the landscape, to the rural towns, and their economies. You also understand the economies of scale of a new, more modern dairy system. Is there a way for big dairies and small dairies to co-exist within this industry? Even if we accept that small farms will die out and bigger farms will take over, with the off-kilter supply and demand, will that kill them too?
Farm Girl:
How long can you continue to farm a product without making money on it? Is the dairy industry dying a slow death? I know that sounds extreme, but how long can this complicated system with so many farms dying off be considered vibrant and thriving? You tell me. Now, this is not the dairy 101 episode I imagine for you. It is so much more. It is complicated and fascinating, and it's not over. We will meet more dairy farmers. We will dive deep into the land of milk cooperatives, into the importance of financial planning and loans.
Farm Girl:
We will dissect the milk math pie. We'll talk about cows and how they live as dairy producers. We'll talk about milk alternatives and international trade, and how new dairy farmers are entering the industry when others are going out. There's so much to think about every time you buy a gallon of milk or a slice of cheese. Now that you've seen the tip of the iceberg, let me know what questions you have and we'll get on it.
Thanks for joining me in this first deep dive episode about dairy. I'm your host, Farm Girl, and this is Talk Farm to Me.