Bill requires U.S. Ag Dept. to set minimum price each year equal to cost of production.

By Rory Sweeney
Staff Writer

Pennsylvania farmers and regulators offer mixed advice on how to make the dairy industry profitable again.

Some believe production needs to be increased, others that it be curtailed. Some want the free market to control prices, others the current government-regulated system. However, they all agree something must be done.

U.S. Sens. Arlen Specter and Robert Casey, Jr., are co-sponsoring a bill called the Federal Milk Marketing Order Improvement Act. It’s also recently received support from Sen. Bernie Sanders, I-Vt.

Written by two local dairy farmers, it requires the U.S. Agriculture Department secretary to set a minimum price each year equal to the cost of production, but allow price reductions for oversupply.

The Pennsylvania Farm Bureau believes the pricing problem begins with oversupply. “That’s the only thing that slows down milk prices now,” said Joel Rotz, the bureau’s state government relations director. “That’s the big fallacy of (the senators’) approach. There needs to be some way to control production.”

The cost of production varies widely between states, so the bureau warns the legislation could add to production by creating an incentive to produce more in states with lower costs. And since it doesn’t attempt to reduce supply, the existing surplus could continue.

The bill could also reduce demand by increasing retail prices.

Most farmers understand both sides. “They have to include the cost of production. How can you keep going on when you’re losing money?” said Jim Doran, a Hanover Township dairyman. “They also have to come up with supply management. If you did get a high price, the big farms would flood the market.”

Jeff Bloss, whose farm is in Hollenback Township, said that retail prices should be reined in to maintain demand.

A recession forces people to cut back, added Donna VanHorn, the field representative from Bloss’ milk-processing operative. “Maybe they went from butter to margarine, and not buy the expensive cheeses and only buy stuff that’s on sale,” she said.

She also noted that some farms have taken a scientific approach to increasing production, from using hormones and chemicals to artificial insemination that ensures every calf is female.

So another option for balancing the market is reducing the herds. Cooperatives Working Together is a voluntary national program that pays dairy farmers to send their herds to slaughter. Because it benefits the entire market, farmers in cooperatives throughout the country fund the program through deductions taken by their cooperative from their checks.

The program pays farmers for the amount of milk they expect to produce that year; its current bid is $5.25 per hundredweight, which equals about 11.6 gallons.

“A lot of dairy farmers are actually losing about $6 per hundredweight for producing milk right now,” said Rotz. So the herd-reduction bid “starts to look like $11” per hundredweight.

“They have to end production for at least that year they’re being paid for,” he said. “There’s definitely some pencil pushing that farmers have to do to make an educated decision.”

Some farmers are also pushing for change to free-market pricing that would simplify the system, remove the various incidental charges and clear up the economics.

But Rotz said that system exposes dairymen to market volatility: the current system might prevent receiving the highest possible price, he said, but it ensures avoiding the lowest.

He acknowledged farmers’ concerns that they’re receiving a progressively smaller share of the retail price. “There is documented history that shows that the share of the consumer dollar has shrunk over the years to pay the farmers,” he said. “However, I don’t think it’s changed as dramatically as farmers think it has.”

That isn’t reassuring to farmers. “It seems like nobody cares. The legislators, the secretary of agriculture say they’re going to look into it, but that’s all that happens,” Doran said.

The right answer is elusive, Rotz said. “If there was an easy solution, we would have taken care of this before this.”