PRINT Understanding the dairy industry

Understanding the dairy industry – It’s way more than cows and plows!
Day-long round of talks gives farmers new appreciation for the complexity of milk market pricing and influence by the big players, but also the good news that other groups are pulling for family farms.

By Molly Ames

New collaborations show there’s room for hope

For me, one message was clear. Producers must leverage their capital by becoming integrated into the support networks that exist.

Too often, we overlook potential allies. These allies include consumers, lawmakers, consumer protection agencies, and community leaders. Do we see them as allies? Or do we approach them with suspicion and trepidation? The outcome will likely differ depending on how we view each group, how we approach them, and how we handle the encounter.

Farmer Richard Tulley said after the consolidation meeting: “If all of the attending groups at this meeting worked together towards a system that shares the profits and the benefits, everyone would win.”

For Tulley, Ed Woodruff and me, the meeting was a positive, hopeful indication of the future primarily because of the collaboration that went into bringing about the event. Some of the organizations involved have previously been seen by mainstream agricultural in our region as being slightly radical and sometimes illogical (even dangerous) in their approach, the message and its delivery.

But this meeting was an example of the delivery of factual, well-documented and well-presented information that confirmed a common experience of many farmers, regardless of their size, politics or marketing affiliation. That experience is too often one of increasing isolation and lack of representation in the food value chain.

We all feel a growing sense of urgency to encourage consumers to participate in a food system that ensures sufficient returns from high-quality products will come back to the producer. The fresh willingness to collaborate amongst organizations is a hopeful sign. It is the beginning of a well-crafted food-system strategy. – M.A.

Dairyman profile: Ed Waldroff

Waldroff of Jefferson County milks 100 cows in a rotational grazing set-up on 400 acres, 375 of which are tillable.

He sells his milk to Agri-Mark, a relatively small cooperative with around 1,800 members. Its members are scattered throughout the New England states but are primarily in Vermont, New Hampshire and New York. Agri-Mark's history as a cooperative dates back to 1916 with the formation of its predecessor, the New England Milk Producers Association.

It became Agri-Mark in 1980. A dozen years later Agri-Mark merged with Cabot Creamery Cooperative, thereby ensuring that northeast dairy farmers would continue their ownership of a valuable, time-honored consumer brand -- Cabot. In 2003, Agri-Mark merged with the Chateaugay Cooperative, makers of award-winning New York cheddar, muenster and European-type cheeses
Waldroff says his fellow Agri-Mark members see themselves in a fight against being denied access to the market as has happened to other, small cooperatives. “We are a thorn in the side to the larger cooperatives,” he says, commenting on his fear of concentration and consolidation in the dairy industry.

He points to the recent proposed Suiza/Dean merger, which had it gone through, would have shut out Agri-Mart from fluid sales into the Boston area market. The plan under the merger would have made DFA (mega-marketer Dairy Farmers of America, which was involved in the proposed deal) the sole producer of their milk supply.

“It is a battle that Agri-Mart was willing to fight (and win) using anti-trust law, the Justice department and the courts,” he explained, saying that 40 percent of Agri-Mart’s milk was supplying that fluid market. “We could not afford to lose that.”

Waldroff also points to the balancing issues that result due to processor and cooperative concentration. Fewer processors means it is a tougher challenge to balance milk supply in a surplus market. “Processors don’t want to balance milk. They want to operate a plant six days per week. So a smaller cooperative is at a disadvantage unless they have options,” observes Waldroff.

“When there is a surplus of milk, that’s when farmers go broke. Anyone can market milk in a tight supply,” he observes. Managing their own plants presents cooperatives with additional business risk, but this step can give them some leverage with balancing issues that have contributed to the steep, sensitive and volatile price cycles seen in recent years. Agri-Mark is one of the few cooperatives that still owns plants. It recently acquired the assets of McCadam Cheese, including a plant located in Chateaugay. McCadam manufactures high-quality cheeses.

Dairyman profile: Richard Tully

Tulley is a milk cooperative board member, NY Farm Bureau leader, and a father of eight children. His farm of 500 acres is located in another of New York’s top-producing dairy counties just east of us.

He belongs to a 50-member cooperative called Independent Bargaining Cooperative (IBC). IBC is currently marketing its milk through Allied Federated Cooperative, which has in excess of 1,000 members. Tulley has hope for the future of this small cooperative because it listens to its members. But he sees significant challenges facing the industry.

“When farm gate prices are so low, no one can feel good about encouraging their children to go into farming unless there could be a glimmer of hope of a profitable life-style,” Tulley said. “The responsibility to provide this profitable life-style is in us, the leaders of the farming community, to negotiate a resolution and improve the farm-gate price. This is our primary goal.”

Editor’s note: It’s not often that a high-profile state attorney general agrees to spend a day with farmers. So when we saw that New York’s Elliot Spitzer was to address dairy farmers on the subject of “Concentration and Market Power in the Dairy Industry,” we wanted a farmer’s eye report. About 170 people attended the session, held April 1 in Syracuse, N.Y.

Attending and gathering reflections from two dairymen near her was Molly Ames, a Cornell Extension farm business management educator for Jefferson County, based in Watertown. She attended with Ed Waldroff, a dairyman from her county who milks 100 cows and on a 400-acre farm. She also work with dairy farmer Richard Tully to create this report. She is now on sabbatical pursuing a graduate degree at Cornell on how farmers make strategic business decisions.

Jefferson County is in the northwest corner of the northern tier of New York, bordered on the northwest by the shores of Lake Ontario and the banks of the St. Lawrence River (with Canada on the far shore). To the east are the Adirondack Mountains. St. Lawrence County, another large milk producing county, is just to the north, at the top of the state, along the Canadian border.

Jefferson County, consistently ranks in the top three counties in New York State for overall milk production. The dairy industry here is one of the mainstays of what is predominantly a rural economy. Area dairy farmers have experienced trends similar to most dairy regions and the trend continues: fewer farms, more milk, but still many more small farms than large ones.

WATERTOWN, N.Y. -- Dairy farmers from my county face the same difficult challenges today they faced before April 1, but we came home from Syracuse with some new thoughts about who our allies are, where our support might come from, and some new hope for our future.

"The improved image of dairy products at the current time gives us a super opportunity to move the farm dairy price ahead.”

--Richard Tulley, New York dairy farmer

The reality that faces dairy farm businesses here is the same, on-going challenge dairy farm businesses face everywhere. How do we make a decent living in the face of rising costs and increasingly volatile milk prices?

Dairy farmers and the agribusinesses that support them are hungry for information that helps them understand the economic pressures and market forces that influence the price of the product they sell.

Two small farmers and an Extension Educator

It was in this spirit that local dairy farmer Ed Waldroff and I headed down to Syracuse to find out what Elliot Spitzer and other speakers might have to offer in the way of new information.

I serve as Extension Educator for Jefferson County in New York State, covering the areas of Farm Business Management. The meeting appealed to us because we are concerned over a trend in the food system that has finally reached the dairy industry. That trend is one of consolidation, merger and takeover into a very few mega-buyers and mega-processors. As a result of this trend, the returns on food products are not being returned to the producer of the raw product.

Also attending was Richard W. Tulley Jr., a 100-cow dairy farmer from neighboring St. Lawrence County. He came “to better understand a way to fix rural America and move forward.”

The National Family Farm Coalition (NFFC) sponsored the meeting. According to its website, the NFFC “serves as a national link for grassroots organizations working on family farm issues.” The organization was founded in 1986 to serve as a national link for grassroots organizations working on family farm issues. Membership currently consists of 33 grassroots farm, resource conservation, and rural advocacy groups from 33 states.

“I like the big picture perspective that the National Farm Coalition can offer,” Waldroff said. “Many times in agriculture, we only concern ourselves with short-term, local situations. This can destroy whole sectors of production agriculture. NFFC appears to be broad-based.” He noted that there were people at the meeting from California, Pennsylvania, Washington, D.C., as well as New York.

Attracting farmers were the promised examination of the correlation between farm-gate milk prices and trading at the Chicago Mercantile Exchange, and monopolistic characteristics within the dairy industry.

State has authority, but needs farmer data

As the days’ lead speaker, Attorney General Spitzer was invited to describe the state’s authority to take action on market concentration in the dairy industry. “Markets do not work unless rules of competition are maintained. The securities and anti-trust laws must be rigorously enforced,” Spitzer said. “My office needs numbers and data collected with precision and care to make a case. We need to hear from producers. We can’t do anything without that. If we can do something within the law, we will.”

	"“The door to his office is open for us to use. We need to report inequities and help change unfair practices if we are to receive a more equitable piece of the action.”

Tulley liked what Spitzer had to say. “The door to his office is open for us to use. We need to report inequities and help change unfair practices,” said Tulley, “if we are to receive a more equitable piece of the action.”

Tulley, Waldroff and many other producers want to see more attention paid to the issues of consolidation and horizontal integration in the U.S. dairy industry. “Consolidation in production agriculture, both on the supply side and on the processing/retailing side, is occurring so fast it is hard to keep track.”

“But the good news,” Waldroff observes “is that consumers are paying attention!”

“Consumers want products that are produced locally and they want the profits to be returned to the producers,” he says. “This has been proven in the market place and was shown here today by the presence of consumer organizations asking for our products.”

Tulley agrees. “The improved image of dairy products at the current time gives us a super opportunity to move the farm dairy price ahead.”

He sees several steps ahead. First, understand the pricing structure: who makes the structure and how it can be re-structured to work to the benefit of the farmer.

“We have an excellent opportunity to recruit the American public as our allies by enlightening our consumers on the differences between high-quality, American-produced products and less expensive inferior imports,” he says. Tulley wants consumers to understand that the dairy imports do not meet the same guidelines as our domestic dairy products.

Next, changes to the industry need to be made to encourage US manufacturers and processors to use American products that also provide them with an equitable profit as well as a reputation to be proud of.

“The American consumer needs to understand that the American dairy farmer puts forth our very best effort to provide a high-quality food product.”

New Emphasis on Grassroots Leadership

The day’s speakers confirmed what many of us already knew, but what has also become increasingly important in our current dairy economy: we need strong leadership and grass-roots involvement in our cooperatives and agricultural organizations.

Carole Knight, a former Mid-America Dairymen Board member, urged the audience to remember that this must never be taken for granted. Dairy farmers cannot afford to overlook the importance of understanding the external market forces that influence the price they receive for their products.

Consolidation and mergers have increasingly challenged the ability of individual producers to stay informed and meaningfully involved with issues directly impacting their livelihood. When dairy farmer-members give up their personal control for any reason, whether benign neglect or exclusionary policies, they will lose in the end.

The story of Knight’s struggle to have a voice in her cooperative and her subsequent termination as a MidAM (the former Mid-America Dairymen, a precursor to the current Dairy Farmers of America) director illustrated that in a compelling way. Knight told the story of a small cooperative that prided itself on its openness, accessibility and transparency. When a large cooperative took over, the climate changed to one where conflicting information and denials became commonplace.

The Knight’s eventually won their suit but not before they lost their market for their milk and sold their dairy. She said that dairy farmers must understand their markets and pay close attention to leadership and management of the companies, cooperatives and agencies that make up the balance of the supply chain beyond the farm-gate.

For Knight, staying active means asking questions, staying informed, engaging in election processes, expressing one’s viewpoints through whatever avenues are available to them, and advocating for their business and their industry.

That is a tall order when producers must manage the day-to-day workings of their operation. But as meeting attendees learned from Knight’s story, the price of neglecting those responsibilities can be high.

Testing the limits of influence

There may be limits to what can be done to effect change or influence much of what happens once milk leaves the farm, but these limits need to be tested. “We need to make sure there exists a level and fair playing field,” according to Thomas Dubbs, an attorney, who shared his experiences with the National Cheese Exchange (NCE) and its impact on the price of cheese.

	"The American consumer needs to understand that the American dairy farmer puts forth our very best effort to provide a high-quality food product."

Dubbs described a lawsuit alleging price fixing. The case grew out of a 1996 study entitled “Cheese Pricing: A study of the National Cheese Exchange.” The study was conducted by Willard F. Mueller, an agricultural economist and emeritus professor from the University of Wisconsin, and others. The report found that the price on 0.2 percent of all cheese produced was used in setting the price on 90 to 95 percent of the rest. “That simple fact creates a great incentive for attempting to influence the NCE,” Dubbs said.

He said this and other studies that lead him to believe that cheese prices are determined by what he describes as “small, thin markets.” This kind of market, as Dubs puts it “allows for fiddling.”

Other presenters included a university economist, an activist dairy farmer, an activist with the Organization for Competitive Markets and Peter Hardin, editor of The Milkweed, a publication that covers dairy events from a family-farm perspective.

As evidenced by the broad range of participants at the meeting, the importance of the dairy farm economy goes beyond the increasingly few people directly involved in production agriculture. Dairy farmers know they need to do more than produce excellent milk. This meeting showed them that other groups are asking how they can help.

State policy, as well as legal challenges to mergers and market practices, can level the playing field and improve economic equity for fluid-milk producers. These structural changes could provide a more positive market environment.

That would be a start. To really bring the dollars necessary for profitable farming in northern New York, however, we need new, profit-capturing marketing connections. These economic links could provide greater return to farms based on premium quality and on New York origin. They will have to be created, nurtured and sustained.

That means lots more meetings. The question is: can we (Ed, Richard and all the other dairy farmers in the area) keep going until the going gets better?”

Molly Ames is Extension Educator for Cornell Cooperative Extension of Jefferson County, NY, specializing in Farm Business Management. She writes articles covering issues impacting the agricultural economy, the rural community and farm business management for the Association newsletter as well as for other local publications.