Are Milk Prices Too Low?

Shoppers love low milk prices but they mean disaster for thousands of farmers.

ByALICE GOMSTYN <br/> ABC NEWS Business Unit
September 17, 2009, 4:56 PM

Sept. 18, 2009&#151; -- When Betty Robeson goes grocery shopping, her dollars don't take her very far.

"It seems like you get very little at the grocery store for a lot of money," the 80-year-old Texas woman said.

But Robeson, who lives on a fixed income, knows she can at least find relief in the dairy aisle. In one local store, she said, she buys milk for just $1.99 a gallon.

"I think it's great," she said. "I'd like prices to stay where they are."

The plummeting price of milk has emerged as one of the few bright spots for consumers in a prolonged recession. Since last year, prices have dropped more than 20 percent, from a nationwide average of $3.89 per gallon in August 2008 to just $2.98.

But the shoppers' boon has become a major source of pain for the country's approximately 67,000 dairy farmers, who are finding that their production costs outweigh their sales. European farmers, meanwhile, are hurting, too, and many have poured milk onto the streets to protest falling prices.

Though existing government programs help cover some American dairy farmers' losses, they're not enough to keep many of them out of the red. The National Milk Producers Federation projects U.S. farmers will see a $12 billion loss in sales this year.

The drop largely has been attributed to a plunge in global demand for dairy products, which has resulted in a glut of milk supply. The recession, melamine milk contamination in China, and renewed competition from other milk-producing countries have all been blamed for dampening worldwide demand.

The resulting price drop is good news to consumers like Nick George, 34.

"Especially in this economy, people need it," George said as he left a New York City supermarket, bags in hand. "If we could get other prices to drop, that'd be good too."

On the flip side, however, Brad Ritter, 32, a third-generation dairy farmer in Byron, Mich., is taking on tens of thousands of dollars in new debt, putting off equipment purchases and cutting the hours of his part-time workers to cope with his sales declines.

"You hold on and do what you can as long as you can," he said.

Dairy industry supporters and lawmakers have sought solutions in everything from new government aid to charitable donations and anti-trust actions. Some farmers even have sent milk cows to slaughter to help lower supply and boost prices, but the effort thus far hasn't reversed the trend.

Higher Milk Prices, Unhappier Consumers

Some of the latest proposals could stand a better chance of helping prices recover -- but that's an uncomfortable idea for farmers who recognize that recession-weary consumers are finding relief in low dairy costs.

"There are people out of work and this is a difficult time," said Diane Bothfeld, of the Vermont Agency of Agriculture. "But it's also a difficult time for farmers. How do you balance that out?"

Bothfeld is working on one of the newest programs, designed to help farmers through price increases and private donations. Launched this week, Keep Local Farms asks consumers to contribute money to a fund that will be dispersed to more than 1,000 New England dairy farmers.

Keep Local Farms also is working to develop partnerships with universities and some milk brands to make small price increases and direct new proceeds from the sales toward the program's fund.

"It really is a way to connect the farmers who produce the milk with consumers in New England," she said.

A proposal working its way through Congress would seek to boost milk prices by reducing supply. Introduced this summer by Sen. Bernie Sanders, I-Vt., the plan would provide the U.S. Department of Agriculture with $350 million to buy dairy products. The USDA has already allocated nearly $1 billion for dairy product purchases and farmer subsidies for the 2009 fiscal year.

The National Milk Producers Foundation, which supports the Sanders proposal, held a meeting last week to discuss how else to tackle the dairy price problem.

"Eventually, there has to be a point of equilibrium where farmers can make money at a price where consumers are willing to play right now," said NMPF spokesman Chris Galen.

But consumer prices aren't the only ones under scrutiny. Some dairy farmer supporters, including Sanders, question whether large milk processors like Dean Foods are using their market influence to hold wholesale milk prices down.

Christine Varney, head of the Justice Department's antitrust division, is scheduled to testify on the issue at a hearing of the Senate Judiciary Committee to be held in Vermont Saturday.

In an e-mailed statement, Dean Foods said it was paying "paying the highest possible price for raw milk" under federal milk pricing rules -- which set regional minimums for how much processors pay farmers -- and that the company "does not control dairy prices or the dairy market."

Fewer Farms, Higher Prices?

Analysts like Bill Lapp believe that measure intended to boost prices will have the desired effect.

Lapp, the president of Advanced Economic Solutions, an Omaha, Neb.-based economic forecasting firm serving the food industry, said he expects milk prices to recover next year thanks to a combination of government dairy purchases, cattle slaughter and an expected increase in demand.

"It's not a non-profit endeavor," he said. "Eventually, we're going to have less milk at higher prices."

But industry supporters caution that if relief efforts don't work, more farmers could go out of business -- in New England alone, at least 71 dairy farms have shuttered their barns this year.

The closure of local farms, Bothfeld said, could mean that milk products will have to travel further before reaching store shelves. Transportation costs, she said, would ultimately bump up prices again.

Shoppers like Annette Roberts, 60, of Newton, Mass., say they're worried about dairy farms disappearing, but not necessarily for price reasons.

"I'm a big fan of buying locally," she said, "and supporting the people around me who are working so hard."

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